Anaconda Operations Pty Ltd v Fluor Australia Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION

No. 7600 of 2002

ANACONDA OPERATIONS PTY LTD (ACN 076 717 505) (as agent for Murrin Murrin Holdings Pty Ltd) (ACN 073 405 562) and GLENMURRIN PTY LTD (ACN 076 684 396)	Plaintiff
v
FLUOR AUSTRALIA PTY LTD (ACN 004 511 942)	Defendant

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JUDGE:	DODDS-STREETON J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	17 – 21 February 2003
DATE OF JUDGMENT:	28 July 2003
CASE MAY BE CITED AS:	Anaconda v Fluor
MEDIUM NEUTRAL CITATION:	[2003] VSC 275

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ARBITRATION – Commercial Arbitration – Award – Application for leave to appeal against award of Arbitral Tribunal – Manifest error of law in relation to Arbitral Tribunal’s rejection of claimed remedy for breach of contract to construct mining facility – Court’s restricted jurisdiction to review arbitral awards – Error must be obvious without need for prolonged adversarial argument – Judge entitled to consider documents incorporated by reference in award – Relevance of technical, complex and ambiguous nature of award – Arbitral Tribunal failed to approach remedy for breach of warranty in accordance with established legal principles - Imposed on victim of breach the onus of establishing its claimed remedy the only one – Manifest error of law more than merely arguable and obvious on face of award – Determination of question of law could substantially affect the rights of one or more parties to the arbitration – Leave to appeal granted – Judge determined appeal instanter – Award and Reasons for Judgment remitted to Arbitral Tribunal – Allegation of technical misconduct on ground that remedy denied on basis of an issue not live or put to the parties not determined, as appropriate relief of remission granted on alternative ground – Allegation that awards of interest involved technical misconduct by reason of denial of natural justice not founded – Allegation that parties denied opportunity to adduce evidence or make submissions in relation to interest not founded – Natural justice or procedural fairness did not require publication of principal findings with opportunity for further submissions on interest.

Commercial Arbitration Act 1984 (Vic) ss.38(3), 38(4), 38(5), 42(1)(a).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A.J. Myers Q.C. Mr J Rowland Q.C. Mr D.J. O’Callaghan	Clayton Utz
For the Defendant	Mr N.J. Young Q.C. Mr M.C. Garner	Minter Ellison

TABLE OF CONTENTS

BACKGROUND TO PROCEEDINGS.......................................................................................... 1

THE LEGISLATION.......................................................................................................................... 5

RELEVANT LEGAL PRINCIPLES................................................................................................. 9

Manifest Error of Law on the Face of the Award................................................................... 10
What Material May be Considered.......................................................................................... 14
Misconduct................................................................................................................................... 16

THE PARTIES’ CONTENTIONS ON THE FIFTH AUTOCLAVE DECISION.................. 21

Anaconda’s Contentions............................................................................................................ 21
Fluor’s Contentions..................................................................................................................... 24

RELEVANCE OF COMPLEXITY OF THE INTERIM AWARD............................................. 25

THE TERMS OF THE INTERIM AWARD................................................................................. 27

MANIFEST ERROR OF LAW....................................................................................................... 44

CONCLUSION ON FIFTH AUTOCLAVE DECISION............................................................ 47

TECHNICAL MISCONDUCT...................................................................................................... 49

ANACONDA’S INTEREST ORDER........................................................................................... 50

FLUOR’S INTEREST ORDER...................................................................................................... 61

HER HONOUR:

BACKGROUND TO PROCEEDINGS

In a trial which commenced on 17 February 2003, Proceeding 7600 of 2002 and Proceeding 7623 of 2002 were heard together by the order of Harper J made on 10 October 2002.

Each proceeding arises in relation to the same interim award dated 7 September 2002 (“the Interim Award”) of the Arbitral Tribunal comprising Messrs Philip Naughton QC, John Uff QC and Jan Paulsson in relation to an arbitration (“the Arbitration”) between Anaconda Operations Pty Ltd (“Anaconda”) as agent for Murrin Murrin Holdings Pty Ltd and Glenmurrin Pty Ltd and Fluor Australia Pty Ltd (“Fluor”).

The Arbitration arose from a dispute between Anaconda and Fluor in relation to a nickel and cobalt mine, extraction plant, refinery, utility and associated infrastructure (“the Facility”) located at Murrin Murrin, north of Kalgoorlie in Western Australia. Anaconda is the agent for Murrin Murrin Holdings Pty Ltd and Glenmurrin Pty Ltd, the joint venturers which own the Facility. (For convenience, the joint venturers are, in these Reasons, included in a reference to “Anaconda”.) Fluor is the party which, pursuant to two contracts made on 21 August 1997, designed, built and pre-commissioned the Facility and contracted to provide further specified services to Anaconda.

The mining project was first conceived in 1993 when Anaconda Nickel Ltd (the parent company of Murrin Murrin Holdings) was incorporated and acquired the rights to mineral tenements at Murrin Murrin. In December 1996 a joint venture was formed.

In 1995 and 1996 Anaconda Nickel engaged Sherritt Inc (“Sherritt”) a Canadian company with expertise in mineral extraction, to carry out feasibility studies and subsequently, to process development studies.

In March 1996 Anaconda Nickel invited tenders from a number of internationally recognised contractors, initially to act as contractors under an Engineering Procurement and Construction Management contract. Fluor was the preferred tenderer.

Sherritt’s test work, feasibility studies and design work were provided to Fluor as part of the tender process. Sherritt continued to carry out development studies and test work.

Fluor prepared detailed design documents which comprised an original Scope Book dated 31 January 1997 and, on about 31 May 1997, a Revised Scope Book.

On 21 August 1997 Fluor and Anaconda entered into the EPC Contract pursuant to which Fluor undertook to design, build and pre-commission the Facility.

On 21 August 1997 Fluor and Anaconda entered into the Commissioning Assistance and Rampup Agreement (“CARUA”) pursuant to which Fluor contracted to provide specified services to Anaconda and to warrant certain production levels.

Prior to the entry into the EPC Contract on 21 August 1997, Anaconda had already entered into approximately 77 Early Works Contracts with a number of different contractors in relation to elements of the Facility, including the design and/or construction of plant and equipment that became part of the Project Works under the EPC Contract, for a total value of approximately A$350 million and, in addition, US$9 million. The Early Works Contracts are set out in paragraph 16 of the affidavit of Richard Hugh McDonald sworn 14 October 2002 in proceeding No 7623 of 2002. In the case of some Early Works Contracts, most of the work had been substantially completed before the EPC Contract was entered into.

The Facility was constructed. It uses advanced technology to extract nickel and cobalt from low grade laterite ores through an acid leach process, which, at an intermediate stage, includes transforming the ore at high temperatures into a mixed sulphate precipitate. Operations at the site involve both mining and refining in a chemical process plant.

The technical process and operations undertaken at the Facility which are relevant to the present dispute involve the processing of slurried ore (milled and broken up into small particles and mixed with water) which passes through a screen in area 3100 of the Facility and is fed into area 3200 of the Facility, which contains four acid leach autoclave circuits.

