UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd (No 2) [2018] VSC 741

IN THE SUPREME COURT OF VICTORIA

MELBOURNE COMMERCIAL COURT

ARBITRATION LIST 

UDP HOLDINGS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) (ACN 167 100 692)

AND

5 STAR FOODS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) (ACN 005 714 616)

(Applicants)

V

ESPOSITO HOLDINGS PTY LTD (ACN 079 763 303)

AND

ANTONIO PATRICK ESPOSITO

(Respondents)

 

JUDGE: Croft J

HELD: Melbourne

DATE OF HEARING: 5 October, 25 October and 22 November 2018

DATE OF JUDGMENT: 7 December 2018

ARBITRATION – PRACTICE AND PROCEDURE – International arbitration – Enforcement of arbitral award – Application to set aside arbitral award – Extent of reasonable opportunity to present the party’s case – Corporacion Tranacional de Inversiones, SA de CV v STET International SpA (1999) 45 OR (3d) 183 – Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; (2013) 304 ALR 468 – No special rules of procedure for a self-represented party – Overarching test of fairness – 0927613 BC Ltd v 0941187 BC Ltd [2015] BCCA 457 – Capacity – No universal test for determining whether a person is capable of managing own affairs – Murphy v Doman (as Representative of the Estate of the late Min Simpson) [2003] NSWCA 249; (2003) 58 NSWLR 51 – Public policy ground for setting aside arbitral award – Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326 – TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387; 232 FCR 361 – International Arbitration Act 1974 (Cth), ss 2D, 16, 18C – 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, arts 18, 19, 34.

HIS HONOUR:

Introduction

1 These are two proceedings before the Court in relation to an Interim Award dated 21 September 2018 and a Final Award dated 1 October 2018 made by The Hon Stephen Charles AO QC as Arbitrator (collectively, the “Award”). The parties to the Award are Esposito Holdings Pty Ltd (Claimant/First Respondent by Counterclaim/Seller) and UDP Holdings Pty Ltd (First Respondent/Claimant by Counterclaim/Buyer) and William Yan Sui Hui (Second Respondent/Claimant by Counterclaim/Buyer Guarantor) and 5 Star Foods Pty Ltd (Third Respondent/Company) and Antonio Patrick Esposito (Second Respondent by Counterclaim). Not all parties to the arbitration the subject of the Award were represented or took part in these proceedings. Nevertheless, critical parties were represented and these proceedings were heard and are determined on this basis.

2 The two proceedings before the Court are:

(1) an Application for Recognition and Enforcement of the Award (SCI 2018 01606) (“the recognition and enforcement proceeding”); and

(2) the Application to set aside the Award (SCI 2018 02146) (“the setting aside proceeding”).

3 The application in the recognition and enforcement proceeding is made under Article 35 of Schedule 2 of the International Arbitration Act 1974 (Cth) (“the Act”) for recognition and enforcement of an award made in an international commercial arbitration. The applicants in these proceedings has relied upon r 9.11 of Ch II of the Supreme Court (Miscellaneous Civil Proceedings) Rules 2018 for the procedure for seeking enforcement. The reference to article 35 is a reference to this provision in 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”). These provisions of the Model Law have the force of law in Australia as a result of the application of s 16 of the Act.

4 The setting aside proceeding is brought relying upon the provisions of articles 34(2)(a)(ii) and (b)(ii) of the Model Law. Procedurally, it is an application to set aside an award under r 9.10 of Ch II of the Supreme Court rules to which reference has been made.

5 In respect of both proceedings, Part II of the Act does not apply. This is because the Award is not a “foreign award” as defined in the Act (see s 3). The arbitration agreement pursuant to which the Award is made specified that the seat of the arbitration is Australia. The place of the arbitration was Melbourne, in accordance with the provisions of the arbitration retainer agreement. The arbitration was, however, an international arbitration because the place of business of the Second Respondent to the arbitration was Hong Kong. This position is not affected because the arbitration was conducted in Melbourne and the Award made in Melbourne.

Background

6 It is neither necessary nor appropriate in the context of these proceedings to say a great deal about the facts and circumstances, the substantive matters, to which the arbitration has been directed. Nevertheless, it is helpful to note, in general terms, the nature of the matters the subject of arbitration as the Arbitrator put it (before he went into further detail by way of background):

As I have already noted, this arbitration relates to disputes arising under a Share Sale Agreement executed on 11 December 2013, under which the Seller agreed to sell and the Buyer, UDP Holdings Pty Ltd (Receivers and Managers appointed) (subject to a Deed of Company Arrangement), agreed to purchase all of the issued shares in 5 Star Foods Pty Ltd (Receivers and Managers appointed) (subject to a Deed of Company Arrangement) … . Mr Hui guaranteed to the Seller the performance of the Buyer’s obligations under the Agreement. The Share Sale Agreement was subsequently amended by three deeds dated 17 December 2013, 31 December 2013 and 21 January 2014.

7 This Court has previously issued subpoenas to produce documents in this arbitration and there is also a related proceeding in the Court seeking indemnity under an insurance policy, which is stayed pending the outcome of the arbitration. The arbitration has also been the subject of proceedings in the Federal Court of Australia, which involved the partial setting aside of a partial award made by an arbitrator subsequently removed.

