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

 

 

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

 

Judge(s): SIR GEOFFREY VOS

THE MASTER OF THE ROLLS

– and –

SIR JULIAN FLAUX

THE CHANCELLOR OF THE HIGH COURT

– and –

LORD JUSTICE MALES

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

Strand, London, WC2A 2LL

Parties: MANCHESTER CITY FOOTBALL CLUB LTD

Appellant

 

– and –

 

THE FOOTBALL ASSOCIATION PREMIER LEAGUE LTD & OTHERS

Respondent

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

&

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

Appealed From: [2021] EWHC 711 (Comm)

 

JUDGMENT

Sir Julian Flaux C:

Introduction

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

Factual background

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

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

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

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

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

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

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

The judgment under appeal

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

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

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

The grounds of appeal

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

Jurisdiction

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

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

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

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

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

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

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

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

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

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

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

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

The parties’ submissions on the appeal

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

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

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

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

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

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

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

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

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

Discussion

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

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

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

Lord Justice Males:

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

The Master of the Rolls:

  1. I agree with both judgments.

 

 

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

 

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

VID 1043 of 2012

VID 1044 of 2012

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

v

CASTEL ELECTRONICS PTY LTD

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

 

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

Judgment: THE COURT ORDERS THAT:

1.           The appeal be dismissed with costs.

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

Cases cited: AJU v AJT [2011] SGCA 41; [2011] 4 SLR 739
Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd [2004] 2 NZLR 614
Applicant M164/2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2006] FCAFC 16
Armah v Government of Ghana [1968] AC 192
Atkinson v Hastings Deering (Queensland) Pty Ltd (1985) 71 ALR 93
Attorney General of Canada v S D Myers Inc [2004] 3 FCR 368
Attorney-General v Ryan [1980] AC 718
Australian Broadcasting Tribunal v Bond [1990] HCA 33; 170 CLR 321
Australian Gas Light Co v Valuer-General (1940) 40 SR (NSW) 126
Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139
Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422
Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969
Boardwalk Regency Corp v Maalouf (1992) 6 OR (3d) 737
Bushell v Secretary of State for the Environment [1981] AC 75
Callaghan v Williams C Lynch Pty Ltd [1962] NSWR 871
Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd [2012] FCA 21; 287 ALR 297
Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2) [2012] FCA 1214
Collins v Minister for Immigration and Ethnic Affairs (1981) 58 FLR 407
Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192: 157 FCR 45
Corvetina Technology Ltd v Clough Engineering Ltd [2004] NSWSC 700; 183 FLR 317
CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33; [2011] 4 SLR 305
Cullen v Welsbach Light Co [1907] HCA 3; 4 CLR 990
Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Shell International Petroleum Co Ltd [1990] 1 AC 295
Downer-Hill Joint Venture v Government of Fiji [2005] 1 NZLR 554
Dranichnikov v Minister for Immigration and Multicultural Affairs [2003] HCA 26; 197 ALR 389
Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations [2011] FCAFC 88; 195 FCR 318
Emerald Grain Australia Pty Ltd v Agrocorp International Pte Ltd [2014] FCA 414
Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167
F Hoffman-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295
Ferguson v Cole [2002] FCA 1411; 121 FCR 402
Fox v PG Wellfair Ltd [1981] 2 Lloyd’s Rep 514
FTZK v Minister for Immigration and Border Protection [2014] HCA 26
Gallaway Cook Allan v Carr [2013] 1 NZLR 826
Gas & Fuel Corporation of Victoria v Wood Hall Ltd & Anor [1978] VR 365
Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation Berhad [1998] HCA 65; 196 CLR 161
Green v The Queen [2011] HCA 49; 244 CLR 462
Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468
Haider v JP Morgan Holdings Australia Ltd [2007] NSWCA 158
Hampton Court Ltd v Crooks [1957] HCA 28; 97 CLR 367
Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 2 HKC 205
Interbulk Ltd v Aiden Shipping Co Ltd (The Vimeira) [1984] 2 Lloyd’s Rep 66
Jarratt v Commissioner for Police for NSW [2005] HCA 50; 224 CLR 44
JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237
John Holland Pty Ltd (fka John Holland Construction & Engineering Pty Ltd) v Toyo Engineering Corp (Japan) [2001] 2 SLR 262
Kempinski Hotels SA v PT Prima International Development [2011] SGHC 171; [2011] 4 SLR 633
Kioa v West [1985] HCA 81; 159 CLR 55
Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390
LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2012] SGCA 57; [2013] 1 SLR 125
Mahon v Air New Zealand [1984] AC 808
McPhee v S Bennett Ltd (1934) 52 WN (NSW) 8
Mediterranean & Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948] 2 All ER 186
Methanex Motunui Ltd v Spellman [2004] 1 NZLR 95
MGM Productions Group Inc v Aeroflot Russian Airlines 91 Fed Appx 716 (2d Cir 2004)
Minister for Immigration and Citizenship v Li [2013] HCA 18; 249 CLR 332
Minister for Immigration and Ethnic Affairs v Pochi (1980) 31 ALR 666
Minister for Immigration and Multicultural Affairs v Rajamanikkam [2002] HCA 32; 210 CLR 222
Mobil Oil Australia Pty Ltd v Federal Commissioner of Taxation [1963] HCA 41; 113 CLR 475
Motrix Supplies Pty Ltd v Bonds and Kirby (Victoria Avenue) Pty Ltd (Sup Ct of NSW Commercial Division, 12 September 1990, Giles J, BC9002025)
Pacific Recreation Pte Ltd v SY Technology Inc [2008] SGCA 1; [2008] 2 SLR(R) 491
Parker v Paton (1941) 41 SR (NSW) 237
Parsons Whittemore Overseas Co Inc v Société Générale de l’Industrie du Papier (RAKTA) 508 F 2d 969 (2d Cir 1974)
Povey v Qantas Airways Ltd [2005] HCA 33; 223 CLR 189
Premium Nafta Products Ltd v Fili Shipping Co Ltd [2007] UKHL 40
PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2006] SGCA 41; [2007] 1 SLR 597
PT First Media TBK v Astro Nusantara International BV [2013] SGCA 57
Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd [2000] 3 NZLR 338n
Quintette Coal Ltd v Nippon Steel Corporation (1990) 50 BCLR (2d) 207
R v Corporation of the Town of Glenelg; Ex parte Pier House Pty Ltd [1968] SASR 246
R v Deputy Industrial Injuries Commissioner, Ex parte Moore [1965] 1 QB 456
R v District Council of Berri; Ex parte Eudunda Farmers Cooperative Society Ltd (1982) 31 SASR 342
R v Ludlow; Ex parte Barnsley Corporation [1947] KB 634
R v Nat Bell Liquors Ltd [1922] 2 AC 128
Ramsay v Watson [1961] HCA 65; 108 CLR 642
Re Alexander; Ex parte Ferguson (1944) 45 SR (NSW) 64
Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 [2003] HCA 30; 198 ALR 59
Re Minister for Immigration and Multicultural Affairs; Ex parte Miah [2001] HCA 22; 206 CLR 57
Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam [2003] HCA 6; 214 CLR 1
Re Resort Condominiums International Inc [1995] 1 Qd R 406
RF Brown & Co Limited v T & J Harrison (1927) 137 LT 549
Riverstone Meat Co Pty Ltd v Lancashire Shipping Co Ltd [1961] AC 807
Salemi v MacKellar (No 2) [1977] HCA 26; 137 CLR 396
Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275
Shipping Corporation of India Ltd v Gamlen Chemical Co Australasia Pty Ltd [1980] HCA 51; 147 CLR 142
Siemens Ltd v Schenker International (Australia) Pty Ltd [2004] HCA 11; 216 CLR 418
Soh Beng Tee & Co Pte Ltd v Fairmont Development Pte Ltd [2007] SGCA 28; [2007] 3 SLR(R) 86
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Starkey v State of South Australia [2011] SASC 34
Sui Southern Gas Co Ltd v Habibullah Coastal Power Co (Pte) Ltd [2010] SGHC 62; [2010] 3 SLR 1
TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia [2013] HCA 5; 295 ALR 596
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Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452
Uganda Telecom Ltd v Hi-Tech Telecom Pty Ltd [2011] FCA 131; 277 ALR 415
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Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd [2000] QB 288
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Texts and articles: M Aronson and M Groves, Judicial Review of Administrative Action (5th ed)
N Blackaby and C Partasides with A Redfern and M Hunter, Redfern and Hunter on International Arbitration (5th ed)
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Department of Justice (Hong Kong), Summary of Submissions and Comments on the Consultation Paper on Reform of the Law of Arbitration in Hong Kong and Draft Arbitration Bill (2009)
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J M Evans, de Smith’s Judicial Review of Administrative Action (4th ed)
H M Holtzmann and J E Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer Law and Taxation Publishers)
Hong Kong Institute of Arbitrators, Report of Committee on Hong Kong Arbitration Law (30 April 2003)
Hong Kong International Arbitration Centre Committee on Arbitration Law, Hong Kong International Arbitration Centre Committee on Arbitration Law (1996)
Law Commission (NZ), Arbitration (Report No 20, 1991)
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Law Reform Committee (Singapore), Sub-Committee on Review of Arbitration Laws: Report (1993)
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HWR Wade, Administrative Law (2nd, 3rd, 5th and 10th eds)
Representation: Counsel for the Appellant:        PB Murdoch QC with AP Trichardt

 

Solicitor for the Appellant:        Norton Rose Australia

 

Counsel for the Respondent:      JWS Peters SC with D Bailey

 

Solicitor for the Respondent:     Hunt & Hunt

 

REASONS FOR JUDGMENT

THE COURT

  1. On 26 November 2013, after the oral argument on the appeal, the Court made orders dismissing each of the appeals with costs.  These are the reasons for making those orders.
  2. The appellant (“TCL”), a company organised under the laws of the People’s Republic of China, and the respondent (“Castel”), an Australian company, were parties to an agreement for the distribution in Australia of air conditioning units manufactured by TCL in China.  Castel was the exclusive Australian distributor.  The agreement provided for arbitration in the event of any dispute that could not be resolved by mutual agreement.  The arbitration agreement was one to which the International Arbitration Act 1974 (Cth) (“the IAA”) applied.
  3. Disagreements arose between the parties.  The dispute between the parties was submitted to arbitration for resolution.  On 23 December 2010, after a ten-day hearing, the arbitral panel (Dr Gavan Griffith AO, the Hon Alan Goldberg AO and Mr Peter Riordan SC) delivered an award in Castel’s favour in the sum of $2,874,870.  On 27 January 2011, the arbitrators handed down a further award of $732,500 in costs.
  4. The foundation of the award was the selling by TCL in Australia between 2004 and 2008, in breach of its promise to Castel of exclusivity of rights of distribution of TCL products, of air conditioning units manufactured by TCL, but not bearing the TCL brand.  These units were referred to as Other Equipment Manufacture products (“OEM products”).  The quantum of the award was reached by making an assessment of the financial impact of the importations of OEM products upon Castel’s sales.
  5. TCL sought to set aside the award under Art 34 of the UNCITRAL Model Law on International Commercial Arbitration (As adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006) (“the Model Law”), which has the force of law in Australia by s 16 of the IAA. Castel sought to enforce the award under Art 35 of the Model Law. TCL resisted enforcement under Art 36 of the Model Law.
  6. The grounds for TCL’s two claims (the setting aside of the award under Art 34 and the resistance of enforcement under Art 36) were identical: the asserted failure by the arbitrators to accord TCL procedural fairness such that there had been a breach of the rules of natural justice in connection with the making of the award, and so, it was asserted, the award was in conflict with, or contrary to, the public policy of Australia: see Arts 34(2)(b)(ii) and 36(1)(b)(ii) and ss 16 and 19 of the IAA.
  7. The asserted breaches of the rules of natural justice arose from the making by the arbitrators of three central findings of fact.  The three findings, referred to by the primary judge as the “14% Starting Point Finding”, the “Uplift Finding” and the “Lost Sales Finding” (each of which is explained later) were said to have been made in the absence of probative evidence, and were findings upon which TCL was said to have been denied an opportunity to present evidence and argument.
  8. In advancing its argument before the primary judge (and its appeal) TCL submitted that the proper approach was to examine the facts of the case afresh and revisit in full the questions which were before the arbitrators in order to evaluate whether or not probative material supported the factual conclusion.
  9. TCL had also argued that the Federal Court had no jurisdiction to entertain the applications before it.  In an earlier judgment (Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd[2012] FCA 21; 287 ALR 297) the primary judge rejected this argument. TCL then applied in the original jurisdiction of the High Court to prohibit the Federal Court from dealing with the matter on grounds involving lack of jurisdiction and constitutional invalidity of the conferral of jurisdiction on the Court. That application was dismissed: TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia [2013] HCA 5; 295 ALR 596. The resolution of this question led to the abandonment of the grounds of appeal from the primary judge’s earlier decision upon jurisdiction.
  10. In a full and careful judgment published on 2 November 2012 (Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2) [2012] FCA 1214), the primary judge rejected TCL’s contention as to how the application should be approached; nevertheless, he examined the structure and foundations of the award, the evidence before the arbitrators and the factual findings therein; and rejected TCL’s resistance to enforcement of the award. On 19 November 2012, the primary judge published a judgment on costs and made orders enforcing the award and dismissing TCL’s application to set it aside. His Honour was correct to make the orders he did.
  11. The appeal raised matters of some importance for the operation of the IAA in Australia, and in particular the content of the “rules of natural justice” for the purpose of s 19 of the IAA (and necessarily also for s 8(7A)), and the method of approach to applications of the kind made here by TCL.

The approach of the primary judge

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

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

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

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

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

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

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

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

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

The dealing with the substantive applications by the primary judge

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

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

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

(c)       its Queensland manager, Mr Trevor Francis.

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

(a)       an expert economist, Mr Phillip Williams;

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

(c)       its Sales Director, Mr Frank Wang.

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

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

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

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

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

The “no evidence rule”

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

The application of the principle to the three impugned findings

The 14% Starting Point Finding

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

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

232      Factors which would suggest a minimal effect are:

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

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

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

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

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

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

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

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

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

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

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

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

The Uplift Finding

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

235      The Tribunal also notes that:

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

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

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

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

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

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

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

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

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

The Lost Sales Finding

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

The hearing rule

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

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

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

Enforcement of the award

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

The Notices of Appeal

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

Grounds of legal principle and approach

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

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

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

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

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

The IAA and public policy

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

ARTICLE V

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(b)       the court finds that:

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

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

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

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

Article 36.       Grounds for refusing recognition or enforcement

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

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

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

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

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

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

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

(b)       if the court finds that:

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

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

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

Segment #3

Segment #4

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

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

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

The law in the region

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

New Zealand legislation

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

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

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

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

(i)        during the arbitral proceedings; or

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

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

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

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

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

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

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

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

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

Singapore legislation

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

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

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

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

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

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

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

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

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

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

Hong Kong legislation

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

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

(Emphasis added.)

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

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

(Emphasis added.)

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

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

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

The relevant international case law

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

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

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

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

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

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

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

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

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

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

(Citations omitted.)

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

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

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

The disposition of these appeals

The asserted breach of the rules of natural justice

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

Residual aspects of the submissions of the appellant on the appeal

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

 

Associate:
Dated:        16 July 2014

 

Vale S.A. & Ors v Steinmetz & Ors (Rev 1) [2021] EWCA Civ 1087 (16 July 2021)

 

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE

Vale S.A. & Ors v Steinmetz & Ors (Rev 1) [2021] EWCA Civ 1087 (16 July 2021)

FILE NUMBER: A4/2021/0222
JUDGE(S): LORD JUSTICE BEAN

LORD JUSTICE MALES

and

LORD JUSTICE LEWIS

REGISTRY: Royal Courts of Justice

Strand, London, WC2A 2LL

DATE OF HEARING: 29th June 2021
DATE OF JUDGMENT: 16th July 2021
CASE MAY BE CITED AS: Vale S.A. & Ors v Steinmetz & Ors (Rev 1) [2021] EWCA Civ 1087 (16 July 2021)
MEDIUM NEUTRAL CITATION: [2021] EWCA Civ 1087
DIVISION: CIVIL DIVISION
LIST
PARTIES: (1) VALE S.A.

(2) VALE HOLDINGS BV

(3) VALE INTERNATIONAL S.A.

Claimants/

Respondents

– and –

(1) BENJAMIN STEINMETZ

(2) DAG LARS CRAMER

(3) MARCUS STRUIK

(4) ASHER AVIDAN

(5) JOSEPH TCHELET

(6) DAVID CLARK

Defendants

(7) BALDA FOUNDATION

(8) NYSCO MANAGEMENT CORPORATION

Defendants/

Appellants

REPRESENTATION: Stephen Houseman QC & Frederick Wilmot-Smith (instructed by PCB Byrne LLP) for the

 

Appellants

 

Sonia Tolaney QC & James Ruddell (instructed by Cleary Gottlieb Steen & Hamilton LLP)

for the Respondents

 

The 1st to 6th Defendants took no part in the appeal

Appeal: Vale SA & Ors v Steinmetz & Ors [2020] EWHC 3501 (Comm)

 

 

JUDGMENT

 

Lord Justice Males:

 

  1. This appeal is concerned with the impact, if any, of an arbitration award rescinding a contract for fraud on a proprietary claim against a stranger to the arbitration.

 

  1. For the purpose of the appeal it is common ground that, upon such rescission, a constructive trust may arise which enables the rescinding party to make a proprietary claim to recover the proceeds of a payment made pursuant to the contract, and that such a claim can be made to recover traceable trust property in the hands of a third party who is not a good faith purchaser for value without notice of the fraud. So if A pays money to B under a contract between them which is then rescinded for fraud, B may hold the money on trust for A. Similarly, if B has transferred the money to C who is not a good faith purchaser for value without notice, it may be held by C on trust for A.

 

  1. But the question is whether such a proprietary claim against the third party (C) is barred as a result of an arbitration award between the contracting parties in which it is held, perhaps wrongly, that the rescinding party (A) does not have a personal restitutionary claim to recover the payment in question from its contractual counterparty (B).

 

  1. Depending on the answer to that question, a further question may arise from the fact that the payment in question was not made by the contracting party but by another company within the same group. Who then is entitled to make any proprietary claim? Is it the contracting party whose obligation was discharged by the payment made by its subsidiary? Or is it the subsidiary who actually made the payment?

 

The factual background

 

  1. The context in which these issues arise is a joint venture agreement dated 30th April 2010 between Vale S.A. (the first claimant in the action and the first respondent to the appeal, or A in the illustration above) (“Vale”) and a company called BSG Resources Ltd (“BSGR” or B in the illustration above), pursuant to which BSGR sold 51% of a subsidiary company, BSG Resources (Guinea) Ltd, to a wholly owned subsidiary of Vale. The price included an Initial Consideration of US $500 million payable by Vale. In fact the payment was not made by Vale itself but was made, upon Vale’s instructions, by Vale International S.A. (the third claimant in the action and the third respondent to the appeal) (“Vale International”).

 

  1. BSGR was owned by Nysco Management Corporation, a BVI company which is the eighth defendant in the action and the second appellant (“Nysco”). Nysco was owned by Balda Foundation, a Liechtenstein Foundation which is the seventh defendant in the action and the first appellant (“Balda”). The beneficiaries of Balda are the first defendant, Mr Benjamin Steinmetz, and members of his family. It is common ground for the purpose of this appeal that at least some part of the Initial Consideration received by BSGR was transferred to Balda and Nysco (together “the appellants”, or C in the illustration above). It must be assumed, although this will if necessary be a matter for investigation at trial, that the payments thus made to the appellants can be traced into their accounts in accordance with standard principles of tracing in equity.