The slurried ore resides in the autoclaves for a certain time. The residence time depends upon the rate of throughput (the rate at which the slurried ore is being pumped through the autoclave by a continuous process). A faster throughput will result in a shorter residence time.

The rate of extraction of nickel from the slurried ore in the autoclaves is affected by variables, which are principally, temperature, the amount of sulphuric acid and the residence time in the autoclaves. A shorter residence time in the autoclaves will result in a lower extraction rate. Therefore, a faster throughput rate will result in a shorter residence time and hence, a lower extraction rate.

When the nickel leaves the autoclaves, it undergoes some further operations “down stream” and a proportion of the nickel is lost, so that the quantity of nickel ultimately produced for sale is less than that extracted in the autoclaves.

Disputes arose between the parties over the ability of the Facility designed and constructed by Fluor to perform in accordance with the contractual requirements. Anaconda claimed that Fluor had breached both the EPC Contract and the CARUA. It sought total damages of approximately $1.322 billion.

After the disputes had arisen, the parties entered a deed dated 4 July 2000 which varied the EPC Contract and provided for arbitration by a three member tribunal. The parties agreed that the Arbitration was governed by the Commercial Arbitration Act 1984 (Vic) (“the Act”).

Procedural Order No 7 of the Arbitration identified certain claims and contentions by both Anaconda and Fluor to be heard at hearings beginning in January 2002 (“the January hearings”). The hearings took place in Melbourne as scheduled between 28 January 2002 and 28 March 2002.

The Interim Award, dated 7 September 2002, dealt with those claims. Both Anaconda and Fluor are dissatisfied with the Interim Award’s treatment and determination of different claims and contentions.

Anaconda, as plaintiff in proceeding No 7600 of 2002, seeks leave to appeal from the Interim Award’s rejection of its claimed remedy of the cost of a fifth autoclave, on the basis that there was a manifest error of law on the face of the award within terms of s.38(5) of the Act. Anaconda also contends that the Arbitral Tribunal’s treatment of the fifth autoclave decision amounted to technical misconduct pursuant to s.42 of the Act. Further, Anaconda claims that the Arbitral Tribunal’s award of interest to Fluor on certain security retention moneys (“Fluor’s interest order”) involves a manifest error of law on the face of the award and also amounts to misconduct under s.42 of the Act. It also claims that the Arbitral Tribunal’s award of interest on past rectification expenditures (“Anaconda’s interest award”) on a pro rata basis amounted to technical misconduct pursuant to s.42 of the Act). If leave to appeal is granted, Anaconda seeks that the Court proceed to determine the appeal.

Fluor, as plaintiff in proceeding No 7623 of 2002, disputes the Arbitral Tribunal’s finding that Fluor’s liability under the EPC Contract, if established, cannot be affected by the fact that relevant components of the work were undertaken by Early Works Contractors, rather than by Fluor.

Fluor contends that the Arbitral Tribunal’s finding is based on a construction of the relevant clauses of the EPC Contract which flouts business common sense, is unworkable, and ignores the ordinary and natural meaning of the words used in the relevant clauses and the general contractual regime. It is contended that there is demonstrable error in the clauses of the EPC Contract, which may be corrected as part of the process of construction without the necessity of a plea of rectification. Fluor submits that the Arbitral Tribunal’s construction amounts to a manifest error of law on the face of the award and seeks leave to appeal pursuant to s.38(5) of the Act. It further seeks that, should leave be granted, the Court proceed to determine the appeal.

THE LEGISLATION

Section 4(1) of the Act relevantly provides:

“‘Award’ means final or interim award.
‘Misconduct’ includes corruption, fraud, partiality bias and a breach of the rules of natural justice.”

Section 23 of the Act provides:

“‘Interim awards’
Unless a contrary intention is expressed in the arbitration agreement, the arbitrator or umpire may make an interim award.”

Section 38 of the Act provides:

“Judicial review of awards
(1)Without prejudice to the right of appeal conferred by sub-section (2), the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award.
(2)Subject to sub-section (4), an appeal shall lie to the Supreme Court on any question of law arising out of an award.
(3)On the determination of an appeal under sub-section (2) the Supreme Court may by order--
(a) confirm, vary or set aside the award; or
(b)remit the award, together with the Supreme Court’s opinion on the question of law which was the subject of the appeal, to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration--

and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make the award within three months after the date of the order.
S. 38(4) amended by No. 15/1993 s. 16(1).
(4)An appeal under sub-section (2) may be brought by any of the parties to an arbitration agreement--
(a)with the consent of all the other parties to the arbitration agreement; or

(b) subject to section 40, with the leave of the Supreme Court.

S. 38(5) substituted by No. 15/1993 s. 16(2).
(5)The Supreme Court shall not grant leave under sub-section (4)(b) unless it considers that--
(a)having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement; and

(b) there is--
(i) a manifest error of law on the face of the award; or
(ii)strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.

S. 38(6) substituted by No. 15/1993 s. 16(2).
(6)The Supreme Court may make any leave which it grants under sub-section (4)(b) subject to the applicant complying with any conditions it considers appropriate.

S. 38(7) repealed by No. 15/1993 s. 16(2).
* * * * *
S. 38(8)
re-numbered as s. 38(7) by No. 15/1993 s. 16(3).
(7)Where the award of an arbitrator or umpire is varied on an appeal under sub-section (2), the award as varied shall have effect (except for the purposes of this section) as if it were the award of the arbitrator or umpire.”

Section 42 of the Act provides:

“Power to set aside award
(1) Where--
(a)there has been misconduct on the part of an arbitrator or umpire or an arbitrator or umpire has misconducted the proceedings; or

(b) the arbitration or award has been improperly procured--

the Court may, on the application of a party to the arbitration agreement, set the award aside either wholly or in part.
(2)Where the arbitrator or umpire has misconducted the proceedings by making an award partly in respect of a matter not referred to arbitration pursuant to the arbitration agreement, the Court may set aside that part of the award if it can do so without materially affecting the remaining part of the award.
(3)Where an application is made under this section to set aside an award, the Court may order that any money made payable by the award shall be paid into court or otherwise secured pending the determination of the application.”