8 The final hearing of the arbitration took place on 22 June 2018, 6, 9–12 and 16–17 July 2018 and 6–7 August 2018 before the Arbitrator. An “interim award” was given on 21 September 2018 and, following a short hearing on 26 September 2018 in relation to the form of the award, the “final award” was made on 1 October 2018. As has been indicated, this interim award and this final award are, for the purposes of these proceedings, conveniently referred to as the “Award”. This follows as it is apparent from the terms of the final award, it needs to be read with both the partial award; and also with the orders made by the Federal Court.

9 To be quite clear, it should be noted that the final award is headed “Final Award – First and Third Respondents” (that is, the first and third respondents in the arbitration proceedings — which are the applicants in the recognition and enforcement proceeding) because the Arbitrator made a separate final award in favour of the second respondent, who was separately represented at the final hearing. There is, however, nothing in the separate final award in favour of the second respondent that affects in any way the final award in favour of the applicants in the recognition and enforcement proceeding. Accordingly, the application in the recognition and enforcement proceeding and the application in the setting aside proceeding does not concern the separate final award in favour of the second respondent to which reference has been made.

10 At the hearing of the application in the recognition and enforcement proceeding on 5 October 2018, orders were made as sought by the applicants for the recognition and enforcement of the Award; orders that contained a “self-executing” provision for enforcement unless, by 4:00pm on 26 October 2018, further orders had been made as a result of a hearing and further submissions in opposition to such a course. Following a hearing on 25 October 2018, further orders were made extending the “self-executing” provision until 4pm on 23 November 2018. As indicated, the further hearing did occur on 22 November 2018, with opposition in the form of the application in the setting aside proceeding. At the conclusion of this hearing, the decision of the Court was reserved and, consequently, further orders again were made staying the “self-executing” provisions of the orders made in the recognition and enforcement proceeding. It follows that, were the setting aside proceeding to be successful, then no orders would operate for the purpose of recognition and enforcement; but that if the Award were not set aside, then orders for recognition and enforcement would follow. Consequently, attention is now directed in these reasons to the setting aside proceeding.

Legislation

11 As indicated previously, the provisions of the Act govern the arbitration. The following provisions are either directly or contextually important.

12 Section 2D of the Act provides:

Objects of this ActThe objects of this Act are:

(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;

(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

The international provenance of the Act and its drawing upon the wellsprings of international law, rather than the domestic law of any particular country, is reinforced by the provisions of s 17 of the Act, which provide:

Interpretation of Model Law―use of extrinsic material(1) For the purposes of interpreting the Model Law, reference may be made to the documents of:

(a) the United Nations Commission on International Trade Law; and

(b) its working group for the preparation of the Model Law;

relating to the Model Law.

(2) Subsection (1) does not affect the application of section 15AB of the Acts Interpretation Act 1901 for the purposes of interpreting this Part [III].

13 Section 39 of the Act provides:

Matters to which court must have regard(1) This section applies where:

(a) a court is considering:

(vi) performing any other functions or exercising any other powers under this Act, or the Model Law as in force under subsection 16(1) of this Act;

(2) The court or authority must, in doing so, 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.

14 As noted previously s 16(1) of the Act provides that the Model Law has the force of law in Australia.

15 Article 34 of the Model Law provides:

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:

(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

(b) the court finds that:

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

These provisions, articles 34(2)(a)(ii) and 34(2)(b)(ii), are relied upon for the purpose of the setting aside application.

16 Article 18 of the Model Law provides:

Equal treatment of partiesThe parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.

The provisions of article 18 of the Model Law are explained and qualified for the purposes of Australian law by s 18C of the Act, which provides:

For the purposes of article 18 of the Model Law, a party to arbitral proceedings is taken to have been given a full opportunity to present the party’s case if the party is given a reasonable opportunity to present the party’s case.

These provisions, both those contained in the Model Law and the Act, are specifically relied upon in the setting aside application.

17 Section 19 of the Act provides:

Without limiting the generality of Articles … 34(2)(b)(ii) … of the Model Law, it is declared, for the avoidance of any doubt, that, for the purposes of those Articles, an award is in conflict with, or is contrary to, the public policy of Australia if:…

(b) a breach of the rules of natural justice occurred in connection with the making of the interim measure or award.

Application of the legislation – including the Model Law

18 The international provenance of the Act has already been mentioned, with particular reference to the provisions of s 2D and s 17. This aspect of the legislation and the consequent need to construe its provisions in the context of accepted international principles, rather than from the perspective of domestic law, has been emphasised in many cases, particularly more recently by the Court of Appeal in Subway Systems Australia Pty Ltd v Ireland and also in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd. Applying these principles in the present context, it is important not to lose sight of the position that the Model Law permits very limited recourse against arbitral awards and, in particular, does not permit merits appeals. This was emphasised by the Full Court of the Federal Court of Australia in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (“TCL”). In so doing, the Full Federal Court (Allsop CJ, Middleton and Foster JJ) said:

  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 [the International Arbitration Act 1974 (Cth)] 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 10-day hearing, when the substance of the complaint is the evidential foundation for, and reasoning process towards, facts as found.

Referring to the TCL case in Amasya Enterprises Pty Ltd v Asta Development (Aust) Pty Ltd, I said:

  1. In TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (“TCL”), the Full Federal Court said that an arbitral award will not be set aside or refused recognition or enforcement under arts 34 and 36 of the Model Law—

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.