 

  1. The joint venture agreement was concluded because a wholly owned subsidiary of BSG Resources (Guinea) Ltd held valuable mining licences from the Republic of Guinea entitling it to exploit substantial deposits of iron ore. Unfortunately, however, the Government of Guinea revoked those licences after the joint venture had been concluded on the ground that they had been procured by bribery.

 

The LCIA award

 

  1. Revocation of the licences gave rise to a claim by Vale against BSGR for (among other things) rescission of the joint venture agreement for fraudulent misrepresentation. Because the joint venture agreement provided for arbitration in London under LCIA Rules, that claim was pursued in arbitration before a tribunal consisting of Sir David A R Williams QC, Dr Michael Hwang and Professor Filip de Ly (Chairman), all wellknown international arbitrators. It was evidently a substantial arbitration, lasting over five years and resulting in an award running to 280 pages and 1005 paragraphs. Some further indication of the scale of the arbitration can be seen from the fact that Vale’s lawyers charged a total of US $20 million, while the arbitrators’ fees amounted to over £1.5 million.

 

  1. In their award, dated 4th April 2019, the arbitrators upheld Vale’s claim for fraudulent misrepresentation and, as a result, made an order rescinding the joint venture agreement. However, they rejected Vale’s claim in restitution for the return of the Initial Consideration. Mr Stephen Houseman QC for the appellants subjected the arbitrators’ reasoning to a close analysis and I therefore set out the relevant paragraphs of the award (the emphasis is the arbitrators’):

 

“920. The Tribunal holds that BSGR has not fulfilled its burden to establish the bar of restitutio in integrum impossible [sic.], and that Vale is entitled to equitable rescission of the Joint Venture Agreements.

 

  1. In considering the orders to make to achieve restitutio in integrum, the Tribunal recalls that the objective of rescission is to place the Parties in their original positions as far as possible by ordering each side to return the benefits it has received from the other side. In this connection, the Tribunal notes that rescission only envisages the return of benefits which one party transferred to the other party, and does not envisage the return of benefits that one party originally transferred to a third party.

 

  1. In this case, Vale claims the return of (1) the Initial Consideration; (2) the Outstanding Loan Amount; (3) the Feasibility Study Funding; and (4) Internal Costs. The Tribunal considers that the first three heads cannot be claimed under rescission, and the Tribunal cannot order BSGR to pay these sums to Vale as part of its rescission order, because they do not involve transfers of money from Vale but involve transfers of money from Vale’s subsidiaries:

 

922.1. The Initial Consideration was paid by Vale International to BSGR. …

 

  1. The Tribunal also considers that the fourth head of Internal Costs cannot be claimed under rescission because, although the Internal Costs were paid by Vale, the recipient of these payments was not BSGR.

 

  1. Accordingly the Tribunal must next consider if these sums can be claimed as damages for fraudulent misrepresentation.”

 

  1. The arbitrators went on to consider whether Vale could recover the same sums (including the Initial Consideration) as damages for fraudulent misrepresentation. They concluded at paragraph 944 that it could (again, the emphasis is in the award):

“944. As the Tribunal has explained at paragraph 926 of this Award, the claimant is entitled to all expenditures which he had incurred in reliance on the defendant’s representation. So when the question arises as to the causative link between the tort of deceit and the losses suffered, the law only asks one question: did the claimant incur those losses in reliance on the defendant’s representation? Once it is shown that the claimant did so rely, the causative link is established, and the loss is taken to have directly flowed from the deceit. BSGR may claim that there was a slump in iron ore value, or an intervening act in the form of the [Government of Guinea’s] revocation of the mining rights, but these arguments are wholly immaterial. All that matters is whether Vale incurred these losses in reliance on BSGR’s deceit for the purpose of establishing the causative link. Framed as such, this must be answered in the affirmative. The Tribunal has found at paragraph 724 above that Vale relied on BSGR’s deceit to enter into the Framework Agreement [i.e. the joint venture agreement] and the SHA and suffered loss as a result.”

 

  1. Accordingly the arbitrators awarded damages to Vale which included US $500 million in respect of the Initial Consideration. The material parts of their formal award, which they called the “Dispositif”, were as follows:

 

“1004. For all of the foregoing reasons and rejecting all submissions to the contrary, the Tribunal hereby FINDS (paragraph 676) that the Claimant has established its case alleging fraudulent misrepresentation. All other causes of action by Vale are hereby dismissed.

 

  1. As a consequence of its finding in paragraph 1004, the Tribunal hereby ORDERS AND AWARDS the following relief.

 

1005.1 The Tribunal hereby rescinds the Framework Agreement and the SHA on account of fraudulent misrepresentation (paragraph 920).

 

1005.2 The Tribunal orders BSGR to pay forthwith to Vale damages of USD 1,246,580,846 on account of fraudulent misrepresentation (paragraph 980).”

 

  1. The arbitrators’ further award of interest and costs need not be set out.

 

  1. BSGR has not paid any part of the sum awarded.

 

The proprietary claim in this action

 

  1. In the present action the claimants make various claims against Mr Steinmetz, his companies and others, including the appellants, who are alleged either to have been involved in the fraud or to have received its proceeds, directly or indirectly. The appellants, who were not parties to the arbitration, deny any fraudulent conduct. However, they accept for the purpose of this appeal that the claimants have a properly arguable case that the joint venture agreement was procured by fraud.

 

  1. One such claim is a proprietary claim over assets held by the appellants as the recipients of traceable proceeds of the Initial Consideration.

 

  1. It was common ground for the purpose of the application before the judge and the appeal before this court that, if a contract is voidable for fraud, the innocent party’s right to rescind the contract gives rise to an equity (referred to in argument as a “rescission equity”), such that upon rescission a payment made by the rescinding party is impressed with a constructive trust (a “rescission trust”) (see the discussion at Goff & Jones, The Law of Unjust Enrishment, 9th Ed (2016), paras 40-18 to 40-28 and Snell’s Equity, 34th Ed (2019), paras 2-006 and 2-007). It was also common ground for the purpose of the appeal that this rescission equity can in principle be asserted against a third party transferee of the payment who is not a good faith purchaser for value without notice of the fraud; and that the appellants were not such good faith purchasers for value.

 

  1. Accordingly, on the basis that some or all of the Initial Consideration of US $500 million was transferred to the appellants, the claimants’ case is that upon rescission of the joint venture agreement the money in the appellants’ hands was impressed with a rescission trust in favour of either Vale or Vale International so as to give rise to a proprietary claim against them.

 

  1. However, the appellants contend that no such rescission trust arose against BSGR in this case because of the way in which the arbitrators dealt with the issue of rescission in the arbitration and that, as a result, no proprietary claim is available against either of them as transferees of the Initial Consideration from BSGR. By an application notice dated 18th May 2020 the appellants sought summary judgment dismissing the proprietary claim against them. They accepted that the claims as a whole would have to go to trial, but submitted that this proprietary claim is bad in law as a result of the award in the arbitration between Vale and BSGR (and for other reasons rejected in the court below with which we are not now concerned) and that its summary dismissal would reduce the scope of the issues to be determined at trial.

 

The judgment

 

  1. The judge, Mr Justice Andrew Baker, was sceptical whether the summary dismissal of the proprietary claim would make much difference to the scope of the trial, but nevertheless determined the application. He held that the award did not afford the appellants any defence to the proprietary claim made against them and that nothing was likely to emerge at trial to change this position. Accordingly he not only dismissed the application for summary judgment, but made a declaration that the award did not afford the appellants any defence to the proprietary claim pleaded against them.

 

  1. Mr Justice Andrew Baker held that, although the arbitration award was binding for what it decided as between Vale and BSGR, and even though it might now be too late for Vale to assert a proprietary claim against BSGR, the award did not affect Vale’s claim against the appellants. Just as the appellants as non-parties were not bound by the arbitrators’ findings (it has not been suggested that they should be regarded as privies of BSGR for the purpose of any res judicata argument), neither was Vale bound by the arbitrators’ view expressed in paragraphs 921 and 922 of the award that the Initial Consideration payment was not in law the conferring of a benefit on BSGR by Vale. In any event the creation of a rescission trust upon rescission of the joint venture agreement did not depend on any determination by the arbitrators; rather, such a trust arose by operation of law.

 

  1. This conclusion made it unnecessary for the judge to decide whether the beneficiary of any rescission trust was Vale or Vale International. The appellants contended that any claim could only be vested in Vale as the party to the joint venture agreement and was barred by the arbitration award. The claimants contended that the claim was vested in Vale International, or at any rate that Vale International had its own proprietary claim; and that even if the award constituted a bar to any claim by Vale, it did not affect Vale International which was not a party to the joint venture agreement or the arbitration. The judge considered that because this issue gave rise to a novel question of law whose answer might depend on a closer analysis of the facts than was possible on the evidence before him, it was best left, if it arose, for determination at trial. Submissions on appeal

 

  1. For the appellants Mr Stephen Houseman QC (who did not appear below and who was instructed a few weeks before the hearing when counsel previously instructed became unavailable) submitted, in outline, as follows:

 

(1) Rescission in equity (which is all that Vale claimed in the arbitration) does not depend on any election by the rescinding party, but is effected by court order (or arbitral award) (Goff & Jones, para 40-28); the order or award granting rescission is itself an act with legal consequences; the court’s (or tribunal’s) decision whether or on what terms to order restitutio in integrum is part of and inextricably connected with the order for rescission itself (as Lord Wright put it in Spence v Crawford [1939] 3 All ER 271, 288, “where the remedy [of rescission] is applied, it must be moulded in accordance with the exigencies of the particular case”) and is also, therefore, an act with legal consequences.

 

(2) Vale did not make any claim in the arbitration for restitution of the Initial Consideration independently of its claim for rescission of the joint venture agreement and the arbitrators therefore had no jurisdiction to determine any such claim. Accordingly paragraphs 920 to 923 of the award must be read together as a determination by the arbitrators that rescission would be ordered, but only on the basis that BSGR had no obligation to return the Initial Consideration by way of restitutio in integrum. The two aspects of this determination (rescission but no restitution) were indivisible.

 

(3) There can be no proprietary claim by way of a rescission trust against the original contracting party unless that party is also liable to a personal restitutionary claim. That is because the rationale for a rescission trust is that the defendant has been unjustly enriched (Goff & Jones, para 40-17: “a proprietary remedy for unjust enrichment”; In re Goldcorp Exchange Ltd [1995] 1 AC 74, 102E per Lord Mustill: “… any such proprietary right must have as its starting point a personal claim by the purchaser to the return of the price”; and National Crime Agency v Robb [2015] Ch 520 per Sir Terence Etherton C at [48] referring, albeit in passing, to “a proprietary restitutionary remedy for unjust enrichment”).

 

(4) Although in principle a rescission trust can be asserted against a third party transferee of the contractual payment (C), subject to equitable tracing principles, such a proprietary claim depends upon the availability of a proprietary claim against the original contracting party (B). If the rescission equity never crystallises into a rescission trust available against the original contracting party, there is no trust which can be asserted against third parties whose liability is parasitic on the liability of the original party.

 

(5) Accordingly the arbitrators’ determination that rescission would be ordered on the basis that BSGR (B) had no obligation to return the Initial Consideration by way of restitutio in integrum means that Vale (A) had no personal claim against BSGR for restitution of the Initial Consideration; therefore no rescission trust against BSGR ever came into existence (or to put it another way, Vale’s rescission equity never crystallised into a rescission trust); and as BSGR (B) never became subject to a rescission trust, transferees of the Initial Consideration from Vale such as the appellants (C) never became subject to such a trust either.

 

(6) The arbitrators’ determination that BSGR had no obligation to return the Initial Consideration by way of restitutio in integrum constitutes a legal fact (“a fact in the world”), binding Vale for all purposes, with the consequences set out in (5) above.

 

(7) For Vale to assert otherwise amounts to an abuse of process as a collateral attack on the arbitrators’ award.

 

(8) Any rescission equity could only belong to Vale as the contracting party with a right to rescind the contract (Independent Trustee Services Ltd v GP Noble Trustees Ltd [2012] EWCA Civ 195, [2013] Ch 91 at [52] and [53]); it is logically impossible for Vale International, which never had the equity on which the rescission trust is founded to be the beneficiary of such a trust.

 

  1. We did not find it necessary to call upon Ms Sonia Tolaney QC for the respondents, although we have the benefit of her written submissions, in which she took issue root and branch with Mr Houseman’s analysis.

 

The scope of the appeal

 

  1. It is important to keep in mind that we are not concerned on this appeal with whether the claimants or either of them have a viable proprietary claim against the appellants on the basis of a rescission trust. Nor are we concerned with whether it is an essential element of a rescission trust claim by A against a third party transferee of a contractual payment (C) that there should be a personal claim in restitution against the original contracting party (B), a point on which it appears that there is no direct authority. Although Mr Houseman developed a powerful argument why that should be necessary, as outlined above, there are arguments to the contrary: as Lord Millett pointed out in Foskett v McKeown [2001] 1 AC 102, proprietary claims to the beneficial ownership of property and restitutionary claims based on unjust enrichment are different, being concerned to enforce different interests and with different defences available to a defendant. These, however, are not issues suitable for summary determination. They should be determined, to the extent they arise, at trial.

 

  1. The narrow issue with which we are concerned is whether Vale is bound by (or, to the same effect, whether the appellants can take the benefit of) the arbitrators’ award in these proceedings between Vale and the appellants. For this purpose I propose to consider first what the arbitrators actually decided and then to consider the extent to which, if at all, Vale is bound by that in the present proceedings. I will then deal with the argument about abuse of process. What did the arbitrators decide?

 

  1. Mr Justice Andrew Baker observed that the arbitrators’ reasoning is internally inconsistent. They rejected a claim for restitution at paragraphs 921 to 923 of the award on the ground that payment of the Initial Consideration had not been made by Vale but by its subsidiary Vale International, but then awarded damages to Vale at paragraph 944 on the basis that the Initial Consideration was a loss which Vale had suffered. I share the judge’s view (and Mr Houseman expressly accepted) that it is impossible to reconcile these paragraphs of the award. As the judge put it:

“18. Thus, a restitutionary analysis was rejected (at paragraphs 921 to 922 of the LCIA Award) on the basis that the Initial Consideration payment was not expenditure by Vale; and then damages were awarded in respect of the Initial Consideration payment on the basis (set out in paragraph 944) that it was expenditure by Vale. …”

 

  1. It would appear, therefore, that the award must be wrong, at least to some extent. Either the Initial Consideration payment was not expenditure by Vale even though it had the effect of discharging Vale’s liability for the Initial Consideration, in which case the arbitrators were right to reject the restitutionary claim but wrong to award damages on the basis that Vale had suffered the loss of this expenditure; or it was expenditure by Vale, in which case the restitutionary claim ought to have succeeded and the damages awarded ought to have been correspondingly reduced.

 

  1. Undaunted, Mr Houseman submitted that the arbitrators’ treatment of the claim for rescission at paragraphs 922 to 923 could be “ring fenced”, and that it is on these paragraphs that it is necessary to concentrate to see what the arbitrators decided about that claim. He submitted that the arbitrators’ decision not to make an order for restitution by BSGR of the Initial Consideration was part of and inextricably connected with the order for rescission itself; and that this is a legal fact binding on Vale against all the world. Is Vale bound by the award in these proceedings?

 

  1. However, even if the effect of the award is that, as between Vale and BSGR, rescission was ordered on terms which meant that no personal restitutionary claim or rescission trust arose against BSGR, it does not follow that Vale is bound by that determination in these proceedings.

 

  1. Arbitration is a consensual process by which the parties agree to resolve disputes between them by accepting the decision of a tribunal chosen by them or in accordance with a procedure which they have agreed. An award thus produced is final and binding on them: section 58 of the Arbitration Act 1996. For this purpose it makes no difference whether the arbitrators’ decision is right or wrong. Although section 69 of the 1996 Act permits an appeal to the court on a question of law arising out of an award, it is open to the parties to exclude any such appeal and the LCIA Rules contain such an exclusion agreement. Accordingly, when parties agree to arbitrate their differences under LCIA Rules, they agree to be bound by the arbitrators’ decision even if the arbitrators get the law or the facts wrong. The only bases on which such an award can be challenged are that the arbitrators acted without jurisdiction (section 67) or that a serious irregularity of the limited kind listed in section 68 resulted in substantial injustice. In the present case the arbitrators’ award may have been wrong in the sense indicated above, but there was no scope for Vale to challenge the dismissal of its restitutionary claim.

 

  1. However, while the award is final and binding as between Vale and BSGR, it is not binding on third parties. It is elementary that an arbitrator cannot make an award which is binding on third parties who have not agreed to be bound by his decision (Mustill & Boyd, Commercial Arbitration, 2nd Ed (1989), pages 149-150; Russell on Arbitration, 24th Ed (2015), para 6-183). The position is different if the third party can be regarded as a privy of one of the parties for the purpose of the doctrine of res judicata, but that is not suggested here. Accordingly, it is common ground that as third parties the appellants are not bound by the arbitrators’ decision that Vale was the victim of a fraud. Indeed, until the hearing before us the appellants even challenged in these proceedings the fact that the joint venture agreement has been rescinded and the respondents accepted that they are entitled to do so.

 

  1. On this last point, the appellants’ position changed in the course of Mr Houseman’s oral submissions. He accepted that the joint venture agreement has been rescinded by the decision of the arbitrators and that it is not open to the appellants in these proceedings to contend otherwise.1 As we did not call on Ms Tolaney, and as this apparent concession appears to have been somewhat tactical, as I shall explain, I prefer to reserve my position on whether it is correct, not least as the appellants continue to challenge the finding of fraud on which the rescission was premised.

 

  1. If the appellants are not bound by the award, what is the principle which enables them to rely on parts of it, and specifically its determination that Vale was not entitled to a restitutionary claim against BSGR, as binding Vale? As I understood it, Mr Houseman puts his case in two ways. The first is that Vale’s proprietary claim depends on establishing the fact that the joint venture agreement has been rescinded, for which purpose Vale needs to invoke the award which contains the order granting rescission; 1 Mr Houseman submitted that this concession, departing from the appellants’ pleaded case, had already been made in the skeleton argument seeking permission to appeal which was settled by counsel then instructed, Mr Paul Stanley QC. That is not, however, how I read the relevant paragraphs. Nor did the respondents understand them in this way. and that it is an intrinsic part of the order for rescission that Vale had no personal claim for restitution by BSGR of the Initial Consideration. The second is an argument of abuse of process.

 

  1. I would reject the first way of putting the case. Save for limited purposes not applicable here an award between A and B has no binding effect in proceedings between A and C. The essential reason why this is so derives from the consensual nature of arbitration. Just as C has not agreed to be bound by the decision of arbitrators in an arbitration between A and B, neither has A agreed to be bound by any such decision in any dispute he may have with C. While it may be good business sense in the interests of certainty and finality for A and B to agree to accept the decision of an arbitral tribunal (and in some cases to exclude rights of appeal) even if that decision is wrong, in order to resolve disputes between them, it is quite another thing to say that A agrees to accept the (potentially erroneous and in practice virtually unchallengeable) decision of that tribunal in a subsequent dispute with a stranger.

