Posts

Doyles Arbitration Lawyers

Villani & ANOR v Delstrat & ANOR

VILLANI & ANOR V DELSTRAT PTY LTD & ANOR [2002] WASC 112

Supreme Court of Western Australia – 16 May 2002

FACTS

This proceeding involved an application by Mr. & Mrs Villani to set aside the award of an arbitrator for misconduct by failingto decide substantial pleaded issues between the parties. Mr. & Mrs Villani had engaged Delstrat to build a house for them inAscot  Waters.

A dispute arose between the parties as to the date for practical completion and as provided in the contract, the matter was referred to arbitration. The Villanis submitted that there had been an oral agreement in the contract that the house would be finished no later than September 2000.

The arbitrator did not at any stage expressly deal with the Villani’s claim that a term of the contract relating to practical completion on or before 20 September 2000 had been breached or that damages therefore flowed from that breach.

ISSUES

Did the arbitrator ignore or fail to consider or decide a material issue in dispute during the arbitration?

If so, did that failure amount to misconduct under the Commercial Arbitration Act?

If it did amount to misconduct, should the court exercise its discretion to set aside the award?

If the award was set aside, should the matter be remitted to the same arbitrator or should the arbitrator be removed?

FINDING

It was held that by providing no reasons for excluding certain documents and not determining whether certain documentsformed part of the contract, the arbitrator had failed to determine all the necessary issues and controversies within the arbitration.

The issue as to the completion date was a material fact which may have influenced the award.

The failure to determine all issues in dispute in an arbitration can amount to misconduct because the procedure may have affected the outcome in some material way.

The award was set aside and the matter remitted to the same arbitrator as there were no reasons put forward as to why he should be removed. The arbitrator was familiar with the evidence and had already determined many of the matters in controversy between the parties.

QUOTE

“It is not of course necessary for an arbitrator to deal with every issue which arises, or every argument or submission put forward. An arbitrator must, however, deal with the substance of a claim or counterclaim, particularly those matters which will materially affect the result.”

IMPACT

Failure by an arbitrator to take into account something that may have affected the outcome of the arbitration in some material way amounts to misconduct on the part of the arbitrator.

The court has a discretion to set aside the whole or part of the arbitrators award. The failure of the arbitrator to decide an important issue in dispute adversely affected the outcome of the entire arbitration process.

Thiess Contractors v Placer Granny Smith

THIESS CONTRACTORS PTY LTD V PLACER (GRANNY SMITH) PTY LTD (2000) 16 BCL 130

Supreme Court of Western Australia – 16 April 1999

FACTS

Placer (Granny Smith) Pty Ltd (“Placer”) entered into a contract with Thiess Contractors Pty Ltd (“Thiess”) whereby Thiess would carry out mining operations for Placer at rates based on genuine estimates of the cost of its operation, plus an agreed profit margin of 5%. Placer terminated the contract on the basis that the cost of continuing with Thiess under the existing contract was substantially higher than prices otherwise available on the market. Clause 1.1.5 of the contract required that Thiess and Placer act in good faith.

Thiess commenced action against Placer alleging wrongful termination and alternatively, Placer acted in bad faith in terminating the contract.

Placer counterclaimed, alleging that it had overpaid Thiess because, in breach of the contract and despite its obligation of good faith, Thiess had deliberately inflated its estimates of costs to be incurred in carrying out the contract work.

ISSUE

Whether Thiess breached duty of good faith.

FINDING

The Court found that Thiess had breached its duty of good faith. This decision was affirmed by the High Court of Australia.

QUOTE

Templeman J said:

“These provisions are typical of many contained in section B which do not define rights and obligations with any precision.

Their implementation clearly requires goodwill and co-operation on the part of both parties. “Good faith” must include those matters.

In addition, I think that the obligation of good faith requires the parties to deal honestly with each other. For example, in relation to carrying out the works: if Thiess sought to nominate mining equipment in accordance with cl 2.1.6, it would be required to provide an honest justification to Placer in demonstrating that the proposal resulted in the lowest overall unit costs and achieved the required mining selectivity. In relation to the derivation of rates, cl C 2.1.3 provides for hourly operating costs of equipment to be formulated which are based on “relevant historical data”. Those are Thiess’ data. Hence the necessity for the “open book” negotiations. That being so, good faith, I think, would require Thiess to formulate plant rates which were honestly based on the relevant historical data.

