SUPREME COURT OF WESTERN AUSTRALIA
STRUCTURAL MONITORING SYSTEMS LTD
TULIP BAY PTY LTD
KENNETH JOHN DAVEY
CORAM: Martin CJ
HEARD: 17 October 2017; 3, 13 & 20 November 2017 on the papers
DELIVERED: 22 December 2017
FILE NO: ARB 7 of 2016
CATCHWORDS: Arbitration – Commercial Arbitration Act 1985 (WA) – Application to set aside arbitral award on ground of misconduct – Whether denial of procedural fairness – Whether excessive delay in the delivery of the award – Whether the matter was heard and determined by two arbitrators where three arbitrators had been appointed – Application dismissed
1 Structural Monitoring Systems Ltd (SMS) applies for orders pursuant to s 42 and s 44 of the Commercial Arbitration Act 1985 (WA) (the Act) setting aside an award made by arbitrators Peter John Hannan and Philip George Clifford on the ground of misconduct, and removing arbitrators Peter John Hannan, Philip George Clifford and Kelvin Lord on the same ground.
2 The misconduct is said to be constituted by:
(a) denial of procedural fairness, by taking into account submissions from the respondents, Tulip Bay Pty Ltd (Tulip) and Mr Kenneth Davey, to which SMS had no opportunity to respond;
(b) excessive delay in the delivery of the award; and
(c) the matter being decided by two of the arbitrators (Mr Hannan and Mr Clifford) in circumstances where three arbitrators had been appointed.
3 It will be apparent from the reasons which follow that the arbitration fell well short of a paradigm example of efficient and costeffective dispute resolution. It will also be apparent from my reasons that the parties and their lawyers must take some responsibility for the inefficient conduct of the proceedings. In order to resolve this application, it is not necessary for me to allocate responsibility for the tortuous course taken by the proceedings as between the arbitrators on the one hand, and the parties and their legal advisers on the other. It is sufficient for me to conclude, for the reasons which follow, that the misconduct alleged by SMS has not been made out and the application should be dismissed.
4 The legislation governing domestic and international arbitration in Australia recognises that arbitration can serve the public interest by:
(a) enabling parties to agree upon a bespoke procedure for the resolution of their commercial disputes;
(b) providing arbitration procedures that enable commercial disputes to be resolved in a cost-effective manner, informally and quickly;
(c) resolving disputes by awards which are certain and final.
5 Arbitration will achieve these objectives if legal practitioners and arbitrators act diligently and effectively to identify and resolve the real issues in dispute as quickly as is consistent with the vital interests of fairness and justice, avoiding unnecessary procedural disputes and delay. Regrettably, the history of this case is replete with unnecessary delay and procedural disputes, and resulted in an award which has been challenged on a number of grounds, including a ground which arises from the uncertain degree of involvement of one of the arbitrators in the determination of the dispute. In this case, as it happened, the dispute would have been resolved much more quickly, cheaply and finally if the parties had gone to court – contrary to the legislative objectives to which I have referred.
6 The arbitration agreement is contained in cl 17 of an agreement between SMS, Tulip and Mr Davey entitled ‘Technology Agreement’ dated 29 November 1999. As there is no issue with respect to the ambit of the arbitration agreement, it is unnecessary to relate the breadth of the disputes to which it applies.
7 Clause 17.2 of the Technology Agreement provides that a single arbitrator is to be appointed with the unanimous consent of the parties, but if they cannot reach agreement on an arbitrator within 14 days of the submission of a notice of arbitration:
[T]he arbitration shall be heard and determined by three (3) arbitrators.
The same clause provides that failing agreement with respect to the appointment of a single arbitrator, each party is to appoint an arbitrator, who will together appoint a presiding arbitrator.
8 Clause 17.3.3 of the Technology Agreement provides:
[W]here there is more than one arbitrator, all decisions and awards shall be made by majority vote of the arbitrators.
9 The Technology Agreement recites that Mr Davey was the inventor of the technology the subject of the agreement, and had assigned full beneficial ownership of the technology to Tulip. The agreement further recites that SMS had acquired from Tulip the exclusive worldwide licensing rights and the option to purchase the intellectual property rights pertaining to the technology.
10 The agreement also records that, by its terms, SMS exercises the option to acquire the intellectual property rights in the technology in return for a payment of $500,000 and a continuing obligation to pay a royalty for as long as any patent remains in existence. Schedule 2 of the Technology Agreement specifies that the royalty is to be a percentage of revenues derived by SMS. The agreement also provides for a minimum annual royalty to be paid by SMS. The Technology Agreement also contains various warranties and undertakings by Tulip and Mr Davey for the general purpose of protecting and preserving the interest of SMS in the intellectual property relating to the technology. Clause 2.3 of the Technology Agreement records an acknowledgement and agreement by Tulip and Mr Davey to the effect that SMS has, by the agreement, acquired full beneficial right, title and interest in the intellectual property rights relating to the technology, together with each ‘Enhancement’. The word ‘Enhancement’ is defined by the agreement to mean:
Each improvement, update, revision, modification, extension or change to the Technology, the Products and the Intellectual Property Rights made by or on behalf of SMS, Tulip or Davey.
11 In June 2006, Mr Davey lodged an application for a patent (the 2006 patent application). It was given the designation AAPA 2006903137. In June and July 2009, Tulip and Mr Davey lodged two more applications for patents. SMS asserted that each of the applications was an ‘Enhancement’ within the meaning of the Technology Agreement, and that the applications for patents constituted breaches of that agreement. SMS further asserted that the breaches constituted a repudiation of the Technology Agreement by Tulip and Mr Davey, which SMS had accepted, bringing that agreement to an end. In addition, SMS claimed damages for breach of the Technology Agreement, including return of all royalties it had paid since 2006, plus costs and expenses it claimed to have incurred.
12 When SMS ceased making royalty payments, Tulip and Mr Davey commenced proceedings in the District Court of Western Australia, claiming payment of the royalties due. SMS failed to file an appearance in those proceedings, and judgment by default was entered in favour of Tulip and Mr Davey on 11 May 2012. On 30 May 2012, Tulip and Mr Davey issued a statutory demand against SMS for payment of the judgment debt, pursuant to the provisions of the Corporations Act 2001 (Cth). On 7 June 2012, SMS issued a notice referring the dispute to arbitration and on 19 June 2012, commenced proceedings in the Supreme Court to set aside the statutory demand which had been issued by Tulip and Mr Davey.
13 The notice of arbitration identifies the dispute by reference to a document entitled Points of Claim, which was annexed to the notice. In the notice, SMS consents to the appointment of Mr Clifford as the arbitrator, and states that if Tulip and Mr Davey do not agree with his appointment as sole arbitrator, he will be appointed as an arbitrator by SMS pursuant to the Technology Agreement.
14 The points of claim recite various provisions of the Technology Agreement, and refer to the three patent applications giving rise to the dispute. It is asserted that the applications constitute a repudiatory breach of the Technology Agreement which SMS has accepted. The points of claim assert an entitlement to repayment of all royalties paid since 2006, and claim damages, including costs and expenses incurred, together with interest on the damages claimed.
15 As I have noted, SMS nominated Mr Clifford as arbitrator on 7 June 2012, in the notice of arbitration. Tulip and Mr Davey nominated Mr Lord on 14 September 2012, and the nominated arbitrators appointed Mr Hannan as presiding arbitrator on 30 January 2013, almost eight months after the notice of arbitration was served. The reasons for the delay in the constitution of the tribunal are not apparent from the materials before the court.
16 The first preliminary conference was held on 14 February 2013. With the consent of all parties, Mr Lord did not participate in that conference and directions were made by Mr Hannan and Mr Clifford. Tulip and Mr Davey objected to the jurisdiction of the arbitrators on the ground of a misdescription of SMS in the notice of arbitration. That objection was dismissed in reasons published on 18 March 2013 by Mr Hannan, with which Mr Clifford agreed by reasons published on 19 March 2013. By letter dated 18 March 2013 addressed to Mr Clifford, Mr Lord advised that he agreed with the reasons of Mr Hannan, which he had seen in draft.
17 On 29 April 2013, the programming directions previously made by the arbitrators were varied in a document published by Mr Clifford with the authority of Mr Hannan and Mr Lord. In accordance with those amended directions, Tulip and Mr Davey served their response to the points of claim, and their counterclaim on 30 April 2013.
18 In the response to the points of claim, Mr Davey admitted filing an application for a provisional patent in June 2006, but asserted that he did so after SMS had declined any interest in the technology the subject of the patent application. Mr Davey further asserted that he advised SMS of the application a month after it was lodged and proposed that the final specification for the patent be lodged and maintained by SMS. He further asserted that he had no intention of proceeding with the patent application without the support of SMS and never lodged a final specification in respect of the relevant technology. Mr Davey further asserted that on 25 May 2007, he sent to SMS an executed deed assigning the patent application to SMS. He further asserted that SMS then invited him to allow the patent application to lapse in order that SMS might submit a fresh application so as to obtain a new priority date. Mr Davey further asserted that in August 2008, SMS lodged a final application in relation to the technology the subject of the 2006 patent application.