 

  1. In this connection I would refer to two authorities. Ward v Savill [2021] EWCA Civ 1378 was not an arbitration case, but it concerned the effect in later proceedings of a declaration in earlier proceedings as to the existence of a constructive trust following rescission of a contract. In the earlier proceedings against the promoters of film development schemes the claimants obtained declarations that they had been induced to invest in the schemes by fraud and that the promoters and LLPs in which they had invested held the funds invested on trust for them. The claimants then brought further proceedings against the wife of one of the promoters, alleging that a property held by her represented the traceable proceeds of sums beneficially owned by them as a result. They sought to rely on the declarations made in the earlier proceedings to establish their beneficial ownership of the funds invested in the schemes. The question arose whether the declaratory judgements obtained by the claimants in the earlier proceedings had legal effect so as to enable them to found their proprietary claim in the second action without having to re-plead and prove the underlying facts. They argued that the effect of the order made by Mr Justice Butcher in the first action was that the contracts in question were rescinded ab initio with the consequence in law that the beneficial interest never passed to the LLPs. Sir Julian Flaux C (with whom Lady Justice Elisabeth Laing and Lord Justice Warby agreed) rejected this argument on the ground that it would be unjust for a party to be bound by a judgment without an opportunity to be heard, and that this was so even though the first judgment involved declarations as to proprietary rights. He referred to the statement of principle in the well-known case of Hollington v Hewthorn & Co Ltd [1943] 1 KB 587, 596-7:

“A judgment obtained by A against B ought not to be evidence against C, for, in the words of the Chief Justice in the Duchess of Kingston’s Case (1776) 2 Sm LC 13th ed. 644, ‘it would be unjust to bind any person who could not be admitted to make a defence, or to examine witnesses or to appeal from a judgment he might think erroneous: and therefore …the judgment of the court upon facts found, although evidence against the parties, and all claiming under them, are not, in general, to be used to the prejudice of strangers’. This is true, not only of convictions, but also of judgments in civil actions. If given between the same parties they are conclusive, but not against anyone who was not a party. If the judgment is not conclusive we have already given our reasons for holding that it ought not to be admitted as some evidence of a fact which must have been found owing mainly to the impossibility of determining what weight should be given to it without retrying the former case. A judgment, however, is conclusive as against all persons of the existence of the state of things which it actually affects when the existence of that state is a fact in issue. Thus, if A sues B, alleging that owing to B’s negligence he has been held liable to pay xl . to C, the judgment obtained by C is conclusive as to the amount of damages that A has had to pay C, but it is not evidence that B was negligent: see Green v New River Co (1792) 4 Term Rep. 589, and B can show, if he can, that the amount recovered was not the true measure of damage.”

 

  1. The Chancellor continued:

81. … It is quite clear from that passage that the appellants’ purported distinction between factual findings in a judgment which are not binding on a stranger to it and the legal effect of a judgment, which the appellants contend is binding on a stranger, is not a distinction recognised by the rule. The citation with approval from the Duchess of Kingston’s case refers to ‘the judgment of the court upon facts found’ distinguishing between the facts and the judgment and, as Mr Mather correctly pointed out, the circumstances of the Duchess of Kingston’s case itself demonstrate that the rule is not limited to findings of fact but extends to the legal consequences of those findings, as determined by a court in its judgment.”

 

  1. His conclusion was that the claimants had to plead and prove in the second action all the elements of their proprietary case, which included the existence of the fraud and the fact of rescission:

“92. The appellants should be required to plead and prove all the elements of their case against the respondent that they have a beneficial interest in her property, in the same way as the claimants in Calyon were required to establish against the bank their title to the collection. Nothing in Patten LJ’s analysis of the legal effect of rescission in his judgment in Independent Trustee Services supports the appellants’ case that they can rely upon the Butcher Declarations against the respondent without having to plead and prove all the elements of their case against her that they have a beneficial interest in her property.

 

  1. Accordingly, applying both the rule in Hollington v Hewthorn and the wider principle enunciated in Gleeson v Wippell, I consider that the respondent is entitled to require the appellants to plead and prove all the elements of their case against her and that they cannot simply rely upon the Butcher Declarations against her.”

 

  1. This case has obvious parallels with the present case, although there are also some differences. Like the present case, it was concerned with whether a decision about rescission and its effect in earlier proceedings between A and B had legal effect in later proceedings between A and C. It holds firmly that the rescission established in the earlier proceedings is not a legal fact binding on C in the later proceedings, but requires to be proved. On the other hand, in Ward v Savill it was A who was seeking to take the benefit of the earlier judgment. In the present case it is C who is seeking to do so.

 

  1. The second case, Sun Life Assurance Co of Canada v Lincoln National Life Insurance Co [2004] EWCA Civ 1660, [2005] 2 CLC 664, was an arbitration case. In the first arbitration, between Sun Life and a reinsurer, Cigna, the arbitrators held that Cigna was entitled to avoid the reinsurance for misrepresentation and non-disclosure. They added that, if the reinsurance had not been avoided, certain risks (“the Unicover book”) would have been covered under the Cigna reinsurance. The issue in the second arbitration, which was between Sun Life and another reinsurer, Lincoln, was whether the Unicover book would have been covered by the Cigna reinsurance if that had not been avoided. The issue mattered because, if it would have been, the relevant losses could not be recovered from Lincoln; if it would not have been, they could. Lincoln sought to rely on the decision in the first arbitration (to which they were not a party) that the Unicover book would have been covered. They relied on an obiter dictum by Mr Justice Saville in George Moundreas & Co SA v Navimpex Centrala Navala [1985] 2 Lloyd’s Rep 515:

 

“It seems to me that where the rights and obligations of the parties to a contract are determined by the contractual machinery of arbitration under that contract there is something to be said for the view that the result that the arbitrators reach can (in the absence of special circumstances) be treated in effect as part of the contract and thus established by third parties in the same way as any contract can be proved. Thus in the present case the arbitrators have concluded that the sellers [sic.] had a right to cancel the contract and to claim damages as the result of the failure of the buyers [sic.] to perform their obligations under the contract. As between the parties that is now the contractual position as determined by the contractual machinery of arbitration — and it is difficult to see why a stranger to the contract cannot prove that contractual position by simply producing the award as he can prove other contractual rights and obligations by simply producing the contract.”

 

  1. This court disapproved this statement of principle by Mr Justice Saville, although it is right to say that the discussion of this issue was itself obiter. Nevertheless, the issue was fully considered. Indeed, Lord Justice Longmore and Lord Justice Jacob went to the trouble of giving concurring judgements on this issue while recognising that strictly it did not arise.

 

  1. Giving the leading judgment, Lord Justice Mance pointed out that a feature of the case was that it was the stranger to the first arbitration who was seeking to rely in the second arbitration on the award in the first arbitration. He held that there was no legal principle which would enable it to do so:

 

63. … The new principle which Mr Hunter seeks to develop from Saville J’s dicta must, therefore, seek some foundation in legal principle other than the simple considerations of abuse of process which may apply in relation to the administration of justice in court.

 

  1. However, as I see it, there is no foundation in legal principle for Mr Hunter’s suggested new principle. First, as I have observed, Saville J’s dicta are open to criticism for failing to distinguish between the relevance in relation to third parties of (on the one hand) the main obligations of a contract and (on the other hand) a judgment or arbitration award regarding such obligations.

 

  1. Second, Mr Hunter’s attempt to qualify Saville J’s dicta so as to make them operate only one-way is contrary to ordinary principle. The principles of res judicata and issue estoppel commonly operate mutually. Saville J’s dicta in Moundreas were themselves couched in terms suggesting an extended mutual principle. …

 

  1. Thirdly, I do not consider that the arguments based on general justice have the force in the present context which Mr Hunter suggests and which Toulson J accepted. I do not think that it is obviously just, or even convenient, to allow a stranger to enjoy a one-sided entitlement to hold a party to the award or judgment to its terms, with a concomitant right to challenge its correctness whenever it appeared favourable to do so. …

 

  1. Fourthly, and linked with the third point, there is a strong element of fortuity about the one-sided benefit for which Mr Hunter contends. Why should Lincoln gain any benefit from an award to which they were not party, particularly in the present context? Sun/Phoenix could not be said to have gained any benefit against anyone — let alone as against Lincoln — from any conclusion by the Cigna tribunal that, but for the avoidance, the Unicover book was protected. Further, if Sun/Phoenix had realised the hopelessness of their case on avoidance and had conceded avoidance or compromised their claim, without any award ever being issued by the Cigna tribunal, Lincoln would have had to arbitrate the scope of the Cigna reinsurances in relation to the Unicover book with Sun/Phoenix without the benefit of any of the present submissions based on the Cigna award. …

 

  1. Fifthly, and more fundamentally, the solution for which Mr Hunter contends appears to me to overlook or obscure important differences between arbitration and litigation. In the context of litigation, problems of potentially conflicting judgments arrived at between different parties to the same overall complex of disputes are met by provisions for joinder of parties or proceedings or for trial together, if necessary on a mandatory basis using the courts’ compulsive powers. Even in circumstances in which there has been no such joinder, and where neither res judicata nor issue estoppel has any application, the court may intervene to prevent abuse of its process, as stated in paragraphs 63 and 65 above. All this is facilitated by the public nature of litigation, the public interest in the efficient administration of justice and the courts’ coercive powers. Considerations of general justice of the sort to which Toulson J referred thus have relevance and can be given effect in the context of litigation. Arbitration is in contrast a consensual, private affair between the particular parties to a particular arbitration agreement. The resulting inability to enforce the solutions of joinder of parties or proceedings in arbitration, or to try connected arbitrations together other than by consent, is wellrecognised — though the popularity of arbitration may indicate that this inability is not often inconvenient or that perceived advantages of arbitration, including confidentiality and privacy are seen as outweighing any inconvenience. Different arbitrations on closely inter-linked issues may as a result lead to different results, even where, as in the present case, the evidence before one tribunal is very largely the same as that before the other. The arbitrators in each arbitration are appointed to decide the disputes in that arbitration between the particular parties to that arbitration. The privacy and confidentiality attaching to arbitration underline this; and, even if they do not lead to nonparties remaining ignorant of an earlier arbitration award, they are calculated to lead to difficulties in obtaining access, and about the scope of any access, to material relating to that award.

 

  1. The conclusion that I would reach is that Mr Hunter’s suggested principle has no sound basis, and that the dicta of Saville J in Moudreas cannot be regarded as reflecting or as based on any general principle of law in the arbitral context to which they were directed.

 

  1. Lord Justice Longmore also identified a number of difficulties with Mr Justice Saville’s dictum. These included that a stranger to the arbitration may not in practice be able to produce a private and confidential award, and that there was a lack of mutuality if a party to the arbitration was bound but a stranger was not. He concluded:

 

“84. All the above is not to deny that there may be cases in which an award can be evidence in subsequent proceedings even though it will not necessarily be conclusive evidence. It may, to use Rix LJ’s expression in Drake Insurance Plc v Provident Insurance Plc [2003] EWCA Civ 1834, be a ‘fact in the world’. A good example of this is to be found in The Sargasso [1994] 1 Lloyds Rep. 412 where a charterer had been held liable by an award in favour of a sub-charterer who had sued to recover damages for damage to cargo. The charterer then sued the shipowner and proved breach of contract; the measure of damages to which he was entitled was governed by the award pursuant to which he had been held liable to the sub-charterer. It quantified the loss which he had actually suffered; he was entitled to put it in evidence for that purpose and say he should be able to recover not less than the amount of the award; the shipowner would also be entitled to say that the charterer should not recover more than the amount of [the] award. That would not have prevented the shipowner from arguing that the charterer had not taken the right points and that he had thus failed to mitigate his damages or, indeed, that the award against him had been made by reason of some fact which was not a breach of contract on the owners’ part.

 

  1. In The Sargasso Clarke J referred to the observations of Saville J in the Moundreas case and in that context they are uncontroversial. But I do not consider that they form a safe basis on which to found any extension of the existing law of issue estoppel, and they should not be followed in future for that purpose.”

 

  1. Lord Justice Jacob reached the same conclusion:

 

86. I agree with both judgments. It is worth standing back from the detail. What Lincoln seek to do is to rely upon a nonoperative (in the sense that no actual consequences flow from it), opinion expressed by the Cigna arbitrators. The opinion is in its nature private. Moreover it was unappealable. Lincoln seek more than just to rely upon the opinion —they say it is conclusive for all purposes and so conclusive in the later arbitration.

 

  1. I think such a result would be obviously wrong for the following reasons:

 

(a) An arbitration is an essentially private matter between the parties to it. Only some consequence of an award (e.g. that A should pay B money) can go further and extend beyond the privacy of the arbitration itself — so as to become a ‘fact in the world.’ (Rix LJ’s phrase).

 

(b) Because the determination of arbitrators is itself a private matter it is in its nature not intended to be available to third parties for any purpose. A third party’s rights against one of the parties to an earlier arbitration cannot depend on the happenstance of the availability of the details of that arbitration in a later arbitration involving that third party. In this connection I note that the position may be different if the earlier decision is that of a court. In particular a decision of a court as to the construction of a contract is a matter of law — with the consequence that the further principle of judicial precedent on such a question may come into play. Judgment Approved by the court for handing down.

 

  1. Where a party seeks to re-litigate in subsequent proceedings against Y a point he fought fully in earlier proceedings against X, it may be that, notwithstanding a lack of mutuality, he can be prevented from doing so on the grounds of abuse of process. As to that I express no concluded opinion for, for the reasons given by Mance LJ, there is no question of abuse of process here.

 

  1. Mr Houseman sought to distinguish Sun Life v Lincoln on various grounds. He pointed out that it was the claimants who had introduced the arbitrators’ award into the present proceedings, referring to it in their pleadings and obtaining permission to refer to it for the purpose of obtaining a worldwide freezing order, thereby removing any difficulty arising out of the confidentiality of the arbitration. He submitted that the element of mutuality was present in this case, because the arbitrators’ decision on rescission was binding on the appellants as well as the claimants. This was the apparently tactical concession, to which I have referred, on which I prefer to express no concluded view. He submitted that the problem that strangers to the contract cannot be joined in an arbitration, to which both Lord Justice Mance and Lord Justice Longmore referred, did not arise in an arbitration under the LCIA Rules where the arbitrators have a power to order joinder if the stranger consents to be joined.

 

  1. I would accept that some of the reasons given in the judgments in Sun Life v Lincoln do not apply with the same force, or at all, on the facts of the present case. I accept also that we are not bound by this decision. Nevertheless, it contains a clear and considered statement of principle, with which I agree. That principle, founded on the consensual nature of arbitration, is that save for limited purposes not applicable here an award between A and B has no binding effect in proceedings between A and C. The consensual nature of arbitration explains also why the analogy with a decree of divorce on which Mr Houseman relied is not valid. A decree of divorce, made in court, affects the status of the divorcing parties against all the world and may affect third parties, for example because of its effect on inheritance rights. Rescission is a purely contractual matter. Abuse of process

 

  1. The second way in which Mr Houseman puts his case is that it is an abuse of process for Vale to seek to rely on the arbitrators’ rescission of the joint venture agreement without also accepting the burden of their decision that it has no restitutionary claim against BSGR. The first difficulty with this way of putting the case is that no point on abuse of process was taken before the judge and no such argument is advanced in the appellants’ notice. Accordingly the appellants would need permission to amend their appellants’ notice to advance such an argument in this court. They have made no such application. Nevertheless there is a more fundamental difficulty, which I consider we ought to address because Mr Houseman indicated that an application to dismiss the claim on abuse of process grounds may be made in future.

 

  1. The applicable principles were summarised by Lord Justice Simon (with whom Lord Justice Patten and Lord Justice Ryder agreed) in Michael Wilson & Partners Ltd v Sinclair [2017] EWCA Civ 3, [2017] 1 WLR 2646:

 

“48. The following themes emerge from these cases that are relevant to the present appeal.

 

(1) In cases where there is no res judicata or issue estoppel, the power to strike out a claim for abuse of process is founded on two interests: the private interest of a party not to be vexed twice for the same reason and the public interest of the state in not having issues repeatedly litigated; see Lord Diplock in Hunter’s case [1982] AC 529, Lord Hoffmann in the Arthur J S Hall case [2002] 1 AC 615 and Lord Bingham in Johnson v Gore Wood & Co [2002] 2 AC 1. These interests reflect unfairness to a party on the one hand, and the risk of the administration of public justice being brought into disrepute on the other, see again Lord Diplock in Hunter’s case. Both or either interest may be engaged.

 

(2) An abuse may occur where it is sought to bring new proceedings in relation to issues that have been decided in prior proceedings. However, there is no prima facie assumption that such proceedings amount to an abuse, see Bragg v. Oceanus [1982] 2 Lloyd’s Rep 132; and the court’s power is only used where justice and public policy demand it, see Lord Hoffmann in the Arthur J S Hall case.

 

(3) To determine whether proceedings are abusive the court must engage in a close ‘merits based’ analysis of the facts. This will take into account the private and public interests involved, and will focus on the crucial question: whether in all the circumstances a party is abusing or misusing the court’s process, see Lord Bingham in Johnson v Gore Wood and Buxton LJ in Laing v Taylor Walton [2008] PNLR 11.

 

(4) In carrying out this analysis, it will be necessary to have in mind that: (a) the fact that the parties may not have been the same in the two proceedings is not dispositive, since the circumstances may be such as to bring the case within ‘the spirit of the rules’, see Lord Hoffmann in the Arthur J S Hall case; thus (b) it may be an abuse of process, where the parties in the later civil proceedings were neither parties nor their privies in the earlier proceedings, if it would be manifestly unfair to a party in the later proceedings that the same issues should be relitigated, see Sir Andrew Morritt V-C in the Bairstow case [2004] Ch 1; or, as Lord Hobhouse put it in the Arthur J S Hall case, if there is an element of vexation in the use of litigation for an improper purpose.

(5) It will be a rare case where the litigation of an issue which has not previously been decided between the same parties or their privies will amount to an abuse of process, see Lord Hobhouse in In re Norris.”

 

  1. Lord Justice Simon added at [54] that “there are good reasons why a court should be cautious before accepting that later court proceedings are an abuse of its process because it involves a collateral attack on an earlier arbitration award” and at [68] that, while accepting the possibility in principle, “it will probably be a rare case, and perhaps a very rare case, where court proceedings against a non-party to an arbitration can be said to be an abuse of process”.

 

  1. I agree with Ms Tolaney’s written submissions on this point that in the present case there is no viable basis on which to allege that the present proceedings are an abuse of process. There is no question here of the claimants making any collateral attack on the award. On the contrary they seek to establish that its factual findings as to the existence of the fraud are correct, that the joint venture agreement was validly rescinded, and that the basis on which the arbitrators awarded damages (namely that the Initial Consideration represented a loss suffered by Vale) was also correct notwithstanding the arbitrators’ contradictory reasoning on this point when they dealt with the restitutionary claim. Moreover, for the purpose of any argument about abuse of process it must be assumed that the appellants have received some or all of the Initial Consideration with (at least) notice of the fraud. In those circumstances any submission that the claimants are guilty of an abuse of process by bringing their claims in these proceedings is farfetched. A “close ‘merits based’ analysis of the facts” can yield only one answer.

 

Whose equity?

 

  1. The conclusions which I have read so far mean that it is open to Vale to seek to prove its proprietary claim against the appellants in these proceedings and that the award does not afford the appellants any defence. This means that it will be open to Vale to demonstrate, if it can, and if it needs to in order to make good its proprietary claim against the appellants, that contrary to the arbitrators’ view it did have a valid personal claim in restitution against BSGR.

 

  1. It means also that the question whether the beneficiary of any rescission trust is Vale or Vale International need not be decided at this stage or, perhaps, at all. The judge considered that this question was a novel question of law which was better decided, if it arose, at trial on the basis of full findings of fact. That is a case management decision with which this court should not lightly interfere but, in any event, I agree with the judge’s view.