Section 31 of the Act provides:

“Interest up to making of award
S. 31(1) amended by No. 15/1993 s. 14(1)(c)(i)(ii).
(1)Unless a contrary intention is expressed in the arbitration agreement, but subject to sub-section (4), where the arbitrator or umpire determines to make an award for the payment of money (whether on a claim for a liquidated or an unliquidated amount), the arbitrator or umpire shall have power to include in the sum for which the award is made interest at such rate as the arbitrator or umpire may direct (being a rate not exceeding the rate at which interest is payable on a judgment debt of the Supreme Court) on the whole or any part of the money for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

S. 31(2) inserted by No. 15/1993 s. 14(2).
(2)Unless a contrary intention is expressed in the arbitration agreement, but subject to sub-section (4), where--
(a)arbitration proceedings have been commenced for the recovery of a debt or liquidated damages; and
(b)payment of the whole or a part of the debt or damages is made during the currency of the proceedings and prior to or without an award being made in respect of the debt or damages--

the arbitrator or umpire may order that interest be paid at such rate as the arbitrator or umpire may direct (being a rate not exceeding the rate at which interest is payable on a judgment debt of the Supreme Court on the whole or any part of the money paid for the whole of any part of the period between the date when the cause of action arose and the date of the payment).
S. 31(3) inserted by No. 15/1993 s. 14(2).
(3)Without limiting sub-section (2), arbitration proceedings shall, for the purposes of that sub-section, be deemed to have commenced if--
(a)a dispute to which the relevant arbitration agreement applies has arisen; and

(b) a party to the agreement--
(i)has served on another party to the agreement a notice requiring that other party to appoint an arbitrator or to join or concur in or approve of the appointment of an arbitrator in relation to the dispute;
(ii)has served on another party to the agreement a notice requiring the other party to refer, or to concur in the reference of, the dispute to arbitration; or
(iii)has taken any other step contemplated by the agreement or the law in force at the time the dispute arose, with a view to referring the dispute to arbitration or appointing, or securing the appointment of, an arbitrator in relation to the dispute.

S. 31(2)
re-numbered as s. 31(4) by No. 15/1993 s. 14(3).
(4) Sub-section (1) does not--
(a) authorize the awarding of interest upon interest;
(b)apply in relation to any amount upon which interest is payable as of right whether by virtue of an agreement or otherwise; or
(c)affect the damages recoverable for the dishonour of a bill of exchange.”

S. 32 amended by No. 15/1993 s. 14(4)(a)(b).

Section 32 of the Act provides:

“Interest on debt under award
(1)Unless a contrary intention is expressed in the arbitration agreement, where the arbitrator or umpire makes an award for the payment of money, the arbitrator or umpire shall have power to direct that interest at the same rate as that at which interest is payable on a judgment debt of the Supreme Court shall be payable from the date of making of the award or such later date as the arbitrator or umpire may specify on so much of the money as is from time to time unpaid and any interest that so accrues shall be deemed to form part of the award.

S. 32(2) inserted by No. 15/1993 s. 14(5).
(2)If judgment is entered by the Court in terms of an award, interest shall cease to accrue in pursuance of a direction under this section on the date of the entry of the judgment.”

RELEVANT LEGAL PRINCIPLES

It is well established that the legitimate role of the Court in applications for leave to appeal under s.38(5) of the Act is very circumscribed. The legislation restricts the court’s jurisdiction to review arbitral awards in recognition of the importance of speedy finality in that context. Nevertheless, the power to review is enlivened by an obvious departure from settled principles of law. The basic principles relevant to the determination of an application for leave to appeal pursuant to s.38(5) of the Act were conveniently summarised by Debelle J in Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust[1] as follows –
[1]BC9400868, unreported, Supreme Court South Australia, 11 November 1994.

“(1)there is no appeal from an arbitrator on a question of fact;
(2)while s.38 provides that an appeal shall be from the award of an arbitrator on a question of law, leave must nevertheless be obtained unless both parties consent to the appeal;
(3)leave will only be granted in circumstances prescribed in s.38(5);
(4)the applicant for leave must satisfy both para(a) and para(b) of 38(5);
(5)the epithet ‘manifest’ in the expression ‘manifest error of law’ is used to indicate an error which is evident or obvious rather than one which is arguable;
(6)if the court determines that there is no manifest error of law, an application based on this ground fails;
(7)if the court is satisfied that a manifest error of law exists, a question arises whether the court should, in the exercise of its discretion, grant leave; and
(8)assuming that there is not a manifest error of law on the face of the award, it may be argued that there is strong evidence that the arbitrator made an error of law and the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. This requirement indicates that the question should be one of wider and greater importance than, for example, the construction of a one-off clause in the context of the particular agreement between the parties.”[2]
[2]Ibid, at 5.

Manifest Error of Law on the Face of the Award

In Energy Brix Australia Corp Pty Ltd v National Logistics Co-Ordinators (Morwell) Pty Ltd,[3] Ormiston JA (with whom Winneke P, Phillips, Buchanan and Vincent JJA agreed) endorsed the well known statement of Sheller JA in Promenade Investments Pty Ltd v New South Wales[4], to the effect that a manifest error may be demonstrated if there be powerful reasons for considering on a preliminary basis “without any prolonged adversarial argument, that there is on the face of the award an error of law”.[5]
[3]BC 200204450 [2002] VSCA 113.
[4][1992] 26 NSWLR 203.
[5]Ibid, at 11.

In Energy Brix, the award from which it was sought to appeal contained an express conclusion of law, which was held to be erroneous. The arbitrator found that there were two mutually inconsistent agreements. One agreement was under seal and the other was a signed informal agreement. He incorrectly concluded that at law, a contract under seal had precedence over an informal, signed agreement.

Ormiston JA observed that “the error of the arbitrator is plain, in my opinion, in that he thought that the law gave precedence to a contract under seal over one which was merely a signed, informal contract”.[6] His Honour concluded that there was “a manifest error of law on the face of the record”.[7]
[6]Ibid.
[7]Ibid, at 12.

In the influential case of Promenade Investments Pty Ltd v State of New South Wales,[8] Sheller JA (with whom Meagher and Mahoney JJA agreed) considered that the failure to apply a certain method of valuation in valuing a lease prematurely determined by statute did not constitute a manifest error of law within terms of s.38(5) of the Act.
[8][1992] 26 NSWLR 203.

His Honour considered the history of the relevant provision at length. He observed that prior to the English Arbitration Act 1979, English law had permitted an unparalleled degree of curial intervention in, and control over, arbitral awards, which was inconsistent with international standards.

He observed that the English Arbitration Act 1979 addressed the problem of non-conformity with international law. In Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema)[9] Lord Diplock considered that in weighing the competing goals of assured finality and accuracy of legal reasoning, the amending legislation had turned the tide “in favour of finality in arbitral awards, at any rate where this did not expose arbitrators to a temptation to depart from settled principles of law”.[10]
[9][1982] AC 724.
[10][1992] 26 NSWLR 203 at 217.

In The Nema Lord Diplock took the view that judicial discretion to give leave to appeal should be exercised pursuant to much stricter criteria than previously applied. He considered that in the case of construction of “one‑off” clauses, leave should not normally be given “unless it is apparent to the judge, on a mere perusal of the reasoned award itself without the benefit of adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong”.[11] Even in the case of construction of standard terms contracts, his Lordship stated that leave should not be given “unless the judge considered that a strong prima facie case had been made out that the arbitrator had been wrong in his construction”.[12]
[11][1982] AC 724 at 742G-743A.
[12]Ibid, at 743D-F.