19 In the response, Mr Davey also admitted filing an application for another provisional patent in June 2009, and further asserts that he did so in the belief that the application related to different technology to the technology the subject of the Technology Agreement. Tulip and Mr Davey admitted in the response that an arbitrator, Mr Tony Mizzi, found that the invention the subject of the patent application lodged in June 2009 was an ‘Enhancement’ for the purposes of the Technology Agreement, but asserted that he erred in so finding.
20 Tulip and Mr Davey further admitted in the response that in July 2009 Mr Davey filed another provisional patent application which was a specification for the same invention that was the subject of the application lodged in June 2009. They further asserted that in June 2011 they sent to SMS a deed of assignment of the application lodged in June 2009.
21 Tulip and Mr Davey further asserted that the making of applications for provisional patents did not constitute a breach of the agreement provided confidentiality was maintained, and asserted that confidentiality was in fact maintained in respect of those applications. They further asserted that despite having assigned the applications lodged in June 2006 and June 2009 to SMS, SMS had failed to register those assignments.
22 The points of defence included a counterclaim by Tulip and Mr Davey in respect of the amount of the debt the subject of the judgment in the District Court proceedings, and in respect of royalty payments not made, amongst other claims.
23 SMS had been directed to respond to the counterclaim by 14 May 2013. However, it failed to do so, and by orders published on 31 July 2013 in the name of all three arbitrators, Tulip and Mr Davey were directed to provide a substituted response and counterclaim by 2 August 2013, and SMS was directed to provide a response to the counterclaim by 16 August 2013. SMS was further directed to provide statements of the evidence upon which it relied by 30 August 2013.
24 On 2 August 2013, Tulip and Mr Davey filed a substituted response to the points of claim and counterclaim. The thrust of that document was the same as the document previously served.
25 However, despite repeated correspondence from the solicitors acting for Tulip and Mr Davey, SMS continued to fail to comply with the orders made by the arbitrators, with the result that Tulip and Mr Davey applied for orders dismissing SMS’s claim. On 4 March 2014, Mr Hannan published his reasons for dismissing that application, and Mr Clifford published a document recording his agreement with those reasons and the orders proposed. Although that document was copied to Mr Lord, no communication from him on the subject is included in the materials before the court.
26 Tulip and Mr Davey applied for a springing order on 7 March 2014. However, SMS finally provided its response to the response to the points of claim and counterclaim on 18 March 2014, seven months after it was due. That response was largely concerned with the counterclaim, and asserted that SMS was not obliged to make royalty payments by reason of the termination of the Technology Agreement as a consequence of its acceptance of the repudiatory breach by Tulip and Mr Davey. The document essentially reiterates assertions made in the points of claim by way of answer to the counterclaim.
27 On 20 March 2014 Mr Hannan and Mr Clifford made further programming orders relating to the provision of written statements from the witnesses to be called by the parties at the hearing. They further directed that SMS serve its submissions with respect to the issues raised by the arbitration by 20 May 2014, and that Tulip and Mr Davey serve their submissions by 27 May 2014, and foreshadowed the fixing of a date for hearing. The materials before the court do not show any involvement on the part of Mr Lord in relation to those directions.
28 On 14 April 2014 SMS served the statement of one witness, and on 29 April 2014 Tulip and Mr Davey completed the service of statements of the evidence to be given by Mr Davey. All statements were served within the times specified by Mr Hannan and Mr Clifford. However, SMS failed to comply with the directions made relating to the service of its submissions by 20 May 2014. That failure was the subject of complaint in correspondence emanating from the solicitors for Tulip and Mr Davey in late May 2014. SMS nevetheless failed to file the submissions as directed.
29 Settlement discussions took place between September and December 2014. On the materials before the court, it seems clear that those negotiations were concluded, unsuccessfully, by the end of 2014.
30 In April 2015 the solicitors acting for Tulip and Mr Davey wrote to the solicitors for SMS advising that unless the written submissions were provided by 18 April 2015, orders would be sought preventing SMS from filing submissions out of time. In the result, SMS served its written submissions on 20 April 2015, 11 months after they were due.
31 Further programming orders were made in the name of all three arbitrators on 24 April 2015. In those orders Tulip and Mr Davey were required to file responsive submissions on or before 4 May 2015.
32 Tulip and Mr Davey sought an extension of time for the service of those submissions, which was granted in an email from Mr Clifford to the parties dated 13 May 2015, apparently with the concurrence of Mr Hannan. In the email an order extending the time for filing of submissions by Tulip and Mr Davey until 25 May 2015 was proposed. Mr Clifford advised:
At the time of publishing this email and order I have not had an opportunity to finally confer with arbitrator Lord. Should arbitrator Lord have a different view to that expressed above I will let you know. Otherwise the arbitrators look forward to receiving the respondents’ submissions.
33 On 25 May 2015 the solicitor acting for Tulip and Mr Davey sent an email to the solicitor for SMS and the arbitrators advising that he would be unable to serve the submissions within the time directed and requesting an extension of time until 2 June 2015 for the provision of those submissions.
34 The solicitor for SMS responded to that email later that day, copied to the arbitrators, proposing that no further extension should be granted without confirmation that unless the material was provided by 2 June 2015, the arbitration would proceed without regard to any submissions provided by Tulip and Mr Davey.
35 By email dated 26 May 2015 from Mr Clifford to the parties, copied to Mr Hannan and Mr Lord, Mr Clifford advised that he and Mr Hannan had conferred and agreed that the time for provision of the submissions by Tulip and Mr Davey should be extended to 2 June 2015. In that email Mr Clifford noted:
Arbitrators Hannan and Clifford have not had an opportunity to confer with arbitrator Lord about the respondents’ time extension application. Should arbitrator Lord have a differing view to that of arbitrators Hannan and Clifford I will immediately let the parties, through their solicitors, know of that view.
36 The email from Mr Clifford further advised:
As an indication of what may happen should the respondent not file and serve its substantive arbitral submissions by 2 June 2015 Presiding arbitrator Hannan and Arbitrator Clifford are presently inclined to the view that any further extension of time, if any, sought by the respondent to file and serve its substantive arbitral submissions beyond 2 June 2015 will be met with a very short time extension coupled with an ‘unless’ order to be formulated after brief submissions from the parties at that time. Of course whether any further time extension will be granted is to be determined on the facts as they stand at that time including, importantly, any substantive prejudice the claimant may be suffering.
37 On 29 June 2015 Mr Clifford sent an email to the solicitors for the parties, copied to Mr Lord and Mr Hannan in which he observed that he had not received any submissions from Tulip or Mr Davey, nor had he heard anything from any party since the extension of time for filing those submissions had been granted. In the email Mr Clifford recorded that he had not yet had the opportunity to discuss the respondents’ failure to provide submissions as directed with Mr Lord. He further advised that if the dispute had not been resolved and the arbitrators did not hear from the parties or either of them by Monday 6 July 2015, the arbitrators would commence work on the resolution of the disputes on Tuesday 7 July 2015.
38 Mr Clifford further advised:
If the respondent does not file and serve substantive hearing submissions by 10am Thursday 8 July 2015, or explain in clear terms why it cannot file and serve submissions by that time and also persuade the arbitrators why it needs more time to file and serve submissions, the arbitrators will determine the ‘disputes’ without the benefit of any respondent substantive hearing submissions.
Mr Hannan agrees with the above timetable, and in particular, subject to anything persuasive the respondents may say, the final date for the respondents’ submissions of Thursday 8 July 2015.
39 The solicitor for Tulip and Mr Davey responded to that email very shortly after it was sent, apologising for the delay in the filing of the submissions, which was said to have been occasioned by his obligation to take over conduct of a trial for a colleague who had suffered a bereavement. He further advised that he considered 8 July 2015 to be ‘an achievable timeframe within which to finalise the respondents’ submissions’.
40 Mr Clifford responded to that email later the same day, copied to the solicitor for SMS, Mr Hannan and Mr Lord, in which he stated:
Subject to Mr Rumsley and his client having some very persuasive argument(s), anchored firmly on nonremedial [sic] prejudice, if any, to the contrary, and this arbitrator is presently unable to see such a persuasive argument to the contrary, the Arbitrators will commence work on preparing for the final determination of the Arbitral issues on Tuesday 7 July 2015 with the respondents’ submissions to be filed and served by 10am Thursday 9 July 2015. … [T]he arbitrators expect to receive the respondents’ substantive arbitral submissions on or before 10am Thursday 9 July 2015. Please note the reference to Thursday 8 July 2015 in my below email is in error and it ought to have been a reference to Thursday 9 July 2015. (original emphasis)
41 On 30 June 2015 the solicitor for SMS sent an email to the arbitrators and the solicitor for the other parties asserting that the arbitrators should determine the disputes ‘without regard to any further material from the Respondents’.
42 At 9.17 am on 9 July 2015, the solicitor for Tulip and Mr Davey sent an email to the arbitrators and the solicitor for SMS in the following terms:
I am conscious of the order requiring the Respondents’ submissions in arbitration to be filed by today at 10.00 am.