 

Disposal

 

  1. I would dismiss the appeal. The LCIA award does not afford the appellants any defence to the proprietary claim made against them. Lord

 

Justice Lewis:

 

  1. I agree.

 

Lord Justice Bean:

 

  1. I also agree.

 

 

 

 

 

 

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

 

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

COMMERCIAL COURT (QBD)

 

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

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

Fetter Lane, London, EC4A 1NL

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

OF ENGLAND AND WALES

LIST ARBITRATION CLAIM
PARTIES: (AS ANONYMISED)

Claimant:

PBO 

AND

 

Respondents:

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

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

 

And

 

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

 

 

JUDGMENT
 

MR JUSTICE BRYAN:

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

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

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

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

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

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

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

B: BACKGROUND AND THE DISPUTES BETWEEN THE PARTIES

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

C.1 SECTION 68

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

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

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

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

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

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

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

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

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

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

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

“(1) The tribunal shall—

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

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

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

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

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

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

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

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

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

“The applicable legal principles

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

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

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

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

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

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

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

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

(b) amounting to a serious irregularity;

(c) giving rise to substantial injustice.

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

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

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

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

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

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

(emphasis added)

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

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

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

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

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

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

(b) amounting to a serious irregularity;

(c) giving rise to substantial injustice.

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

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

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

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

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

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

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

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

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

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

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

C.2 SECTION 67

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

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

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

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

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

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

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

(a) that the tribunal lacks substantive jurisdiction,

(b) that the proceedings have been improperly conducted,

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

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

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

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

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

(b) by challenging the award,

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

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

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

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

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

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

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

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

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

(emphasis added)

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

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

(c) the “lengthy history of conflict”.

to reach the conclusion it did relying upon Rule 19.5.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

D.3 RELIEF UNDER SECTION 68

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

 

Tugushev v Orlov & Ors [2021] EWHC 926

 

IN THE HIGH COURT OF JUSTICE (UK)
QUEEN’S BENCH DIVISION
COMMERCIAL COURT

Tugushev v Orlov & Ors [2021] EWHC 926

 

FILE NUMBER: CL-2018-000498
JUDGE: SIR NIGEL TEARE
REGISTRY: Strand, London, WC2A 2LL
DATE OF HEARING:
DATE OF JUDGMENT: 16/04/2021
CASE MAY BE CITED AS: Tugushev v Orlov & Ors [2021] EWHC 926
MEDIUM NEUTRAL CITATION: [2021] EWHC 926 (Comm)
DIVISION: QUEEN’S BENCH DIVISION
LIST COMMERCIAL COURT
PARTIES: Alexander Tugushev

Claimant

 

AND:

 

Vitaly Orlov

Defendant

 

&

 

Magnus Roth

Second Defendant

 

&

 

Andrey Petrik

Third Defendant

REPRESENTATION: Christopher Pymont QC, Benjamin John and Fiona Dewar (instructed by Macfarlanes LLP) for the First Defendant/Respondent

 

Daniel Toledano QC, Emily Wood, Joshua Crow and Lorraine Aboagye (instructed by Covington & Burling LLP) for the Second Defendant/Applicant

 

 

 

JUDGMENT
 

 Sir Nigel Teare :

  1. This is an application by the Second Defendant, Mr. Roth, for permission to bring three Part 20 claims against the First Defendant, Mr. Orlov. The application is opposed by Mr. Orlov on the grounds that two of the claims are the subject of an arbitration agreement and the third is the subject of an estoppel arising from proceedings in Hong Kong.

Mr. Tugushev’s claim in this jurisdiction

  1. Roth’s application is made in proceedings which were commenced by the Claimant, Mr. Tugushev, in July 2018. They concern the ownership of a fishing business. In short, Mr. Tugushev claims that in 1997 he, Mr. Orlov and Mr. Roth agreed a 3-Way Joint Venture Agreement (the “3-Way JVA”) pursuant to which each would hold a one-third interest in the business but that Mr. Orlov and Mr. Roth have since conspired to keep Mr. Tugushev’s interest from him.
  2. The relief sought by Mr. Tugushev was initially an account in respect of dividends and a declaration as to his one-third interest. In May 2020 the relief sought was amended to include restitution in damages and an order that shares in certain companies (to be identified) be transferred to him.
  3. The Defences of Mr. Orlov and Mr. Roth to this claim are long and complex. I have not been taken though them in any detail. I shall seek to summarise the bare outline of the Defences.
  4. Orlov’s case in response to Mr. Tugushev’s claim is that there was no 3-Way JVA and that Mr. Tugushev is not entitled to the relief he seeks. He says that there was a 2-Way Partnership Agreement (“the Partnership Agreement”), also in 1997, between himself and Mr. Roth pursuant to which the fishing business was to be owned 50/50 between them. The business was run on that basis until 2007 when Mr. Orlov and Mr. Roth entered into the 2007 Understanding pursuant to which Mr. Orlov’s interest in the business was increased to two thirds and Mr. Roth’s interest was reduced to one third. However, one part of the business, TTC, was owned and operated 50/50. Following the lead of counsel I shall describe the former business as the Russian Business and the latter as the Hong Kong Business.
  5. Orlov says that in 2008 he and Mr. Roth entered into the 2008 Agreement pursuant to which Mr. Orlov was to hold Mr. Roth’s one-third share on trust for him. The 2008 Agreement contained a London arbitration clause.
  6. Roth’s case in response to Mr. Tugushev’s claim is that there was a 2-Way Partnership Agreement in 1997 between himself and Mr. Orlov but that it was quickly superseded by the 3-Way JVA. He therefore accepts that Mr. Tugushev is entitled to one third of the Russian Business but says that Mr. Tugushev must pay Mr. Roth and Mr. Orlov an amount reflecting his lack of contribution to the business when he was imprisoned and to reflect harm he has caused the business. So Mr. Roth accepts that in 2007 he had a one-third interest in the Russian Business but on his case that emanated from the 3-Way JVA whereas on Mr. Orlov’s case it emanated from the 2007 Understanding and the 2008 Agreement.
  7. Between 2011 and 2013 one third of the shares in the Russian business was transferred to Mr. Roth including 23% of the shareholdings in certain companies held by third parties (“the Transferred Alex Bundle Shares”).
  8. In 2016 Mr. Orlov, Mr. Roth and a number of companies entered into the Framework Agreement pursuant to which Mr. Roth agreed to sell his one-third interest in the Russian Business to Mr. Orlov and the companies for the sum of US$200 million. The Framework Agreement also included a London arbitration clause.
  9. In addition to his claim based upon the 3-Way JVA Mr. Tugushev has alleged a trust claim in respect of one third of certain parts of the Russian Business which trust was said to have arisen in 2008. It is said that the transfers made in 2011-2013 to Mr. Roth were made in breach of that trust. Mr. Orlov and Mr. Roth deny there was any such trust.
  10. Orlov and Mr. Roth have served contribution notices on each other.

The proceedings in Hong Kong

  1. Since 2017 Mr. Orlov and Mr. Roth have been litigating in Hong Kong with regard to TTC, the company which was the holding company for the Hong Kong Business. Mr. Orlov issued an unfair prejudice petition as a registered shareholder in TTC and Mr. Roth counterclaimed with his own unfair prejudice petition as a registered shareholder in TTC. At the time they were the only registered shareholders in TTC. Judgment was given in 2019. Unfair prejudicial conduct was found on both sides. Mr. Roth was ordered to buy out Mr. Orlov’s shareholding in TTC. The value of TTC has now been assessed.

The Part 20 claims in this jurisdiction

  1. Draft Particulars of Mr. Roth’s Part 20 claims against Mr. Orlov have been provided. They consist of three claims; the Partnership Claim, the TTC claim and the Alex Bundle Claim.

The Partnership Claim

  1. This is based upon the premise that this court holds that the 3-Way JVA was never entered into or is void and not binding. On that basis Mr. Roth claims that the 1997 Partnership Agreement remains binding, that there was never a 2007 Understanding and that it was never agreed that Mr. Orlov would be entitled to a greater share of the Russian Business than Mr. Roth. Mr. Roth therefore claims from Mr. Orlov one sixth of the Russian Business currently owned by Mr. Orlov.

The TTC Claim

  1. This is based upon the premise that this court holds that the 3-Way JVA was entered into and remains binding so that Mr. Tugushev is entitled to one third of TTC. Mr. Roth expects that his purchase of Mr. Orlov’s interest in TTC (pursuant to the order of the Hong Kong Court) will have been completed before judgment is given in England. Mr. Orlov will therefore have received from Mr. Roth payment in respect of a greater number of shares (50%) than that to which he was entitled (33.3%). Mr Roth refers to the difference as the “Excess Shares”. Mr. Roth therefore seeks a payment from Mr. Orlov equal to the purchase price paid for the Excess Shares.

The Alex Bundle Claim

  1. This is based upon the premise that Mr. Tugushev succeeds in his trust claim. On that basis it is said that the Alex Bundle shares which were transferred to Mr. Roth were beneficially owned by Mr. Tugushev and that Mr. Roth is liable to Mr. Tugushev in respect of them. Thus, so it is claimed by Mr. Roth, Mr. Roth will not have received the 23% shareholding in the Russian Business to which he was entitled under the 1997 3-Way JVA and Mr. Orlov will hold a 23% shareholding in the Russian Business to which he was not entitled under that Agreement. Mr. Roth therefore claims to be entitled to that 23% shareholding or its value.

The arbitration agreements and the Partnership and Alex Bundle Part 20 claims

  1. The 2008 Agreement refers to arbitration in London “any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof.”
  2. The 2016 Framework Agreement refers to arbitration in London under the LCIA Rules “any dispute arising out or in connection with this Agreement, including any question regarding its existence, validity or termination.”
  3. It is common ground that Mr. Roth’s application to bring the Partnership and Alex Bundle Claims should be determined as if Mr. Orlov were seeking a stay of those claims pursuant to section 9 of the Arbitration Act 1996. (It is not suggested that the TTC Claim is to be referred to arbitration.)
  4. Section 9(1) of the Arbitration Act 1996 provides:

“A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings had been brought to stay the proceedings so far as they concern that matter.”

  1. Section 9(4) provides that the court

“shall grant a stay unless satisfied that the arbitration is null and void, inoperative, or incapable of being performed.”

  1. The manner in which section 9 is applied by the court has been the subject of recent decisions by the Commercial Court and the Court of Appeal. Both decisions have drawn upon a decision by the Chief Justice of Singapore dealing with the equivalent section in the law of Singapore; see Sodzawiczny v Ruhan and others[2018] EWHC 1908 (Comm), The Republic of Mozambique v Credit Suisse and others[2021] EWCA Civ 329 and Tomolugen Holdings v Silica Investors [2015] SGCA 57.
  2. The guidance from those decisions most material to the present case is as follows. Where there is an arbitration agreement the parties have agreed not only that the matters within the agreement should be arbitrated but also that they should not be decided by a court. The grant of a stay is mandatory; the court has no discretion. A “matter” referred to arbitration includes any issue capable of constituting a dispute under the arbitration agreement. There may be some disputes between the parties which are within the arbitration agreement and others which are not. In such a case the stay will apply only to the former. This may lead to fragmentation of forum but, as Popplewell J observed in Sodzawicznyat paragraph 44 “the desideratum of unification of process must give way to the sanctity of contract, as the mandatory terms of section 9(4) intend.”
  3. Section 9 envisages a two-stage process. First, the court must identify the matters in respect of which proceedings have been brought. Second, the court must decide which of those matters the parties have agreed to refer to arbitration.
  4. At the first stage of the process the court may have regard to issues which it is reasonably foreseeable may arise. This should be a “common-sense enquiry in relation to any reasonably foreseeable substantial issue that is not merely peripherally or tangentially connected to the dispute in the court proceedings.” The search is not for the main issue but for any and all issues which may be the subject matter of the arbitration agreement.
  5. At the second stage of the process the court will have regard to the presumption in favour of one-stop adjudication as explained by Lord Hoffman in Fiona Trust & Holdings v Privalov & others[2008] 1 Lloyd’s Reports 254. Thus the construction of an arbitration clause should start from the assumption that the parties as rational businessmen intended any dispute arising out of their relationship to be determined in the same forum and that such presumption can only be displaced by clear words.
  6. The present case involves more than one contract; the 1997 agreements (whether the 3-Way JVA or the 2-Way Partnership Agreement), the 2008 Agreement and the 2016 Framework Agreement. It is therefore important to note that the Fiona Trustprinciple has been extended to cases where a claim is brought not under the contract which contains the arbitration clause (“Contract A”) but under another contract between the parties (“Contract B”). This has been described by Bryan J in Terre Neuve SARL and others v Yewdale Limited and others[2020] EWHC 772 (Comm) at paragraph 30 as the “extended Fiona Trust principle”. Bryan J analysed the scope of this principle at paragraph 31. He noted that the wording of the arbitration clause in Contract A must be fairly capable of applying to disputes under Contract B. He also noted that the principle normally applies where the parties to Contract A and Contract B are the same and where Contract A and Contract B are interdependent or have been concluded at the same time as part of a single package or deal with the same subject-matter.
  7. In deciding whether an arbitration clause applies to claims arising under a different contract the court is engaged in an exercise of construction. Thus the underlying principle is that the arbitration clause should be given the meaning which a reasonable person, with the background reasonably available to both parties, would give it. The considerations described in Fiona Trustassist the court in applying that underlying principle and are consistent with it, as noted by Popplewell J in Sodzawicznyat paragraph 52.
  8. In TomulgenChief Justice Menon, after a wide ranging review of the common law authorities and other materials (see paragraphs 25-70), concluded that the court was not required to determine the scope of the arbitration clause but only to undertake a prima facie review of its scope. One of his reasons for so concluding was that such an approach ensured that the court did not encroach upon the arbitral tribunal’s power to determine its own jurisdiction. I was not referred to any passages in Sodzawiczny or The Republic of Mozambiquewhich adopted this view. Indeed, the language used by Popplewell J and the Court of Appeal in those cases is consistent with the courts having determined the scope of the arbitration clause; see paragraph 61 of Popplewell J’s judgment and paragraphs 90 and 124 of Carr LJ’s judgment. I heard no detailed submissions on this matter. Counsel for Mr. Orlov submitted in writing (see paragraph 50 of Mr. Orlov’s Skeleton Argument) that the court should decide the matter on the balance of probabilities. Counsel for Mr. Roth told me, orally, that that was accepted. In Albon v Naza Motor Trading [2007] EWHC 665 (Ch) Lightman J held that the court had to determine the scope of the arbitration clause; see paragraphs 19 and 20. In Joint Stock Company Aeroflot-Russian Airlines v Berzosky and others [2013] EWCA Civ 784 Aikens LJ also appeared to be of that view; see paragraph 73. Although Counsel for Mr. Orlov in his reply said that he need only establish a prima facie case (basing himself, I presume, on the view of Chief Justice Menon) it seems to me that I should determine the scope of the arbitration agreement. That is what the Commercial Court and the Court of Appeal appear to have done in Sodzawiczny and in The Republic of Mozambique and is supported by Albon and by Joint Stock Company Aeroflot-Russian Airlines v Berzosky. Whilst Chief Justice Menon (at paragraph 69 of his judgment in Tomulgen) expressed his disagreement with the approach of Aikens LJ in Joint Stock Company Aeroflot-Russian Airlines v Berzosky that approach is not open to me.

The matters in respect of which the Partnership and Alex Bundle Claims have been brought

  1. The Partnership Claim has been pleaded in the draft Part 20 Claim. The Claim is based upon the 1997 Partnership Agreement (in the sense that it assumes that Mr. Tugushev fails in his claim based upon the 1997 3-Way JVA) and Mr. Roth seeks the transfer of one sixth of the business or its value to Mr. Roth. It specifically raises the issue whether Mr. Roth had entered the alleged 2007 Understanding. Counsel for Mr. Roth identified the disputed issues as being:
  2. i) Did Mr. Orlov and Mr. Roth enter the 2007 Understanding?
  3. ii) If no, as of 2007 did Mr. Orlov and Mr. Roth continue to be entitled to call for the assets of the Russian Business in equal shares?

iii) If yes, does clause 11.1.1 of the 2016 Framework Agreement provide a defence to Mr. Roth’s claim for an additional sixth of the shares?

  1. Counsel for Mr. Orlov did not list the disputes in that way. Rather, he identified as “the real issue” or “the core of this dispute” (see paragraphs 45 and 60 of Mr. Orlov’s skeleton argument) the impact of the 2008 Agreement and the Framework Agreement upon the Partnership Claim. This approach is contrary to the guidance in the recent cases to which I have referred.
  2. Counsel for Mr. Roth accepted that the Partnership Claim will foreseeably give rise to a defence based upon clause 11.1.1 of the 2016 Framework Agreement. Clause 11.1.1 contains a warranty by Mr. Roth that the shares being sold “represent the entire interest and rights of the Seller in the Companies, and that Seller has no Encumbrance or right of any kind that would entitle him to acquire or be granted any further shares…….in the Companies.” Counsel for Mr. Orlov explained the defence by reference to the doctrine of contractual estoppel.
  3. The Alex Bundle Claim has also been pleaded in the draft Part 20 Claim. The Claim is based upon the 1997 3-Way JVA (in the sense that it assumes that Mr. Tugushev succeeds in his claim under that Agreement) and Mr. Roth seeks transfer of 23% of the shares in certain companies or their value. It is again accepted that it will foreseeably give rise to a defence based upon clause 11.1.1 of the 2016 Framework Agreement. Thus the disputes are, according to counsel for Mr. Roth:
  4. i) Is Mr. Roth entitled to call for 23% of the shares in the Russian Business?
  5. ii) If yes, does clause 11.1.1 of the 2016 Framework Agreement provide a defence to that claim?
  6. Again, counsel for Mr. Orlov described “the central dispute” or “core of the dispute” (see paragraphs 64 and 66 of Mr. Orlov’s skeleton argument) as the impact of the 2008 Agreement and the 2016 Framework Agreement upon the Alex Bundle Claim.
  7. It is unnecessary to consider the TTC Claim because a stay is not sought in respect of that claim.