19 Similarly, in Sauber Motorsport AG v Giedo van der Garde BV, the Court of Appeal emphasised that courts should not entertain a disguised attack on factual findings or legal conclusions of an arbitrator “dressed up as a complaint about natural justice”. A setting aside application is not to be abused by a party who, with the benefit of hindsight, wished it had pleaded or presented its case in a different way before the arbitrator; a point emphasised by the Singapore Court of Appeal in BLC v BLB. Significant restraint must be exercised in considering and determining a challenge to an award under article 34 of the Model Law; it is not an occasion for a merits review, as was emphasised in Sino Dragon Trading Ltd v Noble Resources International Pte Ltd.

Reasonable opportunity to present the party’s case

Extent of opportunity required

20 Article 18 of the Model Law is the “golden rule” of arbitration — it must be fair. Even without the qualification introduced by s 18C of the Act, to which reference has been made, to the effect that the expression “a full opportunity” should be read as “a reasonable opportunity” of a party to present its case, it has been held that the phrase “a full opportunity” to present a party’s case does not mean that that party “is entitled to present any case it pleases, any time it pleases”. Moreover, the right to “a full opportunity” does not entitle a party to obstruct the arbitral proceedings by dilatory tactics.

21 Additionally, it must be kept in mind that the provisions of article 18 of the Model Law do not operate in a vacuum, thus context and practical circumstances and consequences are of critical importance. Though will not be true in all cases, a typical context is that the court is dealing with a significant international commercial dispute between well-represented and “well-heeled” commercial operators and, additionally, that the parties have chosen arbitration as the relevant dispute mechanism, which necessarily entails some compromise in the choice of procedures dictated by efficiency and expedition. The context in this respect is, of course, case specific, but it is a reasonable generalisation that international commercial disputes and international commercial arbitration are more likely than not to be occurring in such circumstances.

22 As indicated in Amasya Enterprises Pty Ltd v Asta Development (Aust) Pty Ltd, the purpose of the article 18 provisions of the Model Law are conveniently stated by the Ontario Superior Court of Justice in Corporacion Tranacional de Inversiones, SA de CV v STET International SpA:

The purpose of Art 18 is to protect a party from egregious and injudicious conduct by [an arbitral tribunal]. It is not intended to protect a party from its own failures or strategic choices.

Thus, as indicated in Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd (“Gujarat”), there is a distinction between, on the one hand, a party having no opportunity to address a point, or its opponent’s case, and, on the other hand, a party failing to recognise or take the opportunity which exists. Thus, the failure on the part of a party to take an opportunity to address a point or the case of its opponent does not result in any breach of the Model Law or of the rules of natural justice, more generally.

23 Moreover, the conduct of the complainant party is potentially relevant more broadly. Although article 18 is a mandatory provision of the Model Law and is not, at least generally, subject to the operation of the waiver of right to object provisions of article 4, “[n]evertheless, the conduct of the party who complains of a lack of procedural fairness or a lack of equality is relevant to any asserted inability to present its case or any asserted lack of opportunity in that respect”.

24 Where it is alleged that a “new” matter has been raised by the arbitral tribunal, the applicable principle is, as stated in Gujarat that “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”. More particularly, the obligation of the arbitral tribunal is to provide a fair opportunity for the party to address any issues raised by the tribunal on all of the essential building blocks in the tribunal’s conclusion on the issue.

25 Thus, putting the position with respect to article 18 in more general terms, a party is entitled to both an affirmative and responsive opportunity to be heard — which means an opportunity to be heard on its case and to respond to the case put against it. And the latter, responsive aspect, includes being given adequate and actual notice of that adverse case. Moreover, it is clear that any claimed denial of procedural fairness will not sound as a breach of article 18 unless there is at least a possibility of a successful or more successful outcome for the party alleging a breach.

Legal representation

26 The most recent case put before the Court in these proceedings in relation to the issue of legal representation in an arbitration proceeding is a decision of the Court of Appeal for British Columbia in 0927613 BC Ltd v 0941187 BC Ltd. The respondent to the arbitration the subject of that appeal was legally represented at the outset, but came to be represented by an individual by the time of the hearing. The lawyer ceased to act for the respondent because it could not afford the fees. The respondent did not attend the arbitral hearing and an award was made against it. At first instance, the award was set aside on the basis of a denial of natural justice, the trial judge reasoning that the arbitrator had to give “special consideration” to the position of the respondent as a self-represented party. The trial judge held that the arbitrator had three procedural obligations: (a) a duty to consult with both parties as to the hearing dates; (b) a duty to give the respondent full opportunity to present its case; and (c) a duty to explain to the individual representing the respondent “the procedural situation in which he found himself”.

27 On appeal, the British Columbia Court of Appeal found that even if those three procedural obligations enunciated by the trial judge applied, they were met on the facts of the case. As to the asserted procedural obligations, the Court of Appeal said:

  1. There are no special rules of procedure for a self-represented party in an arbitration proceeding beyond the basic procedural requirements for any arbitration: an impartial arbitrator, procedural fairness of notice, and a fair or reasonable opportunity to make submissions and to respond to the other side’s case. As this Court noted in Burnaby (City) v Oh, 2011 BCCA 222 at para 36, self-represented litigants do not have ‘some kind of special status’ that allows them to ignore rules of procedure. In Murphy v Wynne, 2012 BCCA 113 at para 16, Madam Justice Neilson, relying on comments of Mr Justice Chiasson in Stark v Vancouver School District No 39, 2012 BCCA 41 (in Chambers) and Shebib v Victoria (City), 2012 BCCA 42 (in Chambers), observed that ‘[w]hile it is important unrepresented litigants have a full opportunity to avail themselves of our court processes, all litigants must keep within the bounds of those processes’. These comments in my view apply equally to an arbitration forum that has been chosen by the parties for the resolution of their dispute.
  2. In the context of a court proceeding, the Canadian Judicial Council in its Statement of Principles on Self-Represented Litigants and Accused Persons, (Ottawa: Canadian Judicial Council, 2006) mandates fairness so as to ensure ‘equality according to law’ in the sense of giving every litigant a fair opportunity to present their case. It also, however, imposes an obligation on self-represented parties to be respectful and familiarize themselves with the relevant practices and procedures of the court process. These principles, in my view, apply equally to the arbitration process. While some latitude is to be given to self-represented parties who may not understand or be unfamiliar with the arbitration process, an arbitrator, like a judge, is not required to ensure that a self-represented party participate in a proceeding if that party chooses not to do so. In short, an arbitrator does not have any special obligations to a self-represented party beyond the natural justice requirements owed to any party. The overarching test is fairness.

Thus, this decision affirms that a self-represented party who chooses not to attend the arbitral hearing cannot be said to have been denied natural justice. It also affirms that there are no special rules or obligations that apply when a party is not represented by a lawyer in an arbitral proceeding.

28 The applicants in the setting aside proceeding made reference to the review of the authorities with respect to self-represented litigants in the decision of the Court of Appeal in Downes v Maxwell Richard Rhys & Co Pty Ltd (in liq). Although this decision was referred to by the applicants in the context of submissions with respect to “public policy” grounds, it is also relevant in relation to this aspect of these proceedings. In my view, the position put by the British Columbia Court of Appeal and the Victorian Court of Appeal with respect to the treatment of unrepresented litigants is not different in substance, though, of course, the Victorian decision is in a litigation context. However, the British Columbia Court of Appeal does not appear to distinguish the requirements for fair treatment of unrepresented litigants in arbitral proceedings from the position in litigation, indeed, quite the contrary. Thus, it is, in my view, clear from these authorities that, as indicated by the British Columbia Court of Appeal, “the overarching test is fairness”. It is, however, implicit in both appellate decisions and the authorities which they examine, that the fairness test is contextual and depends upon the facts and circumstances and the nature of the proceedings in which the test is to be applied.

29 Moreover, in the case of arbitral proceedings, there is the further consideration that they depend upon and arise from the arbitration agreement made between the parties. Thus, the additional dimension in arbitral proceedings, as compared to litigation in domestic courts, is that there is an obligation on a party to an arbitration agreement, whether express or implied, or confirmed or separately imposed by statute, to facilitate, or at least not obstruct, the arbitral process. Consequently, it follows that a party cannot be permitted to frustrate arbitral proceedings or, by its own acts or omissions, seek to produce a situation where the arbitral award may be impugned. In any event, as discussed in the reasons which follow, I am of the opinion that the Arbitrator made every reasonable effort to properly assist Mr Esposito in the conduct of the arbitral proceedings and that there is no basis for any suggestion that the fact that the applicants were not legally represented provides any basis for finding any breach of article 18 of the Model Law.

Incapacity

30 The applicants, in seeking to challenge the Award sought to raise, as an aspect of the allegation that they were unable to present their case to the arbitral tribunal, the issue of Mr Esposito’s capacity; both with respect to his decision, agreement or election to proceed with the substantive hearing and also his ability to conduct the applicants’ case in the course of the arbitration.

31 At the outset, it should be observed that the setting aside application is not an application under article 34(2)(a)(i), a provision with respect to “a party to the arbitration agreement” being “under some incapacity”. Without venturing into the operation of article 34(2)(a)(i) and the possible varieties of incapacity within the scope of the operation of that paragraph, it is apposite to say something with respect to the treatment given by the law to incapacity on the basis of a mental state; the type of incapacity relied upon by the applicants.

32 The law presumes mental capacity unless and until the contrary is proved. This is made clear, with reference to Australian and English authority, by the New South Wales Court of Appeal in Murphy v Doman (as Representative of the Estate of the late Min Simpson), where Handley JA (with whom Meagher and Tobias JJA relevantly agreed):

  1. … There is no universal test for determining whether a person is capable of managing his own affairs. In Gibbons v Wright [1954] HCA 17; (1954) 91 CLR 423, 437-438 Dixon CJ, Kitto and Taylor JJ said:

‘The law does not prescribe any fixed standard of sanity as requisite for the validity of all transactions. It requires, in relation to each particular matter or piece of business transacted, that each party shall have such soundness of mind as to be capable of understanding the general nature of what he is doing by his participation … the mental capacity required by the law in respect of any instrument is relative to the particular transaction which is being effected by means of the instrument, and may be described as the capacity to understand the nature of that transaction when it is explained.’

  1. The definition of an incompetent person in the District Court Rules reflects the earlier law. See Martin v Azzopardi (1973) 20 FLR 345 at 347 per Fox J. Fox J referred to evidence that the plaintiff was incapable of managing his own affairs and continued (at 348): ‘If, and as soon as, the plaintiff was in this condition he would be unable to retain a solicitor. That is to say, he would not have the mental capacity to understand the nature of the acts or transactions which he would be authorizing.’
  2. The cases do not consider the level of mental capacity required to be a ‘competent’ litigant in person but it cannot be less than that required to instruct a solicitor. It should be greater because a litigant in person has to manage court proceedings in an unfamiliar and stressful situation.
  3. There is a presumption of sanity which applies unless and until the contrary is proved. Attorney General v Parnther [1792] EngR 2455; (1792) 3 Bro CC 441 at 443; [1792] EngR 2455; 29 ER 632 at 634; M’Naghten’s Case [1843] EngR 875; (1843) 10 Cl & Fin 200 at 210; 8 ER 718 at 722. This means, in modern terms, that there is a presumption that a person of full age is capable of managing his or her affairs.