Unfortunately I am currently embroiled in a serious family medical emergency and will not be able to get into work by the 10.00 am deadline to send the Respondents’ submissions. I will however be able to provide the Respondents’ submissions later today, as they are complete.
I apologise for the delay and will send through the submissions as soon as is reasonably possible (and certainly not later than close of business today).
43 Submissions on behalf of Tulip and Mr Davey were served by an email sent at 5.01 pm on 9 July 2015 to the arbitrators and the solicitor for SMS. In that email the solicitor wrote:
Please accept my apologies for the delay today, which was due to a serious and recent health issue currently being experienced by a family member.
44 The circumstances to which the solicitor was referring in these emails have been explained in an affidavit filed in these proceedings. In that affidavit he deposes:
On the morning of 9 July 2015 my sister’s fiancé, who suffers from Crohn’s disease, became very seriously ill, suffering from severe seizures, lapses in consciousness, vomiting and irrational behaviour. I assisted my sister to deal with the situation and to obtain urgent medical treatment for her fiancé, as her fiancé was refusing to cooperate with ambulance officers and paramedics. These events caused considerable distress and disruption for my family and for me.
As a result of the events set out … above, I was unable to arrange for the defendants’ submissions in arbitration to be filed by 10.00 am on 9 July 2015.
45 Objection is taken to the admission of these paragraphs on the grounds of relevance. However, this evidence is directly relevant to the issues raised by SMS in its application, by providing direct evidence of the existence of reasonable grounds for the solicitor’s failure to comply with the directions made by the arbitrators, as contemplated by the email from Mr Clifford of 29 June 2015.
46 I digress to observe that objection is also taken to another paragraph in the same affidavit, on the ground that the evidence paraphrases documents which speak for themselves. The objection is technically correct and must be upheld, but the objection serves no purpose as the documents to which reference is made are in evidence, and their purport is not contentious. They have already been described by me in much the same terms as the affidavit.
47 It is unnecessary to make detailed reference to the position adopted by the respondents in the submissions served on 9 July 2015. That is because SMS draws no particular attention to any aspect of those submissions in support of its assertion that procedural fairness was denied. Rather, as will be seen, the only matters upon which SMS places reliance with respect to its assertion that procedural fairness was denied arise from written submissions lodged in January 2016. However, in light of the argument advanced in respect of those submissions it should be noted that in the submissions served on 9 July 2015, reference is made to the fact that Mr Davey provided to SMS an executed deed assigning the rights to the 2006 patent application to SMS. Reference is also made to the fact that SMS subsequently lodged a final application based on the 2006 patent application in its own right. As I have noted, both these facts were clearly asserted in the response served by Tulip and Mr Davey two years earlier.
48 On 13 July 2015 the solicitors acting on behalf of Tulip and Mr Davey sent two emails to the arbitrators attaching current patent searches and information sheets in the public domain which were said to be of possible assistance to the arbitral tribunal. On 15 July 2015 the solicitors for Tulip and Mr Davey sent an email to the arbitrators correcting an error in the submissions which had been filed on 9 July 2015.
49 On 21 July 2015 the solicitor acting for SMS sent an email to the arbitrators and the solicitors for Tulip and Mr Davey reciting the communications which I have set out above and asserting:
On the basis of the matters set out above, the applicant has not considered the material provided by Mr NoonanCrowe [the solicitor for the respondents] as the Respondent has been provided more than a reasonable opportunity to put on material, been advised of the consequences of noncompliance and chose not to put on any material within the relevant timeframes.
50 The solicitors for Tulip and Mr Davey responded to that proposition by an email to the arbitrators and the solicitor for SMS sent on 27 July 2015. That email referred again to the sequence of correspondence I have set out above and concluded by submitting that it was in the interests of the just determination of the dispute for all of the material provided by the respondents to be considered. The arbitrators do not appear to have responded specifically to these communications.
51 I digress to observe that the sequence of communications I have set out above reveals that:
(a) although the email from Mr Clifford of 29 June 2015 had foreshadowed the making of what had been characterised by the parties in their communications as an ‘unless’ order – namely, an order to the effect that unless the respondents’ submissions were served by a particular time, they would not be considered – in fact no such order was made;
(b) the same email from Mr Clifford expressly contemplated that if the submissions were not filed by 10.00 am on 9 July 2015, it would be open to the respondents to explain why the submissions could not be filed by that time;
(c) the respondents did in fact provide an explanation for the seven hour delay (from 10.00 am to 5.00 pm) in serving the written submissions;
(d) the explanation provided was, on its face, reasonable;
(e) in earlier communications, Mr Clifford had drawn attention to the significance of nonremediable prejudice in determining applications for an extension of time;
(f) no attempt was made by the solicitor for SMS to establish that nonremediable prejudice had been suffered by reason of the seven hour delay in serving the written submissions, and there is no material before the court to suggest that any prejudice was in fact suffered by reason of that small delay; and
(g) the dogmatic and truculent position adopted by SMS with respect to a delay of seven hours in providing the respondents’ submissions, a delay which was reasonably explained and which followed extensions of time of two months, must be viewed in the context of previous unexplained and unapproved delays by SMS of seven months and eleven months respectively.
52 On 28 October 2015 the solicitors for Tulip and Mr Davey enquired of the arbitrators’ progress. Mr Clifford responded to that enquiry on the same day by advising that:
The work currently being done by the Arbitrators suggests the further questions, if any, the Arbitrators have of the parties will be clearly identified within fourteen (14) days. And within not more than three weeks after those questions have been dealt with, if any, the Arbitrators will be in a position to finalise the award and publish.
53 No further communication having been received from the arbitrators, on 25 November 2015 the solicitors for Tulip and Mr Davey again contacted the arbitrators to enquire of their progress. Mr Clifford replied to that enquiry on 7 December 2015 apologising for the delay and advising that:
Recently each of myself and the Presiding Arbitrator have been unable to coordinate a meeting time to discuss our views and convey those views to Mr Lord. We expect to meet tomorrow (Tuesday 8 December 2015 in the afternoon …) and shortly thereafter to let you know what else is required, if anything.
54 On 18 December 2015 Mr Clifford provided a memorandum to the solicitors for the parties and his fellow arbitrators in which he set out 22 issues to be resolved in the arbitration. Those issues included, as the issues numbered 2 and 3 respectively, the question of whether the 2006 patent application was filed without the knowledge or consent of SMS, and whether it constituted an ‘Enhancement’ for the purposes of the Technology Agreement.
55 The memorandum invited the parties to consider whether the issues set out were the issues for resolution or whether the parties wished to jointly concede any of those issues. The memorandum also invited the parties to advise if any other issue ought to be added and, if so, stated that the issue was to be identified with clarity and its source in the pleadings identified.
56 The memorandum also drew the parties’ attention to three decisions on the subject of repudiation and invited either party ‘to make a further submission of law or mixed fact and law on how the cases mentioned above apply to their case theory’.
57 The memorandum also advised that the arbitrators did not require an oral hearing and proposed to resolve the issues on the papers, but invited either party wanting an oral hearing to advise the arbitrators of that fact, and why. The memorandum directed that any further materials were to be provided not later than 20 January 2016.
58 Although not expressly invited to do so by Mr Clifford’s memorandum, on 20 January 2016 Tulip and Mr Davey served written submissions with respect to each of the 22 issues identified in the memorandum. It is relevant to the submission made by SMS with respect to procedural fairness to note that in response to issue 3, which was the issue relating to the question of whether the invention the subject of the 2006 patent application was an ‘Enhancement’ for the purposes of the Technology Agreement, Tulip and Mr Davey submitted:
3(c) Whether or not APPA2006903137 [the 2006 patent application] is an ‘Enhancement’ is not an enquiry which would lead to any productive end, as APPA2006903137 was assigned to SMS and SMS subsequently exploited APPA2006903137 by lodging international application No. PCT/AU2008/000840.
(d) These issues were resolved between Mr Davey, Tulip Bay and SMS by agreement without any need for a determination as to whether APPA constituted an ‘Enhancement’ pursuant to the Technology Agreement.
59 By email sent at 12.24 pm on 28 January 2016 to the solicitors for the parties and the other arbitrators, Mr Clifford acknowledged receipt of the materials that had been sent by the solicitors for Tulip and Mr Davey on 20 January 2016 and further materials (not submissions) sent on 27 January 2016 and advised that:
Those documents are being considered by the arbitrators now. The arbitrators will send a further communication to the parties shortly regarding this material and the timing of the final resolution of the contentious issues between the parties in the arbitration.
60 At 9.15 pm on the same day, 28 January 2016, the solicitor for SMS sent an email to the arbitrators and the solicitors for Tulip and Mr Davey objecting to the provision of the further materials by Tulip and Mr Davey. The letter asserted that the respondents had had the opportunity to make any submissions and failed to meet even generously extended timeframes, and further asserted that the respondents should be held to the case they had run, and should not be permitted to serve materials that ‘are almost entirely irrelevant to the matters actually in issue and cannot serve other than to obscure the true issues’. The incongruity of the latter proposition with the submissions which respond directly to the 22 issues identified by Mr Clifford is perhaps explained by the assertion by the solicitor for SMS that he had not seen the submissions dated 20 January 2016 at the time he sent his email. In light of that assertion, the solicitors for Tulip and Mr Davey reiterated that the submissions had been sent to the solicitor for SMS on 20 January 2016, but nevertheless provided another copy to the solicitor for SMS under cover of a letter dated 29 January 2016.