I construe the obligation of good faith as requiring the parties to act honestly with each other and to take reasonable steps to co-operate in relation to matters where the contract does not define rights and obligations or provide any mechanisms for the resolution of disputes…

In relation to the interpretation of the Contract, the obligation of good faith is more difficult to define. I think it requires the parties to construe or give effect to general provisions in such a way as to promote the contractual objectives which are to be gleaned either from the contract as a whole or from the provision in particular.”

IMPACT

This case stands for the proposition that good faith involves goodwill, co-operation and honesty between the parties and this extends to the reasonableness and fairness in pricing.

Royel Fitness Equipment v Shepard West

ROYEL FITNESS EQUIPMENT PTY LTD V. SHEPPARD WEST PTY LTD [2002]

Supreme Court of Western Australia – 9 September 2002

FACTS

Royel issued proceedings against Sheppard for alleged negligence in preparing a report on a business purchased by Royel. The proceedings were referred by the Court to mediation, with the mediation to be conducted on 31 October 2001 before a Registrar of the Court. Two previous mediation conferences had been adjourned by consent of both parties.

On 27 September 2001, Sheppard’s lawyer informed Royel’s lawyer that a representative of Sheppard’s insurer would to travelling from Sydney to attend the mediation conference. On 26 October 2001, Sheppard’s lawyers sent an expert report to Royel’s lawyers. Royel’s lawyers prepared for the mediation conference but only received the expert report a few days before the mediation and had not received responses to questions sent to Sheppard’s lawyers.

The mediation conference commenced on 31 October 2001. After three hours, Royel unilaterally decided that there was no point in continuing with the mediation and both Royel’s lawyer and the principal of Royel concluded the mediation and attended other appointments.

The Registrar ordered that Royel’s lawyers pay the costs thrown away by Sheppard as a result of the early termination of the mediation conference. Royel appealed the costs order.

ISSUES

Was the Registrar justified in making an order that Royel pay the costs thrown away as a result of the early termination of the mediation conference?

FINDING

The Court hearing the appeal did not have access to a confidential report prepared by the Mediation Registrar. This report was only to be opened by the trial judge.

Therefore the Court held that there was insufficient evidence available to find that a potentially successful mediation conference had been aborted by the conduct of Royel and/or its lawyer. The costs of the aborted mediation conference were therefore reserved for determination by the trial judge.

QUOTE

“In allowing this appeal I would not like it to be thought that the decision offers succour to those who approach mediation with anything other than the utmost goodwill and honest intentions.

Moreover, the process of mediation is controlled by a Mediation Registrar and if the mediation is to terminate, then it should be after the Mediation Registrar has satisfied him or herself that nothing further is to be gained by negotiation.

A unilateral decision to terminate a mediation taken by one party without consultation either with the Registrar or the other party is totally inappropriate.”

IMPACT

This decision indicates that the Courts expect parties to a court proceeding to approach a court ordered mediation with theproper attitude and to attend the mediation until the mediator determines that the mediation should conclude.

If one party abuses this process they could be exposed to an adverse costs order. Usually such a costs order would be made at the conclusion of the court proceeding.

Mercator Property Consultants v Sumampow

MERCATOR PROPERTY CONSULTANTS PTY LTD V SUMAMPOW [2000] WASC

Supreme Court of Western Australia – 16 June 2000

FACTS

Mercator had acquired 10% of the shares in the company owning the Christmas Island Resort (“the Casino”) while 90% of the shares were acquired by Sumampow. A Deed between Mercator and Sumampow provided that Mercator would sell its sharesin the Casino to Sumampow subject to the satisfaction of conditions precedent by 15 August 1997. On 10 December 1997,  Sumampow confirmed that all the conditions precedents had been fulfilled and he submitted two Deeds which purported to vary the original Deed. The new deeds were executed by Mercator.

Sumampow paid the first instalment of the remaining purchase price for the shares but the balance of $4.5million was not paid. After numerous delays in the negotiations to finalise the sale of the shares, Mercator applied to the Federal Court to appoint a receiver to manage the affairs of the Casino as the authorities were threatening to cancel the casino licence due to the Casino failing to meet its financial commitments.

On 28 July 1998 the casino licence was cancelled and on 29 July 1998 the Court appointed a receiver. Mercator sued for the unpaid balance owing for the sale of the shares and Sumampow counter sued for the moneys already paid to Mercator.

ISSUES

  1. Did the application to appoint a receiver breach an implied term in the contract?
  2. Had the original deed been discharged when the conditions precedent were not fulfilled on 15 August 1997?