True it is that this is a presumption of the domestic law of Australia, but, having regard to the nature of the issue and the principles applied, there seems no reason to think that the same principles ought not to apply in the arbitral context where an arbitration is subject to a legal regime of international provenance, such as the Model Law.

33 The particular issues to which the asserted incapacity is directed are, first, as an explanation why Mr Esposito did not seek an adjournment and did not complain to the Arbitrator about anything that occurred during the hearing about which he now complains and, secondly, it would appear that the asserted incapacity is sought to be used to support a suggestion that the Arbitrator ought to have adjourned the hearing on his own motion, even absent a request to do so from Mr Esposito. In my view, for the reasons which follow, Mr Esposito has both failed to establish that he was suffering from any incapacity, either at all or which the law would recognise, and thus there is no explanation for why Mr Esposito did not seek an adjournment or did not complain to the Arbitrator about anything that occurred during the hearing about which he now complains, other than that he chose, in a considered and conscious way, not to do so. Moreover, there is no basis for any suggestion that the Arbitrator might reasonably have thought it necessary to insist upon an adjournment on his own motion.

34 In any event, none of the matters upon which Mr Esposito sought to rely in terms of evidence or the circumstances and his behaviour with respect to the arbitral proceedings provides any support for his claim of incapacity in whichever dimension it might be said to arise.

35 The only matter relied upon by the applicants as to Mr Esposito’s asserted incapacity during the hearing is his own opinion to that effect. I accept that there is real doubt as to whether his opinion in this respect is admissible, but it is not necessary, for present purposes, to finally determine that position because, even if that opinion were received as evidence, it should, in my view, be given no weight. Mr Esposito has no relevant experience or expertise to enable him to give such an opinion and his “observations” as to his own mental state would appear to be problematic from an evidentiary point of view. There is no expert opinion in relation to the issue; and, in particular, there is none from the period 22 June 2018 to 7 August 2018, during which time the final hearing before the arbitral tribunal was conducted. Neither is there any current expert opinion that seeks to express a retrospective view as to Mr Esposito’s mental state in that period, and nor is there any evidence from which this Court might draw an inference of mental incapacity.

36 Moreover, the expert opinion and medical reports that Mr Esposito seeks to tender are inadmissible hearsay. The authors of the opinions are not called, have not given evidence in accordance with the rules and practice notes about expert evidence, and they are not available for cross-examination. In any event, this evidence — even if admissible — also confirms Mr Esposito’s sanity and competence. The evidence in this respect is, in my view, quite clear.

37 Mr Le Bas, psychiatrist, said, on 26 March 2018, that in the period he saw Mr Esposito, between 6 November 2017 and 4 December 2017: “I believe he was competent to give instructions and appeared, from superficial evidence, to be making rational decisions”.

38 Additionally, Dr Hill said, on 26 March 2018, that when he last spoke to Mr Esposito on 21 March 2018, he “appeared to be coherent, lucid and could follow logic”. The medical certificate that Dr Hill gave Mr Esposito on 14 March 2018 sought only to have him excused from legal processes for a period of one month. The discharge summary from the Monash Medical Centre said that on discharge Mr Esposito’s insight was “reasonable” and his judgement was “reasonable”, and he had “no delusions or hallucination”. Rather, the assertion now made by Mr Esposito about his hospital admission shortly before the hearing is entirely vague and unspecific and seems, at most, to be related to a physical condition and not a mental condition. Moreover, no hospital records or reports are produced. It should also be observed that nothing about his hospital admission was communicated to the Arbitrator.

39 Having regard to these matters, I accept that the best evidence as to Mr Esposito’s state of mind is the transcript and a review of the statements made, questions asked and answers given by him in the arbitration hearing. These show that he was lucid, logical, rational, insightful, measured and thoughtful throughout the hearing. The inference from that material is clear, namely, that he was sane and competent. The inference of capacity is also supported by the facts that: 

(a) Mr Esposito had, on 12 May 2018, signed a detailed witness statement in support of his case;

(b) Mr Esposito had given instructions for the filing of the written “Kaplan opening”;

(c) Mr Esposito’s legal representatives appeared at the Kaplan opening without raising an issue about the quality of their instructions; and

(d) when his legal representatives corresponded with the arbitral tribunal and the parties about their withdrawal, nothing was said by them about any incapacity.

40 Consequently, it is clear, in my view, that on the material available to the Arbitrator, there was no basis on which he might have found or thought that Mr Esposito lacked capacity. The only inference available to or reasonably drawn by the Arbitrator was, in my view, that Mr Esposito was sane and competent and able to decide whether he was able to conduct the applicants’ case in the arbitration or to seek an adjournment. Indeed, that remains the view of this Court. Thus, there is no basis for any suggestion that the Arbitrator should have adjourned the arbitral hearing on his own motion, even absent a request from Mr Esposito to do so.

Sufficient time, “right” to adjournment and natural justice

Contextual matters

41 As submitted by the respondents, I accept that the following matters of context are of importance in relation to these issues.