61 In the letter of 29 January 2016 the solicitors for Tulip and Mr Davey responded to the objection lodged with respect to the further material they had provided, advising that the respondents would not object to SMS being provided with a period of 14 days in which to provide a response to any assertion made in the more recently provided submissions, in order that the arbitrators might consider all parties’ contentions in a balanced manner prior to making their determination.
62 The arbitrators do not appear to have responded directly to the communications received from the parties relating to the receipt of the material provided by the solicitors for Tulip and Mr Davey. However, as I have noted, on 28 January 2016 an email had been sent advising the parties that the material was being considered, and the arbitrators never appear to have resiled from that position.
63 On 8 March 2016 the solicitors for Tulip and Mr Davey enquired of the arbitrators’ progress. Mr Clifford replied in an email sent on 9 March 2016 to the solicitors for the parties and the other arbitrators. He advised:
Presiding Arbitrator Hannan is currently working on the decision and is expected to discuss the same with the other arbitrators shortly. I expect to be in a position to let you know a more definite timeline in the next week and will write to both parties at that time.
64 On 18 March 2016 Mr Clifford sent an email to the solicitors for the parties and the other arbitrators in which he advised:
I have had an opportunity to discuss … deliberations with Mr Hannan but not yet Mr Lord. I am unable to provide a fixed date for delivery and publication of the reasons (and an award) but do expect it to be a matter of a few weeks.
65 On 26 April 2016 Mr Clifford sent another email to the solicitors for the parties and the other arbitrators advising that:
Further work done by the Arbitrators suggests the arbitral decision will be ready in 3 to 4 weeks.
66 On 16 June 2016 Mr Clifford sent another email to the solicitors for the parties and the other arbitrators advising that:
The arbitrators’ reasons for decision, and ultimately the arbitral award, are still being worked on and, unfortunately, will not likely be ready for publication before the end of this financial year being 30 June 2016.
Again it is my expectation the reasons will be ready shortly after 30 June 2016 and the arbitrators are working toward finishing the reasons within that time.
67 On 30 June 2016 the solicitors for Tulip and Mr Davey wrote to the arbitrators, copied to the solicitor for SMS, foreshadowing an application for leave to adduce fresh evidence and proposing that the tribunal reserve its decision until that application had been made and determined.
68 By joint memorandum dated 4 July 2016, arbitrators Hannan and Clifford set out the considerations that they considered would be relevant to any application to adduce fresh evidence. On 27 July 2016 the solicitors for Tulip and Mr Davey advised that no application to adduce fresh evidence would be made.
69 On 14 September 2016 the solicitors for Tulip and Mr Davey again enquired of the arbitrators’ progress. Mr Clifford replied to that enquiry on 19 September 2016 by email sent to the solicitors for the parties and the other arbitrators advising that:
The delay in publishing arbitral reasons for decision is presently due to Presiding arbitrator Hannan and myself working to agree a common set of conclusions and reasons. We anticipate a common set of both will be agreed and publication of those reasons will be only a few (meaning 3 or 4) weeks.
70 On 30 September 2016 by memorandum sent to the solicitors for the parties and copied to the other arbitrators, Mr Clifford advised that:
Presiding arbitrator Hannan and myself have been working toward an agreed set of reasons, conclusions and orders to finalise an award. I expect arbitrator Lord will have some comments on the reasons in due course.
71 The memorandum foreshadowed a request for additional funds to cover arbitrators’ fees.
72 On 28 October 2016 Mr Clifford sent another memorandum to the solicitors for the parties and the other arbitrators advising:
Presiding arbitrator Hannan and I have agreed, in principle, upon the arbitral award presently in draft awaiting comments from arbitrator Lord, and are finalising the written arbitral reasons supporting the draft award that are also agreed in principle and substance between us.
73 On 7 November 2016 Mr Clifford sent another memorandum to the solicitors for the parties and the other arbitrators advising that the reasons for arbitral decision and draft arbitral award had now been finalised as between presiding arbitrator Hannan and himself, and comments were awaited from arbitrator Lord. The memorandum included a request for the payment of a further amount on account of arbitrators’ fees.
74 On 18 November 2016 reasons for decision signed by arbitrators Hannan and Clifford were sent to the parties and to Mr Lord. Various schedules were attached to the reasons, including a draft substantive award. Another schedule gives detailed consideration to the various materials that were provided to the arbitrators and sets out reasons for accepting some and rejecting other parts of those materials. The respondents’ submissions dated 9 July 2015 and 20 January 2016 were both accepted.
75 In an email sent to the solicitors for the parties and the other arbitrators on 21 November 2016, Mr Clifford advised that although the reasons which had been previously circulated referred to a draft award, the reasons were not to be considered a draft, but were final.
76 Communication then took place between the arbitrators and the parties in relation to the provision of submissions with respect to the costs of the arbitration. In the course of those communications, Mr Clifford advised by memorandum sent to the solicitors for the parties and the other arbitrators that the arbitrators would like to make final orders, including costs orders, before 21 December 2016 and in that regard requested submissions with respect to costs be provided not later than 12 December 2016. Further, on 13 December 2016, Mr Clifford sent another memorandum to the solicitors for the parties and the other arbitrators advising that he and presiding arbitrator Hannan would like to make and sign all final orders early in the following week, and to return to the parties the surplus funds paid on account of the arbitrators’ fees before the Christmas break commenced.
77 These proceedings were commenced on 9 December 2016. On 23 December 2016 Mr Clifford sent an email to the solicitors for the parties and to Mr Hannan advising that he had been authorised by Mr Lord to publish a letter which Mr Lord had sent to him dated 20 December 2016. In that letter, Mr Lord wrote:
I wish to advise that I have read the reasons for the decision of Philip Clifford and Peter Hannan in the above matter. Further, I wish to advise that I agree with the said reasons.
78 In the email to the parties, Mr Clifford confirmed that the reference in the letter to ‘the reasons’ is a reference to the reasons dated 18 November 2016 signed by Mr Clifford and Mr Hannan.
79 Mr Clifford further advised the parties that ‘Arbitrator Lord has also graciously decided to waive his fees for the arbitration’.
80 Also on 23 December 2016 Mr Hannan and Mr Clifford wrote to the parties indicating the course which they proposed to take in relation to the costs of the arbitration.
81 On 28 December 2016, reasons apparently being those of Mr Hannan and Mr Clifford (but unsigned) dealing with the costs of the arbitration were sent to the parties, together with a document headed ‘Final Award’, prepared in such a way as to provide for execution by each of Mr Hannan and Mr Clifford (but not Mr Lord). The copy of that document in evidence has not been signed by either Mr Hannan or Mr Clifford.
82 On 29 December 2016 the solicitor for SMS sent an email to the arbitrators and the solicitors for Tulip and Mr Davey asserting that there had been certain mathematical errors in the calculations relating to costs.
83 On 13 January 2017 Mr Clifford sent an email to the solicitors for the parties and the other arbitrators apparently attaching a copy of the final award signed by Mr Hannan and himself (although that copy is not in evidence, there is no reason to doubt that it exists). I note that the final award was delivered four and a half years after the notice of reference to arbitration was served. The email from Mr Clifford invited the parties to confer with respect to the calculation issues raised by the solicitor for SMS, and foreshadowed the making of an amended final award if necessary to make corrections in respect of those matters.
84 In a memorandum dated 24 January 2017 sent to the solicitors for the parties and the other arbitrators, Mr Clifford advised that he and arbitrator Hannan had considered the calculation point raised by the solicitor for SMS, and concluded that it was correct. The memorandum attached an amended corrected final award, and invited the parties to advise their position in relation to the proposed amendments. The amended corrected final award attached to that memorandum is unsigned, but has been prepared on the basis that provision is made for signature by Mr Hannan and Mr Clifford, and not by Mr Lord.
85 Having regard to the allegations of misconduct made against the arbitrators, I indicated to counsel for SMS that it would be appropriate for the arbitrators to be joined as parties to these proceedings unless they indicated they did not wish to be heard. The solicitor acting for SMS then wrote to the arbitrators enclosing copies of the amended application and the statements of position exchanged by the parties in relation to this application, and enquiring as to whether the arbitrators wished to be heard. The letter advised the arbitrators that if they wished to be heard, they would be joined as parties. In reply to that letter Mr Clifford sent a document to the parties advising that the question of whether the arbitrators should be joined was essentially a matter for SMS but, at the same time, offering comment on some of the issues identified in the documents which had been provided to the arbitrators relating to these proceedings.
86 The document provided by Mr Clifford does not make the position of the arbitrators in relation to these proceedings at all clear. However, given the terms of the letter which was sent to the arbitrators, which made it unequivocally clear that if they wished to be heard they would be joined as parties, I conclude that the arbitrators do not wish to be heard and am prepared to proceed to resolve this application on that basis, without requiring them to be joined as parties.
