Samoa National Provident Fund v Apia Construction and Engineering Ltd [2008] WSSC 1 (30 January 2008)

IN THE SUPREME COURT OF SAMOA

HELD AT APIA

IN THE MATTER OF THE ARBITRATION ACT 1976 SECTION 1392

BETWEEN

SAMOA NATIONAL PROVIDENT FUND

A body corporate established pursuant to the National Provident Fund Act 1972 having its registered office at beach Road, Apia.
Applicant

AND

APIA CONSTRUCTION & ENGINEERING LIMITED

A duly incorporated company having its registered office at Ululoloa.
Respondent

 

DATES OF HEARING: 24 May 2007, 21 June 2007

DATE OF JUDGMENT: 30 January 2008

 

JUDGMENT OF SAPOLU CJ

 

Introduction

 

1. These proceedings arose out of work performed pursuant to a contract of service between the Samoa National Provident Fund as principal and owner of the premises and Apia Construction and Engineering Ltd as contractor and construction company. For the purpose of clarity and in order to avoid any possible confusion, I have decided to refer in this judgment to the Samoa National Provident Fund as “the applicant” and to the Apia Construction and Engineering Ltd as “the respondent”. The parties in their respective affidavits and counsel in their respective submissions have referred to the Samoa National Provident Fund as “the respondent” and the Apia Construction and Engineering Ltd as “the applicant” for reasons I need not set out here. In my view, as it is the Samoa National Provident Fund which has brought these proceedings to Court, it would be more appropriate to refer to it as “the applicant” and to the Apia Construction and Engineering Ltd as “the respondent” in order to avoid any possible confusion.

 

2. On 12 January 2004, the applicant and the respondent entered into a lump sum contract for the construction of the two rental units on the Convent Street side of the applicant’s Molesi Complex at Savalalo in Apia as well as the construction of an arcade and the redevelopment of the two existing rental units on the Beach Road side of the same Complex. The contract price was $429, 253.68. The completion date of the contract was to be 2 April 2004 but it was subject to any extensions of time granted by the contract supervisor. Clause 15 of the contract, which is the arbitration clause, provides that any dispute involving the contract will be referred to arbitration under the Arbitration Act 1976.

 

3. According to the affidavit of 28 September 2005 by Joseph Tevita Malolo, the applicant’s current manager legal, the work was not completed by the respondent by 2 April 2004 and the completion date of the contract was extended to 12 April 2004. By 12 April 2004, the work was still not completed and the completion date was further extended to 24 May 2004. By 24 May 2004 the work was still not completed and a meeting was held on 8 June 2004 to discuss why the work was still incomplete. Attending that meeting were the respondent’s managing director, the applicant’s chief executive officer, the applicant’s then manager legal, the project manager, and the contract supervisor. It appears from the affidavits filed by the parties that there is dispute as to the causes of the delay and who was responsible for the delay.

 

4. Following the meeting on 8 June 2004, the applicant served on the respondent a letter of termination of contract dated 9 June 2004. According to the aforesaid affidavit of 28 September 2005 by Mr Malolo, on 13 June 2004 the respondent submitted its final account for payment. The total amount claimed by the respondent in its final account was $131, 969.39. The applicant then engaged the services of a quantity surveyor from New Zealand to value that part of the work which was still incomplete at the time the contract was terminated. On the basis of the valuation report by the quantity surveyor, the applicant paid to the respondent’s solicitors the sum of $54,877.26 as the balance of the sum due to the respondent for work it had done up to the time of termination of the contract. This was followed by much correspondence between the respondent’s solicitors and the applicant as the respondent’s final account was for a much higher amount.

 

5. On 3 November 2004, the respondent’s solicitors advised the applicant’s then manager legal that there was a dispute under the contract and proposed arbitration pursuant to the arbitration clause of the contract. It is not entirely clear what issue or issues were in dispute at that stage. But presumably, the amount due to the respondent under its final account was an issue. It also appears from the subsequent correspondence dated 23 February 2005 from the respondent’s solicitors to the applicant’s then legal manager that the termination of the contract alleged to have been “unfair” was also an issue. It also appears from that same letter that by 23 February 2005, there had already been some discussion between the respondent’s solicitors and the applicant’s then manager legal about going to arbitration with the respondent’s solicitors being eager to set a hearing date for arbitration. By letter dated 9 March 2005, the respondent’s solicitors wrote to the applicant’s manager legal that the issues of the dispute relate only to the “unfair” termination of the contract. The respondent’s solicitors requested in the same letter that the arbitration hearing be set down for 27 April 2005. By letter dated 15 April 2005, Mr Malolo as the applicant’s new manager legal agreed to refer the dispute to arbitration and suggested the names of three persons as potential arbitrators. Of those three persons, two are civil engineers and one is an accountant. By letter of 28 April 2005, the respondent’s solicitors responded and suggested as arbitrator Mr William (Bill) Gordon a civil engineer with extensive experience in the construction field. The parties then agreed to appoint Mr Gordon as arbitrator of their dispute. Subsequently, the parties further agreed on 3 June 2005 for the preliminary hearing to take place on 17 June 2005 and the substantive arbitration hearing to take place on 30 June 2005. It is therefore clear that the only hearing dates that were set with the mutual agreement of the parties were 17 June 2005 for the preliminary arbitration hearing and 30 June 2005 for the substantive arbitration hearing. This was after the arbitrator was appointed.

 

6. The issues that were referred to arbitration were the alleged “unfair and illegal” termination of contract and non-payment of outstanding monies due on the contract”. This appears from the letter dated 15 June 2005 from the respondent’s solicitors to Mr Malolo and is annexed as an exhibit to Mr Malolo’s affidavit of 3 April 2007. The same letter of 15 June 2005 shows that Mr Stevenson, one of the respondent’s solicitors, had communicated by telephone on the same date with the arbitrator. It is not shown from the said letter what was said during that telephone communication. This is one of the matters highlighted by Mr Malolo in his affidavit of 28 September 2005.

 

Preliminary arbitration hearing

 

7. The preliminary arbitration hearing went ahead on 17 June 2005 as scheduled. There are differences in recollection between Mr Malolo for the applicant on one hand and the respondent’s managing director and the arbitrator on the other as to who were in attendance at the preliminary hearing. There are also differences in recollection as to what was said at the preliminary hearing.

 

8. According to Mr Malolo in his affidavit of 28 September 2005, the preliminary hearing was held between the arbitrator, Mr Stevenson and Ms Grace Stowers as solicitors for the respondent, and himself as the applicant’s manager legal to decide the issues to be arbitrated upon. Both parties explained to the arbitrator the factual background of the dispute and what they believed the issues were. He pointed out to the arbitrator that the applicant’s position was that the decision to terminate the contract for service with the respondent was lawful in terms of the contract. He also pointed out that the presence of the quantity surveyor was important. Mr Malolo further deposes that Mr Stevenson for the respondent then said that the quantity surveyor’s involvement was not relevant and that ultimately it would be for the arbitrator to decide whether the quantity surveyor’s involvement was relevant. It seems to me that this must mean that it would ultimately be for the arbitrator to determine, at the substantive hearing, the relevance of the quantity surveyor’s evidence.

 

9. Mr Malolo also states in his affidavit of 28 September 2005 that the arbitrator was aware from the correspondence sent to him by Ms Stowers for the respondent that the applicant wanted the quantity surveyor to appear as a witness at the arbitration hearing and the parties to share the costs of bringing him to Samoa. The only correspondence from Ms Stowers to the arbitrator which is annexed to the said affidavit of Mr Malolo is a letter dated 15 June 2005. There is no express reference in that letter to a quantity surveyor being required by the applicant to appear at the arbitration hearing to give evidence. However, I assume that what Mr Malolo is saying in his affidavit relies on the last sentence of Ms Stowers letter to the arbitrator which states: “We enclose copy of correspondence received from the National Provident Fund and our reply as we feel that the content of this correspondence is for you to determine at the arbitration.” In this connection I refer to the disagreement between Mr Malolo and Ms Stowers as to the relevance of the quantity surveyor’s evidence and who should be responsible for the quantity surveyor’s costs as shown in the respective letters of 13 June 2005 and 15 June 2005. I should also note that Ms Stowers in her letter of 15 June 2005 said that if the arbitrator is persuaded that the quantity surveyor’s evidence is relevant, then he may request the respondent to contribute to costs in his award.

 

10. A timetable was then established for the parties to produce relevant documentation for the arbitrator’s perusal and for written submissions to be handed in. No rules or procedures were set or agreed upon as to how to proceed at the substantive arbitration hearing other than for the parties to bring their witnesses to the hearing. Mr Malolo says that he handed in the applicant’s relevant documentation and his written submissions in accordance with the timeframe.

 

11. According to the respondent’s managing director in his affidavit of 01 September 2005, he, his wife and his solicitors attended the preliminary hearing on 17 June 2005 together with Mr Malolo for the applicant and the arbitrator. In his affidavit of 28 March 2007, the respondent’s managing director deposes that only Ms Stowers but not Mr Stevenson was present at the preliminary hearing. This is in conflict with what Mr Malolo deposes to in his affidavit of 25 September 2005 that Mr Stevenson was present at the preliminary meeting and when Mr Malolo pointed out that the presence of the quantity surveyor was important, Mr Stevenson responded that the quantity surveyor’s involvement was not relevant and ultimately that was a matter for the arbitrator to decide. The arbitrator in his affidavit of 21 March 2007 deposes that he recalls that the only persons present at the preliminary hearing were himself, Mr Malolo, Ms Stowers and the respondent’s managing director and his wife. Neither counsel in these proceedings sought to call any oral evidence on this conflict in the affidavit evidence. In the circumstances it has not been possible to resolve this conflict one way or the other.

 

12. It is clear that the presence of the quantity surveyor to give evidence at the substantive arbitration hearing was a matter in dispute between the parties. In a letter dated 13 June 2005, Mr Malolo advised the respondent’s solicitors that the presence of the quantity surveyor at the substantive arbitration hearing is imperative and that the applicant would not agree to arbitration unless the quantity surveyor is present at the hearing and his costs shared between the parties. By letter dated 15 June 2005, the respondent’s solicitor Ms Stowers replied to Mr Malolo’s letter saying that the presence of the quantity surveyor and his evidence is totally irrelevant and erroneous to the issue to be determined by the arbitrator and their client does not want to contribute to the quantity surveyor’s costs; but if the arbitrator is persuaded that the quantity surveyor’s evidence is relevant, he may request their client to contribute to his costs in the award.

 

13. The respondent’s managing director also says in his affidavit of 01 September 2005 that by letter of 16 June 2005, Mr Malolo advised the respondent’s solicitors that the applicant is not ready to proceed with the preliminary hearing scheduled for the following morning as the applicant’s chief executive officer was overseas and he is not able to confirm with him the issues to be discussed at the preliminary hearing. Mr Malolo nonetheless turned up the following morning at the preliminary hearing.

 

14. According to the affidavits of 01 September 2005, 22 May 2006 and 28 March 2007 by the respondent’s managing director, at the preliminary hearing on 17 June 2005, the arbitrator said that he required further information from both parties and then made the following directions:

 

(a) each counsel was to file written submissions by Thursday 23 June 2005,
(b) the arbitrator to request any further information required from the parties,
(c) the arbitration hearing to take place on Thursday, 30 June 2005,
(d) all witnesses to be present at the arbitration hearing.