42 The first is that, from the commencement of the arbitration to the day before the hearing, the applicants had legal representation comprising solicitors and junior and senior counsel. It was with the benefit of that legal representation that the applicants: (a) prepared their pleadings and thus formulated their case; (b) prepared their evidence; (c) prepared a written submission for the Kaplan opening; and (d) made strategic decisions about the conduct of the arbitration.

43 Secondly, directions were made in the arbitration for the filing, or the extension of time for the filing, of evidence by the applicants on five separate occasions between December 2016 and April 2018. The applicants only complied with the last set of directions which were made.

44 Thirdly, the matter was set down for final hearing in March 2018 by directions made in October 2017. That hearing date was extended, on the applicants’ application, in February 2018 and, again, in April 2018.

45 Fourthly, when, on 4 April 2018, the hearing date was extended for the second time, the Arbitrator did two things. First, he required the applicants’ solicitor to provide written confirmation that they were satisfied that they held adequate funds to allow the matter to proceed to final hearing. Secondly, the Arbitrator expressly told the parties that no further adjournments could be countenanced. Given the protracted history of the arbitration and the repeated delays on the part of the applicants — as indicated above — those were, the respondents submit, appropriate directions to make and they were unqualified as one would expect in the circumstances of the applicants’ conduct up until that point.

46 Having regard to the procedural history of the arbitration to which reference has been made, the Court could hardly dissent from the respondents’ submissions as to the appropriateness of the Arbitrator’s directions in the circumstances; though, in proceedings such as this, it is not appropriate for the Court to become involved in a commentary on the detailed exercise by an arbitrator of his or her management of the arbitral proceedings. At this point it should be observed, as did the respondents in their submissions, that equal treatment of the parties to the arbitration required that there be a final hearing. In addition to the obligations of the parties to cooperate and to facilitate the arbitration process to which they had agreed in the arbitration agreement, an arbitrator is also under an obligation to manage the proceedings as efficiently and expeditiously as possible — and, of course, to deliver an enforceable award in a timely fashion.

Alleged failure to adjourn the hearing

47 The applicants contend that they were denied natural justice by reason of the fact that the final hearing was not adjourned. Their claim is that Mr Esposito was denied sufficient time and opportunity to prepare their case. The respondents, on the other hand, make a number of points which, in my view, have not been answered satisfactorily by the applicants and which indicate that the claim that the applicants were denied natural justice on this basis is completely without foundation. I turn to the matters raised, in turn.

48 First, no application for adjournment of the hearing was made or even hinted at by Mr Esposito. The final hearing in the arbitration was conducted over a long period of time and with active involvement by the applicants. There was, clearly, ample opportunity to apply for an adjournment if it was thought to be necessary.

49 Secondly, the assertions made about the conduct of the applicants’ former legal representatives is not a matter of relevance, much less for determination, in these proceedings. The fact of the matter is that these legal representatives withdrew the day before the hearing and all that follows from this is the question whether or not that withdrawal resulted in the applicants not having a reasonable opportunity to present their case. The position is that extensive written submissions and evidence — including purported expert opinion evidence — was put on by the applicants before those legal representatives withdrew; and this material was apparently relied upon at the final hearing of the arbitration by the applicants.

50 Thirdly, and in any event, the Arbitrator expressly raised the question of readiness to proceed with Mr Esposito at the outset:

MR CHARLES: Right. Yes. And, Mr Esposito, you’re in the difficult position that your legal counsel withdrew very recently. Are you ready to proceed now?MR ESPOSITO: Yes.

Mr Esposito positively confirmed that he was ready to proceed with the final hearing. I accept the submissions of the respondents that it beggars belief that Mr Esposito was incapable of articulating any difficulty of the kind now asserted.

51 Fourthly, an application for adjournment would properly have been rejected by the Arbitrator in any event. As indicated previously, the final hearing in the arbitration had been adjourned twice previously at the request of the applicants. The arbitration, commenced by the applicants, had been on foot for more than three years, during which time very considerable amounts of money had been spent on legal fees. It appears that the applicants had simply run out of money to the point that they had needed to call upon their solicitor mortgage lender to finance representation. As indicated previously, the final hearing was set for 6 July 2018; all parties had been given more than reasonable notice of the hearing date and, in any event, equal treatment of the parties, among other things, required that the final hearing could not be delayed indefinitely.

52 Fifthly, although the applicants were in fact represented for almost all of the long life of the arbitration, there is, as indicated in the preceding reasons, no right to legal or even competent representation in arbitration. Mr Esposito’s own evidence is that he was told numerous times, from March 2018 onwards, about the need to pay for his legal representation. Combined with warnings given by the Arbitrator about there being no further adjournments, it was obvious that if the applicants failed to fund their representation, then Mr Esposito would need to conduct the case at the hearing. It was for the applicants to make such arrangements as they considered necessary to make sure Mr Esposito had adequate time to prepare. If Mr Esposito did not adequately prepare, that was brought about by his failure to do so, not by reason of anything done by any other party.

53 Sixthly, there is no material that suggests that an adjournment would have made any difference. The applicants lacked the funds to pay for legal representation, and Mr Esposito does not say otherwise. No assertion is made in submissions by the applicants that Mr Esposito wanted to, or would have, obtained alternative legal representation. No assertion is made in the materials that the case would or could have been conducted any differently by Mr Esposito with more time.