The Commercial Arbitration Acts, in broadly uniform format, were subsequently enacted in Australian States and Territories. An apparent goal of the legislation was to minimise judicial supervision and review of arbitral decisions. In Promenade Sheller JA observed:

“The added requirements of manifest error of law on the face of the award or strong evidence that the arbitrator made an error of law and that the determination of the question may add substantially to the certainty of commercial law suggest that the draftsman was seeking to constrain the exercise of control over arbitral awards in the manner described by the House of Lords in The Nema. A manifest error on the face of the award may be an error which would be apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument.”[13]

[13][1992] 26 NSWLR 203 at 222.

His Honour noted the recommendation of the New South Wales Working Group that “s.38(5) should incorporate the guidelines enunciated in The Nema and other relevant authorities with the effect that leave may only be given if an error of law is apparent on the face of an award without hearing argument”.[14]
[14]Ibid.

Sheller JA relevantly observed:

“In applying s.38, as amended, a construction that would promote the purpose or object underlying the Act must be preferred to a construction that would not promote that purpose or object … The expression ‘error of law on the face of the award’ is one of a type well-known to courts. The award having been examined, the question is whether there is apparent (and such is the denotation of the word ‘manifest’) an error of law. ‘Manifest error’ is an expression sometimes used in reference to reasons given by judges or the approach taken by juries … It is used to indicate something evident or obvious rather than arguable …. The matters referred to by Lord Diplock in The Nema remain important factors in determining whether leave should be given.
However, I have difficulty in defining the significance of an error of law by reference to whether it is apparent to a judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument. I understand the views expressed that decisions on questions of law should be left to the arbitrator with minimal interference by the courts unless the arbitrator may be establishing an erroneous precedent on a matter of law which may affect other cases between other parties, as, for example, where the question concerns the construction of a contract in standard terms. But the paragraph requires a determination as to whether or not there is a manifest error on the face of the award and I do not see why a judge should be required to do that without adversarial argument. If the judge concludes after argument that there is not such an error of law an application based on this ground fails … There is nothing, in my opinion, in the language of the sub-section or in any other material, to which consideration can appropriately be given pursuant to the terms of the Interpretation Act which would allow the judge to proceed to determine the application without hearing argument. However, as McHugh JA pointed out “manifest” in the context of the sub‑section, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law which is more than arguable. There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law”.[15]

[15]Ibid, at 225 – 226.

Windeyer J in Gold Coast City Council v Canterbury Pipe Lines[16] stated:

“An error on the face of the award is not to be discovered by looking behind its back. It is not permissible to treat the limited jurisdiction by which a court ensures that an arbitration is conducted in accordance with law as if it were the equivalent of an appeal from an arbitrator’s decision.”[17]

[16](1968) 41 ALJR 307.

[17]Ibid, at 314.

In Leung v Hungry Jacks Pty Ltd,[18] Hedigan J stated that the error must be “evident and obvious rather than merely arguable.”
[18](2000) C Conv R 54.614.

In Natoli v Walker,[19] Kirby P stated:

“Obviously, there is difficulty in the word ‘manifest’. What may be ‘manifest’ to one judicial officer may fail to persuade another. The criterion cannot be the swiftness of mind of the sharpest intellect. Nor can it be the perception of one whose whole career has been devoted to examining and reflecting upon building contracts. An objective, not a subjective, test for what is ‘manifest’ is contemplated. But the word will not go away. Against the background of its history in this context it requires swift and easy persuasion and rapid recognition of the suggested error.”[20]
[19]BC9402554, unreported, New South Wales Court of Appeal, 26 May 1994.
[20]Ibid, at 25.

What Material May be Considered

In Gianfriddo v Garra Constructions Pty Ltd,[21] Smith J held that a mere recital or narrative statement in the award that a specified contract was entered into will not be sufficient to incorporate it into the award. Further, even if the words relied upon are in the portion of the award which expresses the decision or direction by the arbitrator, they will not incorporate the provisions of a contract if they merely state in general terms that there has been a breach of contract or that, because of a specified act or event, the contract is void or has been discharged.
[21][1971] VR 289.

His Honour also observed:

“If however, the decision or direction given is expressed in terms which are to such a degree referential that, without reading a document referred to, it is not possible to understand what has been decided or directed, or not possible to give effect to the decision or direction, then the document should be treated as incorporated in the award. Again, if the decision or direction is expressed to be based upon the wording of a specified clause of a contract, the clause is incorporated … How matters stand where the decision or direction is expressed to be based not upon the wording or effect of any specified clause, but upon the wording or effect of the contract as a whole, or of the provisions of the contract relating to a particular subject matter, is debatable; but the weight of authority supports the view that in such circumstances the contract, or the relevant part of it, is incorporated.”[22]

[22]Ibid, at 290 – 291.

In W.J. Alan & Co Ltd v El Nasr Export & Import Co,[23] Orr J considered that if a clause were not set out in extenso, or if it were identified only by its subject matter, it would be highly artificial if the court were not permitted to examine the clause.[24] Orr J also confirmed “that as regards an interim award the court is always entitled to look at the relevant documents to see what was submitted to arbitration.”[25]
[23][1971] 1 Lloyd’s Rep 401.
[24]Ibid, at 408.
[25]Ibid.

In that case, his Honour applied the reasoning of Sachs J in Blackford & Sons (Calne) Ltd v Borough of Christchurch[26] who there held that if there were an ambiguity in the sense of two equally consistent interpretations of part of the award, the court could look at the order for directions and the pleadings. Further, Sachs J stated:

“To my mind, however the court is in any event entitled to look at those documents when seeking to interpret the interim award on a broader ground. As regards an interim award, … it seems that in a case such as the present the court must normally be entitled to look at those documents in order to see exactly what was submitted to the arbitrators as being the preliminary issues to be decided, so as to ensure that the court’s interpretation of the award is correct. The documents in question are to my mind in the circumstances analogous to that submission to arbitration which a court can always look at in relation to any application to set aside a final award.”[27]

[26][1962] 1 Lloyd’s Rep 349.

[27]Ibid, at 355 – 356.

In Robert Salzer Constructions Pty Ltd v Barlin Scott Air Conditioning Pty Ltd,[28] the Full Court of the Supreme Court of Victoria endorsed the reasoning of Smith J in Gianfriddo v Garra Constructions Pty Ltd,[29] and held that a “Schedule of Questions incorporated in the Notice of Dispute… must… be treated as incorporated in the award.”[30]
[28][1980] VR 545.
[29][1971] VR 289.
[30]Ibid, at 559.

It follows that in assessing whether there is a manifest error on the face of the Interim Award, I am entitled to, and should, consider the documents which are, on applicable principles, incorporated into it, or referred to in the Interim Award in so far as, without reading them, it is not possible to understand what has been decided or directed.

There is no dispute that on this basis I must consider the EPC Contract. Further, it is not disputed that relevant portions of the pleadings (“contentions”) and the parties’ submissions should be considered, on the basis of the principles set out in Blackford & Sons (Calne) Ltd v Borough of Christchurch.[31] Such documents, together with relevant parts of the evidence presented to the Arbitral Tribunal, must, in any event, be considered in relation to the alleged misconduct constituted by the failure to alert the parties to the proposed bases of the Arbitral Tribunal’s relevant determinations and to offer them the opportunity to be heard.
[31][1962] Lloyds Reports 349.