15. Mr Malolo brought up at the preliminary hearing the issue of the applicant’s witnesses not being present and the arbitrator advised the parties that the arbitration hearing would proceed on 30 June 2005 regardless of whether witnesses were present or not. It is not mentioned in any of the affidavits by the respondent’s managing director whether the question of the quantity surveyor’s presence at the arbitration hearing being relevant and necessary was raised for the arbitrator’s consideration at the preliminary hearing.

 

16. Apparently, both counsel for the applicant and the respondent filed their written submissions within time.

 

17. In the affidavit of 21 march 2007 by the arbitrator, the arbitrator states that the only persons he recalls being present at the preliminary hearing which was held at the office of the solicitors for the respondent were himself, Mr Malolo, Ms Stowers for the respondent, and the respondent’s managing director and his wife.

 

18. The arbitrator further deposes in his affidavit that from the outset of the preliminary hearing, he advised both parties that in all disputes involving a building contract which includes drawings and specifications, such drawings and specifications were the core reference in any dispute. He also says that he advised the parties that he wanted each side to have the opportunity to give the background of the case as they saw it and also to discuss what issues were in dispute. Each party, through its legal representative, then gave a brief outline of its case.

 

19. The arbitrator further says in his affidavit that he asked questions of both Mr Malolo and the respondent’s managing director. In response to some of the questions he put to Mr Malolo, Mr Malolo replied that the contract supervisor would be the best person to answer those questions but he was not present. Mr Malolo was also able to confirm that there were no site meetings held that the applicant had records of. The arbitrator also recalls Mr Malolo saying that the contract supervisor would be present at the actual arbitration hearing.

 

20. The arbitrator also says that he recalls Mr Malolo saying that the applicant believed that its termination of the contract was lawful because of the delay by the respondent in completing the contract. He also recalls Mr Malolo giving a summary of the steps the applicant had taken to complete the project which included costs of another contractor completing the project and having a quantity surveyor inspect the unfinished work shortly after termination. The arbitrator then refers in his affidavit to the response from the respondent’s managing director.

 

21. The arbitrator then goes on to comment on what Mr Malolo says in his affidavit of 28 September 2005 that he had pointed out to the arbitrator at the preliminary hearing that the presence of the quantity surveyor was important. According to the arbitrator, he recalls Mr Malolo mentioning the quantity surveyor but that was in reply to his questioning Mr Malolo for confirmation of the quantity surveyor’s name; Mr Malolo never raised the presence of the quantity surveyor as being a specific issue that he needed to rule on. The arbitrator also states that at the time he did not have any information on the quantity surveyor or a written report. Neither counsel at the hearing of these proceedings sought leave to call oral evidence on this apparent conflict in the affidavit evidence.

 

22. The arbitrator also says that he mentioned to both parties at the preliminary hearing that the substantive arbitration hearing would proceed on 30 June 2005 regardless of whether their witnesses were present; so if the applicant believed that the quantity surveyor was relevant to its case, it should have ensured that he was present at the hearing on 30 June 2005. He also recalls that the parties were in agreement that there would be no further adjournment. The arbitrator then says that the following were the issues of dispute confirmed at the preliminary hearing:

 

(a) unfair termination,
(b) quantum/outstanding payments,
(c) breach of contract.

23. The arbitrator did not note any objection from either party to any of the issues of the dispute. Mr Malolo in his affidavit of 16 March 2007 deposes that right up to the arbitration proceeding he had consistently stated on behalf of the applicant that the only issue for arbitration was the amount due (if any) to the respondent on the contract. He also deposes in his affidavit of 28 September 2005 that the arbitrator did not issue any notice to the parties defining the issues to be dealt with at the arbitration. It would appear from here that there is another conflict between what the arbitrator is saying in his affidavit and what Mr Malolo is saying. Unfortunately, neither counsel sought to call oral evidence to clarify these matters.

 

24. After the preliminary hearing and prior to the substantive arbitration hearing, the arbitrator received from both parties written submissions and documentation which included a report by the quantity surveyor. Whilst the written submissions by the respondent’s solicitors have been produced in these proceedings, the submissions by the applicant’s legal manager are not.

 

Substantive arbitration hearing

 

25. In his affidavit of 28 September 2005, Mr Malolo deposes that when he arrived at about 9.30 am in the morning and was called into the room where the substantive arbitration hearing was to be held, he found the respondent’s solicitors Mr Stevenson and Ms Stowers as well as the arbitrator already seated inside the room. He says that he found this quite strange as he would have expected to be met outside by the respondent’s solicitors and then go into the room together. However, Mr Malolo did not, at that time, mention his concern to the arbitrator or the respondent’s solicitors.

 

26. Mr Malolo then deposes in his said affidavit that the arbitrator made some preliminary remarks about the issues at hand and said to him that in a construction contract certain clauses like a programme construction clause and a liquidated damages clause were needed to cover certain situations. The arbitrator also stated that if time were to be of the essence, that needed to be stated in the contract. Mr Malolo then states that it was obvious that the arbitrator had already made up his mind as those remarks were directed at the applicant whom he represented.

 

27. Mr Malolo also says that the arbitrator then asked the parties solicitors as to how they wanted to proceed and stated that he wanted to take a site tour of the work to gain a more clear understanding of the work. Mr Malolo did not say anything but it is not clear whether the respondent’s solicitors said anything. Mr Malolo says at that time he was conscious that the contract supervisor had not yet turned up in order to be present at the site tour of the work.

 

28. It appears from Mr Malolo’s supplementary affidavit of 3 April 2007 that on 19 May 2005 he had written to the contract supervisor notifying him of the arbitration hearing. He had also met with the supervisor and discussed the arbitration with him.

 

29. During the site tour, the arbitrator questioned those who were with him on what work was undertaken and where certain variations were completed. Mr Malolo says that most of the explanation to the arbitrator’s questions was given by the respondent’s managing director as the supervisor was not present. The arbitrator asked Mr Malolo and the project manager several times about the work and they replied that they needed to wait for the supervisor to turn up so that he could answer the arbitrator’s questions about the work.

 

30. Mr Malolo also says that when they returned to the venue of the arbitration hearing and conducted the examination of the witnesses, he again reminded the arbitrator that the supervisor had not turned up but the arbitrator did not seem concerned. Mr Malolo further says that following the evidence of the project manager, he again requested if the hearing could be adjourned part-heard so that the supervisor could be present and be examined. The arbitrator declined the request. The hearing then concluded with the arbitrator saying that his ruling would be delivered in two weeks.

 

31. In the affidavit of 28 September 2005 by the contract supervisor who was engaged by the applicant to prepare the building plans for the work to its Molesi Complex and to supervise the work, the contract supervisor states that he had received a letter from the applicant to attend the arbitration hearing on 30 June 2005. Unfortunately, on that day he had a bad attack of gout and had to use a wheelchair to see a doctor at the hospital. The supervisor in his affidavit also puts the blame for the delay in the completion of the contract on the respondent’s managing director.

 

32. In the affidavit of 22 May 2006 by the respondent’s managing director, he says that he, his wife and respondent’s solicitors attended the substantive arbitration hearing. The respondent’s solicitors went inside the room where the hearing was to be held first whilst he and his wife waited outside. As part of the substantive hearing that was held, all the solicitors, he and his wife, the project manager who was called as a witness by the applicant and the arbitrator visited the site of the work.

 

  1. At the site, the arbitrator asked the respondent’s managing director to explain the work and the variations that were completed. After the site tour everyone returned to the venue of the arbitration hearing. The respondent’s managing director and his wife were then called in. The managing director was asked a series of questions by the arbitrator, in particular, for clarification of part of the work that was completed and for further information regarding the site meetings and meetings between him and the contract supervisor.
  2. The respondent’s managing director also says in his affidavit of 22 May 2006 that he recalls the applicant’s solicitor, Mr Malolo, saying that he could not get hold of the supervisor and that “ he could not be bothered sending someone down to get him because he was never working all the way near the airport.” There is no mention of this in any of the affidavits by Mr Malolo. The respondent’s managing director then says that he believes that the arbitrator acted fairly at the arbitration hearing. It should also be noted here that the managing director seems to say that the supervisor was responsible for the delay in the timely completion of the contract.
  3. In the affidavit of 21 March 2007 by the arbitrator, he says that after the preliminary hearing and prior to the substantive hearing, he had the opportunity to study the contract documents provided by the parties in detail as well as the written submissions by the parties solicitors. The contract documents included the specifications, the drawings and the quantity surveyor’s report. The specifications and drawings must be “the building plans” prepared by the supervisor as mentioned in Mr Malolo’s affidavit of 28 September 2005. The quantity surveyor’s report must be the report by the quantity surveyor who assessed the value of the work still to be done after the contract was terminated.
  4. The arbitrator further says that when he arrived at the room where the arbitration hearing was to take place, there was no one present in the room. Shortly after, Mr Stevenson and Ms Stowers entered the room and proceeded to place their files and documents on the table. The arbitrator says the only communication between them was a “Good morning.” A few minutes later Mr Malolo also entered room.
  5. The arbitrator says he then opened the arbitration hearing with a short introduction. He then outlined the issues to be arbitrated and there appeared to be an agreement to proceed with the hearing as neither party asked for an adjournment.
  6. The arbitrator then comments in his affidavit on what Mr Malolo deposes to in his affidavit of 28 September 2005 about the arbitrator questioning him that in a construction contract certain clauses like a programme construction clause, a liquidated damages clause and a clause making time of the essence were needed in the contract to cover certain situations. The arbitrator says that there was no liquidated damages clause in the contract. He also says that his comments as to time being of the essence needing to be specifically stated in the contract was very important as the delay in completing the work was the applicant’s ground for terminating the contract. Specifically stating that “time is of the essence” is a normal standard clause together with a liquidated damages clause in a construction contract. The arbitrator then strongly denies that his remarks on those very important clauses show that he had already made up his mind about the case. The reason why his remarks were directed at the applicant was because it was the applicant that had drafted both the contract and the drawings.
  7. It is also stated by the arbitrator that he commented on the lack of basic details on the architectural drawings, lack of specifications for the work to be done, and the absence of site correspondence. When the arbitrator asked Mr Malolo whether there were any site minutes, file notes, correspondence between the applicant and the supervisor or from the supervisor to the respondent as contractor, Mr Malolo replied he did not know. It was, however, confirmed by Mr Malolo that it was the supervisor who drafted the drawings. The arbitrator then sets out the duties which in his opinion, based on many years of experience, the supervisor should have carried out.
  8. It is also deposed by the arbitrator in his affidavit that it became obvious to him at the arbitration hearing that there was no written material whatever to show, inter alia, that the supervisor was ever on site or to back up his alleged actions. The arbitrator also queried Mr Malolo on the contract specifications but he did not have an answer. When the project manager was questioned by the arbitrator, he stated that the supervisor was the best person the answer the questions regarding the scope of work and variations to the project.
  9. The arbitrator confirms the site tour which he says was necessary. He says that during the site tour he asked questions of Mr Malolo and the project manager. Mr Malolo mentioned that the supervisor should have been present to answer the questions. At that point, the arbitrator was under the impression that Mr Malolo was still expecting the supervisor to arrive. The arbitrator also says that he did not forewarn the applicant of the site tour and he does not believe this should have been problematic for the applicant if all of its witnesses had been present at the hearing.
  10. On returning from the site tour, the arbitrator revisited the drawings and Mr Malolo and the project manager were asked about the lack of details on the drawings, for example, windows, doors and beams which were not present on the drawings yet they were in the building. Mr Malolo and the project manager could not answer any of those questions.
  11. In relation to the report by the quantity surveyor engaged by the applicant, the arbitrator confirms that he advised both parties at the arbitration hearing that he had found the report confusing. The arbitrator then explains his reasons as to why he had found the report confusing. His reasons are technical reasons.
  12. At the closing of the arbitration hearing, Mr Malolo requested that the hearing be adjourned so that the supervisor could be present. The arbitrator advised Mr Malolo that he had already stated at the preliminary hearing that all witnesses had to be present at the substantive hearing and both parties had had two weeks to ensure that their witnesses were present. Mr Malolo could not give any explanation for the supervisor’s absence. The arbitrator also refers to s.11 of the Arbitration Act 1976 which empowers any party to a submission to arbitration to subpoena any person to testify at an arbitration hearing.
  13. The arbitrator then goes on in his affidavit to comment on certain points raised by Mr Malolo in his affidavits. In relation to the telephone communication between Mr Stevenson and the arbitrator as mentioned in the letter of 15 June 2005 from Ms Stowers to the arbitrator, the arbitrator says that the telephone discussion between Mr Stevenson and himself was an advice from Mr Stevenson that they had received a letter from the applicant’s solicitor and they would be forwarding a copy of that letter to him. He denies any collusion between himself and Mr Stevenson during the telephone discussion.
  14. The arbitrator then reiterates that Mr Malolo did not, at the preliminary hearing, raise as a specific issue which required a ruling that the presence of the quantity surveyor at the hearing was needed. He had also made it quite clear to the parties that their witnesses had to be present at the substantive hearing to take place on 30 June 2005.
  15. The parties had also agreed to the issues to be referred to arbitration. The arbitrator denies he misconducted himself or showed bias. He also denies he misconducted the proceedings.