FINDINGS

  1. An implied term of the Deed was that Mercator act in good faith and not frustrate the good performance of the Deed or diminish the value of its shares and enable Sumampow to have the benefit of the Deed. The Court concluded that the appointment of a receiver was made in good faith and for the sole purpose of preserving the Casino by trying to prevent the cancellation of its casino licence.
  2. The parties cooperated to satisfy the conditions precedent and in such situation the non-fulfillment within the specified time did not automatically discharge the contract. Furthermore, Sumampow treated the contract as remaining on foot, particularly as he requested an extension of the time for payment and the acknowledgement that the conditions precedent had been fulfilled in time.

QUOTE

Heenan J said:

“The conditions precedent should be construed as precedent to performance not precedent to formation. In this case the parties took considerable time and cooperation of both parties to fulfil the conditions. In such circumstances the non-fulfilment within the time specified does not automatically discharge the contract.”

IMPACT

The fact that the parties to a contract do not satisfy conditions within the stipulated time does not automatically discharge the contract.

If the parties treat the contract as remaining on foot and have a common understanding to fulfil the conditions at another agreed time, then the conditions are still relevant.

Eastern Metropolitan Council v Four Seasons Construction

EASTERN METROPOLITIAN COUNCIL V. FOUR SEASONS CONSTRUCTION PTY

LTD [1999] WASC 167

Supreme Court of WA – 9 September 1999

FACTS

The Council and Four Seasons entered into a building contract that included an arbitration clause.

A dispute arose between the parties and the dispute was referred to arbitration.

An attempt by the Council to stay the arbitration was unsuccessful.

The arbitrator sent a letter to the parties setting out a tight timetable for the conduct of the arbitration. However the letter did not set out how the arbitrator intended to approach the arbitration. In particular, the letter did not indicate whether the arbitrator intended to decide the dispute on the papers or conduct a hearing.

The Council was also concerned that Four Seasons had not served adequate Points of Claim.

ISSUES

Should the Court make orders as allowed by section 47 of the Commercial Arbitration Act in relation to interlocutory aspects of the arbitration or stay the arbitration until adequate Points of Claim had been served on the Council?

FINDING

The arbitrator should be first given a chance to address the concerns of the Council before the Court considered making supervisory orders. The application was adjourned for seven days.

QUOTE

Master Sanderson said:

“I think that two things arise out of s 47. First, it must be read in conjunction with s14 [of the Commercial Arbitration Act] so that it is not the function of the court to simply take over the conduct of the interlocutory proceedings of the arbitration and ignore the way in which the arbitrator intends to approach the reference.

Rather it seems to me, that the power is a supervisory power that should be exercised only so far as it is necessary to ensure that the arbitration proceeds in a proper manner. …

Without going through the authorities, it is clear that there is a broad supervisory power in the Court which should be exercised if it becomes apparent that the arbitration is proceeding in a way which is likely to give rise to an application to set aside the award.”

IMPACT

An arbitrator is subject to supervision by the Court.

However the Court will only exercise its supervisory powers if necessary to ensure that the arbitration is run properly and that no issues will arise which could lead to an application to set aside the award of the arbitrator.

BHP Steel v ABB Engineering Construction

BHP STEEL (RP) PTY LTD V ABB ENGINEERING CONSTRUCTION PTY LTD [2001] WASC 73

Supreme Court of WA – 20 March 2001

FACTS

BHP DRI was constructing a plant at Port Hedland and ABB was a head contractor for part of the works at the plant.

Monaveen was ABB’s subcontractor and it proposed to purchase the steel it needed to complete the works from BHP Steel.

Both BHP DRI and BHP Steel were part of the BHP group of companies and BHP DRI wanted BHP Steel to supply Monaveen with the necessary steel. However BHP Steel had concerns about extending credit to Monaveen to allow it to purchase the necessary steel and it therefore had discussions with ABB about some security being provided to assure BHP

Steel that it would be paid for steel supplied to Monaveen. While these negotiations were conducted BHP Steel supplied some steel to Monaveen. Eventually Monaveen became insolvent after the subcontract was terminated and $266,922.00 remained owing to BHP Steel.

BHP Steel issued proceedings against ABB claiming breach of contract, misleading and deceptive conduct, estoppel andnegligence and alleged that ABB had promised that it would pay BHP Steel for the steel if Monaveen did not pay for  the supplied steel.