Misconduct

In Williams v Wallis & Cox,[32] Lush J observed:

“Misconduct is not necessarily personal misconduct. If an arbitrator for some reason which he thinks good declines to adjudicate on the real issue before him, or rejects evidence which, if he had rightly appreciated it, would have been seen by him to be vital, that is within the meaning of the expression ‘misconduct’ in the hearing of the matter which he has to decide and misconduct which entitles the person against whom the award is made to have it set aside.”[33]

[32][1914] 1 KB 478.

[33]Ibid, at 484.

In that case, the applicant tenant applied to set aside an arbitral award which had dealt with his claim for compensation in respect of improvements to a leased property. There was conflicting evidence as to whether or not the arbitrator had excluded the applicant’s evidence on the original condition of the premises.

At first instance, it was held that it was unnecessary to determine that issue, as exclusion would not amount to misconduct in any event. On appeal, Lush J observed that there was competing evidence as to whether the arbitrator excluded evidence as to the condition of the premises, but if he did exclude it “it would follow that he had declined to decide the very issue that was before him”.[34] In apparently concluding that the exclusion would not amount to misconduct, the trial judge had erred.
[34]Ibid.

In The Melbourne Harbour Trust Commissioners v Hancock[35] an arbitrator determined a dispute between a harbour trust and the builder of a wharf, over whether particular works could be omitted without giving the contractor a claim to compensation.
[35][1927] 39 CLR 570.

The arbitrator determined that the relevant work could not properly be omitted under the contract. The arbitrator awarded a particular sum in terms that, should the Supreme Court subsequently determine that his reasoning was erroneous, a larger sum would be awarded.

Isaacs J observed that:

“..misconduct in this context was used only its technical and often misleading sense. No one suggests, or could suggest, the smallest deviation from the strict path of honour. But the word ‘misconduct’ as employed in this connection includes even a mistake in procedure which has or may have unjustly prejudiced a party.”[36]

[36]Ibid, at 588.

His Honour found that the arbitrator had indicated an intention to leave open to the parties the opportunity to have all disputed questions of law considered by the Court, and the appellants, acting on the assurance of that opportunity, waited until the award was made, only to find themselves “shut out”, contrary to the arbitrator’s expectation. Isaacs J considered that if the appellants had been deprived of a tenable ground of objection to the award, their application should be granted.

In Interbulk Ltd v Aiden Shipping Co Ltd (“The Vimeira”)[37], on which Anaconda places considerable reliance, the owners of a vessel claimed against the charterers in an arbitration in relation to damage sustained by the vessel when sub-charterers discharged it at an allegedly unsafe port.
[37][1984] 2 Lloyds Rep 66.

In the first arbitration, the arbitrators found that the port was unsafe because the turning area was insufficient for a vessel of that size at a particular location.

The charterers sought to set aside the award on the ground of misconduct. They argued that it had not been pleaded that the dock was unsafe because the turning area at a particular point was too restricted. They had, in consequence, been deprived of an opportunity to deal with the arbitrator’s crucial finding that the dock was insufficiently wide at a certain point for a safe turning manoeuvre. In essence, the charterers contended that the subject matter of the crucial finding had never become an issue in the arbitration and there was thus technical misconduct, or a procedural mishap.

At first instance, the charterer’s contentions were rejected. Lloyd J considered that the owners had taken the relevant point, although it had received little emphasis. Further, the arbitrators, having rejected the owners’ primary case, were entitled to uphold their alternative case, even if the charterers did not realise that it was “still alive”.[38]
[38]Ibid, at 69.

The Court of Appeal granted leave to appeal from Lloyd J’s decision. Goff J observed that the relevant point was not pleaded in the owners’ points of claim. He noted that the owners had provided the charterers with expert reports which contained statements which were inconsistent with an allegation that the turning place was, of itself, insufficiently wide. He found that in the course of the hearing, counsel for the owners had observed that if the inherent characteristic of the tightness of the turn was the real cause, the owners would still submit that they could recover. However, that observation was in the context of a case which, as pleaded, alleged insufficient depth of water, supported by expert reports which expressly disclaimed criticism of the width for turning.

Goff J concluded that the owners’ case was, and remained throughout the course of the arbitration, an insufficiency of water. The charterers, in cross-examination of the owners’ witness, did advert to the point, but “simply getting this point out of the way, not because it had been raised as an issue, but just in case it might be pursued thereafter.”[39] There was no relevant re-examination or questions on the issue by the Tribunal. It was not put to the charterer’s witness in cross-examination, nor was that witness questioned by the Tribunal. In final speeches, the charterers made plain that they were treating the point as never having become a live issue.[40]
[39]Ibid, at 72.
[40]Ibid.

Goff J stated:

“We are concerned with a case where the arbitrators appear mistakenly to have thought that the issue of the width of the turning place was one which had been raised before them and upon which they were entitled to decide the case, without drawing the point to the attention of the charterers. With great respect to the very experienced arbitrators who presided at the hearing, on this they were mistaken. I wish to stress that we in this Court have had the advantage of looking at the matter very clearly on a full transcript with the assistance of leading Counsel and having the benefit of full argument directed towards this very point, which has, no doubt, made it easier for us to assess the position; but the fact remains that the award was made on the basis of a point which was never raised as an issue or argued before the arbitrators. There is plain authority that for arbitrators so to decide a case, without giving a party any warning that the point is one which they have in mind and so giving the party no opportunity of dealing with it, amounts to technical misconduct and renders the award liable to be set aside or remitted…
It truth, we are simply talking about fairness. It is not fair to decide a case against a party on an issue which has never been raised in the case without drawing the point to his attention so that he may have an opportunity of dealing with it, either by calling further evidence or by addressing argument on the facts or the law to the tribunal. In my judgment, the arbitrators in the present case failed to give that opportunity to the charterers in respect of an issue not raised in the arbitration that the turning space at the entrance to the dock was insufficiently wide. It follows that they committed technical misconduct of the kind I have described. I say this in no spirit of criticism of these three very experienced arbitrators. Expressions such as ‘misconduct’ and ‘breach of the rules of natural justice’ carry overtones whicih are frequently unjustified. Here, it appears that there may well have been some misunderstanding on the part of the artibtrators; but the fact remains that, in the result, there was unfairness to the charterers.” [41]

[41]Ibid, at 74-75.

In Garms v Telstra Corp Ltd[42] Harper J observed that parties agreeing to an arbitration cannot be taken to have agreed to be bound by “an award made by an arbitrator who has exceeded his or her powers or has otherwise acted unlawfuly, or has failed to accord natural justice to the parties”. It does not follow, however, that an arbitrator who has come to a mistaken conclusion has misconducted himself or herself in any of these ways. In short, the word “misconduct” does not encompass mere mistake. There must be “some real dereliction of duty on the part of the arbitrator.” Holland Stolte Pty Ltd v Murbay Pty Ltd (1991) 105 FLR 304 at 309 per Miles CJ.”[43]
[42][1998] VSC 40 (21 August 1998).
[43]Ibid, at 9.