Arbitration Award

 

  1. The award handed down by the arbitrator on 26 July 2005 sets out the arbitrator’s findings and his reasons for those findings. He found the termination of the contract to be wrongful and therefore the applicant to have been in breach of contract. This finding is based on the documentation deficiencies and contract supervision deficiencies by the supervisor which are set out and explained in the award. The award is also quite critical of the drawings and specifications prepared by the supervisor and which in the arbitrator’s opinion were defective in several material respects.
  2. The award includes an amount that should be paid to the respondent on the contract, legal fees and damages for breach of contract. These damages were for loss of profit, loss of opportunity and injury to business. The total amount of the award is $167, 748.80 which was to be paid in 14 days.

Motion to set aside award

 

50. Following the award, the respondent filed Court proceedings for its enforcement. The applicant then filed a motion to set aside the award. This is the motion which is the subject of the present proceedings and which was served on the respondent.

 

51. Mrs Drake, counsel for the applicant, says in her written submissions that the applicant relies on s.13 (2) of the Arbitration Act 1976 and the inherent jurisdiction of the Court. Section 13(2) provides:

 

” Where an arbitrator or umpire has misconducted himself or the proceedings or any arbitration or award has been improperly procured, the Court may set the award aside.”

 

Section 27 (1) provides that in all cases of reference to arbitration the Court may remit the matters referred, or any of them, to the reconsideration of the arbitrator or umpire. So ss. 13(2) and 27(1) give the Court power to set aside an award or remit any matter contained in a reference for reconsideration by an arbitrator.

 

52. The motion to set aside is based on five grounds. The first ground is that the arbitrator has misconducted the proceedings by:

 

(a) failing to state a case to the Court to determine the legal issue of whether the termination by the contract was unlawful;

 

(b) failing to allow the applicant the opportunity to call the contract supervisor whose evidence was crucial to the issue of delay in completing the work in accordance with the contract;

(c) failing to make a preliminary ruling on the issue of whether the presence and the evidence of the quantity surveyor was relevant at the arbitration hearing to the determination of the dispute between the parties;

(d) dismissing the valuation report by the quantity surveyor on the basis that the arbitrator could not understand the report;

(e) failing to issue clear guidelines as to the procedure to be followed at the arbitration hearing;

(f) basing his ruling on irrelevant considerations; and

(g) failing to ascertain/determine proper terms of reference and the issues to be addressed.

53. The second ground of the motion is that the arbitrator misconducted himself and showed bias against the applicant; the third ground is that the termination of the contract should not have been an issue for arbitration as the applicant had accepted the termination by correspondence and by conduct and was therefore estopped from raising the matter; the fourth ground is that there is a clear error of law and/or fact on the face of the award; and the fifth ground is that the award is obviously wrong.

 

The Law

 

54. The Arbitration Act 1976 is based on the Arbitration Act 1908 (NZ) which has been repealed. The current New Zealand legislation on arbitration is the Arbitration Act 1996 (NZ) which is strongly influenced by the UNCITRAL Model Law on International Commercial Arbitration. Caution is therefore required when reading or applying modern New Zealand case law to disputes or litigations which arise under our own Act.

 

(a) Approach to a motion to remit or set aside an award or remove an arbitrator.

55. The modern general approach of the Courts to a motion to remit or set aside an arbitration award or to remove an arbitrator is reflected in several cases. I need only refer to two English cases. In Mediterranean and Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948]2 A11 ER 186, Lord Goddard CJ said at p 188:

 

“The day has long gone by when the Courts looked with jealousy on the jurisdiction of arbitrators. The modern tendency is, in my opinion, more especially in commercial arbitrations, to endeavour to uphold awards of the skilled persons that the parties themselves have selected to decide the question at issue between them. If an arbitrator has acted within the terms of his submission and has not violated any rules of what is so often called natural justice the Courts should be slow indeed to set aside his award.”

 

56. In Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985]2 EGLR 14, Bingham J said at p.14:

 

“[It] is perhaps right to emphasise two things. The first is that, as a matter of general approach, the Courts strive to uphold arbitration awards. They do not approach them with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults in awards and with the objective of upsetting or frustrating the process of arbitration. Far from it. The approach is to read an arbitration award in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault that can be found with it. The second point is this. The jurisdiction of the Court under section 23 rests on what is, most unfortunately, called ‘misconduct.’ That gives the impression that some impropriety or breach of professional conduct or lack of integrity or incompetence is involved. In 99 cases out of 100 an application under section 23 involves nothing of the kind. It involves, usually, merely a procedural lapse of a kind that any arbitrator or magistrate or judge may be guilty of.”

 

57. In an extra-judicial address by Lord Cooke of Thorndon entitled Party Autonomy [1999] V U W L R 257, His Lordship said:

 

“[The] pressures of judicial workloads have led the Courts to entertain towards arbitrators a sense of gratitude rather than rivalry, respect rather than contempt.”

 

(b) Misconduct

58. There are a number of authorities which explain the concept of “misconduct” in the context of arbitration. Some of these authorities were cited by Ms Stowers for the respondent in her written submissions which have been very helpful on this aspect of the case. In London Export Corporation Ltd v Jubilee Coffee Roosting Co Ltd [1958]1 A11 ER 494, Diplock J (as he then was) said at pp. 497-498:

 

“[The] use of the expression ‘misconduct’ with its suggestion of moral values, to include the kind of alleged irregularity in procedure with which this case is concerned, tends to misunderstanding. I think it helpful…. to start by analysing what are the tasks of the Court when asked to set aside an award on the ground that the proper procedure has not been followed in the arbitration.

 

The first task of the Court is to construe the arbitration agreement that is, to ascertain to what procedure the parties have agreed. At this stage of its task the Court is not directly concerned with whether the agreement ‘violated any rules of what is so often called natural justice’…. Where the award has been made by the arbitrator in breach of the agreed procedure, the applicant is entitled to have it set aside, not because there has been necessarily any breach of the rules of natural justice, but simply because the parties have not agreed to be bound by an award made by the procedure in fact adopted….When the arbitration agreement has been construed and no breach of the agreed procedure found, there may be nevertheless arise a second and quite separate question; that is, whether, as a matter of public policy, a particular award, made pursuant to that agreed procedure, ought not to be enforced and ought, therefore, to be set aside; for an arbitrator’s award, unless set aside, entitles the beneficiary to call on the executive power of the state to enforce it, and it is the function of the Court to see that that executive power is not abused.

 

It is in relation to this second and separate question that the rules of what is so often called natural justice may arise directly. There may be a variety of grounds of public policy on which an award may be set aside. That it has sought to oust the statutory jurisdiction of the Court to direct a special case to be stated is one example…. That its effect is to enforce an illegal contract is perhaps another….and I apprehend that an award obtained in violation of the rules of natural justice where there was no breach of the agreed procedure would be set aside on the grounds of public policy; as for instance, where an arbitrator manifested obvious bias too late for an application for his removal to be effective before he made his award

 

Much of the confusion is caused by the fact that the expression ‘misconduct’ of the arbitrator is used to describe both these quite separate grounds for setting aside an award; and it is not wholly clear in some of the decided cases on which of these two grounds a particular award has been set aside.”

 

59. In the earlier case of Williams v Wallis and Cox [1914]2 K B 478, Lush J said at p.484:

 

“Misconduct is not necessarily personal misconduct. If an arbitrator for some reason which he thinks good declines to adjudicate upon the real issue before him, or rejects evidence which, if he had rightly appreciated it, would have been seen by him to be vital, that is, within the meaning of the expression, ‘misconduct’ in the hearing of the matter which he has to decide, and misconduct which entitles the person against whom the award is made to have it set aside.”

 

  1. In the same case, Atkin J said at p.485:

“The term [‘misconduct’] does not really amount to much more than such mishandling of the arbitration as is likely to amount to some substantial miscarriage of justice, and one instance that may be given is where the arbitrator refuses to hear evidence upon a material issue.”

 

61. In 4 Halsbury’s Laws of England vol 2, para 622, the learned author in explaining what constitutes ‘misconduct’ and the confusion that has resulted from the use of the term ‘misconduct’ in the context of arbitration, points out that it is difficult to give an exhaustive definition of what may amount to misconduct. He then gives examples of what may be misconduct. They include where the arbitrator fails to decide all matters which were referred to him, where the arbitrator purports to decide matters which were not referred to him, where the arbitrator has failed to act fairly towards both parties, or where the arbitrator refuses to state a special case himself or allow an opportunity of applying to the Court for an order directing the statement of a special case. Examples of what is misconduct are also given in Commercial Arbitration (1989) 2nd ed by Mustill and Boyd at p.551.

 

62. Perhaps, I should note here that in some cases the phrase “technical misconduct” has been used. This is because the word “misconduct” came to be understood by arbitrators as implying impropriety on their part when nothing of the sort had occurred at the arbitration hearing and despite denials by the Courts that nothing of the sort had occurred. The phrase technical misconduct therefore appears on occasion in the case law. In Thomas Borthwick (Glasgour) Ltd v Faure Fairclough Ltd [1968] 1 Lloyds Rep 16, Donaldson J said at p.29:

 

“Lawyers are well aware that arbitrators take it ill if they are accused of misconduct, perhaps because the word misconduct has acquired a technical meaning in a quite different realm which occupies so much of the time of the Probate, Divorce and Admiralty Division of the High Court. It is therefore customary to add, in an apologetic parenthesis, that what is meant is technical misconduct. Whether or not ‘misconduct’ is an appropriate term, ‘technical’ is certainly inappropriate.”

 

Under the modern Arbitration Act 1996 (UK), the phrase “serious irregularity” is now used instead of the term “misconduct”.

 

(c) What is not misconduct

63. Ms Stowers for the respondent refers to several cases where the conduct of the arbitrator does not amount to misconduct which warrants the setting aside of an award. It would be helpful to refer to some of those cases in order to be clear about what amounts to misconduct as explained in the authorities and what does not. In Gillespie Bros & Co v Thompson Bros & Co (1922)13 Ll. L. Rep 519, Atkin LJ said at p.524:

 

“It is no ground for coming to a conclusion on an award that the facts are wrongly found. The facts have got to be treated as found…Nor is it even a ground for setting aside an award that there is no evidence on which the facts could be found, because that would be a mere error in law, and it is not misconduct to come to a wrong conclusion in law and would be no ground for ruling aside the award unless the error in law appeared on the face of it….”