87 In the originating summons commencing these proceedings SMS asserts that arbitrators Hannan and Clifford misconducted the proceedings by denying SMS procedural fairness in:
deciding the matter on the basis of late written submissions and documents by the Defendants for which no leave had been granted and respect of which the Plaintiff was not given an opportunity to respond.
88 Because of the generality of that assertion, I directed that SMS file a detailed statement of the grounds upon which it relied in support of its application. In that document it is asserted that the arbitrators’ receipt and consideration of materials provided by Tulip and Mr Davey between 9 July 2015 and 20 January 2016 constituted a denial of procedural fairness because the arbitrators had advised the parties that if the respondents ‘did not lodge any material by 10.00 am 8 [sic] July 2015 the arbitrators would determine the disputes without the benefit of any Defendants’ substantive hearing submissions’. The statement of grounds then lists the documents that were lodged after 10.00 am on 9 July 2015, including the submissions lodged around 5.00 pm on 9 July 2015, and the submissions served on 20 January 2016. The grounds also refer to the objections lodged by SMS in relation to the receipt of that material on 21 July 2015 and 28 January 2016. The grounds further assert that SMS was denied procedural fairness because, having advised the parties that any materials lodged after 10.00 am on 9 July 2015 would not be considered, the arbitrators did not advise SMS that they intended to rely upon that material, with the result that SMS had not had an opportunity to respond to it.
89 The fair hearing component of the rules relating to procedural fairness will be infringed if a party does not have a fair opportunity to know the case which has to be met, and to meet that case. In this case, the respective positions of the parties were clearly set out in the points of claim and the response to those points of claim and counterclaim which were exchanged in accordance with directions made by the arbitrators. Those documents, and the evidence upon which the parties proposed to rely were exchanged well prior to 9 July 2015, and well prior to the service of any of the materials the consideration of which is said to give rise to a denial of procedural fairness. In that context, in order to make good the proposition that the consideration of the materials served by Tulip and Mr Davey after 10.00 am on 9 July 2015 denied SMS the opportunity to meet the case against it, it is necessary for SMS to identify in those materials some point or proposition not raised by the statements of position previously exchanged between the parties, with the consequence that SMS was prejudiced by a lack of opportunity to respond to that point or proposition.
90 Neither the originating summons nor the statement of grounds lodged in support of the originating summons address that question. In particular, no attempt is made to identify any particular topic, issue or proposition raised in the materials lodged by Tulip and Mr Davey after 10.00 am on 9 July 2015 which had not been identified in the materials previously exchanged between the parties.
91 For that reason, I pressed counsel for SMS on this question during the course of oral argument. He confirmed that the only matter to which he could point as being a matter upon which SMS was denied an opportunity to present its case to the arbitrators related to the following passages in the reasons published by Mr Hannan and Mr Clifford on 18 November 2016:
- … Tulip Bay and Mr Davey 2nd point out that AAPA2006903137 was assigned to SMS. See 2nd TB/Davey Submissions (as defined in para 21 of the 3rd schedule hereto) at para 3(b). That submission is supported by Mr Davey’s First Witness Statement at para 20. The instrument of assignment has not, however, been put in evidence.
- We have, however, found that on 25 May 2007, Mr Davey executed a document by which AAPA2006903137 was assigned to Structural Monitoring Systems PLC (rather than SMS). See para 102 above.
- Tulip Bay and Mr Davey submit that, having regard to the assignment referred to in para 166 above, whether or not AAPA2006903137 was an ‘Enhancement’ for the purposes of the Technology Agreement ‘is not an enquiry that would lead to any productive end’. See 2nd TB/Davey Submissions at para 3(c).
- Tulip Bay and Mr Davey also submit that, having regard to the assignment referred to in para 166 above, the issue of whether or not AAPA2006903137 was an ‘Enhancement’ for the purposes of the Technology Agreement was ‘resolved between Mr Davey, Tulip Bay and SMS by agreement without any need for a determination’ of that issue. See 2nd TB/Davey Submissions at para 3(d).
- No submission has been made on behalf of SMS in response to the submissions (on behalf of Tulip Bay and Mr Davey) referred to in paras 167 & 168 above. Further, no submission has been made on behalf of SMS as to the impact (if any) on the issues in this arbitration of the assignment (on 25 May 2007) of AAPA2006903137 from Mr Davey to Structural Monitoring Systems PLC (rather than SMS).
- We uphold the submission (on behalf of Tulip Bay and Mr Davey) referred to in para 167 above. Accordingly we make no finding as to whether or not AAPA2006903137 was an ‘Enhancement’ for the purposes of the Technology Agreement.
- Subject to the caveat referred to in para 205 below, even if the 1st Alleged Conduct constitutes a breach of the Technology Agreement by Tulip Bay and/or Mr Davey, the assignment AAPA2006903137 to Structural Monitoring Systems PLC (rather than SMS), referred to in para 166 above, effectively remedies any breach by Tulip Bay and/or Mr Davey.
- The caveat to para 204 above is that AAPA2006903137 was assigned to Structural Monitoring Systems PLC rather then SMS.
92 Counsel for SMS drew particular attention to par 169 above, and asserted that, if SMS had known that reliance was to be placed on the matters to which reference was made in pars 167 and 168 above, it would have made submissions with respect to them. Counsel confirmed that this is the only respect in which SMS is said to have been denied procedural fairness.
93 It should be noted that the submissions of Tulip and Mr Davey to which the arbitrators refer in the portion of reasons set out above are the submissions lodged on 20 January 2016, not the submissions lodged around 5.00 pm on 9 July 2015. It is therefore difficult to see why so much attention was given in these proceedings, in written submissions and oral argument, to the communications which preceded the service of written submissions on 9 July 2015. In the interests of completeness I will however give detailed consideration to that course of communications below.
94 More significant, however, is the fact that the submissions of 20 January 2016 respond specifically to the 22 issues identified by the arbitrators in the memorandum of 18 December 2015. Those issues were identified by reference to the points of claim, response to the points of claim and counterclaim and evidence exchanged by the parties well prior to 9 July 2015. It is therefore inherently unlikely that any response to those issues would deal with any issue that was not already alive, as between the parties, as a result of the exchange of those prior materials.
95 The inherent unlikelihood of submissions responding to the issues identified by the arbitrators traversing new ground is confirmed by a consideration of the particular issue dealt with by the arbitrators in the passages upon which SMS relies. As I have noted, in their response Tulip and Mr Davey made it quite clear that they relied upon the assignment of all the rights relating to the 2006 patent application to SMS in May 2007 as a defence to that portion of SMS’ claims, together with the subsequent application for patent made in 2008 by SMS in relation to the invention the subject of the 2006 patent application. Those facts, and their potential implications for the reliance which SMS placed upon the first alleged contravention (that is, the 2006 patent application) were made unmistakably clear by the response served by Tulip and Mr Davey on 30 April 2013 and were repeated in the substituted response served on 2 August 2013. SMS had every opportunity to put its case in relation to those matters before the arbitrators. Its failure to deal with those matters cannot be attributed to any conduct on the part of either the arbitrators or Tulip and Mr Davey.
96 There are other reasons why SMS’ claim to have been denied procedural fairness must be rejected. They include the fact that counsel for SMS was unable to identify any proposition which SMS could have put in relation to the issues arising from the assignment of the patent application to SMS which would have had any bearing on the outcome of the arbitration. So, counsel did not contend that SMS would have challenged the fact that it received an assignment of the 2006 patent application or that it had the opportunity to derive full benefit from the invention the subject of that application many years before SMS ever purported to terminate the Technology Agreement on the basis of repudiatory breach.
97 Counsel for SMS contended that even though any breach resulting from the 2006 patent application had been cured by the assignment of the rights to that application to SMS well before any question of termination for repudiation arose, it was nevertheless necessary for the arbitrators to determine whether that breach had occurred, so as to provide context for the arbitrators’ consideration of the breaches alleged in 2009. There are at least two reasons why that contention must be rejected. First, the nature of the breaches which occurred in 2009 cannot be readily assessed in the context of the agreed resolution of any earlier breach by the assignment of the relevant rights to SMS. Whether or not there was in fact an earlier breach does not assist in the characterisation of the events which took place in 2009 given the agreement which had resolved any earlier breach. Second and in any event, the arbitrators concluded that each of the patent applications made in 2009 constituted a breach of the Technology Agreement. The reason SMS was unsuccessful in the arbitration was its failure to establish that those breaches were of such a character as to constitute a repudiation of the Technology Agreement. Nothing which occurred in 2006 was or is capable of altering that characterisation.
98 Further, the assertion that SMS was denied procedural fairness by the arbitrators’ consideration of the materials to which reference has been made is based on a false factual premise. Both the originating summons and the statement of grounds provided by SMS assert that the arbitrators had directed that unless submissions were filed by 10.00 am on 9 July 2015 they would not be considered. As I have already noted, that assertion is not correct. The emails from Mr Clifford were to the effect that if the submissions were not served by that time, they might not be considered unless reasonable justification for late delivery was provided. However, reasonable justification for the very short delay in the provision of the submissions (seven hours) was provided and no direction was made by the arbitrators to the effect that those submissions would not be considered.