Harper J also reiterated the comment of Cole J in Tony J. Boulos Pty Ltd v Doug Reid Pty Ltd[44] where his Honour noted:

“It should be very clear from the commencement that the power under s.42 to set aside [an] award is not to be used as an endeavour or means to overcome the restrictive rights of appeal.”[45]

[44]BC9102985, unreported, Supreme Court of New South Wales, 16 August 1991.

[45]Ibid, at 3.

Harper J further observed:

“That rights of appeal were intended to be restricted was emphasised by the Minister for Industry, Commerce and Technology (Mr. Cathie) in his Second Reading Speech when the Commercial Arbitration Bill was debated in Parliament in September 1984 (Hansard, vol. 375, Legislative Assembly, 13 September 1984, p.434). The Minister then said:
‘The new commercial arbitration system is intended to supplant the jurisdiction of the Court where an agreement permits arbitration as a means of dispute resolution. It will encourage the development of a speedy and economical means for resolution of disputes by experts in their field’.

This theme was echoed in the Attorney-General’s second Reading Speech in the debate on the Commercial Arbitration (Amendment) Bill in March 1993 (Hansard, Vol. 410, Legislative Asembly, 11 March 1993, pp.171-172). Mrs Wade noted that clause 16 of the Bill inserted a new s.38(5) into the Commercial Arbirtration Act. This was intended to restrict judicial review of awards by the Supreme Court. The Attorney continued:
‘The reasons for restricting judicial review of awards by the Supreme Court are: (a) to provide for uniformity across Australia; and (b) if arbitration is not to be viewed as a dry run before litigation it was thought that more restictive criteria are desirable. The underlying policy is that in most cases the parties should have to accept as final the decision of the arbitrator they have chosen to decide the matter in the first place’.”[46]
[46][1998] VSC 40 (21 August 1998) at 26.

THE PARTIES’ CONTENTIONS ON THE FIFTH AUTOCLAVE DECISION
Anaconda’s Contentions

Anaconda as plaintiff in proceeding No. 7600 of 2002 by amended originating motion filed pursuant to leave granted on 19 February 2003 seeks leave to appeal from part of the Interim Award pursuant to s.38(5) of the Commercial Arbitration Act 1984 Vic (“the Act”). If leave is granted, it seeks that the appeal be determined pursuant to s.38(3) of the Act and that the award be remitted to the Arbitral Tribunal for reconsideration.

The principal finding or determination of the Arbitral Tribunal for which Anaconda seeks relief is the rejection of Anaconda’s claim for the cost of a fifth autoclave set out at paragraph 13.73 of the Interim Award (“the fifth autoclave decision”).

Anaconda’s claim in relation to the fifth autoclave decision in the present proceeding has two bases.

First, it submits that there is a manifest error on the face of the Interim Award within terms of s.38(5)(b)(1) of the Act, which justifies the granting of leave to appeal and constitutes the basis for determination of the appeal. The relief sought by Anaconda is remission to the Arbitral Tribunal.

Secondly, it submits that the fifth autoclave decision involves misconduct on the part of the Arbitral Tribunal or misconduct of the proceedings within terms of s.42(1)(a) of the Act, in that the decision is, broadly, uncertain, inconsistent and a mishandling of, or mistake in, procedure likely to amount to a serious miscarriage of justice.

In this context, Anaconda asserts that the Arbitral Tribunal did not indicate to Anaconda, or warn it of, certain grounds on which the Arbitral Tribunal based its decision to reject the claim for a fifth autoclave, thereby depriving Anaconda of the opportunity to be heard and to adduce relevant evidence.

Anaconda’s contentions of a manifest error of law on the face of the Interim Award and the misconduct constituted by the want of opportunity to be heard in relation to the fifth autoclave decision overlap to some extent.

Simply stated, Anaconda’s argument is based on the following principal contentions.

First, Anaconda contends that it argued, and the Arbitral Tribunal found, that Fluor warranted to design and build a Facility which could process 3.75 million tonnes of ore per annum and produce 45,000 tonnes of nickel for sale from that quantity of ore (provided that the ore contained 1.35% of nickel). As there is some loss of nickel downstream following processing in the autoclaves (whilst the nickel is in solution), 48,5000 tonnes would have to be produced from the autoclaves in order ultimately to produce 45,000 tonnes of nickel for sale. The requirement that 48,500 tonnes of nickel could be extracted in the autoclaves from only 3.75 million tonnes of ore amounts to an extraction rate of 95% in the autoclaves. It is central to Anaconda’s case that an extraction rate of 95% in the autoclaves was contractually warranted by Fluor.

Secondly, Anaconda contends that the Arbitral Tribunal found that the above contractual warranty was breached, in that the warranted extraction rate could not be achieved. While the Arbitral Tribunal considered that Anaconda had not proved that the 3.75 million tonnes annual throughput of ore could not be achieved, the possibility of such throughput was predicated on running the autoclaves in “catch up” mode for almost all the time, which inevitably reduces “residence time” of ore in the autoclaves. Since the extraction rate is affected by the length of residence, the extraction rate would also necessarily be reduced.

Anaconda concedes that there is no express finding of breach contained in the Interim Award, but contends that all constituent findings, from which a conclusion of breach is the inescapable inference, were made.

Thirdly, Anaconda contends that having made a finding of breach of the extraction rate warranty (albeit implicit rather than express) the Arbitral Tribunal made an error of law which is manifest upon the face of the Interim Award. It failed to consider the question of remedy for breach of a contract to construct a building in accordance with the requirements of the contract in accordance with established principles. It also wrongly imposed on the victim of breach the onus of justifying its claimed remedy as the only remedy. Contrary to the recognised principles (which measure loss arising from the breach by the cost to have the contract performed and require the relevant tribunal to award a valid and reasonable remedy) the Arbitral Tribunal cast upon Anaconda, as victim of breach, the onus of establishing that its requested remedy would be (after unspecified remedial work was completed) “the only means to achieve capacity”, in the absence of proof that it was unreasonable, or that an alternative remedy existed.

Fourthly, Anaconda argues that the flawed reasoning which induced the Arbitral Tribunal’s error of law consisted of its consideration of whether the four existing autoclaves could be operated under “catch up” conditions which would permit at least 3.75 million tonnes per annum to be processed and whether, in order to achieve greater throughput, ore could be processed at higher densities than design of 39% so as to achieve production of 45,000 tonnes of nickel, albeit at an extraction rate of only 90.5%. The reasoning is expressed by the Arbitral Tribunal in a significant equation or calculation set out in para 13.69 of the Interim Award.