 

64. In United Sharebrokers Ltd v Landsboraugh Estates Ltd (1990) (unreported judgment of the High Court of New Zealand delivered on 18 May 1990), Tipping J said:

 

“[In] my judgment it is entirely for an arbitrator or umpire as to what weight, if any, he gives to the evidence presented to him and indeed to the submissions which are tendered on each side….It is not misconduct to come to a decision considered by the Court to be wrong on the facts or indeed on the law.”

 

65. Tipping J then cites from Atkin LJ in Gillespie Bros & Co v Thompson Bros & Co (1922) 13 Lt. L. Rep. 519 at p.524 and went on to say:

 

The position is put this way in Russell on Arbitration 20th edition (1982) at p 422 where the learned authors say:

 

‘It is not misconduct on the part of an arbitrator to come to an erroneous decision, whether his error is one of fact or law and whether or not his findings of fact are supported by evidence.’

 

Reference can also be made to Commercial Arbitration by Mustill & Boyd 2nd edition (1985) at page 560 to the some effect and The Vasso [1983]2 Lloyds Rep346 at 350.

 

In New Zealand this line of authority is exemplified by the decision of the Court of Appeal in Manukau City Council v Fletcher Mainline Ltd [1982] 2 NZLR 142 where at page 146 Woodhouse P adopted the statement from Russell mentioned above. The unwillingness to characterise perceived errors of fact as amounting to misconduct goes back in New Zealand at least as far as the decision of Stout CJ in Mayor of Wellington v Aitken Wilson & Co (1914)33 NZLR 897.

 

Mr O’Brien was quite right when he suggested that if the plaintiff was to succeed at all it must on the ground of error of law on the face of the award.”

 

66. In Wilson v Glover [1969] NZLR 365, Moller J said at p. 372:

 

“It would certainly appear that, if what Mr White says is correct, the allowances made by the arbitrator may well be greater than they should have been. But that is a question of fact for decision by the arbitrator, and, in my view, I should not interfere with the award…merely on the ground that I might have come to a different decision from that at which the arbitrator arrived. I would at least have to find…that the difference was so great that it clearly, by itself, showed bias on the part of the arbitrator or that it was of such a nature and amount that, taken in conjunction with all other matters, bias was sufficiently evident to justify setting the award aside…I draw attention to Mayor of Wellington v Aitken, Wilson & Co (1914) 33 NZLR 897; 16 GLR 486 in which the headnote reads:

 

“Where parties have agreed to refer certain matters to arbitration, and have nominated their own tribunal the decision of which is not subject to the approval of the Court, the mere inadequacy of the amount awarded, even if such award be against the weight of evidence, is no proof of partiality or misconduct on the part of the arbitrators of such a nature as to enable the Court to aside the award.”

 

“I am prepared to hold, by analogy, that the same principle would apply in a case of over assessment.”

 

67. It is clear from what was said by Moller J in Wilson v Glover [1969] NZLR 365 at p.372 that mere over-statement or under-assessment of the amount awarded by the arbitrator is no proof of misconduct on the part of the arbitrator. Other examples of what does not amount to misconduct in the context of arbitration are noted in 4 Halsbury’s Laws of England vol 2, para 622, at footnote 8.

 

(d) Error of law

68. It is clear from the authorities that an arbitrator’s award may be set aside at common law for error of law that appears on the face of it. Consideration of a motion to set an award for error of law on its face will be limited to the award itself.

 

69. There are, however, two types of error of law, one of which if it appears on the face of the award would make the award liable to be set aside whilst the other would not. This was explained in F R Absalom Ltd v Great Western (London) Garden Village Society Ltd [1933] AC 592 where Lord Russell of Killowen said at p.607:

 

“[It] is, I think, essential to keep the case where disputes are referred to an arbitrator in the decision of which a question of law becomes material distinct from the case in which a specific question of law has been referred to him for decision. I am not sure the Court of Appeal has done so. The authorities make a clear distinction between these two cases, and, as they appear to me, they decide that in the former case the Court can interfere if and when an error of law appears on the face of the award, but that in the latter case no such interference is possible upon the ground that it so appears that the decision upon the question of law is an erroneous one.”

 

70. Lord Wright, the other member of the Court in Absalom, referred in his judgment at p.616 to In re King Duveen [1913]2 KB 32 where Channell J said at p.36:

 

“It is equally clear that if a specific question of law is submitted to an arbitrator for his decision, and he does decide it, the fact that the decision is erroneous does not make the award bad on its face so as to permit of its being set aside.”

 

  1. More recently in New Zealand in Smale and Brookbanks v Illingworth and Randerson (1994) (judgement of the Court of Appeal delivered on 12 May 1994), Richardson J said:

“If the parties have asked the arbitrators to decide a specific question of law then, save for matters of illegality not in point here, the proper inference is that the parties put the question of law to the arbitrators on the footing that their own decision would be binding on the parties. Further, if the parties have asked a series of questions one of which is a specific question of law, the exception from curial review of answers to questions of law will apply to the answer to that question.”

 

72. A matter referred to the arbitrator for decision which involves mixed questions of disputed fact and law would not be a reference of a specific question of law. But where the matter referred to the arbitrator for decision involves the application of the law or the interpretation of a contract on the basis of undisputed facts, then that would be a reference of a specific question of law: F R Absolum Ltd v Great Western (London) Garden Village Society Ltd [1933] AC 592Smale and Brookbanks v Illingworth and Randerson (supra).

 

(e) Error of fact

73. One of the grounds of the applicant’s motion to set aside the arbitration’s award is that “there is a clear error of law and/or fact on the face of the award.” From my own research, it has not been possible to find any authority which recognises the so-called “error of fact on the face of the award” as a ground for setting aside an award. In fact the authorities seem to point against the existence of error of fact as a separate or independent ground for setting aside an award. In this connexion I refer again to the passages already cited in this judgment from Gillespie Bros & Co v Thompson Bros & Co (1922) 13 Ll. L Rep 519 per Atkin LJ at p524; United Sharebrokers Ltd Landsborough Estates Ltd (1990) (supra) per Tipping J. The only grounds for impeaching an arbitration award are misconduct and error of law on the face of the award. Misconduct is a statutory ground and error of law on the face of the record is a common law ground.

 

(f) Use by the arbitrator of his knowledge, experience and expertise

74. The use by an expert arbitrator of his skill, knowledge and experience for the purpose of an arbitration is an issue addressed by both counsel in their written submissions. In Mediterranean and Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948]2 A11 ER 186 Lord Goddard CJ said at p.187:

 

“The more serious question that was argued was that neither side had tendered evidence with regard to damage and, therefore, the arbitrator had no material before him on which he could fix the amount which the sellers were entitled to receive. This would be a formidable, and, indeed, fatal, objection in some arbitrations. If, for instance, a lawyer was called on to act as arbitrator on a commercial contract he would not be entitled, unless the terms of the submission clearly gave him power so to do, to come to a conclusion as to the amount of damages that should be paid without having evidence before him as to the rise or fall of the market, as the case may be, or as to the other facts enabling him to apply the correct measure of damage, but in my opinion, the case is different where the parties select an arbitrator or agree to arbitrate under the rules of a chamber of commerce under which the arbitrator is appointed for them, and the arbitrator is chosen or appointed because of his knowledge and experience of the trade. There can be no doubt that with regard to questions of quality and matters of that description an arbitrator of this character can always act on his own knowledge.”

 

Lord Goddord CJ then went on at p.188 to say:

 

“It is well known in the experience of the Courts that many trades have their own tribunals of arbitration – the Corn Trade, the Produce Brokers’ Association, the Oil and Fat Traders Association are instances – and no one has doubted – certainly not in modern times – that it is open to an arbitrator skilled in the trade to use his own knowledge and experience on many matters, such as quality, without having witnesses called before him. One of the reasons why commercial men like to go to arbitration before arbitrators of this description is because it saves the expense of calling witnesses and having the conflicting views of experts thrashed out and decided on. The parties are content and intend to accept the judgement of a man in their trade on whose judgement they know they can rely.”

 

75. In Wilson v Glover (1969) NZLR 365, Moller J cited with approval the passages set out above from the judgment of Lord Goddard CJ in Mediterranean and Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd (1948) 2 All ER 186. His Honour then said at p.369:

 

“In connection with this matter I record that in Russelll on Arbitration, 17th ed. 183, the following passage occurs:

 

‘An arbitrator must decide upon the evidence put before him by the parties, and not upon materials obtained otherwise. In particular, he must not make use of ‘knowledge acquired in a different capacity’ ….Where, however, the parties employ an arbitrator who has expert knowledge, and authorise him to make use of that knowledge, it is of course proper for him to do so, and it would seem that the Court will tend to presume such authority from the mere fact of employment of a specially qualified person as arbitrator.”

 

It is, I think, this element of implied consent, in the appointment of such a specially chosen arbitrator, that distinguishes this case, for instance, from the Re Hiorns and Power.

 

In the present case one party is a builder and the other is a customer with whom he contracted to build a house; they chose their own arbitrator, and they chose, in Mr Hulse, a building consultant. I take the view that this case comes within the principles enunciated by Lord Goddard. The arbitrator was chosen by the parties because of his knowledge and experience of the trade concerned, and they intended to accept his judgement because he was a man on whose judgement they felt they could rely. It must be taken, I think, that, in making the reductions and fixing the allowances that he did, Mr Hulse acted on his own knowledge and experience, and I hold that he was guilty of no violation of the rules of natural justice in doing so. It follows that, on this ground, I can see no reason for interfering with the award.”

 

  1. In 4 Halsbury’s Laws of England vol 2, para 583, the learned author relying on Mediterranean and Easter Export Co Ltd v Fortress Fabrics (Manchester) Ltd (1949) 2 All ER 186, where the arbitrator fixed the damages, and Wilson v Glover [1969] NZLR 365, said:

“An arbitrator may, however, use expert knowledge which he possesses in order to arrive at a conclusion of fact not proved by expert evidence, at least where, as often happens, his special knowledge of a particular subject has influenced his appointment.”

 

77. Mrs Drake for the applicant in her written submissions cited Thomas Borthwick (Glasgow) Ltd v Faure Fairclough Ltd [1968] Lloyds Rep 18. In that case a buyer and seller who were parties to a contract of sale of goods agreed to refer any dispute that might arise under their contract to a two-tier system of arbitration, namely, an arbitrator or umpire whose award could be subject to appeal to the Board of Appeal. A dispute arose under the contract of sale between the parties and it was referred to arbitration. It ended up in the Board of Appeal whose award suggested that the Board had taken into account a trade custom which had not been adverted to by the parties in their respective contentions. A special case was stated to the Court for the award to be remitted or set aside.

 

78. Donaldson J (as he then was) said at p.29:

 

“What is complained of here – I venture to think that the same can be said of all allegations of misconduct by arbitrators – is that the Board was in breach of its duty to act fairly and to be seen to act fairly. This is not to say that the Board intended to be unfair or was aware that it might appear to have acted unfairly. Such cases are happily very rare….