99 In effect, SMS unilaterally determined that it would not respond to those materials, in an attempt to force the arbitrators into accepting its proposition that the materials should not be considered because they were served seven hours after the time specified. In the circumstances which I have set out at , the position adopted by SMS was manifestly unreasonable and entirely unjustified. Any lack of response by SMS to the submissions which were served by Tulip and Mr Davey is entirely attributable to the unreasonable position which it adopted, and cannot be attributed to the conduct of the arbitrators. But in any event, as I have already noted, SMS has not identified any proposition which could have been put in relation to its receipt of an assignment of the rights to the 2006 patent application in 2007, and its lodgement of a patent application for the invention the subject of the 2006 patent application in 2008, well before any purported termination of the Technology Agreement, which could have had any bearing on the outcome of the arbitration.
100 Much the same observation may be made with respect to the submissions served by Tulip and Mr Davey on 20 January 2016, which are the submissions to which reference was made by Mr Clifford and Mr Hannan in the portion of their reasons set out above. Although those submissions were not specifically invited by Mr Clifford in his earlier memorandum identifying the 22 issues which the arbitrators proposed to address, there was no direction precluding the lodgement of submissions in relation to those issues. Further, after the submissions had been served, by email sent on 28 January 2016 to the solicitors for the parties and the other arbitrators Mr Clifford advised that the submissions would be considered by the arbitrators. The arbitrators never resiled from that position, and there was no reasonable basis upon which SMS could assume that, contrary to the express statement made in Mr Clifford’s email, the arbitrators would not in fact consider those submissions. It follows that any lack of response by SMS to the submissions served on 20 January 2016 is attributable to an entirely unjustified and unreasonable assumption that the arbitrators would not act in the manner which they had expressly indicated. Any lack of response to those submissions cannot be attributed to the conduct of the arbitrators.
101 It should also be noted that no direction had been made by the arbitrators for the provision of any responsive material by SMS to the submissions to be served by Tulip and Mr Davey on 9 July 2015. To the contrary, directions had been made on the assumption that each of the parties to the arbitration would file only one set of submissions, and no provision was made for SMS to serve submissions in reply to those served by Tulip and Mr Davey. Of course, this is not to say that SMS could not have applied to the arbitrators for the opportunity to put on submissions in reply, in respect of matters it had not anticipated. However, it did not do so. Nor, as I have already indicated, has SMS established any matter addressed in the submissions served by Tulip and Mr Davey which had not already arisen as an issue in the previous exchange of documents analogous to pleadings, and which could not therefore have been unanticipated.
102 Similarly, although the submissions served by Tulip and Mr Davey on 20 January 2016 were not expressly requested by the arbitrators, no direction had been made preventing the service of those submissions. Accordingly, there was nothing to prevent SMS serving submissions in response to those served by Tulip and Mr Davey and indeed, in the letter of 29 January 2016, the solicitors for Tulip and Mr Davey advised that they would not object to SMS providing responsive submissions within 14 days.
103 So, when detailed attention is given to the sequence of events and the precise terms of the directions made by the arbitrators, there is no basis for the contention that SMS was denied the opportunity to respond to the submissions and other materials served by Tulip and Mr Davey.
104 Of course this is not to suggest that the course adopted by the arbitrators should be commended as a model of appropriate procedure. In July 2015, and again in January 2016, SMS unilaterally adopted a dogmatic position with respect to the materials served by Tulip and Mr Davey, and unequivocally contended that those materials should not be considered by the arbitrators. Although the arbitrators made no directions to that effect, nor did they expressly respond to the contentions advanced on behalf of SMS. Although it was not reasonable for SMS to assume, in those circumstances, that its contention had been accepted by the arbitrators, it would clearly have been preferable, and more orthodox, for the arbitrators to provide the parties with a clear statement of position after SMS had advanced its contentions. As it happened, that did not occur until the reasons of Mr Hannan and Mr Clifford were published, in which rulings were made with respect to the materials that would and would not be received.
105 There may be cases in which it is entirely appropriate to reserve a position with respect to the admissibility of evidence or other materials until reasons for decision are published. Indeed, that course is not uncommonly adopted by courts. However, generally speaking, that course can only be adopted, consistently with the requirements of procedural fairness, if the parties are aware that that course is to be followed, and if all parties are given the opportunity to provide a response to the contentious materials, to be received in the event that the contentious materials are received.
106 That course was not followed in this case. However, for the reasons I have given, there was no reason for SMS to assume that the materials served by Tulip and Mr Davey would not be considered by the arbitrators, nor did SMS have any reason to assume that it would be precluded from responding to those materials. Further and in any event, those materials addressed issues which were live between the parties at all times since the exchange of documents analogous to pleadings. Further, SMS has not identified any matter or submission which it could or would have put before the arbitrators which could or would have had any bearing upon the outcome of the arbitration in relation to the single issue in respect of which it asserts it was denied procedural fairness.
107 For these reasons, although the approach taken by the arbitrators was less than optimal and somewhat unorthodox, SMS has failed to establish that it was denied procedural fairness by reason of the course followed, or that the arbitrators were guilty of misconduct of a kind which would justify setting aside the award.
108 SMS asserts that the award should be set aside by reason of misconduct by the arbitrators in the form of excessive delay in the delivery of the award.
109 There is no doubt that there was excessive delay in the delivery of the award. The evidence and submissions of each party had been served by 9 July 2015. Reasons for decision were published by two of the arbitrators on 18 November 2016, more than 16 months later. The third arbitrator indicated his agreement with those reasons on 20 December 2016 and the document described as the ‘final award’ was published on 13 January 2017 – 18 months after the evidence and submissions had been received.
110 However, it is of great significance to this ground of attack upon the award that the arbitrators proposed, and the parties agreed, that there would be no oral hearing. Accordingly, the period to which I have referred reflects the time taken by the arbitrators to consider the written materials which had been served by the parties. It was not the lapse of time between an oral hearing, at which evidence was adduced, or oral submissions received, and the publication of an award.
111 In its written submissions in support of this ground, SMS relied upon a series of decisions relating to the consequences of substantial delay between the conduct of what I would describe as a conventional court trial, and the publication of reasons by the court. When those cases are considered, it is clear that the principles enunciated in them have no application to the unusual circumstances of this case.
112 In NAIS v Minister for Immigration and Multicultural and Indigenous Affairs Marshall J accepted that excessive delay may support the conclusion that procedural fairness had been denied in a case in which a tribunal
reflects, in an adverse way, upon the demeanour of an applicant in its reasons for decision in circumstances where the evidence was given so long ago that it could not reasonably remember the demeanour in question.
However, because in that case the decision of the relevant tribunal did not turn on any question involving the demeanour of the applicant, the excessive delay did not result in the denial of procedural fairness.
113 Hill J gave consideration to the question of whether excessive delay could, of itself, support the conclusion that the decisionmaker had not performed his or her function. In that context he observed:
I do not think that it is a necessary inference just from the delay itself that the Tribunal member was unable as a result of that delay to fulfil his function of reviewing the decision[.]
In that case, the delay was in excess of five years.
114 In Mount Lawley Pty Ltd v Western Australian Planning Commission there was a delay of almost two and a half years between the completion of a very long and complex hearing relating to the valuation of resumed land and the publication of reasons for decision. The reasons published were brief and bore no appropriate relationship to the breadth and complexity of the issues ventilated during the hearing. Conclusions were expressed with respect to the credibility of witnesses based on demeanour without analysis in any depth of the reasons why the evidence given by one witness was preferred to that given by another. In those circumstances, the lengthy delay, coupled with the inadequacy of the reasons published led the appellate court to conclude that the judge at first instance had failed to engage with the issues which he had to determine.
115 Expectation Pty Ltd v PRD Realty Pty Ltd was a very similar case to Mount Lawley. Following a complex hearing relating to alleged misrepresentation with respect to the sale of some shopping centres, after almost two years after the witnesses gave their evidence, and after reserving his decision for 17 months, the trial judge published relatively brief reasons in which he expressed, in a conclusionary way, his acceptance of the evidence of some witnesses and his rejection of the evidence of others without detailed supporting analysis, and failed to deal with a number of the causes of action advanced by the applicant. Because the case turned critically upon the evaluation of the credibility of the witnesses giving competing evidence, the appellate court concluded that the delay had weakened the trial judge’s advantage of having seen and heard the witnesses – an advantage which was essentially lost by the time he came to publish his reasons.
116 In Monie v Commonwealth of Australia Hunt AJA expressed a principle very similar to that expressed by the Full Court of the Federal Court in Expectation. He observed:
But the trial judge’s advantage does weaken with time. Where there is a significant delay between seeing and hearing the witnesses and the delivery of judgment, the trial judge is obliged to give specific reasons for accepting or rejecting the evidence of those witnesses whose evidence plays an important part in the factual finding made.