Fifthly, Anaconda contends that the flawed and speculative reasoning not only led to the manifest error of law in denial of remedy and reversal of the legitimate onus, but also constituted or involved technical misconduct under s.42 of the Act, in that (it is contended), the issues were not “in the ring”. The Arbitral Tribunal did not indicate to Anaconda that it was intending to make its decision on remedy on, or partly on, the basis of such reasoning, and did not afford Anaconda the opportunity to adduce relevant evidence or to be heard on those matters.

If, as Anaconda contends, the Arbitral Tribunal found a contractual warranty that the Facility would produce 45,000 tonnes of nickel from only 3.75 million tonnes of ore, at an extraction rate of 95% in the autoclaves, and found that that warranty was breached, the reasoning which led to the denial of the fifth autoclave does not provide any answer to such breach, as it is expressly predicated on an extraction rate of less than the 95% which Anaconda contends was recognised as contractually warranted.

Although the reasoning provides a possible answer to a failure to process at least 3.75 million tonnes of ore and a failure to produce 45,000 tonnes of nickel, it provides no answer to a breach of a warranty to extract 45,000 tonnes of saleable nickel from no more than 3.75 million of ore per year, at an extraction rate of 95% in the autoclaves.

Fluor’s Contentions

Fluor asserts that Anaconda’s reading of the Interim Award, on which its claims are based, is fundamentally misconceived.

Fluor contends:

(1)The Arbitral Tribunal did not find a contractual warranty of an extraction rate of 95% in the autoclaves. Rather, it found two discrete contractual warranties. First, a warranty that 3.75 million tonnes of ore could be processed per annum. Secondly, a warranty that 45,000 tonnes of nickel could be produced per annum. There was no finding of a single warranty that 45,000 tonnes of nickel could be produced from 3.75 million tonnes of ore and no more.
(2)The extraction rate of 95% referred to in the Interim Award was not found to be a contractual warranty. Rather, it was found to be a design criterion, a variable, which, like the ore quality (1.35% of nickel content) and the density (39%) and the 3.75 million tonnes of ore (as a minimum) and the retention times, could be varied or adjusted.
(3)The Arbitral Tribunal did not find that the discrete contractual warranties it recognised were breached. Rather, its reasoning in relation to throughput and production under separate heads indicated that Anaconda had not proved that:
(a)an annual throughput of 3.75 (and more) million tonnes of ore could not be achieved by various adjustments. The most significant requirement for achieving the minimum throughput was running the autoclaves in “catch up” mode for lengthy periods;
(b)45,000 tonnes of nickel for sale per annum could not be produced.

(4)On the basis of that reasoning, the Arbitral Tribunal concluded that Anaconda had not discharged the onus of establishing that either the throughput warranty or the production warranty had been breached.
(5)Thus characterised, the Arbitral Tribunal’s reasoning in relation to throughput and production was not speculation as to why Anaconda should not receive its claimed remedy for breach of the warranty asserted by Anaconda. Rather, it was justification for the finding that there was no breach of either of the warranties identified by Fluor.
(6)The “simple calculation” in paragraph 13.69 of the Interim Award referred to by the Arbitral Tribunal in relation to production is not incorrect, but treats the 3.75 million tonnes as a variable (upwards), the 39% density as a variable, and the extraction rate as a variable, which could be mutually adjusted in order to produce the 45,000 tonnes of nickel.

RELEVANCE OF COMPLEXITY OF THE INTERIM AWARD

In determining whether the fifth autoclave decision constitutes a manifest error of law on the face of the award, the Court is confronted with two irreconcilable readings of the Interim Award, which differ in their identification of the fundamental findings on warranty and breach.

Anaconda asserts that the Interim Award records a finding that Fluor warranted a Facility capable of achieving an extraction rate of 95% in the autoclaves (that 45,000 tonnes of saleable nickel per annum would be extracted from only 3.75 million tonnes of “design” ore under design conditions) and that that warranty was breached. Fluor asserts that the Interim Award records a finding that Fluor warranted that the Facility would be capable of achieving a throughput of at least 3.75 million tonnes of ore per annum and that it would be capable of producing 45,000 tonnes of nickel per annum. It asserts that there was no nexus between the two warranties and no ceiling on the quantity of ore from which the 45,000 tonnes of ore must be produced. Thus, there was no warranty of any extraction rate in the autoclaves. Further, Fluor asserts that the Arbitral Tribunal found that neither warranty was breached.

If Fluor’s reading of the Interim Award is correct, it follows that Anaconda’s assertion of a manifest error of law in relation to remedy must fail. If Anaconda’s reading is correct it will be necessary to consider argument in relation to the alleged error of law. Relevant authorities indicate that the error of law must be evident and obvious, rather than merely arguable. Although curial recognition of the error may require the benefit of adversarial argument, prolonged adversarial argument should not be necessary. It should be an error which can be rapidly recognised by “swift and easy persuasion”.

The possible tension between, on the one hand, the difficulty posed by the complexity of the award and its subject matter, and on the other hand, the requirement that the error of law it embodies must be obvious, was recognised by Osborn J in Seal Rocks Victoria (Australia) Pty Ltd v State of Victoria & Anor[47] where his Honour observed:

“The present proceedings concern an award which was made after 145 days of hearing and in respect of which the Arbitrator’s Reasons are some 350 pages in length. It cannot be that the complexity of the matter precludes the court from arriving at the conclusion that there is a manifest error of law on the face of the award.”[48]

[47][2003] VSC 85 (24 April 2003).

[48]Ibid, at para 18.

Similarly, Hedigan J in Leung v Hungry Jack’s Pty Ltd[49] observed:

“The tension between the application of the principle of swift recognition of the error, and the necessity, in what are frequently complex cases, to argue and demonstrate the error is not always simple to resolve. Some penetration of the intellectual process and legal analysis is bound to be necessary.”[50]

[49]BC 990 7849, unreported, Supreme Court of Victoria, 29 November 1999.

[50]Ibid, at 7.

In the present case, the subject matter of the Interim Award is technical and complex. The Arbitral Tribunal’s treatment of it was necessarily condensed and at points assumed familiarity with unstated background matters. Further, a significant degree of ambiguity in expression and structure pervaded the Interim Award.

Those factors permitted the parties’ irreconcilable readings of the Interim Award and also necessitated the devotion of considerable adversarial argument in relation to its meaning. While there was prolonged adversarial argument on the findings and meaning of the Interim Award, argument on the alleged error of law was succinct.

THE TERMS OF THE INTERIM AWARD

It is necessary to examine the Interim Award to determine which of the irreconcilable readings is borne out by its terms.

Clause 1.05 of the Interim Award states that “Anaconda considers that Fluor has breached both the EPC Contract and the CARUA”. Clause 3 sets out the claims dealt with in the Interim Award.