 

The complaint in the present case is simple. Both parties attended before the arbitrators and umpire and before the Board of Appeal. They put their rival contentions before these bodies and asked them to decide which was right. Neither party sought to contend that there was any custom or practice which had any bearing on the matter. Had they been told that the Board took a different view, either or both might have wanted to seek to persuade the Board that it was wrong or to have placed further evidence before the Board; the Board did not give them any opportunity of doing so and this was unfair.

 

A trade tribunal is fully entitled to use its own knowledge of the trade. Indeed the fact that it has this knowledge is one of the reasons why it exists and performs a most useful purpose. Experience, however, dictates that this knowledge shall never be used in such a way as to take a party by surprise. If therefore a tribunal considers that both parties have missed the point – this sometimes happens both in litigation and in arbitration – it should invite the parties to deal with this point and, if the point arises for the first time in the course of deliberations after the hearing, should offer the parties a further hearing if either wish to avail themselves of the opportunity. Equally, if the tribunal has knowledge of the facts which do not appear to be known to either party, it is only fair to reveal this knowledge to the parties, giving them an opportunity of putting those facts into different perspective or of persuading the tribunal that they irrelevant. Such a course is not only fairer to parties; it also enables the tribunal to have additional assistance from the parties in arriving at a just decision.”

 

79. Mrs Drake also cited the case of Donis Friedman (Earthmovers) Ltd v Rodney County Council (1987) (unreported decision of the High Court of New Zealand) where Smellie J said:

 

“Miss Kilvington argued that the arbitrator’s finding of fact could not be challenged and that in any event an arbitrator who is chosen for his experience and expertise can always reach conclusions on the basis of his own knowledge without reference to the parties and without the benefit of evidence. She cited Mustill and Boyd Commercial Arbitration (1982) p.321, in support of that proposition.

 

In this case, however, I am of the view that, as the matter upon which the arbitrator made his finding was not adverted to at the hearing so that the parties did not have an opportunity to address it, there was an element of unfairness which amounts to technical misconduct.”

 

80. I should also refer to The Vimeira No.1 [1984]2 Lloyds Rep 191 where Robert Goff LJ said:

 

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

 

81. On the issue of “no evidence”, I should also refer to Gold and Resources Developments (NZ) Ltd v Doug Hood Ltd [2000] NZCA 131 where Blanchard J in delivering the judgment of the New Zealand Court of Appeal said at para [55]:

 

“While not expressing a final view, we see the force in the argument that whether there was any evidence to support a particular finding of fact made by the arbitrator is not a question of law in the context of the 1996 Act. In Edwards (Inspector of Taxes) v Bairstow [1956] Ac 14, 29 Viscount Simonds said that findings of fact made by a tribunal could be set aside by a Court if it appeared that the tribunal had acted without any evidence, or upon a view of the facts which could not reasonably be entertained. The authors of Mustill and Boyd, Commercial Arbitration 2nd ed. (1989) assert at 592-3 and 596 that this principle cannot be applied to the review of arbitral decisions. To do so, they say, would be to broaden the basis on which arbitral awards can be appealed on questions of law. This would be contrary to the general principle that the arbitrator is the master of the facts….and to the specific aims of the legislation which include the promotion of finality in arbitral awards and the limiting of judicial intervention. See also DAR Williams QC, Arbitration and Dispute Resolution [2000] NZ Law Review 61, 77-8 citing Russell on Arbitration 21st ed (1997), para8. 507.”

 

82. It was also pointed out in Gold and Resources Developments (NZ) Ltd v Dough Hood Ltd that even under the Arbitration Act 1908 (NZ), a bias towards finality in arbitration awards had already emerged in the case law before the enactment of the Arbitration Act 1996 (NZ). Blanchard J said at para [43]:

 

“Even under the Arbitration Act 1908 in this country….a bias towards finality had already emerged. It is enough to refer to Manukau City Council v Fencible Court Huwick Ltd [1991] 3 NZLR 410, 412 in which Cooke P said that where parties have agreed to arbitration rather than Court proceedings….the Court should not allow the finality of the award to be destroyed except for truly compelling reasons. In relation to an error of law, he said that the view should not be overlooked that a party who can show that there has been a truly significant error of law has a justifiable grievance for which the law should provide a remedy…”

 

As earlier mentioned, our Arbitration Act 1976 is based on the Arbitration Act 1908 (NZ).

 

Application of the law to grounds of the applicant’s motion

 

83. As it appears from the authorities, there are two grounds on which an arbitration award may be challenged. These are misconduct which is a statutory ground and error of law on the face of an award which is a common law ground. The applicant’s motion relies on five general grounds. These various grounds could have been brought under the two grounds of misconduct or error of law on the face of the award. If a ground does not fit under either of those two heads, then that is an indication that it is not a valid ground for impeaching an award. However, to ensure that I do not miss out any matter raised for the applicant, I will deal with the grounds relied upon by the applicant in the order they are set out in its motion to set aside the award. Perhaps, it should be noted here that there is nothing in the motion about removal of the arbitrator though it is touched upon very briefly in the written submissions of counsel.

 

(a) Misconduct

 

(i) Failing to state a case to Court to determine the legal issue of whether the termination by the applicant of the contract amounted to an unlawful termination.

 

84. Counsel for the applicant in her written submissions states that the question of whether the termination of the contract for service between the applicant and the respondent is lawful or not is a legal issue which the arbitrator should have referred to the Court for determination by way of a case stated pursuant to s.20 of the Arbitration Act 1976. The determination of this issue was crucial to the further question of the amount of any money that should be paid to the respondent after termination of the contract. Counsel for the applicant also states that the arbitrator is not trained in law. No authority is cited in counsel’s submissions to show that what is alleged here amounts to misconduct.

 

85. Ms Stowers for the respondent in her submissions states that the arbitrator was not obliged to state a case pursuant to s.20 of the Act. The use of the word “may” indicates that it was not obligatory on the arbitrator to state a case. Counsel for the respondent further states that one of the issues in the agreed terms of reference that was submitted to the arbitrator for determination was the alleged “unfair and illegal” termination of contract. The applicant had agreed, through its solicitor not only to the appointment of the arbitrator who is a qualified and experienced civil engineer but to the issues to be included in the reference to the arbitrator for determination. Furthermore, the applicant’s solicitor did not request the arbitrator during the preliminary and substantive arbitration hearing to state a case pursuant to s.20 of the Act for the decision of the Court. Counsel for the respondent then refers to Mustill and Boyd, Commercial Arbitration (1989) 2nd ed where the learned authors state at p.584:

 

“A party who wished the arbitrator to state a case was obliged to do so as soon as possible, and in any event before the award was made. After that it was too late. He was obliged to formulate with precision what question of law he considered appropriate for decision by the Court. If the arbitrator then decided to state a case, he could not at once proceed to a final award, but was obliged to give the party time to apply to the High Court for an order requiring the arbitrator to comply with the request.”

 

86. The issue concerning the alleged “unfair and illegal” termination of contract is not simply a legal issue as submitted by counsel for the applicant. The issue of whether the termination of the contract was “unfair and illegal” would necessarily involve both questions of fact and law or mixed questions of fact and law. The relevant facts would have to be ascertained first and then the relevant law would be applied to determine whether on the facts as found the termination was wrongful or not. If what was referred to the arbitrator for determination was a pure question of law or a specific question of law as the submissions by counsel for the applicant seem to suggest, then the Court will not interfere with the arbitrator’s decision, save for matters of illegality not relevant here: F R Absalom Ltd v Great Western (London) Garden Village Society Ltd [1933] AC 592Smale and Brookbanks v Illingworth and Randerson (supra). Also see the judgment of Menzies J in Gold Coast City Council v Centerbury Pipe Lines (Aust) Pty Ltd [1968] HCA 3 at para.9. If there had been an agreed statement of facts between the parties and the matter referred to the arbitrator for decision was the application of the law to the undisputed facts, then that would also have been a reference of a specific question of law to the arbitrator: Absalom; Smale and Brookbanks. But the Court will not then interfere with the award.

 

87. On the point about the arbitrator not being a lawyer, this was clear to the applicant at the time the arbitrator, who is a qualified civil engineer with extensive experience in the field, was appointed. The applicant also did not request the arbitrator to state a case for the opinion of the Court if it was so concerned about the fact that the arbitrator is not a lawyer. When the reference was made to the arbitrator, the applicant’s solicitor would also have been aware that the issue of “unfair and illegal” termination of contract would necessarily involve questions of law and fact. But the concern now raised by counsel for the applicant was never raised with the arbitrator or with the solicitors for the respondent at any stage until the present proceedings. In fact of the three potential arbitrators nominated by the applicant, two are civil engineers and one is an accountant. None is a lawyer.

 

88. In Gold and Reserve Developments (NZ) Ltd v Doug Hood Ltd [2000] NZCA 131, Blanchard J, in the context of the Arbitration Act 1996 NZ, said at para. [54] (2):

 

“The Court should consider whether the question of law arose incidentally, or whether it was the very point of the arbitration. Although it may be undesirable for an arbitrator who is not legally qualified to deal definitively with the law, to submit that dispute to arbitration other than asking a Court to determine the question, they should generally be held to their choice. The parties in that situation clearly took the risk that the lay arbitrator would not get the law completely right.”

 

89. Even though it would appear from the reference to the arbitrator and the discussions during the preliminary hearing as well as the written submissions by the parties solicitors that the arbitrator became aware at that stage that there was a dispute between the parties about the lawfulness or otherwise of the termination of the contract, that does not mean that the fact the arbitrator did not state a case for a decision by the Court is misconduct. In the absence of a request from the applicant, the arbitrator was not obliged in the circumstances to state a case.

 

90. On the basis of the submissions by the respondent’s counsel and the further reasons I have given, I conclude that there was no misconduct on the part of the arbitrator on this ground. I reject this ground as having no merit.

 

(ii) Failing to allow the applicant to call the supervisor whose evidence was crucial to the issue of delay in completing the work in accordance with the contract.

91. The award is quite critical of the drawings and specifications prepared by the supervisor and which in the arbitrator’s opinion contained deficiencies in several material respects. The award seems to suggest that these deficiencies made it difficult for the respondent to complete the work in accordance with the contract and contributed to the delay that occurred. Delay is an important issue here because it is the reason for which the applicant terminated the contract.

 

92. The award also finds the termination of the contract by the applicant to be wrongful so that the applicant was in breach of contract. This finding is based on deficiencies in the contract documents as found by the arbitrator and on deficiencies in the administration of the contract by the supervisor. Following on from this finding of breach of contract, the arbitrator awarded damages and legal costs totalling $167,748.80 to the respondent against the applicant.

 

93. It is clear that in arriving at his finding of breach of contract, the arbitrator referred critically to two matters pertaining to the supervisor. The first are the alleged deficiencies in the drawings and specifications prepared by the supervisor and the second are the deficiencies in the administration of the contract by the supervisor. It is therefore clear that the evidence of the supervisor was relevant and significant from the applicant’s perspective. It is not clear who drafted the contract documents which in the arbitration’s opinion, based on extensive experience in the construction field, also contained several deficiencies. But that would be more a task for a lawyer than the supervisor.

 

94. The issue for determination here is whether in terms of the Act the arbitrator misconducted the proceedings, that is to say, the substantive arbitration hearing that was held on 30 June 2005. In this connexion it may be necessary to see what occurred from the time the arbitrator was appointed up to and during the substantive hearing. What might have happened prior to the appointment of the arbitrator may be relevant to the concern and eagerness of the respondent for the applicant to proceed to arbitration in terms of the arbitration clause in the contract. But, in my opinion, that is not relevant to the question of whether the arbitrator misconducted the substantive hearing held on 30 June 2005.