The scope of the arbitration clauses

  1. Although there are arbitration clauses in both the 2008 Agreement and the 2016 Framework Agreement, particular reliance was placed upon the latter by counsel for Mr. Orlov in his oral submissions.
  2. Clause 28.2 of the 2016 Framework Agreement refers to arbitration “any dispute arising out of in connection with this Agreement, including any question regarding its existence, validity, or termination.”
  3. Counsel for Mr. Orlov submitted that the Partnership and Alex Bundle Claims were within the arbitration agreement. He developed, orally, an argument upon the following lines. The 2016 Framework Agreement was an agreement by which the relationship between Mr. Orlov and Mr. Roth was ended. In this regard reliance was placed upon the circumstance that Mr. Roth was selling for US$200 million shares which he warranted in clause 11.1.1 were his “entire interest ……in the Companies” and upon his further warranty that he had no “right of any kind that would entitle him to acquire or be granted any further shares….in the Companies.” Counsel also drew attention to clause 19.1 which provided that “this agreement supersedes any and all previous agreements or understandings (whether oral or written) relating to the subject-matter of the Transaction Documents, which shall cease to have any further force or effect”. Counsel compared this agreement with a settlement agreement. In SodzawicznyPopplewell J had noted in paragraph 51 that where a settlement agreement contained an arbitration clause the presumption in favour of one stop adjudication had particular potency. Where a person seeks to bring a claim based upon a right which had arguably been settled then, unless the arbitration agreement is construed as extending to a dispute as to the validity of that right, there will be two tribunals determining related disputes; the arbitral tribunal will address the validity or efficacy of the settlement whilst the court will address the validity of the pre-existing right. That is a situation which rational businessmen are unlikely to intend. Thus it was submitted that just as an arbitration clause in a settlement agreement can properly be construed as extending to the determination of claims alleged to have been settled, so the arbitration clause in the 2016 Framework Agreement can properly be construed as extending to the determination of claims brought under the 1997 3-Way JVA or the 1997 2-Way Partnership Agreement which have now been superseded by the 2016 Framework Agreement.
  4. Counsel for Mr. Roth accepted that any defence to Mr. Roth’s Partnership or Alex Bundle Claims based upon clause 11.1.1 of the 2016 Framework Agreement was a matter referred to arbitration but submitted that Mr. Roth’s claim based upon the 1997 Agreements was not a matter referred to arbitration. The defence would have to be resolved in arbitration and then, depending upon the outcome of that arbitration, the court would determine the claims brought under the 1997 Agreements. In this regard, counsel relied upon the circumstance that the arbitration clause referred to arbitration disputes arising out of or in connection with “this Agreement”. The Partnership and Alex Bundle Claims did not arise out of or in connection with the 2016 Framework Agreement but arose out of or in connection with agreements made almost 20 years earlier. Further, he noted that the parties to the 1997 and 2016 Agreements were not the same. There were three companies party to the 2016 Agreement who were not party to the 1997 Agreements. Whereas Mr. Tugushev was party to the 1997 3-Way JVA, he was not party to the 2016 Agreement. Counsel submitted that the 2016 Framework Agreement was neither a settlement agreement nor an agreement which brought the relationship of Mr. Orlov and Mr. Roth to an end. Rather, it was simply an agreement for the sale and purchase of certain shares owned by Mr. Roth. The arbitration agreement which referred to arbitration claims arising under or in connection with “this agreement” was intended by the parties to refer to arbitration claims arising out of or connected with the sale and purchase of shares, rather than to claims arising out of or connected with the overarching or umbrella 1997 Agreements. In this regard reliance was placed upon the approach of Foxton J in Albion Energy Limited v Energy Investments Global[2020] EWHC 301 (Comm) where it was accepted that an arbitration clause can be regarded as applying only to the specific agreement in which it is found rather than to a more general agreement between the parties; see paragraph 24 per Foxton J. With regard to clause 19.1 of the 2016 Agreement it was observed that the 2016 Agreement was to supersede all previous agreements “relating to the subject-matter of the Transaction Documents”, that is, the sale and purchase of certain shares. That was not an apt description of the 1997 Agreements and so it was not superseded.
  5. In resolving this dispute as to the scope of the arbitration clause it is necessary to bear in mind the underlying principle of contractual construction, namely, that the court is seeking to find that meaning which a reasonable man, with all the background knowledge reasonably available to both parties, would give to the arbitration clause. The background knowledge available to Mr. Orlov and Mr. Roth when they entered the 2016 Framework Agreement (along with 3 companies) was that their involvement with the Russian fishing business went back to 1997 and had found expression in one of two 1997 Agreements and in the 2008 Agreement.
  6. There is no dispute that there is a reasonably foreseeable defence to the Partnership Claim and the Alex Bundle Claim derived from clause 11.1.1 which must be referred to arbitration. The question is whether the parties intended that the validity of the claims said to derive from the 1997 Agreements was also a matter referred to arbitration, in addition to the particular defence provided by clause 11.1.1.
  7. In reaching a conclusion on this question I have taken care not to say anything about the cogency or otherwise of the defence based upon clause 11.1.1 because that is a matter which, on any view, must be determined in arbitration.
  8. The presumption in favour of one-stop adjudication would suggest that the parties, with the background knowledge to which I have referred, intended that the validity of the claims said to derive from the 1997 Agreements should be referred to arbitration in addition to the validity of the defence to such claims provided by clause 11.1.1.
  9. Against that must be borne in mind the fact that the parties to the 2016 Framework Agreement are not the same as the parties to the 1997 Agreements and the fact that a distance of almost 20 years separated the 1997 Agreements from the 2016 Framework Agreement. However, the 2016 Agreement and the 1997 Agreements are connected with each other because they both concern the same subject matter, namely, the Russian Business.
  10. Clause 19.1 of the 2016 Agreement provides that the 2016 Agreement “superseded any and all previous agreements or understandings (whether oral or written) relating to the subject-matter of the Transaction Documents.” That clause, having regard to its inclusion in a contract which provides for the sale of Mr. Roth’s share in the Russian Business, tends to support the suggestion that the 2016 Agreement was “a parting of the ways” (a phrase used by counsel for Mr. Orlov). Counsel for Mr. Roth submitted that the reference to the “subject-matter of the Transaction Documents” militates against this conclusion because “Transaction Documents” was a defined term which did not include the 1997 Agreement or Agreements. But the subject matter of the Transaction Documents was the shares in certain companies which formed part of the fishing business. The fishing business was of course the subject-matter of the 1997 Agreements, though the particular companies whose shares were being sold in 2016 may not have been in existence at that time. I therefore think there is force in the suggestion that the 2016 Agreement was “a parting of the ways”.
  11. That the 2016 Agreement was in the nature of a “parting of the ways” suggests that the presumption in favour of one-stop adjudication has “particular potency” (the phase used by Popplewell J) just as it has in the context of a settlement agreement. Rational businessmen would surely expect that if, after the 2016 Agreement, Mr. Roth were to make a claim for more shares, not only would a defence to that claim based upon clause 11.1.1 be referred to arbitration but also the validity of the claim would be referred to arbitration.
  12. Of course, the language of the arbitration clause must be apt to apply, or fairly capable of applying, to such a claim. The arbitration clause applies to any dispute “in connection with” the Framework Agreement. Sufficiency of connection is “a nuanced concept in respect of which there is scope for reasonable disagreement”; per Carr LJ in The Republic of Singaporeat paragraph 84. In the present case the phrase is used in the 2016 Framework Agreement which is closely connected with the 1997 Agreements since they both concern the same subject matter, namely, the Russian Business. In that context a claim which arises out of the 1997 Agreements is, in my judgment, fairly to be regarded as a dispute in connection with the 2016 Framework Agreement.
  13. For these reasons I have concluded that the matters in respect of which the Partnership Claim is brought by Mr. Roth (for one sixth of the shares in the Russian Business or damages in the amount of their value), and the matters in respect of which the Alex Bundle Claim is brought by Mr. Roth (for 23% of the shares in the Russian Business or damages in the amount of their value) are matters which under the arbitration agreement in the 2016 Framework Agreement are to be referred to arbitration.
  14. It follows that the Partnership and Alex Bundle Claims must be stayed pursuant to section 9 of the Arbitration Act 1996.
  15. There are three further, related, matters with which I must deal.
  16. Counsel for Mr. Roth emphasised that the matters in dispute on the Partnership Claim included the existence or otherwise of the 2007 Understanding and the entitlement of Mr. Roth and Mr. Orlov to equal shares in the business at that time. Counsel submitted that Mr. Roth’s denial of the 2007 Understanding was an important part of his case to which he had not pleaded by way of defence because it is not part of Mr. Tugushev’s claim. The existence of the 2007 Understanding was not, it was said, a matter referred to arbitration. Therefore, it should not be stayed.
  17. If, as seems likely, Mr. Orlov raises the 2007 Understanding as part of his defence to the claim of Mr. Tugushev, I do not see why Mr. Roth cannot, in the course of the hearing of Mr. Tugushev’s claim, deny the existence of the 2007 Understanding and make such submissions as he wishes to about its alleged existence. Mr. Roth does not have to have pleaded his case on such matters by way of a Part 20 Claim in order to be able to do so. Counsel for Mr. Roth submitted that Mr. Roth has sought to answer Mr. Orlov’s defence to Mr. Tugushev’s claim “by the declarations he seeks in the Partnership Claim”. It may be said that it is helpful for him to have done so in circumstances where the CPR does not require a defendant to reply to what a co-defendant has said in response to the claim of the claimant. But I am unable to accept that he was required to do so. Mr. Roth could have made his position clear by letter or perhaps by way of an amendment to his contribution notice.
  18. Orlov may also raise the 2007 Understanding as part of his case in response to the Partnership Claim. If he does so then Mr. Roth is likely to respond by advancing his case that there was no 2007 Understanding in support of his Partnership Claim against Mr. Orlov. Indeed, I have noted from the Fourth Witness Statement of Mr. Pollack (served in support of Mr. Roth’s application for permission to bring the Partnership Claim) at paragraph 16 that it is the allegation that there was the 2007 Understanding which has “given rise” to the Partnership Claim. Any such case of Mr. Roth (that there was no 2007 Understanding), being part of the Partnership Claim, is a matter which is referred to arbitration by the 2016 Framework Agreement and therefore must be stayed. It is or would be a dispute “in connection with” the 2016 Framework Agreement because both the 2016 Framework Agreement and the 2007 Understanding concern the same subject matter, namely, the Russian Business.
  19. Of course, it is undesirable that the same factual issue might be determined by the court and by the arbitral tribunal. There is a risk of inconsistent decisions. That is, at the very least, most unfortunate and has the potential to cause great difficulty but the court has no discretion in this matter. As noted by Popplewell J in Sodzawicznyat paragraph 44 the court can only use its case management powers to ameliorate the adverse consequences of a mandatory stay.
  20. Counsel for Mr. Roth also submitted that Mr. Roth’s claim for a declaration that Mr. Orlov and Mr. Roth did not enter the alleged 2007 Understanding and his claim for a declaration that, since there was no 2007 Understanding, Mr. Orlov and Mr. Roth continued to be entitled to call for the Joint Venture Assets in equal shares at that time should not be stayed. This was essentially the same point as that with which I have just dealt.
  21. The two declarations are to be found in paragraphs 1 and 2 of Mr. Roth’s prayer for relief. Whilst, as explained above, their subject-matter may have a relevance in connection with Mr. Tugushev’s claim they are, in the context of the Partnership Claim, steps on the way to the principal relief sought in paragraphs 3-8 of the prayer, namely, a transfer of shares or damages, interest and costs. That being so paragraphs 1 and 2 must be stayed just as paragraphs 3-8 must be stayed. They are all caught by the arbitration clause.
  22. Counsel for Mr. Roth finally submitted that Mr. Orlov has invoked the court’s jurisdiction by pleading, by way of defence to Mr. Tugushev’s claim, (i) the 2007 Understanding, (ii) the consequence being that the 1997 Partnership Agreement no longer applied and (iii) that the alleged 2007 Understanding was reflected in the 2008 Agreement. It was said that having done that it was now too late to seek a stay of the Part 20 Partnership Claim.
  23. It was accepted that in order for there to be a waiver of the right to seek a stay there must be an unequivocal act which invokes the jurisdiction of the court to deal with the substance of the claim which would otherwise have been arbitrated; see Jurisdiction and Arbitration Agreements and their Enforcement3rd.ed. by David Joseph QC at paragraph 11.44.
  24. In circumstances where what Mr. Orlov did was to plead his defence to Mr. Tugushev’s claim in December 2019, some months before the Partnership Claim had been articulated, I am unable to accept that there was, as against Mr. Roth, an unequivocal invocation of the court’s jurisdiction to deal with one or more of the matters referred to arbitration. Mr. Orlov was merely defending the claim brought against him by Mr. Tugushev. I am therefore unable to accept the submission that Mr. Orlov has waived the right to insist on arbitration in respect of the dispute as to the 2007 Understanding as between himself and Mr. Roth.
  25. Counsel for Mr. Roth accepted that the facts of this case were “unusual” in that Mr. Orlov’s allegations were made in his defence to Mr. Tugushev’s claim, rather than directly against Mr. Roth. But he submitted that Mr. Orlov was aware that what he was saying as against Mr. Tugushev was a matter of controversy between Mr. Orlov and Mr. Roth and that the controversy as to the 2007 Understanding would have to be determined by the court in order to decide Mr. Tugushev’s claim with the result that the decision would be binding on Mr. Roth. Counsel said that Mr. Orlov “nevertheless elected to put these matters in issue without any reservation or suggestion that as between Mr. Orlov and Mr. Roth the questions of whether there was a 2007 Understanding or whether the Orlov/Roth Partnership Agreement continued to govern could only be decided in arbitration”. This conduct was said to be “an unequivocal invocation of the Court’s jurisdiction in respect of these matters”. The difficulty with this carefully constructed argument is that when Mr. Orlov pleaded the alleged 2007 Understanding in response to Mr. Tugushev’s claim the Partnership Claim as now advanced by Mr. Roth had not been articulated. In those circumstances I am unable to accept that Mr. Orlov’s conduct was “an unequivocal act which invoked the jurisdiction of the court to deal with the substance of the claim which would otherwise have been arbitrated”. Mr. Orlov cannot be expected to have reserved the right to say that as between Mr. Orlov and Mr. Roth the question of whether there was a 2007 Understanding could only be decided in arbitration in circumstances where Mr. Roth had not brought any claim against Mr. Orlov which was arguably within the arbitration clause.

Estoppel

  1. TTC was incorporated in December 2006 when, I was told, Mr. Tugushev was in prison. According to Mr. Orlov and Mr. Roth TTC was at all material times owned by Mr. Orlov and Mr. Roth in equal shares. As joint shareholders they were responsible for the operation and management of TTC. Mr. Tugushev had never had any material involvement with the operation and management of TTC.
  2. Roth’s Part 20 TTC Claim is based upon the premise that this court holds that the 3-Way JVA was entered into and remains binding so that Mr. Tugushev is entitled to one third of TTC. Mr. Roth expects that his purchase of Mr. Orlov’s interest in TTC (pursuant to the order of the Hong Kong Court) will have been completed before judgment is given in England. Mr. Orlov will therefore have received from Mr. Roth payment in respect of a greater number of shares (50%) than that to which he was entitled (33.3%), the “Excess Shares”. Mr. Roth therefore seeks a payment from Mr. Orlov equal to the purchase price of the Excess Shares.
  3. Orlov submits that permission should not be granted to advance this claim because Mr. Roth is estopped from doing so by the decision of the Hong Kong Court in the “unfair prejudice” litigation between Mr. Orlov and Mr. Roth. It is common ground that Mr. Roth’s application should be determined as if Mr. Orlov were applying for reverse summary judgment in, and/or strike out of, the TTC Claim.
  4. Both Mr. Orlov and Mr. Roth consider that the court has all the evidential materials necessary for this point to be determined on this hearing, including expert evidence of Hong Kong law. Neither party suggests that there will be any further evidence at trial, save perhaps, cross-examination of the experts on Hong Kong law. Since (a) the only dispute between the experts is not as to Hong Kong law but as to the application of Hong Kong law to the facts of this case, (b) the Hong Kong law of issue estoppel is derived from the English law of issue estoppel and (c) the Hong Kong Court is a common law court whose judgment is in English I accept that this court is able to decide the question of issue estoppel on this application without the need to hear cross-examination of the experts on Hong Kong law.

The elements of issue estoppel

  1. It is common ground between the parties that an issue estoppel may arise from earlier proceedings in a foreign court if:
  2. i) the foreign court is a court of competent jurisdiction;
  3. ii) the decision of the foreign court has clearly or necessarily decided the issue finally and on the merits and with preclusive effect as a matter of the local law;

iii) the decision is about the same issue which is sought to be raised in England; and

  1. iv) the decision is made in proceedings between the same parties or their privies.
  2. There is no dispute as to requirements i) and iv) or that the decision of the Hong Kong Court was final and on the merits.
  3. There is, however, a fifth requirement as counsel for Mr. Roth was keen to stress, namely, that the purpose of estoppel is to work justice. In Carl Zeiss Stiftung v Rayner & Keeler [1967] AC 853 Lord Upjohn said at p. 947 E that estoppels “must be so applied as to work justice and not injustice and ….the principle of issue estoppel must be applied to the circumstances of the subsequent case with this overriding consideration in mind.” In Arnold v National Westminster Bank[1991] 2 AC 93 at p.109 B. Lord Keith said that in special circumstances inflexible application of estoppel may work injustice. In the latter case it was held that a party to an earlier decision was not bound by it in circumstances where it had later been declared to be wrong in law. In The Good Challenger[2004] 1 Lloyd’s Reports 67 Clarke LJ at paragraph 54 said that “the application of the principles of issue estoppel is subject to the overriding consideration that it must work justice and not injustice.” The matter was further discussed at paragraphs 75-79 where Clarke LJ said, at paragraph 79, that “the correct approach is to apply the principles set out above unless there are special circumstances such that it would be unjust to do so. Whether there are such special circumstances or not will of course depend upon the facts of the particular case.”

The Hong Kong proceedings

  1. I must first describe the Hong Kong proceedings in a little more detail.
  2. Orlov and Mr. Roth fell out and lost trust in each other. On 8 June 2017 Mr. Orlov issued an unfair prejudice petition in Hong Kong against Mr. Roth. On 22 December 2017 Mr. Roth issued an unfair prejudice cross-petition against Mr. Orlov. Each sought an order that Mr. Roth buy-out Mr. Orlov. It was common ground in those petitions that Mr. Orlov and Mr. Roth were the each direct or indirect owner of 50% of the shares in TTC, that TTC had been set up and was to be operated in accordance with their Mutual Understanding pursuant to which each was to contribute to the share capital, share expenses and share profits on an equal 50/50 basis and that all decisions would be taken by mutual agreement. Each alleged that the other had breached the Mutual Understanding.
  3. It is to be noted that Mr. Tugushev brought his claim against Mr. Orlov and Mr. Roth in England in July 2018.
  4. On 29 January 2019 Mr. Roth applied for a stay of the Hong Kong proceedings pending the outcome of the proceedings before this court in which Mr. Tugushev claimed one-third of TTC. The application was dismissed on 21 March 2019 by a deputy judge (not the trial judge) for three reasons:
  5. i) Mr. Tugushev’s claim to the shares in TTC had been known since July 2018 and Mr. Roth had participated in setting the petitions down for trial in August 2018.
  6. ii) There was no dispute between Mr. Orlov and Mr. Roth as to the size of their respective shareholdings.

iii) Mr. Tugushev had not sought to participate in the Hong Kong proceedings.

  1. Over 11 days in July and August 2019 the petitions were tried before Coleman J. Judgment was given on 28 August 2019. Unfair prejudice was found on both sides and the Court ordered a buyout by Mr. Roth of Mr. Orlov’s shareholding. The following observations in the judgment have been relied upon as being of particular relevance to the present dispute.
  2. i) At paragraph 27 the Judge referred to the proceedings in England.

“27. As an aside, it might be mentioned that there is a dispute between Tugushev and Orlov and Roth about the one third share originally held on trust for Tugushev, which has led to proceedings brought by Tugushev against Orlov and Roth in England…………….Orlov now holds the shares, but Tugushev alleges they were misappropriated as a result of joint activity by Orlov and Roth. But that dispute and those proceedings have not really figured in these proceedings, and this case has proceeded on the basis that the only relevant shareholders are Orlov and Roth. Therefore, other than possibly in the context of the precise terms of relief which might be granted in these proceedings, I do not think the Tugushev dispute and proceedings require further consideration for present purposes.”

  1. ii) Counsel for Mr. Roth invited the Hong Kong Court to have regard to the possibility that Mr. Tugushev might obtain an order from this Court that he is entitled to ownership of one third of the shares in TTC and that any buyout order might unfairly prejudice Mr. Roth. The Judge noted at paragraph 393 that counsel had offered no specific suggestions for a mechanism to deal with this situation. At paragraphs 394-5 he said:

“394. In any event, I am not persuaded that any such mechanism is necessary or appropriate. Orlov and Roth have chosen to fight these proceedings on the basis that they, and they alone, are the equal shareholders of TTC. That they so assert is a necessary corollary of the whole basis of their cross-claims upon the alleged MU. It seems to me to be a bit late in the day to suggest at the end of the trial that the fundamental basis asserted by both parties as underpinning these proceedings might not actually be correct, and that my order ought somehow to take that into account.