117 In Sullivan v Trilogy Funds Management Ltd, in a case of significant delay between trial and the publication of reasons, the Full Court of the Federal Court, after referring to Expectation, observed:
Having rejected the appellants’ evidence on grounds of lack of credit, it was incumbent upon the trial judge to explain how, despite the delay, he was well able to recollect the oral testimony.
118 It is apparent from my brief analysis of the various cases upon which SMS relies that none has any application to the circumstances of this case. In this case there was no oral hearing at which testimony was given by witnesses or argument developed by counsel for the parties. The cases above establish that:
(a) the advantage which a court or tribunal at first instance derives from the hearing process diminishes over time, in the event of significant delay;
(b) in a case of significant delay between an oral hearing and the publication of reasons, where those reasons deal with contested findings of fact to which oral testimony relates, it is incumbent upon the court or tribunal at first instance to explain how the delay did not prejudice the fact finding process; and
(c) in cases of significant delay between an oral hearing and publication of reasons, an appellate court will look with special care at the reasons for any finding of fact challenged on appeal.
However, none of those circumstances apply to this case as there was no oral hearing, no contentious finding of fact which turned upon oral testimony, nor is there a challenge to any finding of fact made by the arbitrators.
119 When this general proposition was put to counsel for SMS he submitted that, in effect, the only material consequence of the delay to which he could point was the arbitrators’ failure to note that SMS had failed to respond to the submissions made by Tulip and Mr Davey in relation to the issue identified in the first ground of attack upon the award. In that context, counsel for SMS accepted that the delay fed into and supported the first ground of attack upon the award but could not, of itself and independently of that ground, support a conclusion that procedural fairness had been denied. As I have concluded that SMS was not denied the opportunity to respond to the case presented by Tulip and Mr Davey, it follows that the delay in the publication of the reasons and the award cannot constitute misconduct of a kind which would justify setting aside the award.
120 The originating process lodged by SMS asserts misconduct on the part of arbitrators Hannan and Clifford by ‘proceeding to decide the matter whereas three arbitrators … had been appointed’. The statement of grounds which I ordered SMS to provide in order to amplify the basis of its attack upon the award merely states, under the heading ‘Operative Delay’, that ‘[t]he Award was made by two of three arbitrators only’. Brief reference was made in the written submissions served by SMS to the facts relating to the publication of reasons and the award, followed by the proposition that:
Where the agreement mandated 3 arbitrators, the failure of the presiding arbitrator to have the third arbitrator’s advice can constitute a breach of the rules of natural justice.
relying upon Dental Board of Queensland v B.
121 However, that decision involves such different circumstances and issues as to provide no support for the proposition asserted by SMS. The case concerned the conduct of disciplinary proceedings commenced against a dentist pursuant to the provisions of the Health Practitioners (Professional Standards) Act 1999 (Qld). Pursuant to the provisions of that Act the proceedings were heard by a tribunal constituted by a judge assisted by three assessors. After a two day hearing before the judge and the assessors, the tribunal reserved its decision to a future hearing, and foreshadowed dealing with the sanction to be imposed in the event that the complaint was made out at that hearing.
122 When the hearing resumed and the tribunal published its reasons for concluding that the complaint had been made out, the assessors were not present. In the absence of the assessors the tribunal proceeded to receive submissions with respect to the sanction to be imposed, and imposed a sanction. The Court of Appeal of Queensland concluded that the relevant legislation required that the tribunal be assisted by assessors with respect to the performance of all parts of the tribunal’s function, including the imposition of sanctions. Accordingly, because, on the proper construction of the Act, the provision of assistance to the tribunal by assessors was, in effect, a condition of the valid exercise of the tribunal’s powers, the decision with respect to sanction was set aside by the court.
123 In the course of oral argument, counsel was unable to take the proposition any further than the very brief enunciation in the written submissions which I have set out above, or to cite any authority in support of the proposition other than the decision to which I have just referred. Counsel submitted orally that Mr Lord had not engaged in the decision at all, but was, of course, obliged to acknowledge that on 20 December 2016 Mr Lord wrote to Mr Clifford advising that he agreed with the reasons which had been previously published by Mr Clifford and Mr Hannan. No submissions were made with respect to the findings of fact which I should make, or the inferences which should be drawn with respect to the extent of Mr Lord’s engagement, having regard to the evidence which I have set out in detail but which was not really addressed in the written submissions.
124 The written and oral submissions provided on behalf of Tulip and Mr Davey were equally terse. They were essentially limited to a denial of the relevance of the decision in Dental Board of Queensland v B – a proposition with which I agree.
125 The attention given by the parties to this ground of attack upon the award is inversely proportional to its significance. For that reason, at the conclusion of the hearing I directed the exchange of further written submissions relating to this ground.
126 My hope that those submissions would provide assistance in the resolution of this ground was not fulfilled. As will be seen, the only authorities identified by the parties in those submissions are of little or no assistance. Surprisingly, neither party made reference to s 29 of the Act which provides:
- Form of award
(1) Unless otherwise agreed in writing by the parties to the arbitration agreement, the arbitrator or umpire shall –
(a) make the award in writing;
(b) sign the award; and
(c) include in the award a statement of the reasons for making the award.
(2) Where an arbitrator or umpire makes an award otherwise than in writing, the arbitrator or umpire shall, upon request by a party within 7 days after the making of the award, give to the party a statement in writing signed by the arbitrator or umpire of the date, the terms of the award and the reasons for making the award.
I will return to this section after addressing the cases to which the parties have referred.
127 Tulip and Mr Davey rely upon the decision of the Court of Appeal of England and Wales in Cargill International SA Antigua v Sociedad Iberica De Molturacion SA. In that case a dissenting arbitrator refused to sign the arbitral award. The applicable rules of the arbitration expressly required that the award be signed by all arbitrators. The court held that the dissenting arbitrator was properly replaced by the arbitral body supervising the arbitration, observing that:
There will be cases under rules or arbitration agreements in different terms from [the applicable rules] where … the dissenting arbitrator will be free not to sign the award, leaving a valid award signed simply by the majority.
128 The only real significance of this decision is to focus attention upon the importance of the agreement governing the procedure of the arbitration, including any rules incorporated pursuant to that agreement. The same focus is required by s 29 of the Act.
129 Tulip and Mr Davey also rely upon the decision of Rein AJ in the Supreme Court of New South Wales in Sea Containers Ltd v ICT Pty Ltd. In that case an award was attacked on the ground that an arbitrator’s dissenting view had not been included in the award but was separately published. That proposition was rejected on the basis that the inclusion or exclusion of the dissentient view within the award made no difference to the result, given that a provision of the applicable arbitration legislation provided for decisions by majority.
130 It was further submitted that it was necessary for the majority to deal explicitly with the dissentient view in its reasons. That proposition was also rejected. Rein AJ observed:
It is not uncommon in Courts of Appeal where traditionally three or more judges constitute the bench, for the majority to expressly refer to the dissentient view but it is far from universal. Provided the majority has considered the argument which found favour with the dissentient (assuming that argument to have been put), there is no procedural unfairness or manifest error in that respect.
131 In its written submissions SMS relies upon Murcia & Associates (a firm) v Grey. However, that case is entirely unrelated to the issue presently under consideration, and was concerned with the jurisdiction of a judge of the District Court of Western Australia to make an order that a solicitor cease acting. The case was cited in support of the trite proposition that there is a distinction between the exercise of powers within jurisdiction, and the exercise of powers outside jurisdiction. It is of absolutely no assistance to the issue presently under consideration.
132 SMS also relies upon the decision of the New South Wales Supreme Court in Rylands Brothers (Australia) Ltd v Morgan, which considered the question of whether the chairman of a committee appointed pursuant to applicable industrial relations legislation was entitled to vote as a member of the committee. The case turned upon a question of statutory construction but, in any event, the decision cited by SMS was unanimously overturned by the High Court of Australia. Although the subject matter is far removed from the present issue, it is of some interest that two members of the court relied upon a provision in the statute providing for a majority decision.
133 None of the cases cited by the parties have any direct application to the issue raised by the third ground of attack upon the award in this case. One of the cases cited concerns an entirely different proposition, and the other three are concerned with procedural issues which arose when the members of a multimember panel or tribunal disagreed. None were concerned with the issue presently at hand, which involves an allegation that one member of the arbitral tribunal did not, in fact, engage in the determination process.
134 The source of the arbitrators’ jurisdiction is the arbitration agreement. Further, the provisions of the Act potentially relevant to this issue are expressly made subject to contrary provision in the arbitration agreement.
135 In the present case, as I have noted, the arbitration agreement provides that, unless the parties agree upon a single arbitrator ‘the arbitration shall be heard and determined by three (3) arbitrators’ and ‘where there is more than one arbitrator, all decisions and awards shall be made by majority vote of the arbitrators’.
136 There are cases dealing with the nature and extent of an arbitrator’s obligation to hear and determine the relevant dispute, in the context of multimember arbitral panels. Those cases proceed on the appropriate assumption that each arbitrator is obliged to give proper and adequate consideration to the evidence and arguments advanced by the parties, and must turn his or her own mind to the appropriate resolution of the dispute, providing reasons which reveal the intellectual process which was followed to resolve the substantive issues in the dispute. Essentially, those cases turn on the factual question of whether all arbitrators did discharge that responsibility – a factual question given scant attention in the submissions provided by the parties in this case.