54 These matters would, without more, indicate that there is simply no basis for the applicants’ contention that there has been a denial of natural justice because no adjournment was granted and that there was insufficient time to prepare. This position is, in my view, reaffirmed when consideration is given to a further aspect of these matters upon which the applicants sought to rely — namely, that the conduct of the final hearing by the Arbitrator illustrates that Mr Esposito did not have sufficient opportunity to present the applicants’ case. On this basis, I now turn to allegations about the conduct of the final hearing.

Allegations about the conduct of the final hearing

55 The applicants make numerous points about the conduct of the hearing, seemingly for the purpose of seeking to illustrate that Mr Esposito did not have sufficient opportunity to present his case. Many of the points are answered by repeating the points already made in the preceding reasons: particularly that it was for the applicants to make such arrangements as they needed to make to ensure that they took advantage of the opportunity given to them to present their case at the final hearing and that they were in fact represented for almost all of the arbitration proceedings back to the commencement of those proceedings some years previously. Thus it is, in my view, true to say that any failure to make arrangements for the final hearing was a failure attributable solely to the applicants.

56 Additionally, it must be kept in mind that all of the material in the arbitration — the tribunal book, submissions and the like — was provided to the applicants through their legal representatives at the time they were provided. The applicants can have been in no doubt that the opportunity they were being given to present their case was at the final hearing commencing on 6 July 2018. It was for them to decide how they wished to take advantage of that opportunity. Thus, the allegations made in relation to the tribunal book and the Kaplan opening — both as to the written and oral submissions — not being available to the applicants are simply misconceived and wrong; at least to the extent that they seek to place responsibility in this respect on anyone but themselves.

57 In addition to these matters, the Arbitrator explained to Mr Esposito that he would have an opportunity to read the materials before he responded and asked counsel for the respondents to cover matters already covered in the Kaplan opening in detail for Mr Esposito’s benefit. That was done as requested by the Arbitrator and, in all the circumstances, I accept that that was all that was required. Further, Mr Esposito was asked whether he was happy with the course proposed, and he replied:

MR ESPOSITO: Yes. Definitely. Yes.

58 In relation to the allegation about receipt of the joint expert report, the Arbitrator told Mr Esposito he would need to read it carefully, but that the time for the joint evidence was ten days away. Mr Esposito responded:

MR ESPOSITO: I understand. Thank you.

59 Also, the allegation concerning Ms Wright’s expert report is also misconceived. The applicants had legal representation at the time they decided not to put on a responding expert report as to the detail of the work done by Ms Wright. Rather, what the applicants elected to do, again at the time they had legal representation, was to file an expert report by Dr Hauser. Mr Esposito’s position at the hearing was that Ms Wright’s report was irrelevant because her assumptions were wrong.

60 The allegation about Mr Slattery is also misconceived. At the time the applicants had legal representation, they elected not to put on answering evidence and did not give notice that they required Mr Slattery for cross-examination. On the first day of the hearing, in opening, counsel for the respondents expressly drew attention to Mr Slattery’s evidence. Mr Esposito’s response was to say that he wanted to cross-examine Mr Slattery. Despite that course not previously having been foreshadowed by the applicants when they were represented, Mr Slattery was made available for cross-examination, four days later.

61 The allegation by the applicants about not being warned about the consequences of not cross-examining Mr Murray also goes nowhere. There was nothing in the Award that suggests that the Arbitrator made anything — whether positive or negative — of the failure to cross-examine Mr Murray. The reason is, as the respondents contend, obvious. Mr Esposito’s own witness — Mr Lindh — ultimately agreed with Mr Murray’s evidence that the accounts for October 2013 to January 2014 were not in the data room.

62 The further allegation about the failure to give Mr Esposito an opportunity to call additional witnesses — such as representatives from Rothschild, Rabobank and Mr Chan — at the final hearing is misconceived. Directions had been made by the Arbitrator, well in advance of the final hearing, for the filing of written evidence. Written evidence from the proposed additional witnesses was not received, nor was it ever suggested or foreshadowed. It is clear, in my view, that for Mr Esposito to seek suddenly to introduce new oral evidence on topics not pleaded would have been to deny the respondents a reasonable opportunity to respond to that evidence; not a permissible position in light of the article 18 requirements, or more generally.

63 In support of the particular allegations made by the applicants with respect to the calling of representatives of Rothschild, Rabobank and Mr Chan, reference is made to the transcript of the final hearing. Regrettably, it must be observed that these references — and the one direct quote of the Arbitrator — are selective and do not, absent the full context of the discussion between the Arbitrator and Mr Esposito, provide the full picture by any means. Placed in context, the transcript demonstrates, in my view, exemplary conduct on the part of the Arbitrator in trying as best he could, within the proper bounds of maintaining his impartiality and even-handedness, to assist Mr Esposito in presenting the case of the applicants and responding to the case against them. Moreover, having regard to the allegations made by the applicants in relation to the conduct by the Arbitrator of the final hearing, I think it is desirable to provide, in the attached Schedule to these reasons, extracts of the final hearing transcript in the arbitration, including some of those parts relevant to these particular allegations, and more generally.

Allegations about the Arbitrator’s “own issue”

64 This is also another issue raised by the applicants; but, for the reasons which follow, is of no assistance to them in the present application. The so-called Arbitrator’s “own issue” is, in general terms, that the Arbitrator enunciated a construction of the provisions of the Share Sale Agreement with respect to the operation of cl 7.6 and its interaction with cl 17.2, which was not the subject of submissions and that, consequently, the applicants were deprived of the opportunity to make submissions in favour of a contrary construction.