  1. In any event, from my reading of Tugushev’s claim, if it is made good he can be suitably compensated by a financial award, and any financial award against Orlov and Roth as co-conspirators or co-tortfeasors is likely to give rise to duties and obligations between them as a result. I do not think my order for buyout in these proceedings need be unnecessarily complicated by anticipation of matters which appear, at this point, to be entirely speculative and somewhat remote.”
  2. In December 2019 Mr. Orlov and Mr. Roth served their Defences to Mr. Tugushev’s claim in England.
  3. On 31 December 2019 there was fixed before the Hong Kong Court a hearing to finalise the terms of the Court’s order. Shortly before that on 24 December 2019 Mr. Tugushev applied to be heard. That application was heard on 31 December 2019. In support of his application Mr. Tugushev relied upon Mr. Roth’s defence in the English action in which he accepted that Mr. Tugushev was entitled to one third of the business which included TTC. It was said that “the English Court will have to make some determination for which the buyout order potentially has some effect, because it potentially involves shares which in fact belong to Tugushev”. Counsel for Mr. Orlov said that it was not open to Mr. Roth to adopt in the Hong Kong proceedings a stance which was diametrically inconsistent with his previous position in these proceedings. The Judge thought there was force in that point but did not rely on it for the purposes of resolving Mr. Tugushev’s application; see paragraph 21. He gave his decision on that application at paragraph 22:

“22. At bottom, I am not persuaded that it is necessary for Tugushev to be allowed to intervene in these proceedings to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, nor is it my opinion that it would be just and convenient to determine as between Tugushev and Orlov and Roth in these proceedings, those matters which he says are common issues in the other proceedings.”

  1. The Judge then gave three reasons. The valuation process was likely to be different in the two jurisdictions. There was a difference of some months in the valuation date. Mr. Tugushev would not be bound by the valuation in Hong Kong.
  2. On 23 January 2020 the Judge made an order for an interim payment. Mr. Tugushev’s claim was again mentioned. At paragraph 46 the Judge said:

“46. Mr. McLeish [counsel for Mr. Roth] also submitted that a further complication is Tugushev’s claim to a one third interest in the TTC Group. As indicated, I have dismissed Tugushev’s application to intervene in these proceedings, I do not think it is necessary or appropriate to speculate as to what might happen on his claim in the English proceedings. But, if the express concern is that Roth could find himself in a position of having overpaid Orlov even by way of an interim payment based on an “irreducible minimum” possible valuation of the shares registered in Orlov’s name, when one third of those shares might be found to be beneficially owned by Tugushev, that seems to me to be a litigation risk which Roth voluntarily assumed when he conducted the litigation in Hong Kong on the basis that he and Orlov, and only he and Orlov, were equal beneficial shareholders of TTC. Therefore, and though I have in mind that any such claim might be met by an award of damages, I take no account of Tugushev’s claim for the purposes of considering Orlov’s interim payment application.”

The alleged issue estoppels

  1. An issue estoppel is said to arise in relation to 5 issues:
  2. i) The fact that Mr. Orlov is entitled to be paid by Mr. Roth 50% of the value of TTC on transferring to Mr. Roth his 120,000 shares.
  3. ii) The fact that Mr. Roth and Mr. Orlov (and they alone) were equal shareholders in TTC.

iii) The fact that TTC was set up and operated pursuant to the Mutual Understanding (that is, an understanding as to how TTC was to be managed) as opposed to any other agreement.

  1. iv) The fact that the Hong Kong Order gave appropriate effect to, and was consistent with, the Mutual Understanding.
  2. v) The fact that Mr. Tugushev did not have any interest in TTC shares.
  3. Counsel for Mr. Roth submitted that this was an over-elaborate structure to debate and in reality there were only two issues to debate:
  4. i) Is the TTC Claim an impermissible attempt to rewrite or undermine the Buy-Out Order; and
  5. ii) Did the Hong Kong Court determine, clearly and as a necessary and fundamental part of its reasoning that Mr. Roth and Mr. Orlov (and they alone) were the only persons with any interest or rights to TTC’s shares and, if so, does Mr. Roth’s TTC Claim put this matter in issue?
  6. I consider that the important question is whether the Hong Kong Court found clearly or necessarily that Mr. Roth and Mr. Orlov (and they alone) were the only persons with any interest in TTC. If there was such a decision then there is no dispute that it would be preclusive in Hong Kong law. It was common ground that in Hong Kong there was a doctrine of issue estoppel which applied to a decision which was final and on the merits. The parties to such a decision were not able to challenge that decision in later litigation. There did not appear to be any material distinction between English and Hong Kong law on this subject.

The decision in Hong Kong

  1. What the Hong Kong Court decided has been addressed by the experts on Hong Kong law and on that they have expressed different opinions.
  2. Rachel Lam SC expressed the opinion that the parties’ “agreed position” was that they were equal shareholders in TTC and that that was necessary and fundamental to the decision of the Hong Kong Court; see paragraph 63 of her report. She said that the Court proceeded on the fundamental basis that no one other than Mr. Orlov or Mr. Roth had any interest in or rights to TTC’s shares, that is, that Mr. Tugushev had no such entitlement; see paragraph 70 of her report.
  3. Abraham Chan SC expressed a different opinion. He drew attention to paragraph 27 of the judgment (which I have quoted above) and concluded that the question of Mr. Tugushev’s potential interest in TTC was simply not material to – and still less was it foundational or dispositive of – the dispute before him other than (possibly) for the specific terms of relief to be granted. This was because the unfair prejudice proceedings were conducted on the basis that the only relevant shareholders were Mr. Orlov and Mr. Roth; see paragraph 72 of his report. Mr. Chan explained that whilst the decisions of the court as to mismanagement gave rise to an issue estoppel the judge’s observations at paragraphs 393-5 of the judgment showed that he was not refusing to take account of Mr. Tugushev’s possible interest in TTC on the grounds of issue estoppel but on case management grounds and that his possible interest should best be left to the English court; see paragraphs 74-82 of his report. There were further elements in Mr. Chan’s sustained argument. The Hong Kong Court was concerned with an issue between the only two registered shareholders in TTC. That was quite a different issue from whether or not Mr. Tugushev had rights beyond the register; see paragraphs 96-102. Mr. Tugushev’s possible interest was “no more than background matter in the Hong Kong Proceedings and was deliberately left untouched by Coleman J. There was certainly no “distinct determination of the court” on the issue of Mr. Tugushev’s interest “in sufficiently clear and precise terms” “; see paragraph 105(3) of his report. It followed that Mr. Roth would be precluded from asserting that there were more than two registered shareholders but not from asserting that there were other unregistered shareholders (and a fortioriother people with contractual claims to TTC shares); see paragraph 112(b) and (c) of his report.
  4. Rachel Lam SC responded to this opinion at length; see paragraphs 20-46 of her supplementary report. But her fundamental objection is that, in her opinion “the fundamental basis on which the Hong Kong court proceeded was that only Mr. Orlov and Mr. Roth, and no one else, had any interest in or rights to TTC’s shares”. This opinion had been explained and supported at paragraphs 70-74 of her first report.
  5. I have considered carefully the expert evidence of the two Hong Kong leading counsel but ultimately I have to form my view assisted by their views. It is to be noted that when the Judge referred in his judgment to the possible interest of Mr. Tugushev in the TTC shares he did not say that Mr. Tugushev’s possible interest was irrelevant on the ground that he was concerned only with registered shareholders. Rather, the Judge appears to have recognised that Mr. Tugushev’s suggested interest might be relevant to the precise terms of the relief granted; see paragraph 27 of the judgment. That suggests that he had in mind that the interest of a third party to the proceedings could potentially be relevant to the relief granted even though Mr. Tugushev was not a registered shareholder. When, at the end of the hearing, he was invited to have regard to Mr. Tugushev’s possible interest as a third party he decided not to do so. Again, he did not say that Mr. Tugushev’s possible interest was irrelevant because he was not a registered shareholder. Instead he said that it was not necessary or appropriate to take that possible interest into account because the fundamental basis upon which the parties had conducted the proceedings was that “they, and they alone, are the equal shareholders of TTC”. The Judge considered that Mr. Tugushev’s “claim, if it is made good” could be compensated by a financial award in England. That claim was “at this point …… entirely speculative and entirely remote”. As I read the judgment the Judge appreciated that Mr. Tugushev’s claim was not that he was a registered shareholder (it must have been obvious that he was not) but that he had a claim to ownership of one third of the shares in TTC. Thus, when the Judge referred to the fundamental basis upon which the parties had conducted the proceedings as being that they and they alone were equal shareholders in TTC he was saying that the parties had conducted the proceedings on the basis that the only persons with an interest in the shares were Mr. Orlov and Mr. Roth who held them equally. Had the Judge considered that Mr. Tugushev’s claim, whatever it was, was irrelevant to the proceedings because he was not a registered shareholder I think it likely that he would have said so.
  6. When the Judge dealt with the question of an interim payment in a later ruling he referred to Mr. Roth’s concern that he “could find himself in a position of having overpaid Orlov even by way of an interim payment based on an “irreducible minimum” possible valuation of the shares registeredin Orlov’s name, when one third of those shares might be found to be beneficially ownedby Tugushev…” (my emphasis added). That language confirms that the Judge appreciated that Mr. Tugushev’s claim was to a beneficial interest in the shares and that he was not a registered shareholder. The Judge said that Mr. Roth took a “litigation risk” when he “conducted the litigation in Hong Kong on the basis that he and Orlov, and only he and Orlov, were equal beneficial shareholders of TTC” (again, my emphasis added).
  7. These passages in my view support the opinion of Rachel Lam SC that “the fundamental basis on which the Hong Kong Court proceeded was that only Mr. Orlov and Mr. Roth, and no one else, had any interest in or rights to TTC’s shares”. Counsel for Mr. Roth said that these passages were irrelevant because Mr. Tugushev does not claim a beneficial interest but “a contractual claim to call for one-third of the shares”. But in my view the Judge in Hong Kong clearly regarded Mr. Tugushev’s claim as a claim to beneficial ownership.
  8. Reliance was placed by counsel for Mr. Roth on submissions made in Hong Kong by counsel for Mr. Orlov, when opposing Mr. Roth’s stay application, to the effect that it was irrelevant that someone other than Messrs. Orlov and Roth was claiming a beneficial interest in the shares of TTC, not being a registered shareholder. Whilst that submission was made the Judge does not appear to have accepted it. He did not dismiss the claim of Mr. Tugushev as being irrelevant on the grounds that he was not a registered shareholder.
  9. It is true that the Judge remarked, at paragraph 395 of his judgment, that if a financial award were made in England against Mr. Orlov and Mr. Roth as co-conspirators or co-tortfeasors that was “likely to give rise to duties and obligations between them as a result”. It was suggested that this indicated that the Judge had in mind that the financial position between Mr. Orlov and Mr. Roth could be adjusted in England, which would suggest that he did not envisage that Mr. Roth would be estopped from claiming such an adjustment. That is possible, but not obvious. The Judge was not addressing the issue of any possible estoppel in England. He was addressing the question whether his order should have regard to Mr. Tugushev’s possible interest. I do not consider it realistic to suggest that the Judge considered the question of issue estoppel in England. (It also appears from the transcript of the closing submissions on 19 August 2019 at p.151 that counsel for Mr. Orlov also did not have the question of an issue estoppel in mind.)
  10. I therefore agree with Rachel Lam SC that “the fundamental basis on which the Hong Kong Court proceeded was that only Mr. Orlov and Mr. Roth, and no one else, had any interest in or rights to TTC’s shares”.
  11. I now return to the question whether the Hong Kong Court “found clearly or necessarily that Mr. Roth and Mr. Orlov (and they alone) were the only persons with any interest in TTC.”
  12. There was no argument about this question before the Hong Kong Court. It was accepted by Mr. Roth that he and Mr. Orlov were each beneficial owners of 50% of TTC. That is why there is no discussion of the question of share ownership, legal or beneficial, in the judgment. It was not the subject of argument because it was the fundamental basis upon which all parties and the court proceeded. However, that Mr. Orlov beneficially owned 50% of TTC was a necessary part of the Court’s conclusion that Mr. Roth should buy out the 50% of the shares owned by Mr. Orlov and registered in his name. Such a conclusion could only be reached on the basis that Mr. Orlov owned legally and beneficially 50% of TTC.
  13. It has long been established that an assumption or concession which founds the basis for a decision can give rise to an estoppel. In Hoystead v Commissioner of Taxation[1926] AC 155 Lord Shaw said at p.165:

“…………it is settled, first, that the admission of a fact fundamental to the decision arrived at cannot be withdrawn and fresh litigation started, with a view of obtaining another judgment upon a different assumption of fact, secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the legal quality of that fact…………..Thirdly, the same principle – namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed.”

  1. This approach to the law of issue estoppel was not challenged. I have noted that in Carl Zeiss Stiftung v Rayner and Keeler Limited[1967] AC 853 Lord Wilberforce applied the principle of issue estoppel where there had been “careful consideration and a clear decision on an issue” (see p. 967 E). That phrase might suggest that a mere assumption was insufficient. However, the question did not arise in Carl Zeissbecause, as noted by Lord Reid (at p. 916 C) the issues in that case were “fully litigated in the West German court”. In that same passage Lord Reid referred to comments which had been made about the approach in Hoystead and observed that “there may well be a difference between a case where an issue was in fact decided because the earlier judgment went by default or was founded on an assumption.” However, in the present case Mr. Orlov’s petition did not go by default.
  2. It must follow that in the present case the Hong Kong Court necessarily found that Mr. Roth and Mr. Orlov (and they alone) were the only persons with any interest in TTC. That decision was final and on the merits.

The issue sought to be raised in England

  1. The next question is whether that decision, which has preclusive effect in Hong Kong, is about the same issue which is sought to be raised in England in the Part 20 Claim.
  2. Counsel for Mr. Orlov said that the same issue is raised in the Part 20 Claim because the TTC Claim is based upon the proposition that Mr. Tugushev had a one third interest in TTC.
  3. Counsel for Mr. Roth said that that approach was fundamentally misconceived. Mr. Roth’s claim does not depend upon an allegation made by Mr. Roth that Mr. Tugushev is actually entitled to or has any rights in TTC shares. The TTC Claim starts at the point at which the English Court has already determined Mr. Tugushev’s entitlement to call for shares in TTC. Mr. Roth accordingly does not need to, and does not, make any allegation in the TTC Claim that Mr. Tugushev is actually entitled to shares in TTC. Mr. Roth’s claim is merely a consequence of the potential outcome of the issue raised by Mr. Tugushev in his claim before this court.
  4. I do not consider that the argument advanced on behalf of Mr. Roth is correct, notwithstanding its ingenuity. It is true that the claim is based upon an assumed finding by the court in Mr. Tugushev’s claim that he has a right to one third of TTC. But once that finding is adopted by Mr. Roth in support of his TTC Claim against Mr. Orlov Mr. Roth is making a claim against Mr. Orlov that Mr. Tugushev is and always was entitled to one third of TTC. That claim is contrary to the foundation of the decision of the Hong Kong Court which was that Mr. Tugushev had no such right.
  5. Thus the four conditions necessary for an estoppel arising from the decision of a foreign court are met. But there remains the question whether to hold that Mr. Roth is estopped from advancing the TTC Claim works an injustice on the special facts of this case.

Justice

  1. Counsel for Mr. Roth submitted that the suggested issue estoppel, if applied, would work an injustice because, if Mr. Roth is ordered to transfer one third of the shares in TTC to Mr. Tugushev, he will have paid Mr. Orlov a sum in respect of a greater number of shares than those to which he was in fact entitled and so Mr. Orlov will get a windfall at Mr. Roth’s expense.
  2. Counsel for Mr. Orlov submitted that to hold that Mr. Roth was estopped from advancing the TTC Claim worked in favour of justice because it will avoid Mr. Orlov being harassed by the same claim twice.
  3. The submission made on behalf of Mr. Orlov reflects the justice implicit in the doctrine of issue estoppel; see for example The Good Challengerat paragraph 58 per Clarke LJ. However, there can be cases where special circumstances make it unjust that a person cannot advance an issue already decided against him. Arnold v Natwest Bank is an example of such a case. In that case Sir Nicholas Browne-Wilkinson V-C said at first instance that injustice can lie in a successful party to the first action being held to have rights which he does not in fact possess; see the quotation from his judgment in The Good Challenger at paragraph 77. Whether that is unjust must depend upon the circumstances of each case.
  4. In support of the argument advanced on behalf of Mr. Orlov it was said that there is nothing unjust in holding Mr. Roth to the decision of the Hong Kong Court because Mr. Roth could have contended before the Hong Kong Court that Mr. Tugushev was entitled to a one third interest by reason of the 3-Way JVA which, in Mr. Tugushev’s claim in this court, he accepts existed. But he chose not to do so. Mr. Roth sought a stay on account of Mr. Tugushev’s claim and submitted that the court’s order following the trial should in some way reflect that claim but he never submitted that Mr. Orlov’s interest in TTC was one third rather than one half. The first time he made that submission was in December 2019 in his Defence to the claim in England brought by Mr. Tugushev. Thus it would not be possible to bring the present case within the circumstances accepted by the House of Lords in Arnold v Natwestas being an exception to the doctrine of issue estoppel, namely, where further material is available relevant to the correct determination of a point involved in earlier proceedings, being material “which could not by reasonable diligence have been adduced in those proceedings”; see [1991] 2 AC at p.109 B per Lord Keith.
  5. In support of the argument advanced on behalf of Mr. Roth it was suggested that if Mr. Tugushev only obtains an order for the payment of damages there can be an appropriate adjustment of the state of account between Mr. Orlov and Mr. Roth pursuant to the contribution notices that each has served on the other. If Mr. Tugushev obtains an order for the transfer of shares (which he only claimed by amendment in May 2020 after the Hong Kong judgment) it would be unjust if an appropriate adjustment to the state of account between Mr. Orlov and Mr. Roth could not be made. I was not persuaded by this particular point. Although I was told that there has been no application to strike out Mr. Roth’s contribution notice it does not follow that Mr. Orlov cannot rely upon the suggested issue estoppel at trial.[1]
  6. It was also suggested that it was significant that Mr. Tugushev only claimed an order for the transfer of shares in May 2020 after the Hong Kong judgment. However, the claim being made by Mr. Tugushev in 2018-19 was understood to be a claim to ownership of one third of the shares in TTC; see the Skeleton Argument filed by Mr. Roth in support of his stay application at paragraphs 7, 26, 45, 59 and 62 and his Closing Submissions at the trial, paragraphs 278 and 283. Thus the form of relief sought by Mr. Tugushev does not appear to have prevented Mr. Roth from appreciating the nature of the rights asserted by Mr. Tugushev.
  7. However, Counsel for Mr. Roth correctly noted that Mr. Orlov cannot prevent Mr. Tugushev from pursuing his claim that he was entitled to one third of the TTC shares. Thus Mr. Orlov must face that claim in any event. In my judgment this circumstance reduces significantly the injustice to Mr. Orlov in having to face a claim by Mr. Roth, based upon an assumed finding by this court in favour of Mr. Tugushev’s claim, that Mr. Tugushev was entitled to one third of the TTC shares. It is a special circumstance of this case.
  8. Counsel for Mr. Roth also relied upon the principle noted in Spencer Bower and Handley on Res Judicataat paragraph 8.17 that issue estoppel will not prevent a party from litigating an issue founded on “any new or later state of circumstances”. If this court holds that Mr. Tugushev is entitled to one third of TTC it will do so in proceedings to which Mr. Tugushev, Mr. Orlov and Mr. Roth are party. It will be a decision binding upon each of them. That would appear to be a new or later state of circumstances which did not exist at the date of the Hong Kong judgment. Moreover, it would, it seems to me, be an event capable of causing injustice if the court were able to give effect to that holding in Mr. Tugushev’s claim but not able to do so in Mr. Roth’s Part 20 Claim. The court would be saying one thing in the main action and another thing in the Part 20 Claim. Whilst giving effect to the principle of issue estoppel would prevent the risk of inconsistent decisions between London and Hong Kong, giving effect to that principle would create a risk of inconsistent findings by the same court in London. Whilst issue estoppel is not primarily concerned with avoiding the risk of inconsistent decisions but with avoiding a party being harassed twice in respect of the same claim, this is another special circumstance of this case. Inconsistent findings by the same court are not the hallmark of justice.
  9. In the present case the particular result of inconsistent findings would be that Mr. Orlov would be able to keep the amount paid by Mr. Roth equal to “the Excess Shares”, a right which this court would have held he did not have.
  10. These considerations appear to me of such weight and significance that if ignored, as they would be were the doctrine of issue estoppel to be operated inflexibly, they would work an injustice. I have taken into account the circumstance that Mr. Roth could have adopted the same stance in Hong Kong as he adopted in this court but I remain of the view that the operation of the doctrine of estoppel in the circumstances of this particular case will work an injustice.
  11. I have therefore concluded that there are special circumstances in this case which would make it unjust to apply the principle of issue estoppel.