137 As in those cases, the critical question which must be answered in order to resolve this ground in this case is a question of fact – namely, did Mr Lord ‘hear’ and ‘determine’ the arbitration as required by the arbitration agreement? Given the mandatory terms in which that obligation is expressed in the arbitration agreement, there would be much to be said for the view that if, as a matter of fact, Mr Lord did not ‘hear’ and ‘determine’ the arbitration, the arbitration was not in accordance with the agreement, with the result that the award is not binding on the parties.
138 In the absence of authority to the contrary, the provision in the arbitration agreement for decisions and awards to be made by a majority would not validate a procedure which departed from the requirements of the arbitration agreement in that only two, not three, arbitrators heard and determined the dispute. The arbitration agreement records the intention of the parties that any dispute will be heard and determined by three arbitrators not two (absent agreement on a sole arbitrator), in a context in which the parties can be taken to have assumed and intended that the three arbitrators would interact with each other and participate equally in the hearing and determination process. That intention is more readily attributed to parties to an arbitration agreement such as this, whereby each party nominates one arbitrator and those arbitrators together appoint a presiding arbitrator. In that context, the nonparticipation of one arbitrator (in this case allegedly the arbitrator appointed by Tulip and Mr Davey) would deprive the appointing party of one of the benefits of the arbitration agreement. So, if in fact Mr Lord did not ‘hear’ and ‘determine’ the arbitration the provision in the arbitration agreement for a majority decision would not operate to validate the award subsequently delivered by Mr Clifford and Mr Hannan.
139 In the absence of any indication to the contrary in an arbitration agreement, it should be inferred that parties choosing to resolve their disputes by arbitration intend to achieve the informality, flexibility and expedition which are generally regarded as characteristic of that form of dispute resolution. So, in this case, in their reference to the arbitration being ‘heard’ by three arbitrators in their arbitration agreement, the parties should not be taken to have intended that there must be an oral hearing in relation to all disputes, of all kinds, referred to arbitration. Rather, in its context the word ‘heard’ should be construed as encompassing whatever procedure the arbitrators and parties adopt in order to place before the arbitrators the evidence and submissions required to determine the dispute.
140 In this case the arbitrators proposed, and the parties agreed, that the evidence and submissions upon which they relied would be presented to the arbitrators in writing, and that there would be no oral testimony or submissions. In such a context, the obligation imposed upon the arbitrators by the arbitration agreement was to consider the evidence and submissions presented by the parties and determine the terms upon which their dispute should be resolved. Therefore, the critical question is whether, as a matter of fact, Mr Lord considered the evidence and submissions presented by the parties and determined the terms upon which their dispute should be resolved.
141 Despite me raising the issue, no party sought to join any of the arbitrators. If they had been joined, the procedures of the court would have been available to obtain information with respect to the extent of Mr Lord’s engagement in the determination of the dispute. Accordingly, the question is whether an inference can and should be drawn from the evidence which I have set out in detail to the effect that Mr Lord did not consider the evidence and submissions presented by the parties or come to a conclusion as to the terms upon which their dispute should be resolved. That question is to be addressed in a context in which SMS carries the burden of proving misconduct of a kind which would justify the intervention of the court to set aside the award.
142 The pertinent features of the evidence which bear upon this question are as follows:
(a) Mr Lord was copied into all communications between the parties and the other arbitrators;
(b) throughout the proceedings express provision was made for Mr Lord’s contribution, should he have formed a view different to that of the other arbitrators;
(c) there were a number of occasions upon which Mr Lord expressed no view in relation to procedural issues addressed by the other arbitrators, albeit in a context in which his concurrence with the views formed by those other arbitrators might be inferred;
(d) there is no reason to suppose that Mr Lord was not provided with the evidence and submissions upon which the parties relied at the time those materials were served;
(e) it is a fair inference from the evidence that the joint reasons published by Mr Clifford and Mr Hannan were developed by conferral between those two arbitrators with little or no input from Mr Lord;
(f) the joint reasons to which I have referred were provided to Mr Lord who indicated his concurrence with those reasons;
(g) the reasons with which Mr Lord concurred included a draft award;
(h) Mr Lord has not signed either the first or amended award, which has been signed by the other arbitrators, and no provision was made for Mr Lord to sign any award; and
(i) Mr Lord did not charge any fees for his services as arbitrator.
143 As I have indicted, I would infer, and find, that Mr Lord did not confer with Mr Hannan and Mr Clifford in relation to the terms of their reasons. However, I would not construe the arbitration agreement as requiring the arbitrators to confer with each other prior to the publication of reasons as a condition of the exercise of their jurisdiction even though, in the ordinary course, such conferral would be expected. It is sufficient for the valid exercise of jurisdiction if each arbitrator turns his (or her) mind to the evidence, the submissions of the parties, and the terms upon which the dispute should be resolved, and either expresses or concurs in reasons which reveal the intellectual process which was followed.
144 Mr Lord has produced a document which has been distributed to the other arbitrators and the parties in which he records his concurrence with the reasons prepared by Mr Hannan and Mr Clifford. There is no reason to suppose that he did not have the evidence and the submissions of the parties at the time he expressed that concurrence. In the absence of any evidence, I am not prepared to infer that Mr Lord expressed that concurrence without turning his mind to the evidence and submissions which he presumably had, or without turning his mind to the terms upon which the dispute between the parties should be resolved. To express concurrence without giving genuine consideration to the evidence and submissions, or without turning his mind to the proper determination of the dispute, would be an abdication of Mr Lord’s responsibilities as arbitrator, and I am not prepared to infer that he would take that course without some evidence to that effect.
145 Neither party drew my attention to the fact that Mr Lord had not charged any fee for his services, or presented any submissions with respect to the inferences which might be drawn from that fact. In my view it is a fact of considerable significance to the question of the extent of Mr Lord’s engagement. However, it does not follow from the fact that Mr Lord charged no fees that he did not consider the evidence or submissions served by the parties, or turn his mind to the terms upon which their dispute should be resolved. In the absence of evidence it is of course a matter of speculation and conjecture, but there might be reasons for Mr Lord’s failure to render a fee other than his failure to engage with the issues in the arbitration – such as, for example, a desire to maintain favourable commercial relations with one or other party, or perhaps as a result of embarrassment arising from the delay in resolving the dispute.
146 For these reasons I conclude that SMS has failed to discharge the burden of proving that Mr Lord did not consider the evidence and submissions presented by the parties or determine the terms upon which their dispute should be resolved. In the words of the arbitration agreement, SMS has failed to prove that Mr Lord did not ‘hear and determine’ the dispute.
147 As I have noted, Mr Lord did not sign either version of the award issued in January 2017. However, given his concurrence with the reasons and draft award prepared by Mr Hannan and Mr Clifford, there is no reason to suppose that he would not sign the corrected version of the award if requested to do so (unlike the arbitrator in the Cargill case). Further, in the absence of such a request, it could not be said that Mr Lord’s failure to sign the award constitutes misconduct of a kind which would justify setting aside the award in circumstances in which I have found that Mr Lord fulfilled the obligations imposed by the arbitration agreement to ‘hear and determine’ the dispute. As I have noted, SMS has not referred to s 29 of the Act, and has not advanced any submission to the effect that the award signed by Mr Hannan and Mr Clifford is invalid by reason of noncompliance with that section. If that submission had been made, it seems that the references in s 29 to ‘the arbitrator or umpire’ should be construed as extending to all arbitrators in the case of a multimember arbitration, but there would be a question as to whether the provision in the arbitration agreement authorising an award to be ‘made by a majority vote of the arbitrators’ constituted an agreement in writing to depart from the requirements of s 29 of the Act.
148 I reiterate my earlier observation to the effect that the provision in the arbitration agreement relating to majority determination could not validate a procedure in which only two arbitrators ‘heard and determined’ the dispute. However, I am presently concerned with the question of form, rather than substance, and on the basis that I have found that all three arbitrators ‘heard and determined’ the dispute, the provisions of the arbitration agreement with respect to majority determination might arguably be relevant to the form of the award required.
149 If this argument had been put, a question would also have arisen as to whether compliance with the formal requirements imposed by s 29 of the Act was a condition of the validity and enforceability of an award – a question which would have been addressed in accordance with the principles enunciated in Project Blue Sky Inc v Australian Broadcasting Authority. On the face of it, the language of s 29 of the Act, construed in the context of the Act as a whole, would not appear to suggest a legislative intention to the effect that, in a case such as this, where three arbitrators heard and determined the dispute and agreed as to the terms upon which the dispute would be resolved, and as to the reasons for that determination, an award signed by only two of those arbitrators would not be valid or enforceable. However, because the point has not been raised or addressed by the parties, I do not express any concluded view upon it.
150 For these reasons SMS has failed to establish that Mr Lord did not ‘hear and determine’ the dispute referred to arbitration and ground 3 must be dismissed.
151 As SMS has failed to establish misconduct on the part of the arbitrators which would justify the intervention of the court in setting aside the award, these proceedings must be dismissed.