 

95. From what has been said, the parties agreed on 28 April 2008 to appoint Mr Gordon as arbitrator. On 3 June 2005 they agreed for the preliminary hearing to take place on 17 June 2005 and the substantive hearing on 30 June 2005. The preliminary hearing went ahead on 17 June 2005. It appears to me that it was not necessary to have any witnesses at the preliminary hearing. The purpose of the preliminary hearing was to sort out any preliminary matters including a timetable.

 

96. At the preliminary hearing, the arbitrator asked questions of Mr Malolo and the respondent’s managing director. To some of those questions Mr Malolo replied that the supervisor would be the best person to answer those questions but he was not present. According to Mr Malolo he had written to the supervisor on 19 May 2005 about the arbitration hearing and he had also met and discussed the arbitration with him. It is clear from the supervisor’s affidavit that he was notified by Mr Malolo of the date of the substantive hearing.

 

97. At the preliminary hearing the arbitrator emphasised to the parties that the substantive hearing would proceed on 30 June 2005 regardless of whether their witnesses were present. The arbitrator seems to recall that the parties agreed that there would be no adjournment. This is not mentioned in any of Mr Malolo’s affidavits.

 

98. At the site tour that was carried out during the substantive hearing, the arbitrator asked questions of the respondent’s managing director, Mr Malolo and the project manager about the work. Most of the explanations to the arbitrator’s questions were given by the respondent’s managing director. On the other hand, Mr Malolo and the project manager in response to the questions put to them requested the arbitrator that they needed to wait for the supervisor to arrive and answer the arbitrator’s questions. The arbitrator says in his affidavit that he was under the impression that Mr Malolo was expecting the supervisor to arrive. The arbitrator also says in his affidavit that at the commencement of the substantive hearing he commented on the deficiencies in the drawings and the specifications as well as the absence of site correspondence. Mr Malolo advised the arbitrator that it was the supervisor who drafted the drawings.

 

99. It is also clear to me that the arbitrator must have been aware that it was also the supervisor who prepared the specifications and if there were any site correspondence, it was the supervisor who should have had copies of such correspondence. It must, therefore, have also been clear to the arbitrator that the evidence of the supervisor was very crucial to

 

the case for the applicant. Mr Malolo is a lawyer and I very much doubt whether the project manager is a civil engineer, architect or building contractor. So when they were asked by the arbitrator about the drawings and specifications neither of them could answer. When the evidence of the project manager was concluded, Mr Malolo requested that the hearing be adjourned part-heard so that the supervisor could appear to give evidence. The request was declined by the arbitrator.

 

  1. The supervisor, as it appears from his affidavit, had been informed by Mr Malolo of the substantive hearing and when it would take place. However, he had a bad attack of gout that day and had to use a wheelchair to see a doctor at the hospital. Unfortunately, the supervisor did not inform Mr Malolo that he was not able to attend the substantive hearing. So no one attending the substantive hearing was aware of the reason why the supervisor was not able to appear at the hearing.
  2. I must say I have every sympathy for the arbitrator who obviously wanted to get on with the arbitration. The dispute between the applicant and the respondent was nothing of his doing. Because of the arbitration clause in the contract, I agree with counsel for the respondent that the dispute had to be referred to arbitration. The technical construction aspects of the dispute would be better dealt with by a civil engineer than a lawyer. I am also impressed with the arbitrator’s knowledge of the type of clauses that would be expected to appear in a construction contract. The arbitrator also appears not to be a certified arbitrator who practises as such. He must have been drawn into this matter because of his knowledge, experience and expertise as a civil engineer. But, he must be a very busy person himself as a civil engineer.
  3. Unfortunately, in my opinion, the arbitrator misconducted the proceedings on a matter that is more familiar to a lawyer than a civil engineer. It is what lawyers refer to as natural justice. In saying this, I should add that the use of the word “misconduct” here is rather unfortunate. But it is the word used in the Act. So I would have to use it in this judgment. The phrase now used in the modern English legislation on arbitration is “serious irregularity”. But we do not have that phrase in our Act.
  4. It is clear that the evidence of the supervisor was crucial to the case for the applicant at the arbitration hearing. The arbitrator was aware of that. Without the supervisor, Mr Malolo and the project manager could not answer questions or respond to comments from the arbitrator concerning the drawings and specifications which the arbitrator was informed were prepared by the supervisor. Similarly, Mr Malolo and the project manager were not in a position to comment on the absence of site correspondence as it was for the supervisor to keep copies of such correspondence if there were any. It was also clear to the arbitrator that Mr Malolo wanted the supervisor to be present to answer the arbitrator’s questions and comments and was expecting the supervisor to arrive at the hearing. Mr Malolo even requested the arbitrator to adjourn the hearing part-heard so that the supervisor could appear to give evidence. Unfortunately, due to no fault of anyone, the supervisor did not appear and did not inform Mr Malolo that he was not able to appear at the hearing.
  5. The reason given by the arbitrator for not adjourning the substantive hearing part-heard is that he had advised the parties at the preliminary hearing that the substantive hearing set for 30 June 2005 would proceed on that day regardless of whether their witnesses were ready or not. The law, I have to say, is not so inflexible. Where a witness fails to appear at a hearing, the question of what is to be done depends on what is required by the interest of justice in the circumstances. So if in the circumstances it is in the interests of justice to grant an adjournment then it would be contrary to the interests of justice to refuse an adjournment.
  6. It is clear from the award that one of the two expressed reasons given by the arbitrator for finding the termination by the applicant of the contract to be wrongful and the applicant to be in breach of contract is the deficiencies in the administration of the contract by the supervisor. In view of this finding and the ensuing award of substantial damages and costs against the applicant, the interests of justice required that, in the circumstances, the hearing should have been adjourned to give the applicant the opportunity to call the supervisor notwithstanding the indication from the arbitrator that the substantive hearing would proceed on 30 June 2005 regardless of whether the witnesses were ready or not. This was more so given that the deficiencies in the drawings and specifications, as found by the arbitrator, appear to have influenced to a real extent the conclusion reached by the arbitrator.
  7. For those reasons, I conclude that the arbitrator acted contrary to natural justice when he declined to adjourn the hearing for the supervisor to be called to give evidence. On that basis the arbitrator misconducted the proceedings. This ground of the applicant’s motion therefore succeeds.

(iii) Failing to make a preliminary ruling on whether the presence and evidence of the quantity surveyor at the hearing was relevant to the dispute of the parties.

 

  1. I have already set out the rather conflicting affidavit evidence relating to the question of whether the arbitrator was required to give a preliminary ruling on the relevance or otherwise of the quantity surveyor’s evidence. I have also indicated that given the conflicts in the affidavit evidence, oral testimony should have been called. I need not set out that evidence again.
  2. However, counsel for the applicant in her submissions states that the relevance of the quantity surveyor’s evidence depended on a finding by the arbitrator that the termination of the contract was lawful, that is, not wrongful. As the arbitrator has found the termination of the contract to be wrongful, I suppose the respondent could argue that the quantity surveyor’s evidence was therefore not relevant. But the applicant is in effect also challenging the correctness of the arbitrator’s finding that the termination was wrongful.
  3. In the circumstances I have decided not to come to any conclusion on this ground but the parties may call oral testimony on the relevant conflicts in the affidavit if it is necessary to further pursue this ground in view of the decision I have reached in these proceedings.
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    (iv) Dismissing the valuation report by the quantity surveyor on the basis that the arbitrator could not understand it.

  4. The submission by counsel for the applicant under this ground is that whilst the arbitrator was free to disregard the valuation report by the quantity surveyor on the ground that it was not relevant, he was not free to do so on the ground of his being unable to understand it. With respect, I have some difficulties in understanding this submission. Does it mean that even if the arbitrator could not understand the said report he should still have had regard to it? But how could the arbitrator have had regard to something that he could not understand? The arbitrator says in his affidavit that he found the report by the quantity surveyor to be confusing and explains why. In my opinion, the arbitrator was not obliged to have regard in making his award to a report which he found to be confusing and could not understand. The applicant which produced the report should have ensured that its evidence was capable of being understood by the arbitrator. That could have been achieved by calling the quantity surveyor, the author of the report. However, as pointed out, the affidavit evidence is conflicting as to whether the arbitrator was required to make a preliminary ruling on the relevance or otherwise of the quantity surveyor’s evidence. So this ground and ground (ii) are interconnected and depends on oral testimony being called to resolve the relevant conflicts in the affidavit evidence.
  5. I will therefore not come to any conclusion on this ground unless the parties call oral testimony if it is still necessary to further pursue this matter.

    (v) Failing to give clear guidelines as to the procedure to be followed in the arbitration hearing.

  6. The complaint under this ground is that the arbitrator should have produced clear written guidelines as to the procedure to be followed on the types of issues cited by counsel for the applicant from the legal text Arbitration Law (2000) by Merkin and Critchlow. Chapter 12 at 12.25. In this particular case, I am of the opinion that it would be expecting too much of the arbitrator who is a civil engineer and apparently not a certified or practising arbitrator to be aware of the legal text cited by counsel. I very much doubt he has a copy of the said text. Even the lawyers who appeared before the arbitrator did not refer to the said text. It is also obvious that the arbitrator was chosen by the parties for his engineering expertise in the construction field and not for any legal expertise.
  7. Samoa also does not have any arbitration rules to give guidance to arbitrators on matters of procedure.
  8. The lawyers, who attended the preliminary hearing, where the arbitrator laid down some guidelines, also did not raise the matter set out in the said text and now referred to by counsel for the applicant in the submissions. In my opinion the question should be whether there has been any unfairness or injustice because of a procedure the arbitrator adopted or failed to adopt.
  9. The concern of counsel for the applicant is that the arbitrator by not issuing clear written guidelines had prejudiced the preparation of the applicant’s case for the substantive arbitration hearing. In this connexion, I wish to make these comments. Firstly, Ms Stowers for the respondent had advised the arbitrator by letter dated 15 June 2005 that there were two issues to be arbitrated, namely, wrongful termination of contract and non-payment of outstanding monies. However, in the written submissions handed in by Ms Stowers on 23 June 2005 pursuant to the timetable laid down by the arbitrator at the preliminary hearing, breach of contract was included as a third issue. Even though Mr Malolo says in his affidavit of 16 March 2007 that he had consistently stated on the applicant’s behalf that the only issue for arbitration was the amount due (if any) to the respondent on the contract, the arbitrator on the other hand says in his affidavit that the issues of dispute confirmed at the preliminary hearing were “unfair and illegal” termination of contract, outstanding payments, and breach of contract. The applicant’s real concern is that breach of contract was never an issue to be arbitrated upon.
  10. Secondly termination pre-supposes that there has been an actual breach of contract. This is because an actual breach of an essential term of the contract by one party entitles the other party to terminate the contract. Termination and actual breach of an essential contractual term or condition often go together. I therefore cannot see how the issue of wrongful termination could have been arbitrated upon without necessarily having to examine whether or not there had been an actual breach of an essential term or condition of the contract. The arbitrator could not have considered whether there had been a wrongful termination or not without having to consider at the same time whether there had been an actual breach of contract. If there had been an actual breach of an essential term by the respondent, then perhaps the applicant was right in terminating the contract so that there was no wrongful termination. But if there was no breach of an essential term, by the respondent, then the termination of the contract was ‘wrongful’ and may constitute repudiation of the contract.
  11. The third point made by counsel for the applicant is that the arbitrator, by including breach of contract as a third issue, gave the opportunity to the respondent’s solicitor to claim for loss of opportunity costs, injury to business and loss of profit which resulted in award of $23,300 in the respondent’s favour. Counsel for the applicant submits that Mr Malolo did not have the opportunity to address those matters as breach of contract and damages were not one of the issues that the parties had agreed to refer to arbitration. If this is right then the arbitrator acted in breach of natural justice by taking into consideration an issue that the parties did not agree to refer to him for determination and making a decision on that issue which is adverse to one of the parties. However, the arbitrator says that the three issues confirmed for arbitration at the preliminary hearing included breach of contract. This is implicitly denied by Mr Malolo who says that he had consistently maintained right up to the arbitration hearing that the only issue for arbitration was the amount (if any) due to the respondent on the contract. I think it more correct to say that there had been two issues in dispute up to the time of the arbitration. But, according to the arbitrator, breach of contract was agreed upon by the parties at the preliminary hearing to be the third issue to be arbitrated upon. The first two issues were wrongful termination of contract and the non-payment of monies (if any) due to the respondent on the contract. But termination is inter-connected with breach of contract. Termination could not have taken place unless there was an actual breach of an essential term of the contract.
  12. Whatever is the true position between what the arbitrator says and what Mr Malolo says, it is clear that the issue of damages for breach of contract, if such breach was found, was never clearly spelled out as one of the issues for arbitration. Having perused the affidavits by the parties and various correspondences annexed thereto as exhibits, I cannot find that damages for breach of contract was ever an issue that the parties discussed prior to arbitration or agreed to refer to arbitration. As far as I can gather from the affidavit evidence, the first time that damages was raised in this dispute was in the written submissions presented by counsel for the respondent to the arbitrator after the preliminary hearing held on 17 June 2005. In consequence, Mr Malolo did not address the issue of damages for breach of contract at the substantive hearing as it appears clear from the submissions by the applicant’s counsel.
  13. I have therefore decided to accept the submission by the applicant’s counsel that the arbitrator misconducted the proceedings by taking into account an issue not previously raised prior to arbitration or mutually agreed between the parties to be referred to arbitration and making a decision thereon adverse to the applicant when the applicant’s solicitor attending the substantive arbitration hearing did not have the opportunity to address that issue.