Abuse of process

  1. Orlov said that if the principle of issue estoppel did not apply then Mr. Roth should still be denied permission to advance the TTC Claim because it is an abuse of the process of this court for Mr. Roth to take a point here which he could and should have taken in Hong Kong. That involves a “broad merits based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focussing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before”; see Johnson v Gore Wood & Co.[2002] 2 AC 1 per Lord Bingham. I have sought to take account of the public and private interests involved when considering whether it would work an injustice to apply the doctrine of issue estoppel in this case. I concluded that it would. For the very same reasons I do not consider that it can be said to be abusive of the process of this court for Mr. Roth to advance the TTC Claim in the event that this court holds that Mr. Tugushev is entitled to one third of TTC.

Conclusion

  1. Roth’s application for permission to bring the Partnership and Alex Bundle Claims as Part 20 claims is refused because they have been referred to arbitration by the 2016 Framework Agreement. Mr. Roth’s application for permission to bring the TTC Claim as a Part 20 claim is granted. It would work an injustice were Mr. Roth to be estopped from advancing that claim.

Note 1:   This final sentence, when seen in draft, caused counsel for Mr. Roth to be concerned that it “could be read as suggesting that Mr Orlov would be free to raise the same estoppel points as he has raised on this application in response to Mr Roth’s existing contribution claim in respect of TTC. “ Counsel suggested that since “the draft judgment, and in particular paragraph 110, resolves the estoppel issues in Mr Roth’s favour, it follows that the same estoppel defence to the existing contribution claim would no longer be available, because that defence has already been resolved”. A form of words making that clear was suggested. Counsel for Mr. Orlov objected, saying that “the question of the availability of any estoppel as a defence to the contribution claims not having been an issue before the Court on this application….the Court has accordingly not heard submissions on, nor considered, whether the elements of an estoppel are made out in relation to any aspects of the possible contribution claims or whether or how any considerations of justice such as those considered in paras 100 to 110 of the draft judgment might apply to such claims.” The final sentence was not intended by me to enable Mr. Orlov to pursue an estoppel argument which was not open to him in the light of my judgment. I was merely responding to (and rejecting) the particular argument on “justice” raised by Mr. Roth. However, if there are additional estoppel arguments which can only arise in the context of the contribution claim and which in consequence I have not rejected I was not intending to decide them.

 

 

Winslow Constructors v Head, Transport for Victoria (Costs) [2021] VSC 74

 

MATTER Winslow Constructors v Head, Transport for Victoria (Costs) [2021] VSC 74
PARTIES Applicant

WINSLOW CONSTRUCTORS PTY LTD (ACN 006 581 764)

v

Respondent

HEAD, TRANSPORT FOR VICTORIA (ABN 97 481 088 949)

MATTER NUMBER S ECI 2020 02720
COURT IN THE SUPREME COURT OF VICTORIA
DIVISION ARBITRATION LIST
JUDGE: RIORDAN J
WHERE HELD: Melbourne
DATES OF HEARING: 3 December 2020 and written submissions filed 8, 10 and 14 December 2020
DATE OF JUDGMENT: 26 February 2021
CASE MAY BE CITED AS: Winslow Constructors v Head, Transport for Victoria (Costs)
MEDIUM NEUTRAL CITATION: [2021] VSC 74
CATCHWORDS ARBITRATION – Whether indemnity costs should be the default order in unsuccessful challenges to arbitral awards – Consideration of the appropriate test to be applied for unmeritorious challenges to arbitral awards – Whether a different approach should be adopted by reason of the objects of the Commercial Arbitration Act 2011 (Vic) or the International Arbitration Act 1974 (Cth).
COSTS – Jurisdiction to award indemnity costs – Principles to be applied with respect to unmeritorious claims considered – Application for indemnity costs refused.
REPRESENTATION For the Applicant

Solicitors – Giannakopoulos Solicitors

Council –    Mr H Foxcroft QC with
Mr T J Mullen

 

For the Respondent

Solicitors – Maddocks

Council –     Mr M R Scott QC with
Ms E Levine

 

JUDGMENT

HIS HONOUR:

  1. On 3 December 2020, judgment was entered for the applicant (‘Winslow’) pursuant to s 35 of the Commercial Arbitration Act 2011(Vic) (‘the Act’) and I ordered the respondent (‘the Department’) to pay Winslow the sum of $3,527,226.29 for the reasons published on that day.[1] As it had foreshadowed in its submissions filed 26 August 2020, Winslow applied for indemnity costs.

[1]          Winslow Constructors v Head, Transport for Victoria [2020] VSC 790 (‘Principal Reasons’).

  1. In accordance with directions made on 3 December 2020, the following submissions were filed:

(a)          the Department’s reply submissions opposing indemnity costs filed on 8 December 2020;

(b)          Winslow’s reply submissions in support of indemnity costs filed on 10 December 2020; and

(c)          the Department’s response to new matters raised by Winslow in reply submissions filed, without leave, on 14 December 2020.

Relevant statutory provisions

  1. In the analysis set out below, reference is made to the following statutory provisions:

(a) Section 1AA of the Act, which states that one of the purposes of the Act is ‘to improve commercial arbitration processes to facilitate the fair and final resolution of commercial disputes by arbitration without unnecessary delay or expense’.

(b) Section 1AC of the Act, which sets out the paramount object of the Act as follows:

(1)          The paramount object of this Act is to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense.

 

(2)       This Act aims to achieve its paramount object by—

(a)          enabling parties to agree about how their commercial disputes are to be resolved (subject to subsection (3) and such safeguards as are necessary in the public interest); and

(b)          providing arbitration procedures that enable commercial disputes to be resolved in a cost effective manner, informally and quickly.

(3)          This Act must be interpreted, and the functions of an arbitral tribunal must be exercised, so that (as far as practicable) the paramount object of this Act is achieved.

(4)          Subsection (3) does not affect the application of section 35 of the Interpretation of Legislation Act 1984 for the purposes of interpreting this Act.

(c) Section 2D of the International Arbitration Act 1974 (Cth) (‘the International Arbitration Act’), which sets out the objects of that Act as follows:

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

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

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

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

(e)          to give effect to the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006; and

(f)          to give effect to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States signed by Australia on 24 March 1975.

 

(d) Section 39(2) of the International Arbitration Act, which states that where a court is considering exercising powers, including to enforce or to refuse to enforce a foreign award, it must have regard to:

(a)          the objects of the Act; and

(b)          the fact that:

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

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

(e) Pursuant to s 16 of the International Arbitration Act, the UNCITRAL Model Law on International Commercial Arbitration (‘the Model Law’)[2] has the force of law in Australia. Article 34(2) of the Model Law provides for applications for setting aside arbitral awards as follows:

[2]          Adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006.

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

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

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

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

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

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

(b)       the court finds that:

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

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

(f) Article 34(2) of the Model Law is adopted in s 34 of the Act.

Principles relating to indemnity costs

  1. In Ugly Tribe Co Pty Ltd v Sikola, Harper J stated that an order for indemnity costs requires special circumstances.[3]He identified that special circumstances may include:

[3]          [2001] VSC 189, [7] (‘Ugly Tribe’) (citations omitted).

(i)          The making of an allegation, known to be false, that the opposite party is guilty of fraud.

(ii)         The making of an irrelevant allegation of fraud.

(iii)        Conduct which causes loss of time to the Court and to other parties.

(iv)         The commencement or continuation of proceedings for an ulterior motive.

(v)          Conduct which amounts to a contempt of court.

(vi)         The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law.

(vii)        The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial.[4]

[4]          Ibid, quoted with approval in 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd [2015] VSCA 216, [9] (Hansen, Ferguson and McLeish JJA).

  1. Recently, in Banksia Securities Ltd v Insurance House Pty Ltd (Costs), John Dixon J restated the principles applicable to an award of indemnity costs as follows:

(a)          Costs are to be assessed on a standard basis unless the circumstances of the case justify a departure from the usual course.

(b)          The making of an indemnity costs order is in the unlimited discretion of the court, with such discretion to be exercised judicially and not unreasonably.

(c)          The court may order indemnity costs where the circumstances warrant departing from the usual rule that costs be payable on a standard basis, including conduct that bears a ‘sufficient or unusual feature’ or some ‘relevant delinquency’.[5]

[5]          [2020] VSC 234, [15].

  1. His Honour proceeded to say that ‘[t]he court may order indemnity costs in cases where a party, properly advised, knew or should have known that it had no chance of success and has persisted with its claim’.[6]I will hereafter refer to such cases as ‘unmeritorious claims’.

[6]          Ibid.

  1. With respect to the category of unmeritorious claims, in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd,Woodward J considered that the jurisdiction to award indemnity costs was enlivened if the litigant had an ulterior motive for the litigation, and that an ulterior motive would be presumed if the litigant should have known there was no chance of success.[7] He explained:

I believe that it is appropriate to consider awarding … ‘indemnity costs’, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.[8]

[7]          (1988) 81 ALR 397, 401.

[8]          Ibid.

  1. In Johnston v Herrod,[9]Muir JA considered the jurisdiction for an indemnity costs order on the basis of an unmeritorious claim, and quoted with approval the following comments of Goldberg J in White Industries (Qld) Pty Ltd v Flower & Hart (a firm):

The authorities do not support the proposition that simply instituting or maintaining a proceeding on behalf of a client which has no or substantially no prospect of success will invoke the jurisdiction. There must be something more namely, carrying on that conduct unreasonably.[10]

[9] [2012] QCA 361, [10] (with whom Gotterson JA and Applegarth J agreed).

[10]         (1998) 156 ALR 169, 236. The application was for a personal costs order against solicitors. The passage has also been quoted with approval in the context of an application for indemnity costs. See, eg, Legal Services Commissioner v Bone [2014] QCA 179, [71] (Morrison JA with whom Fraser and Gotterson JJA agreed); Makoochieng v Kirk (No 2) [2017] VSC 747, [7] (McDonald J).

  1. In J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch(No 2),[11]French J did not consider it necessary to find that the proceeding had been commenced or continued for an ulterior motive or that there was wilful disregard of the known facts or the clearly established laws. He said that the discretion to award indemnity costs could be enlivened if, ‘for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case’.[12]

[11]         (1993) 46 IR 301.

[12]         Ibid 303 (emphasis added).

  1. French J’s statement of principle was cited with approval by the Court of Appeal in Macedon Ranges Shire Council v Thompson.[13]There, the Court of Appeal confirmed that the discretion to make a special costs order may be enlivened if a litigant presses a case that, on proper consideration, should have been seenas hopeless, but that the Court may not be inclined to make such an order if the litigant did not recognise that its case was without merit.[14] In each case, the Court must have regard to ‘the litigant’s conduct against the facts then known or which ought to have been known, the inquiries that the litigant ought reasonably to have made and the legal advice which the litigant ought reasonably to have obtained’.[15]

[13]         (2009) 170 LGERA 41, 49 [15] (Redlich JA and Beach AJA).

[14]         Ibid.

[15]         Ibid.

  1. I would summarise the principles to be applied in considering an application for indemnity costs on the basis of an unmeritorious claim as follows:

(a)   The fact that a litigant filed or maintained a proceeding which has no, or substantially no prospect of success, does not of itself enliven the jurisdiction to award indemnity costs.

(b)  The jurisdiction is enlivened if the litigant knew or should have known, on proper consideration, that the case was hopeless.

(c)   The Court may decline to exercise its discretion if the litigant did not in fact recognise that the case was hopeless.

Do special rules apply to challenges to arbitral awards

  1. International authorities have considered whether a special rule should apply with respect to unsuccessful challenges to arbitral awards, such that indemnity costs would be the starting point and only ‘special circumstances’ would justify a different costs order (‘the A v R principle’). The A v R principle reverses the usual onus by requiring an unsuccessful party to establish special circumstances as to why an indemnity costs order should not be made.
  2. In Hong Kong, it appears to be settled law that indemnity costs will ‘generally’ be awarded against ‘an unsuccessful party in an application to challenge or resist enforcement of an arbitral award’.[16]

[16]         Altain Khuder LLC v IMC Mining Inc (No 2) [2011] VSC 12, [14] (Croft J).

  1. In A v R, Reyes J of the Hong Kong Court of First Instance stated as follows:

Parties should comply with arbitration awards. A person who obtains an award in his favour pursuant to an arbitration agreement should be entitled to expect that the court will enforce the award as a matter of course.

Applications by a party to appeal against or set aside an award or for an order refusing enforcement should be exceptional events. Where a party unsuccessfully makes such application, he should in principle expect to have to pay costs on a higher basis. This is because a party seeking to enforce an award should not have had to contend with such type of challenge.

Further, given the recent introduction of Civil Justice Reform (CJR), the court ought not normally to be troubled by such type of application. A party unmeritoriously seeking to challenge an award would not be complying with its obligation to the court under O 1A r 3 to further the underlying objectives of CJR, in particular the duty to assist the court in the just, cost-effective and efficient resolution of a dispute.

If the losing party is only made to pay costs on a conventional party-and-party basis, the winning party would in effect be subsidising the losing party’s abortive attempt to frustrate enforcement of a valid award. The winning party would only be able to recover about two-thirds of its costs of the challenge and would be out of pocket as to one-third.

This is despite the winning party already having successfully gone through an arbitration and obtained an award in its favour. The losing party, in contrast, would not be bearing the full consequences of its abortive application.

Such a state of affairs would only encourage the bringing of unmeritorious challenges to an award. It would turn what should be an exceptional and high-risk strategy into something which was potentially ‘worth a go’. That cannot be conducive to CJR and its underlying objectives.

Accordingly, in the absence of special circumstances, when an award is unsuccessfully challenged, the Court will henceforth normally consider awarding costs against a losing party on an indemnity basis.[17]

[17]         [2009] 3 HKLRD 389, 400-1 [67]-[72]. See also the decisions to similar effect of A v B (No 2) [2007] 1 All ER (Comm) 633 (Colman J); Wing Hong Construction Ltd v Tin Wo Engineering Co Ltd [2010] HKCFI 1994, [8]–[14] (Saunders J); Taigo Ltd v China Master Shipping Ltd [2010] HKFCI 530, [13]–[16] (Saunders J).

  1. In Altain Khuder LLC vIMC Mining Inc, Croft J dismissed an application under s 8(5)(b) of the International Arbitration Act to set aside an ex parte order enforcing an arbitration agreement.[18]In a separate judgment, Croft J ordered the applicant to pay the costs of that application on an indemnity basis, on the basis of the A v R  He said:

In my view, the considerations which moved Reyes J and Saunders J in the Hong Kong cases … apply with equal force in Victoria, both from an arbitration perspective and also from the perspective of legislation such as that contained in the Civil Procedure Act and in the Hong Kong CJR.[19]

[18]         (2011) 276 ALR 733.

[19]         Altain Khuder LLC v IMC Mining Inc (No 2) [2011] VSC 12, [20].

  1. In IMC Aviation Solutions Pty Ltd v Altain Khuder LLC, the Court of Appeal upheld an appeal against Croft J’s order for indemnity costs and rejected the A v R  Hansen JA and Kyrou AJA stated:

With great respect to his Honour, we can find nothing in the Act or in the nature of the proceedings that are available under the Act which of itself warrants costs being awarded against an unsuccessful award debtor on a basis different from that on which they would be awarded against unsuccessful parties to other civil proceedings. Accordingly, his Honour acted on a wrong principle in embracing the approach that has been adopted by the Hong Kong Court of First Instance. We note also that the Civil Procedure Act 2010 was not in force when his Honour heard this proceeding. Even if it were in force, it would not have warranted the order he made.

In proceedings under the Act, as in other civil proceedings, costs will ordinarily be awarded against the unsuccessful party on a party and party basis unless the successful party can establish special circumstances. The principles for determining the existence of special circumstances are well established. Special circumstances, if they exist, are found in the facts of the case at hand, and the exercise of the judicial discretion is not otherwise conditioned on whether those facts are comprehended by a category of case or cases in which a special order has been made. The fact that an award debtor fails to establish a ground for resisting enforcement of a foreign arbitral award cannot, of itself, constitute special circumstances. Nor can a finding that the award debtor’s case was ‘unmeritorious’ if all that is meant by that expression is that the award debtor failed to persuade the court to accept his or her evidence and submissions.[20]

[20]         (2011) 38 VR 303, 391-2 [335]-[336] (‘Altain Khuder’) (citations omitted). Warren CJ considered it unnecessary for her to express a view on whether the approach of Reyes J in A v R should be followed in Victoria: see 319-20 [58].

  1. In Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd, Hammerschlag J also refused to follow the A v R principle, stating that ‘[n]o presumption as to [the award of indemnity costs] is required or warranted’.[21]He applied conventional principles and stated:

(a)   indemnity costs were warranted ‘where a party maintains proceedings that it should know have no real prospects of success’;[22] and

(b)  the high threshold required for an application to set aside an award under the public policy exception made it easier to identify that a failed application was one that should not have been brought and so created an ‘enhanced risk’ of an order for indemnity costs.[23]

[21]         [2015] NSWSC 829, [6] (‘Colin Joss’).

[22]         Ibid [10].

[23]         Ibid [11]. See also the eight reasons given by Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd (No 2) [2015] NSWSC 564, [31]-[39] for refusing to adopt the similar principle in A v B (No 2) [2007] 1 All ER (Comm) 633 (Colman J).

  1. In Sino Dragon Trading Ltd v Noble Resources International Pte Ltd (No 2), Beach J rejected the A v Rprinciple where a party unsuccessfully challenged an arbitral award under art 34 of the Model Law.[24]He considered that indemnity costs questions should be determined in accordance with the public policy of the forum, stating:

Accordingly, as the law of the forum dictates the principles to be applied in assessing the indemnity costs question, with public policy underpinning such principles, it is not inconsistent with any international instrument or precedent that the public policy of the forum, ie Australia, be considered and applied.[25]

[24]         [2016] FCA 1169, [4]-[20] (‘Sino Dragon’).

[25]         Ibid [8].

  1. Although he rejected the A v R principle, Beach J stated that if an unsuccessful art 34 challenge was found not to have had reasonable prospects of success, that would constitute a ‘category of circumstances justifying an order for indemnity costs’ (‘the no reasonable prospects test’).[26]In summary, he reasoned as follows:

[26]         Ibid [26].

(a)   Exercise of the discretion to award indemnity costs may be informed by the category of the case.[27] In the context of art 34 proceedings, that discretion should be informed by:

[27]         Ibid [24]. Examples cited included where payment of the costs of litigation may come out of a fund or assets controlled by a trustee, liquidator or receiver, and contempt proceedings.

(a)          the objects set out in s 2D and the considerations set out in s 39(2) of the [International Arbitration Act];

(b)       the limited grounds for challenge under Art 34;

(c)          the fact that the parties’ dispute has been resolved under contract with the arbitral award being the contractually provided for outcome; and

(d)          in the context of (a) to (c), the public policy of discouraging Art 34 challenges (and the mirror s 8 proceedings opposing enforcement) that have no reasonable prospects of success, particularly where it may be said that such challenges that do not have such prospects are discordant with the agreed contractual setting for the relevant dispute resolution mechanism.[28]

[28]         Ibid [25] (citations omitted).