65 The fallacy in these allegations was exposed in the submissions of the respondents which proceed, at the outset, with an assumption — for the purposes of argument only — that the Arbitrator’s approach to the operation of these provisions and their interaction was his “own issue”. Thus, they say that on the last day of the hearing, at the conclusion of closing submissions by the respondents, the Arbitrator summarised the respondents’ position in relation to these provisions for the benefit of Mr Esposito and before Mr Esposito made any closing submissions. As part of that summary, the Arbitrator said:

Now, the buyer’s argument is, had the buyer been told of these things before completion, there is no question but that they would have terminated the contract then and there and would have asked for repayment of any of the sums that had been paid and, independently of any claim to damages, just a simple termination of the contract, and sums of the order of 60-plus million had been paid and they were entitled to them back. And, insofar as that claim is concerned, then the buyer says that that’s not something which is affected by any limitation on the right to claim damages for breach of warranty, which is contained in the later arguments under clauses 15, 16 and 17. It’s a right which could only have been lost if it existed at completion.In some way, you might argue that there had been a waiver of it or matters of that kind, and to any response of that kind, the case that will be made by the buyer is that they didn’t become aware of these things until it was too late for them to terminate the contract: they were stuck with it. Any attempt at repudiation two months afterwards at a time when you had all the money and were spending it would have been quite fruitless, so that the limitations that apply in clauses 15, and 16 and 17 have simply no relevance to the claim made under 7.6.

[Emphasis added by respondents.]

Thus, it is quite clear that Mr Esposito was given an opportunity to address the points that were made.

66 Finally, a pertinent point is made by the respondents that, in any event, the applicants misread paragraph 76 of the Award. That paragraph is directed to the effect of cl 17.2 of the Share Sign Agreement. There is nothing in the Award — particularly in terms of the relief awarded — that suggests that the Arbitrator approached the case on the basis that the respondents were then seeking to rescind the contract or were seeking declarations and relief on that basis. This is made quite plain by paragraph 85 of the Award and by the terms of the relief awarded. To the extent the Arbitrator considered that the respondents might have been able to rescind the contract, that was not a necessary step in his reasoning or in the relief granted.

Public policy

67 The public policy grounds relied upon by the applicants in the setting aside proceeding were articulated in general terms as follows:

7.1 In respect to Article 34(2)(ii), it has been held that:(a) The ‘public policy’ ground is directed towards contraventions of ‘fundamental principles of justice and morality’ of Victoria.

(b) The requirement that parties in arbitrations be accorded procedural fairness or natural justice within the meaning of those terms in the relevant legislative context is part of the public policy of Victoria and Australia.

68 Particular reliance is placed by the applicants in relation to these grounds on the decision in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd. Particular reference is made to the following passage in that case:

  1. The ‘unable to present its case’ and ‘public policy’ grounds were argued together and as alternatives to one another in these proceedings. In my view, and for the reasons that follow, there is no practical difference between these two grounds in the way in which they relate to natural justice and procedural fairness in the circumstances of this case. Nevertheless, it is important to note that these grounds are conceptually different. The ‘public policy’ ground is directed towards contraventions of ‘fundamental principles of justice and morality’ of Victoria. By contrast, the ‘unable to present its case’ ground focuses on whether the party seeking to set aside the award has been accorded procedural fairness. As the following reasons show, this point may be a distinction without a difference in the present context because the requirement that parties in arbitrations be accorded procedural fairness or natural justice within the meaning of those terms in the relevant legislative context is part of the public policy of Victoria, and for that matter, Australia. In accordance with the approach adopted by the parties then, I will consider the ‘unable to present its case’ ground and the ‘public policy’ ground together.

A passage which should also be read with the following further passage in that case:

  1. A breach of s 18 of the Act in the making of an arbitral award may also result in the award being set aside or recognition or enforcement being refused on public policy grounds. In TCL, the Full Federal Court conducted a comprehensive review of the ‘public policy’ ground under arts 34(2)(b)(ii) and 36(1)(b)(ii) of the Model Law. Allsop CJ, Middleton and Foster JJ considered the restrictive interpretation to be given to this ground and made extensive reference to the legislative history of the Model Law and to international jurisprudence, including leading authorities from the Asia-Pacific region. For present purposes it is sufficient to recall the crux of this discussion, namely that ‘public policy’ is ‘limited to the fundamental principles of justice and morality of the state, recognising the international dimension of the context’.

69 The public policy grounds relied upon by the applicants were, as in the Amasya case, argued and sought to be supported by reference to the matters relied upon as establishing a breach of article 18 and flowing from that other bases for setting the Award aside. As, for the preceding reasons, I have found that there has been no breach of article 18 and hence none of these other bases for setting aside have been established, it follows that the public policy ground relied upon by the applicants must also fail.

Conclusion and orders

70 For the preceding reasons, the applicants have failed to establish any basis in support of their application in the setting aside proceeding which must, accordingly, be dismissed.

71 It follows that the stay of orders previously made in the recognition and enforcement proceeding should be removed and the orders for recognition and enforcement operate accordingly.

72 The parties are to bring in orders as indicated. I otherwise reserve the question of costs and will hear the parties further on this issue.

 

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UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd & Ors [2018] VSC 316 (15 June 2018)

Esposito Holdings Pty Ltd v UDP Holdings Pty Ltd [2015] VSC 183 (8 May 2015)