    (vi) Basing his ruling on irrelevant considerations

  14. The complaint by the applicant under this ground of its motion is that the arbitrator’s finding that the applicant was in breach of contract and that its termination of contract was based on matters that were not included in the issues referred to arbitration. In consequence, the arbitration acted in breach of natural justice and thereby misconducted the proceedings. The issue of damages for breach of contract, as already discussed, should also have been raised under the present sub-heading.
  15. The matters referred to by the respondents counsel as the basis of the arbitrator’s finding are the deficiencies found by the arbitrator in the contract documents and the administration of the contract by the supervisor. The relevance of evidence is an issue for the arbitrator. The arbitrator was entitled to take into account the deficiencies in the contract documents and the administration of the contract by the supervisor as evidential matters relevant to the issue of whether the termination of the contract was wrongful.
  16. I do not agree that the arbitrator had to set out the said deficiencies as separate issues he had to determine. Apart from the issue of breach of contract which is in dispute, the parties had defined the issues of their dispute which they submitted to the arbitrator and the arbitrator does not have to tell the parties or their lawyers prior to the hearing what evidence is relevant to the issues of their dispute which the arbitrator has to decide. In my opinion, the said deficiencies are matters of evidence which the arbitrator did not have to spell out in advance to the parties even though he did refer to them at the start of the substantive hearing. The arbitrator was entitled to take into account the said deficiencies as evidential matters relevant to the issue of wrongful termination without having to explain them first as “separate issues.”
  17. I therefore conclude that the arbitrator did not misconduct the proceedings under this ground.

(vii) Failing to ascertain/ determine proper terms of reference and the issues to be addresses

  1. This ground is essentially the same as ground (v) which I have already dealt with. What I have said under ground (v) also applies here. But I wish to add this. Arbitration is a useful mechanism of alternative dispute resolution. There have been a number of contracts with arbitration clauses requiring disputes which arise in connexion with the contract to be referred by the parties to arbitration for settlement. However, I very much doubt whether at this stage Samoa has a certified arbitrator or someone who practises arbitration on a regular basis. Those who have accepted appointment as arbitrators have done so on invitation by the parties to a contractual dispute even though they may not be certified arbitrators or regular practitioners in arbitration. Some of them, like the arbitrator in this case, are not lawyers even though they are experts in their own fields. Arbitrators have a useful role to play in the overall administration of justice.
  2. Perhaps I should refer again at this junction to Zermalt Holding SA v Nu – Life Upholstery Repairs Ltd [1985] 2 EGLR14 where Bingham J said at p. 14:

“It is perhaps right to emphasise two things. The first is that, as a matter of general approach, the Courts strive to uphold arbitration awards. They do not approach them with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults in awards and with the objectives of upsetting or frustrating the process of arbitration. Far from it. The approach is to read an arbitration award in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault that can be found with it …”

 

(b) The arbitrator misconducted himself and showed bias against the applicant.

 

  1. In support of this ground of the applicants’ motion, counsel relies on several matters in her submissions. I will deal with each of those matters in turn.
  2. It is first submitted by counsel for the applicant that the arbitrator conducted the proceedings in a manner which favoured the applicant as set out in paragraphs 21, 22 and 23 of Mr Malolo’s affidavit of 28 September 2005. Referring to paragraph 22 of the said affidavit, that paragraph states that at the site tour which was conducted during the substantive hearing, the arbitration questioned Mr Malolo and the project manager about the work and certain variations and Mr Malolo and the project manager replied that they needed to wait for the supervisor to arrive to answer the arbitrator’s question. It is also said that the applicant was not fore-warned that a site tour would take place on the day of the substantive hearing.
  3. I say at once that the fact that the arbitrator did not wait for the supervisor to turn up cannot be bias. The arbitrator had informed the parties solicitors at the preliminary hearing on 17 June 2005 that the substantive hearing would proceed on 30 June 2005 regardless of whether the parties witnesses were ready. So the parties solicitors had been clearly forewarned. Mr Malolo had also informed the supervisor about the date of the substantive hearing. The fact that the supervisor was not able to attend because he was sick was no fault of the arbitrator. It is also clear that if the arbitrator had acceded to Mr Malolo’s request, he would have waited in vain for the supervisor did not turn up on that day at all. There is simply no evidence of bias on the part of the arbitrator.
  4. I am also of the opinion that the fact that the arbitrator did not forewarn the parties that there would be a site tour on the day of the substantive hearing cannot be evidence of bias. The problem that arose for the applicant was due to the fact that the supervisor was sick and did not inform Mr Malolo that he would not be able to attend the substantive hearing. The problem was not due to the absence of any forewarning about a site tour. Even if the arbitrator had forewarned the applicant about the site tour, the problem confronted by Mr Malolo and the project manager would still have arisen because the supervisor got sick unexpectedly on the day of the site tour and failed to attend the substantive hearing. It is plain that there cannot be bias on the part of the arbitrator in these circumstances.
  5. I return to paragraph 21 of the said affidavit of Mr Malolo. The applicant’s counsel submits that what is said by Mr Malolo that when he entered the room where the substantive hearing was to be held the arbitrator and the respondent’s solicitors were already seated and the remarks by the arbitrator that in a construction contract certain clauses like construction programme clause, liquated damages clause and a clause making time of the essence needed to be stated showed bias on the part of the arbitrator against the applicant.
  6. In his affidavit the arbitrator says that when he arrived at the room where the substantive hearing was to be held, there was no one present. Shortly after, the respondent’s solicitors entered the room. Except for a “Good morning” there was no other communication between himself and the respondent’s solicitors.
  7. The approach which the Samoan Courts have recently adopted to issues of bias is whether in the circumstances there was a real danger of bias. After careful consideration, I am not satisfied that in the circumstances there was a real danger of basis. However, it would have been prudent for the respondent’s solicitors to wait outside until the applicant’s solicitor arrived and then they go in together. What happened only gives rise to accusations of bias which could have been avoided if the respondent’s solicitors had been more prudent. In these circumstances, I am of the view that the arbitrator did not misconduct himself. If anyone “misconducted,” it certainly was not the arbitrator.
  8. As to the remarks by the arbitrator in relation to the issues at hand that in a construction contract certain clauses like a construction programme clause, liquidated damages clause and a clause making time of the essence needed to be stated, I do not accept that those remarks show bias on the part of the arbitrator by way of pre-determination. The arbitrator’s remarks were relevant to the issue of wrongful termination of contract and should have forewarned Mr Malolo so that he could make appropriate submissions if he had wanted to rather than the arbitrator keeping those remarks to himself when they were relevant. It is also not to be overlooked that the contract documents were supplied to the arbitrator prior to the substantive hearing for the purpose of the arbitrator reading through those documents before the start of the hearing. In my view there was no bias here.
  9. In respect of paragraph 23 of Mr Malolo’s affidavit, the complaint there is that the arbitrator did not grant Mr Malolo’s request to adjourn proceedings part-heard to give the supervisor the opportunity to give evidence. In the circumstances, this may amount to breach of procedural fairness on the ground that the procedure that was followed here was unfair to the applicant, but it cannot amount to a breach of natural justice on the ground of bias.
  10. The next ground which is based on paragraphs 22, 23 and 25 of Mr Malolo’s affidavit is that the arbitrator failed to adjourn proceedings part-heard to allow the supervisor the opportunity to give evidence. I have already dealt with this ground and paragraphs 22 and 23. However, there is something important raised in paragraph 25 that I should now consider. Mr Malolo in paragraph 25 of his affidavit refers to a letter dated 15 June 2005 from Ms Stowers to the arbitrator. In that letter Ms Stowers refers to a telephone conversation between Mr Stevenson and the arbitrator earlier the same day. I am of the clear view that this was very imprudent even if what was discussed was not prejudicial to the applicant. Mr Malolo’s concern was justified.
  11. In his affidavit, the arbitrator says that the telephone discussion was an advice from Mr Stevenson to himself that the respondent’s solicitors had received a letter from the applicant’s solicitor and they would be forwarding a copy to him as arbitrator. He then merely consented to a copy of the letter from the applicant’s solicitor being forwarded to him. This seems to suggest that it was Mr Stevenson who called the arbitrator rather than the arbitrator calling Mr Stevenson on the telephone. It would have avoided the present accusation of bias if Mr Stevenson had not communicated with the arbitrator on the telephone two days before the preliminary hearing. However, applying the real danger of bias test, I am not satisfied that there was bias on the part of the arbitrator. If anyone had “misconducted” himself, as submitted by counsel for the applicant, it does not appear to have been the arbitrator.
  12. If, however, there was bias on the part of the arbitrator as submitted by the applicant’s counsel, then, with respect, Mr Malolo must have become aware of the telephone communication between Mr Stevenson and the arbitrator on 15 June 2005 which is the date of Ms Stowers letter which was sent to the arbitrator and copied to Mr Malolo. There is no evidence that Mr Malolo made objection to the arbitrator continuing to act as arbitrator at the preliminary or substantive hearing. It is my opinion that it is too late for the applicant to complain now.
  13. In Judicial Review of Administrative Action (1995) 5th ed by de Smith, Woolf and Jowell, the learned authors state at para 12 – 036:

“A party may waive his objection to a decision – maker who would otherwise be disqualified on the ground of bias. Objection is generally deemed to have been waived if the party or his legal representative knew of the disqualification and acquiesced in the proceedings by failing to take objection at the earliest practicable opportunity.”