(b)  The adoption of the no reasonable prospects test would discourage the bringing of unmeritorious art 34 challenges.[29]

[29]         Ibid [28](b).

(c)   Public policy considerations mean that art 34 challenges are not ordinary litigation.[30] His Honour referred to the paper presented by Allsop CJ entitled ‘Public Policy in the New York Convention and the Model Law’,[31] which concluded with the following quote from TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd:

Parties in international commerce may choose arbitral dispute resolution for many reasons … that chosen international legal order depends crucially upon reliable curial enforcement and a respect by the courts for the choice and autonomy of the parties and for the delicate balance of the system.[32]

[30]         Ibid [28](c).

[31]         The Enforcement of International Arbitration Awards and Public Policy (Seminar Paper, Australian Maritime and Transport Arbitration Commission, 10 November 2014) 30-9 [56]-[74].

[32]         (2014) 232 FCR 361, 393-4 [110] (Allsop CJ, Middleton and Foster JJ).

  1. He further considered that the no reasonable prospects test was analogous to the test for summary judgment under s 31A of the Federal Court of Australia Act 1976(Cth), which empowers a Court to give summary judgment against a party who had no reasonable prospects of successfully defending or prosecuting (as applicable) a proceeding.[33]He opined that ‘reasonable prospects’ was more than ‘real prospects’.[34]

[33]         Sino Dragon [2016] FCA 1169, [26].

[34]         Ibid. ‘No real prospect’ is the test under s 63 of the Civil Procedure Act 2010 (Vic).

Submissions

Winslow’s submissions

  1. Winslow submitted that the Court should accept the approach of Beach J in Sino Dragon, for the following reasons:

(a)   In Altain Khuder, the Court of Appeal rejected the A v R principle but not the ‘careful analysis’ of Beach J in Sino Dragon or Hammerschlag J in Colin Joss as to the proper application of the principles.

(b) The objects in ss 1AA and 1AC of the Act are more supportive of Beach J’s approach than the relatively benign objects in s 2D of the International Arbitration Act.

(c) The lack of any real difference between the costs rules in Victoria, New South Wales and the Federal Court, and the desirability of uniformity in the approach to the Act and the International Arbitration Act, means that the Court ‘should follow carefully considered on point decisions from other superior Courts like Sino Dragon and Colin Joss’.

  1. On the basis that the jurisdiction had been enlivened, Winslow submitted that the Court should exercise its discretion to award indemnity costs because of the following factors:

(a)          The Department’s defence was ‘a barely disguised impermissible attack on the merits of the award’.

(b)          The Department’s tactical decision to wait and raise these matters in response to Winslow’s application for enforcement, at which time any inadequacies in the arbitrator’s reasons could no longer be cured by the Court or Tribunal.

(c)          The inconsistency of the Department’s arguments with respect to the purpose and object of the Act and the policy ramifications for arbitration if enforcement was refused.

(d)          The inconsistency of the resistance with the overarching purpose of the Civil Procedure Act 2010 (Vic), and the Department’s obligations under model litigant guidelines and its positive duties under the Act.

(e)          The fact that any breaches of any obligation to provide reasons were not serious, material or fundamental breaches of the arbitration agreement.

(f)          The Department’s conduct already referred to in Winslow’s submissions as to waiver.

The Department’s submissions

  1. The Department submitted that this Court should not follow the approach of Beach J in Sino Dragon, which declined to follow the Court of Appeal in Altain Khuderand is inconsistent with Victorian law.[35]

 

[35]         The Department referred to the following cases: Jeffrey v Giles [2016] VSC 78, [3] (McDonald J); Makoochieng v Kirk (No 2) [2017] VSC 747, [7] (McDonald J); Masters Home Improvement Pty Ltd v North East Solution Pty Ltd [2017] VSCA 113, [9].

  1. The Department further submitted that the discretion to award indemnity costs was not enlivened simply by instituting or maintaining a proceeding on behalf of a client who has no, or substantially no prospects of success. What is relevantly required is that the prospects must be ‘hopeless’.
  2. In any event, the Department submitted that its conduct in resisting enforcement was neither ‘unreasonable in all the circumstances’ nor ‘hopeless’, for the following reasons:

(a)          Winslow moved for enforcement before the Department’s time to apply to set aside the award under s 34 of the Act had expired, and the Department was entitled to take steps to defend itself by invoking grounds under s 36 of the Act.

(b)          Despite the Court’s finding on waiver, applying to set aside the award would have had no effect on the costs of the central issue decided by this Court, being the sufficiency of the arbitrator’s reasons.

(c)          There is no reason for the Court to take a stricter approach to costs in resisting enforcement of an award under s 36 of the Act, than an application to set aside an award under s 34 of the Act.

(d)          The Department’s opposition to enforcement was based on reasonably arguable grounds, being:

(i)          defects in the arbitrator’s reasons as the Department saw them; and

(ii)         the identification of the correct standard of reasons applicable to an award under the Act.

(e)          The Department’s core contention was that the arbitrator had failed to explain why extensions of time should be granted where he had expressly found that the relevant events were not caused by the Department. The Court concluded that it was not necessary for the arbitrator to do so because it was implicit in the arbitrator’s express conclusions. This was an issue properly capable of argument.

  1. Winslow’s conduct of the proceeding substantially enlarged the issues, including by its 86 page submission which raised a plethora of arguments. It would be unjust for the Department to pay indemnity costs on Winslow’s lengthy submissions, which included issues on which Winslow did not succeed and which were not decisive as to the outcome of the proceeding.

Conclusion

  1. I hesitate to disagree with the reasoning of Beach J in Sino Dragon, but I do not consider that there is any basis for departing from the usual rule with respect to unmeritorious claims, that the discretion to award indemnity costs will not be enlivened unless the party knew or should have known, on proper consideration, that the case was hopeless. While unsuccessful challenges to arbitral awards may give rise to contextual factors capable of supporting an order for indemnity costs under the usual principles, I am unable to accept the no reasonable prospects test as informing the jurisdiction for indemnity costs orders in such challenges.
  2. My reasons for this conclusion are as follows:

(a)   A modification to the conventional principles is not supported by the authorities.

(b)  There is no utility in equating the test for summary judgment with the test for indemnity costs.

(c)   The no reasonable prospects test is unlikely to discourage challenges to arbitral awards.

A modification to the conventional principles is not supported by the authorities

  1. The Court of Appeal in Altain Khuder specifically dealt with a failed attempt to resist the enforcement of an award and stated that such a fact ‘cannot, of itself, constitute special circumstances’.[36]

[36]         (2011) 38 VR 303, 392 [336] (Hansen JA and Kyrou AJA).

  1. The majority had regard to the International Arbitration Act, including ss 2D and 39(2),[37]but said:

[W]e can find nothing in the Act or in the nature of the proceedings that are available under the Act which of itself warrants costs being awarded against an unsuccessful award debtor on a basis different from that on which they would be awarded against unsuccessful parties to other civil proceedings.[38]

[37]         Ibid 354 [195].

[38]         Ibid 391 [335].

  1. In Sino Dragon Trading Ltd v Noble Resources International Pte Ltd (No 2), Edelman J agreed with the majority in Altain Khuder, stating:

[T]he A v B (No 2) approach—creating a different principle rather than merely being a context within which the usual principles are applied—does not find any support in the International Arbitration Act or in the Model Law.[39]

[39]         (2015) 246 FCR 498, 502 [14]. At [8] Edelman notes that the principle in A v B (No 2) [2007] 1 All ER (Comm) 633 (Colman J) is similar to the A v R principle. For a discussion of the reasons for rejecting the creation of a different principle and the various relevant authorities, see also [4]-[24].

  1. It is true that the Court of Appeal was not dealing with the no reasonable prospects test but the majority confirmed that special circumstances were required, and stated:

Special circumstances, if they exist, are found in the facts of the case at hand, and the exercise of the judicial discretion is not otherwise conditioned on whether those facts are comprehended by a category of case or cases in which a special order has been made.[40]

[40]         Altain Khuder (2011) 38 VR 303, 392 [336].

  1. In my opinion, there is nothing in the reasons of the majority supporting the rejection of the well-established proposition that the jurisdiction to award indemnity costs for unmeritorious claims is not enlivened by the mere fact that the proceeding had no or substantially no prospect of success.[41]Rather, it is enlivened by the fact that the litigant knew or should have known, on proper consideration, that the case was hopeless.[42]

[41]         See paragraphs 4 to 10 and 29 above. See also Jeffrey v Giles [2016] VSC 78, [3] (McDonald J); Makoochieng v Kirk (No 2) [2017] VSC 747, [7] (McDonald J).

[42]         See paragraph 11(b) above.

There is no utility in equating the test for summary judgment with the test for indemnity costs

  1. I do not consider that there is any utility served by equating the test for summary judgment under s 31A of the Federal Court of Australia Act 1976(Cth) with the test for indemnity costs orders, as suggested by Beach J.[43]The exercise of a power to summarily dispose of a proceeding and the power to order indemnity costs have different underlying purposes.

[43]         See Sino Dragon [2016] FCA 1169, [26], [28](c). I am mindful that the test for summary disposition under s 31A of the Federal Court of Australia Act 1976 (Cth) is ‘no reasonable prospect’ of success and the test under s 63 of the Civil Procedure Act 2010 (Vic) is ‘no real prospect’ of success. However, I do not consider that the differences, if any, between those tests or the ‘hopeless’ test are material to this discussion. With respect to any differences in these tests, see Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27, 30-40 [6]-[32] (Warren CJ, Nettle and Neave JJA).

  1. The purpose of summary judgment is to terminate a proceeding and avoid subjecting the parties to inconvenience, expensive litigation and the diversion of public funds in the administration of justice. As was stated in the Explanatory Memorandum to the Civil Procedure Bill 2010 (Vic):

The Commission stated that claims or defences that are without merit create problems for the parties and the administration of justice, subjecting plaintiffs and defendants to the inconvenience and expense of litigation. The pursuit of unmeritorious claims or defences also has adverse consequences for the administration of justice. Judicial and other publicly funded resources are expended and diverted from dealing with other cases.[44]

[44]         Explanatory Memorandum, Civil Procedure Bill 2010 (Vic) 24.

  1. Given the purpose of summary judgment, as set out in the preceding paragraph, it is irrelevant whether or not a party knows that its case is hopeless, or has no real prospect or no reasonable prospect of success.
  2. The purpose of an indemnity costs order against a party bringing an unmeritorious claim is to fully compensate the other party, who has been subjected to a proceeding that should not have been brought because it was known, or should have been known, by the party bringing the claim that it was hopeless. As Gray J said in Hamod v New South Wales:

Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.[45]

[45]         (2002) 188 ALR 659, 665 [20] (with whom Carr and Goldberg JJ agreed).

  1. The test for indemnity costs reflects the tension between the interests of successful and unsuccessful litigants. The courts should be careful not to deter bona fide litigants from bringing claims that might be attended by uncertainty.[46]

[46]         Ugly Tribe [2001] VSC 189, [10], discussing Spencer v Dowling [1997] 2 VR 127, 147 (Winneke P). See also Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141, [43] (Giles JA, Handley AJA and Whealy J).

  1. The Act and the International Arbitration Act both provide for grounds upon which arbitral awards may be challenged. A party in good faith should be able to attempt to prosecute such statutory rights in the courts, without being subjected to a different test governing whether indemnity costs should be payable.

The no reasonable prospects test is unlikely to discourage challenges to arbitral awards

  1. In my opinion, the risk of an indemnity costs order is unlikely to provide a significant disincentive to doubtful challenges to enforcement of awards. The nuanced difference between a test which:

(a)   requires that the lack of merit ought to have been known by the party; and

(b)  does not demand such a requirement,

is unlikely to discourage prospective litigants.

  1. The enforcement of awards is more effectively facilitated by:

(a)       the ordering of penalty interest; and/or

(b)          courts being prepared to manage and determine challenges to enforcement on an expedited basis.

Further observation

  1. Additionally, I reject Winslow’s submissions that the no reasonable prospects test is more strongly supported by the paramount object of the Act, as set out in s 1AC(1),[47]when compared to ss 2D(c)[48]or 39[49] of the International Arbitration Act. In my opinion they are substantially to the same effect.

[47]         See paragraph 2(b) above.

[48]         See paragraph 2(c) above.

[49]         See paragraph 2(d) above.

  1. As stated in paragraph 27 above, mindful of the objects set out in s 2D of the International Arbitration Act and s 1AC of the Act, the context surrounding a challenge to an arbitral award may be relevant in determining whether indemnity costs should be ordered on the conventional principles. For example:

(a)          Courts should be vigilant to ensure that applications to resist enforcement are not made for an ulterior purpose, such as delay. As Allsop CJ said in Ye v Zeng (No 5):

It is not merely a debt, it is the resolution of a dispute by a chosen contractual mechanism. Courts should be astute to distinguish between conduct that reflects no more than an attempt to delay or impede payment and the reasonable invocation of the proper protections built into the [New York Convention 1958] and the Act.[50]

Of course, if a court is satisfied that the proceeding is no more than an attempt to delay or impede payment, that would constitute an ulterior motive which would enliven the discretion for indemnity costs.

(b)          Imposing a higher threshold for a challenge to an arbitral award under the Act and the International Arbitration Act may facilitate a finding that the applicant knew, or should have known, that the application was hopeless.[51]

[50]         [2016] FCA 850, [23].

[51]         As was observed in Colin Joss [2015] NSWSC 829, [11] (Hammerschlag J).

Should indemnity costs be awarded in this case based on the usual principles?

  1. In my opinion, this is not an appropriate case to award costs on an indemnity basis. In particular, I do not consider that the Department’s opposition was hopeless, or that it should have been known to be hopeless, for the following reasons:

(a)          A significant part of the hearing was devoted to the appropriate test to be applied in determining the adequacy of the arbitrator’s reasons under s 31(3) of the Act. I accepted the Department’s submissions and applied the test as stated by Donaldson LJ in Bremer Handelsgesellschaft mbH v Westzucker GmbH [No 2], being:

All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is. That is all that is meant by a ‘reasoned award’.[52]

[52]         [1981] 2 Lloyd’s Rep 130, 132-3 (‘Bremer’). Referred to in the Principal Reasons as ‘the Bremer formulation’.

The fact that Winslow so extensively submitted that the Court should accept a lower standard of reasons than the Bremer formulation does not sit comfortably with its contention that the Department’s case, applying that formulation, was hopeless.

(b)          The Bremer formulation does not provide a precise prescription. Minds may well differ as to whether reasons have been sufficiently expressed, and the reasons cannot be viewed in a vacuum. As Lyons J stated in Tayar v Feldman, in determining whether the reasons and award were adequate, the Court may take into account:

(1)          the weight of the particular issue proportionate to the other issues in dispute; and

(2)          the position of the parties and what they may understand the reasons to mean.[53]

(c)          As noted in the Principal Reasons, the Second Award consisted of 1,167 paragraphs in 224 pages.[54] Winslow submits that such detailed reasons could hardly be said not to satisfy the requirements of s 31(3) of the Act. However, the Department did not allege that there were inadequate reasons for the determination of all of the claims in the Second Award. As a matter of principle, a detailed consideration of one claim in an award cannot satisfy the obligation under s 31(3) of the Act for an award to include reasons with respect to another claim. Accordingly, the comprehensive and detailed reasons provided generally in the Second Award did not render the Department’s submissions as to the adequacy of the reasons with respect to particular claims hopeless.

(d)          The Department contended that its ‘key point’ was that the arbitrator had failed to ‘state reasons for his conclusions with respect to EOTs during winter suspensions, Christmas shutdowns, periods when Winslow ran into inclement weather and site recovery after the 2016 winter shutdown’. I rejected this contention but found that the arbitrator had not expressly stated that it was irrelevant whether a neutral event was only encountered by reason of Winslow’s prior default.[55] However, I do not consider that the Department’s contention was unarguable or that it must have known it to be hopeless.[56]

[53]         [2020] VSC 66, [151], discussing R v F [2012] 5 HKLRD 278, 286-7 [37] (Thomas Au J).

[54]         Principal Reasons [52]. See n 3 for the definition of Second Award.

[55]         Principal Reasons [76].

[56]         See generally Principal Reasons [73]-[78].

  1. In the circumstances, I propose to order that the Department pay Winslow’s costs, to be assessed on a standard basis.

Costs of Winslow’s application for indemnity costs

  1. The Department contended that, if Winslow’s application for indemnity costs was unsuccessful, it should be ordered to pay the Department’s costs of the application. Winslow argued that, even in that event, there should be no order as to costs because the Department should have been prepared to deal with Winslow’s previously foreshadowed application orally at the hearing on 3 December 2020. Winslow relied upon the following statement of the Court of Appeal:

Yet as we have observed, sanctions imposed for a breach of any overarching provisions have been a rarity at first instance. When no party invites the court to determine whether there has been a breach of the Act, there may a judicial disinclination to embark upon such an own-motion inquiry for fear that inquiry as to a potential breach may be time consuming and may require the introduction of material that was not before the court as part of the proceeding. Such fears cannot relieve judges of their responsibilities. But we would not wish it to be thought that a judicial officer at first instance must undertake a substantial inquiry when considering whether there has been a contravention of the Act. As the sanction for a breach will usually lie in an appropriate costs order, a judge may at the conclusion of the reasons for judgment immediately invite oral submissions as to why there should not be a finding that the Act was contravened. The judge may in a relatively brief way deal with that issue in providing succinct reasons for a finding that there has been a breach of the Act and how that finding affects the orders for costs that are to be pronounced.[57]

[57]         Yara Australia Pty Ltd v Oswal (2013) 41 VR 302, 311-2 [27] (Redlich and Priest JJA and Macaulay AJA).

  1. With respect, I do not consider that the Court of Appeal was suggesting that parties must, in all the circumstances or even generally, be prepared to argue all questions with respect to special costs orders or contraventions of the Civil Procedure Act 2010(Vic) at the time that reasons for judgment are published.
  2. In my opinion, at the time of the publication of the Principal Reasons, it was reasonable for the Department to not be in a position to make submissions in opposition to Winslow’s application for indemnity costs, for the following reasons:

(a)          Preparation of submissions with respect to indemnity costs would require consideration of the reasons as published.

(b)          The application for indemnity costs raised real issues as to the test to be applied following an unsuccessful challenge to an arbitral award and the application of such test to the facts of this case.

(c)          Preparation of submissions properly dealing with these issues prior to the publication of the Principal Reasons could lead to significant wasted costs depending on the ultimate result and on whether the successful party would press their stated intention of applying for a special costs order.

  1. In the circumstances, Winslow has unsuccessfully applied for indemnity costs and costs should follow the event.
  2. I order that Winslow pay the Department’s costs of and incidental to the application for indemnity costs on a standard basis.

 

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

SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

 

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

VENETIAN NOMINEES PTY LTD

Plaintiff

 

AND

 

WEATHERFORD AUSTRALIA PTY LTD

Defendant

Representation: Counsel:

 

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

 

Solicitors:

 

Plaintiff : Hotchkin Hanly
Defendant : Jackson McDonald

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

 

JUDGMENT

KENNETH MARTIN J:

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

Background

The arbitration:

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

Clause 4.6

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

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

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

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

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

Issues for determination

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Meaning of ‘total lettable area’

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Areas to be excluded from ‘total lettable area’

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion on construction of cl 4.6

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

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

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

Arbitrator’s ultimate conclusion on issue 1

Ultimately, on issue one 1, the arbitrator found:

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

(a) the numerator is 31,600;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Venetian contends (written submissions, par 32):

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Process unfairness: common areas

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

I reserve other questions, including as to costs orders.

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