ISSUES

Had there been a contract between BHP Steel and ABB with ABB promising to pay BHP Steel if Monaveen did not pay for steel supplied by BHP Steel?

Had there been representations made by ABB that it would pay BHP Steel any outstanding balance if Monaveen did not pay or all the steel supplied?

FINDING

The Court found that ABB never promised to pay BHP Steel directly if Monaveen did not pay for supplied steel.

The negotiations between the parties never led to an agreement that ABB would pay BHP Steel if Monaveen defaulted inpayments to BHP Steel. At best ABB stated that it would require Monaveen to ensure that BHP Steel was paid before it  paid Monaveen. There was also no evidence that ABB had represented to BHP Steel that it would pay BHP Steel if Monaveen did not pay for steel supplied for the work at the plant.

QUOTE

Owen J said:

“The agreement apparently reached between the defendant [ABB] and Monaveen is that Monaveen will satisfy it (the defendant) about payment of invoices due to the plaintiff [BHP Steel] prior to Monaveen becoming entitled to payment of moneys from the defendant.

It would be difficult to construe the letter as evincing an intention by the defendant to be bound contractually to the plaintiff to do anything at all. … I am not saying that the provision of comfort to one providing credit can never and the legal effect of the transaction were promissory or merely representational.”

IMPACT

When negotiating it is important to understand whether statements made by the other party are promises or simply acknowledgements of your concerns.

In this case ABB had stated during negotiations that it sympathized with BHP Steel’s concerns about Monaveen’s credit worthiness but it never promised to do anything to ensure that BHP Steel would be paid for the steel it supplied.

This publication is intended to be a topical report on recent cases in the construction, development and engineering industries. This publication is not intended to be a substitute for professional advice, and no liability is accepted. This publication may be reproduced with full acknowledgement.

Jim Doyle

Tel.: 1800 888 783

jdoyle@doylesconstructionlawyers.com
www.doylesconstructionlawyers.com

Bayside Civil & Drainage v Marinestar Holdings

BAYSIDE CIVIL & DRAINAGE PTY LTD V. MARINESTAR HOLDINGS PTY LTD [2000] WASC 17

Supreme Court of Western Australia – 2 February 2000

FACTS

Bayside was a contractor engaged by the Marinestar to carry out earthworks on a subdivision project. The parties executed a standard contract using AS 2124-1992.

Bayside’s received two progress certificates amounting to $364,407.81 but Marinestar refused to pay the money owing for the progress certificates. Bayside issued legal proceedings and then applied for summary judgment to recover the amounts outstanding under the progress certificate.

Clause 47 of the contract dealt with dispute resolution and provided that when a dispute occurred a party was to deliver to the other a notice of dispute and subsequently continue to enforce the contract and comply with clause 41.1. Clause 41.1 required the parties to meet and attempt to resolve their dispute and if the dispute could not be resolved, then either party could refer the dispute to arbitration or litigation.

After giving a notice of dispute to Marinestar, the parties met but were unable to resolve the dispute. Bayside issued legal proceedings. Marinestar then sent a notice to Bayside referring the dispute to arbitration and contended that Bayside had elected to go to arbitration.

ISSUE

Should the court exercise its power to grant a stay of the legal proceeding or refer the matter to arbitration?

FINDINGS

Bayside took steps to conform with requirement under clause 47 and therefore they could not be construed to have favoured arbitration over litigation.

However the issue of writ indicates Bayside’s choice to go to litigation instead of arbitration. Marinestar’s notice of arbitration was too late to affect Bayside’s action. Therefore a stay of the legal proceedings could not be granted.

QUOTE

Master Bredmeyer said “Bayside’s notice of dispute and the first meeting held are neutral steps. They do not favour the arbitration path or the litigation path; they are steps taken under clause 47 before a party goes to litigation or arbitration”.

IMPACT

The dispute resolution clause in AS 2124-1992 does not contain a mandatory arbitration clause and therefore the parties may go to arbitration or litigation.

The party that chooses to go to court will have priority unless the other party can show a reasonable ground for a stay of the legal proceedings.

This publication is intended to be a topical report on recent cases in the construction, development and engineering industries. This publication is not intended to be a substitute for professional advice, and no liability is accepted. This publication may be reproduced with full acknowledgement.

Jim Doyle

Tel.: 1800 888 783

jdoyle@doylesconstructionlawyers.com
www.doylesconstructionlawyers.com