 

  1. The next complaint made by counsel for the applicant in her submission is that the arbitrator made an award which decides issues outside the reference by the parties. I am of the view that this is not bias even if this complaint is justified. I have also considered whether all of the circumstances complained of here, when taken together, would justify a finding of bias on the part of the arbitrator. I am not satisfied that it would.
  2. For the above reasons, the present ground alleging bias on the part of the arbitrator has not been made out. It is therefore struck out.

(c) Termination of the contract should not have been an issue for determination as the respondent had accepted the termination by correspondence and by conduct and is thus estoppel by raising the matter.

 

  1. I do not accept this ground. An award made by an arbitrator may be set aside on two grounds: misconduct which is a statutory ground and error of law which appears on the face of the award which is a common law ground. Misconduct may arise where the arbitrator has misconducted himself or where the arbitrator has misconducted the proceedings. The arbitrator had nothing to do with the circumstances upon which the claim of estoppel is based.
  2. The estoppel alleged under the present ground relates to correspondence between the applicant and the respondent in June 2004. That was well before the arbitration which took place between the parties in June 2005. The June 2004 correspondence had nothing to do with the arbitrator who was only appointed about May 2005 or the arbitration which took place in June 2005. So the alleged estoppel cannot be misconduct against the arbitrator in terms of s.13 of the Act which is the statutory ground for setting aside an award.
  3. In respect of the common law ground of error of law on the face of the award, the alleged estoppel does not appear as an error of law on the face of the award to justify setting aside the award. In fact there is no mention in the award of the word estoppel or the correspondence upon which the allegation of estoppel is based.
  4. It necessarily follows that the estoppel submitted for the applicant is not a ground for setting aside the award made by the arbitrator. The arbitrator after all was not a party to such an estoppel. I do not need to consider whether there was actually any estoppel between the applicant and the respondent on the basis of the June 2004 correspondence. And if there was such on estoppel how it might have been affected by subsequent events when the parties, including the applicant agreed to refer the question of wrongful termination of contract to arbitration and that the arbitration has been completed without estoppel ever being raised.
  5. This ground is also rejected.

(d) Error of law and/or fact on the face of an award

 

  1. An “error of law and fact” or an “error of fact” which appears on the face of an arbitrator’s award is not recognised as a ground for setting aside an award. Only an error of law which appears on the face of an award is.
  2. An error of law which appears on the face of an award is explained in Airwork Holdings Ltd v Auckland Regional Rescue Helicopter Trust [2006] NZHC 513 where Asher J states:

“[24] In Champsey Bhara & Co v Jivraz Baloo Spinning and Weaving Co Ltd [1923] AC 430, 487, it was stated:

 

‘An error in law on the face of the award means, in their Lordships’ view that you can find in the award or a document actually incorporated thereto … some legal proposition which is the basis of the award and which you can say is erroneous.’

 

“[25] It was put this way in Canada (Director of Investigation and Research) v Southam Inc (1997) 144 DLR (4th) at [35]:

 

‘Briefly stated, questions of law are questions about what the correct legal test is, questions of fact are questions about what actually took place between the parties; and question of mixed fact and law are questions about whether the facts satisfy the legal tests.’

 

“[26] The distinction between errors of law and errors of fact has a sound common sense purpose in the area of review of arbitrator awards; The general rationale for arbitration is the adoption of a speedy, confidential and efficient process of resolution. Often this is done by choosing as arbitrator a person who has particular skill and knowledge in the area of fact that is the subject of this dispute.

 

“[27] It is clear that the application of legal principles, the
interpretation of statutes and regulatory documents, can all involve errors of
law.”

 

  1. In United Sharebroker Ltd v Landsborough Estates Ltd (1990) (unreported judgment of the High Court of New Zealand), Tipping J said:

“For there to be an error of law on the face of the award there must be such an error by express exposition not merely by inference. The error must appear either in the award itself or in a document actually incorporated therein, for instance, a note appended by the arbitrator stating the reasons for his decision: see Chamsey Bhara & Co v Jivraj Baloo Spinning and Weaving Co Ltd [1923] AC 480, 480 P.C and Wellington City v National Bank of New Zealand Properties Ltd [1960] NZLR 660, 669 per North P.”

 

  1. It has been submitted by counsel for the applicant that on the basis of the reasons given by the arbitrator in support of his finding in favour of the respondent, the arbitrator was criticising the contents of the contract and its administration by the supervisor. In doing so, the arbitrator seems to be trying to rewrite the contract rather deal with it as it is. On this basis, the arbitrator committed an error of law by exceeding his jurisdiction.
  2. Assuming that what counsel is saying is factually right because I do not think that it is, it is not an error of law on the face of the award if the effect of the reasons given by the arbitrator is to criticise the contents of the contract. If the further affect of that is that it seems that the arbitrator was trying to rewrite the contract, as submitted by counsel for the applicant, then that, too, is not an error of law.
  3. I must also point out that the only thing mentioned by the applicant’s counsel which appears on the face of the award are the reasons given by he arbitrator for his ruling. It is the effects of these reasons as interpreted and inferred by counsel which she says constitute an error of law. But those “effects” do not appear on the face of the ward. They are inferences drawn by counsel from the reasons stated in the award. As it was stated by Tipping J in United Sharebrakers Ltd v Landsborough Estates Ltd (supra)

“For there to be an error of law on the face of the award there must be such an error by express exposition not merely by inference”.

 

  1. The arbitrator was also not trying to rewrite the contract. What he was saying is that given the absence of certain clauses from the contract and the administration of the contract by the supervisor, the respondent was not guilty of delay in completing the contract. Therefore, for the applicant to terminate the contract on the ground of delay is wrongful. The arbitrator was not trying to rewrite the contract.
  2. It is also submitted by counsel for the applicant that the arbitrator erred in law by basing his ruling on what he considered to be deficiencies in the contract documentation and the administration of the contract by the supervisor. What was required of the arbitrator was to determine whether the termination was in accordance with the contract as it is. With respect to counsel, this again is not an error of law which appears on the face of the award.
  3. In any event, I am of the opinion that the arbitrator was determining the question of termination on the basis of the contract as it is. On that basis, the arbitrator, given the absence of certain clauses which one would expect to find in a construction contract, including a clause which makes time of the essence, was of the view that the respondent was not guilty of delay which is the reason for the applicant terminating the contract.
  4. This ground of the applicant’s motion is also rejected.

    (e) The award is obviously wrong

  5. “Obviously wrong” is not a ground for impeaching an award made by an arbitrator. To say that an award is “obviously wrong” is not a ground for setting aside an award. It is an inappropriate use of the phrase “obviously wrong” in the context of an arbitration.
  6. The expression “obviously wrong” has been used in other jurisdictions for the purpose of determining whether leave be granted by the Court to review an award. But it has been abandoned in New Zealand. The expression acquired importance because it was used in the judgment of Lord Diplock in Pioneer Shipping Co v BTPTionxide (The Nema) [1982] AC 724. However, it is no longer favoured in New Zealand for the purpose of determining whether leave be granted to review an award under the Arbitration Act 1996 (NZ). In Gold and Resource Developments (NZ) Ltd v Dough Hood Ltd [2000] NZCA 131, Blanchard J in delivering the judgment of the New Zealand Court of Appeal said at para [54] (1):

“We have put the matter in this way not to indicate any basic departure from the Nema guidelines but because we are not comfortable with the conclusory way in which Lord Diplock expressed himself in stating when leave ought to be given in respect of an alleged one-off error of law. To say that the Judge must be persuaded that the award is “obviously wrong” seems to us, with respect, to be inappropriate. Plainly the House of Lords in The Nema considered that the granting of leave in respect of an alleged one-ff error should not be a common event, but, while that can be accepted, we think it is better to say that what must be shown, on a preliminary view, is that the applicant has a very strongly arguable case that the arbitral tribunal has erred in law.

” So instead of speaking of a ‘strong prima facie case that the arbitrator was wrong’ or ‘obviously wrong’ which are only labels intended to indicate that there is a high or very high threshold, we would, without intending any lowering of the barrier faced by an applicant for leave, substitute a test of a strongly or very strongly arguable case”.

 

  1. It should be clear from the above that the present ground of the applicant’s motion is misconceived in law. It is therefore dismissed.

Some general comments

 

  1. Given the nature of the contract and the dispute between the applicant and the respondent, this was a suitable case for arbitration as the parties had agreed to do pursuant to the arbitration clause in their contract. The technical matters involved in the dispute justified the appointment as arbitrator of a civil engineer with extensive experience in the construction field. I would suggest to counsel to take into account the remarks by the arbitrator on the absence from the contract of a construction programme clause, liquidated damages clause, and a clause making time of the essence and consider those clauses in the context of the law on construction to see what is the relevance of such clauses to the termination of the contract in this case.
  2. It would also appear that in the circumstances of this dispute, termination of the ct5gvbontract by the applicant pre-supposes that there had been an actual breach by the respondent of an essential term of the contract which justified termination. That actual breach of contract, as the applicant claims, was the delay involved in the completion of the contract by the respondent. So termination and breach of contract go hand in hand for, if one really thinks about it, the reason for the termination must have been the breach of contract due to the delay on the part of the respondent as claimed by the applicant. It would, therefore, be advisable to take into consideration the law on contractual termination, particularly as to how such law applies to a construction contract.
  3. It is in this connexion, that the arbitrator seems to have had in mind the absence from the contract of certain clauses that he mentioned, for instance, the absence of a clause which makes time of the essence. I suspect, but I am not certain, that the arbitrator might have thought that if, in law, termination pre-supposes an actual breach of an essential term of the contract, then how could the applicant have validly terminated the contract for delay when there was no clause or essential term in the contract making time of the essence. After all, the termination that occurred was within a contractual context and not in some other context. It is this type of question which makes it advisable, in my respectful opinion, not to reject outright the arbitrator’s remarks but to take them on board and consider them in a constructive way. The same applies to the remarks by the arbitrator concerning the administration of the contract by the supervisor.
  4. As with most cases, it is essential to sort out the facts correctly, then sort out the relevant law correctly, and then apply the law correctly to the facts. In a building construction dispute, an experienced civil engineer, as one chosen by the parties to be arbitrator of their dispute, would be an appropriate person to sort out the facts of the dispute, particularly when technical construction matters are involved. Such civil engineer may also have knowledge of the relevant law through many years of experience with construction contracts. If, however, there is doubt in that regard, the lawyers may always give assistance to the arbitrator on the relevant law or request a case to be stated on a question of law to the Court.

The Decision

 

  1. Given my ruling on ground (a) (ii) that the proceedings were misconducted when the arbitrator did not adjourn the substantive hearing part-heard to allow the applicant to have the supervisor give evidence as that evidence was crucial to the applicant’s case, and my ruling on ground (a) (v) that the proceedings were misconducted when the arbitrator decided on the issue of damages for breach of contract when that issue had never been spelled out as an issue to be arbitrated upon, the award is set aside and remitted back to the arbitrator for re-hearing and decision. The re-hearing is to be on these conditions:
    1. the applicant to make every possible effort (including a subpoena if necessary) to ensure that the supervisor will be present at the re-hearing to give evidence;
    2. the applicant to bring over the quantity surveyor from overseas to give evidence and to pay for his costs if it still wants to call the quantity surveyor as a witness; those costs may be sought against the respondent if the applicant is successful at the re-hearing; and
    1. the parties to state with clarity in the reference to arbitration the issues to be arbitrated upon.

164. Apart from the two grounds upon which I have set aside the award, all the other grounds of the applicant’s motion are dismissed.

 

165. Given the circumstances of these proceedings and the fact that this is really a test case, each party is to bear its own costs.

 

CHIEF JUSTICE