The Interim Award states:

(1)On 21 August 1997 Anaconda entered the EPC Contract and the CARUA Contract with Fluor. [para 1.03]
(2)Anaconda considers that Fluor has breached both the EPC Contract and the CARUA Contract. [para 1.05]
(3)The claims dealt with in the Interim Award include Anaconda’s pleaded contention 3.5.5.8. [para 3.02(1)(c)]
(4)The claims are summarised to include “rectification costs for defective works alleged to constitute breaches of the EPC Contract. Rectification claims within the scope of the January hearings will be dealt with in Section 7 – 13 of this Award”. [para 3.06(A)]

Section 4 of the Interim Award reproduces or describes the most important provisions of the EPC and CARUA contracts. [para 4.01]

Paragraph 4.11 of the Interim Award reproduces clause 8.1 of the EPC Contract, which states:

“Subject to Clause 6.5, the Contractor must construct the Facility in accordance with the requirements of the Contract and:
(a)the Revised Scope Book and the documents issued by the Owner under Clause 8.7;
(b)any Design Documents which comply with the requirements of the Contract and which the Contractor is entitled to use for construction purposes under Clause 6.4; and
(c)any Direction of the Project Manager given or purported to be given under a provision of the Contract, including any Variation directed by the Project Manager by a Variation Order … “

Clause 4(b) of the Interim Award is headed “The Revised Scope Book”. The Interim Award states:

“4.29Exhibit 1 to the EPC Contract comprises the Revised Scope Book together with its attachments including The Project Scope Book of 31 January 1997 (referred to in these Contentions as the ‘original Scope Book’), indexes of drawings, data sheets and PDS Arrangements, Specifications Lists and an index of Design Criteria and Equipment List.
4.30These documents contain design criteria and specifications that define the detailed requirements of the contract referred to in the EPC Contract. The index of design criteria specified in Attachment C to the Revised Scope Book cross-refers to the detailed design criteria included at Volume 2 Part 8 of the original Scope Book, which in turn is derived from the metallurgical mass balance prepared by Fluor. Anaconda relies on these detailed design criteria as the performance standards by which Fluor’s design and construction of the Facility is to be judged.
4.31When the individual sections of the Facility are considered in detail these performance criteria will be addressed in more detail but as an indication of the performance of the Facility as a whole it is worth recording that the requirement was for the Extraction Plant to operate for the equivalent of 340 days of the year at design capacity, thus enabling the Facility to process 3.75 million tonnes of ore and produce a nominal output of 45,000 tonnes of nickel and 3,000 tonnes of cobalt.”

I do not consider that the observations in paragraph 4.31 of the Interim Award constitute recognition by the Arbiters that all the design criteria and specifications or performance criteria are necessarily contractual warranties of the EPC Contract. Rather, they appear to reserve their conclusion on individual criteria for subsequent analysis at appropriate sections, while recognising that “the requirement was for the Extraction Plant to operate for the equivalent of 340 days of the year at design capacity, thus enabling the Facility to process 3.75 million tonnes of ore and produce a nominal output of 45,000 tonnes of nickel and 3,000 tonnes of cobalt.” The observation does not, in terms, recognise that the 45,000 tonnes of nickel must be extracted from only 3.75 million tonnes of ore. There is no reference to an extraction rate. Mr Young QC, for Fluor, points to the word “and” joining the reference to throughput and output and contends that it signals the discrete nature of the two requirements. In my opinion, while close textual analysis renders that construction tenable on reading paragraph 4.31 in isolation, the more obvious meaning immediately conveyed by its terms is that the 45,000 tonnes of product refers back to the 3,750,000 tonnes of “throughput”. An impartial reader would, in my view, conclude that the 45,000 tonnes of nickel were to be produced from no more than 3,750,000 tonnes of ore.

In paragraphs 7.06 to 7.09 the Arbiters recognise that Anaconda relies on many detailed requirements set out in incorporated documents as having contractual force whereas Fluor disputed this. The revised Scope Book incorporated into the EPC Contract in turn incorporates the Process Design Criteria (PDC) and the Mass Balance. The Arbiters recognised that Fluor contended that the PDC and the Mass Balance contained many data which cannot have been intended to have contractual effect.

Paragraph 7.09 of the Interim Award states:

“The Arbitral Tribunal accepts that the Mass Balance cannot be read as a literal requirement for the operation of the Facility. The same goes for the moisture content of feed, given that no means of control is included in the design. However, given Fluor’s acceptance that the Facility was to be capable of processing 3.75 mtpa (dry) of blended ore, there must be an implicit minimum or average rate at which the ore is to be processed, bearing in mind the needs of maintenance. Those needs are set out in precise detail within Section 4.3 (Acid Leach Availability) in volume 1 of the original Scope Book. The availability of the Facility (and necessary maintenance time) must be regarded as subject to some degree of variability. This cannot, however, be of much comfort to Fluor since any reduction in the achievable rate of production would lead to fewer days being available for maintenance operations, and would require enhanced reliability. The details of the PDC and Scope Book, and the interrelationship among availability, reliability and productivity, are examined further in Section 13.”

I consider that the Arbitral Tribunal’s observations in paragraph 7.09 indicate an acceptance of Fluor’s contention that not all details of the PDC and the Mass Balance had contractual effect. However, on a fair reading, it considered that an average or minimum rate of processing was an implicit requirement which had contractual status.

In my opinion, the Arbitral Tribunal there recognised that the capacity to operate at a rate capable of processing 3.75 million tonnes of ore per year, at least, was a contractual requirement. Fluor contends that although unstated, the 3.75 million tonnes referred to in paragraph 7.09 is a minimum figure and not a cap. That construction is tenable in the context of paragraph 7.09 and indeed is not necessarily inconsistent with an extraction rate warranty. The Arbitral Tribunal, in paragraph 7.09, reserved its characterisation of other details of the PDC and Scope Book to Section 13.

In Chapter 13, the Arbitral Tribunal addressed the need for a fifth autoclave. Paragraph 13A states:

“13(A) Introduction
13.01 Anaconda asserts that as a result of inadequacies in the design of the plant, Area 3200 will never be capable of achieving the contractual output of nickel and cobalt. It claims the cost for one or possibly two additional autoclaves which it says are necessary to achieve an output of 45,000 tonnes of nickel and 3,000 tonnes of cobalt in a year from a throughput of 3,750,000 dry tonnes of ore.
13.02 According to Mr Burvill, Anaconda appointed GRD Minproc in early 2000 to design a 5^th train. The concept was to acquire a larger autoclave than autoclaves 1 to 4 with a capacity greater than necessary to make up for the alleged shortfall. Mr Burvill (and Anaconda in its Statement of Contentions) claimed only a percentage of the cost. Mr Burvill explains that limitations in other areas led to the abandonment of this approach. It was not pursued in the hearing. Anaconda now claims the whole cost of whatever size of autoclave it is entitled to.
13.03 In its Closing Submission, Anaconda quantified its claim, which arises from Contention D.3.5.5.8, as being in an amount between A$53,731,000 and A$206,851,000, depending on the size of the fifth autoclave to be constructed.”

The Arbitral Tribunal referred at 13(C) to Clause 6.1(a)(iii) of the EPC Contract which provides “The design of the Facility will comply with the requirements of the Revised Scope Book and satisfy the requirements of the contract.” It recognised that the Process Design Criteria, Mass Balance and Dynamic Simulation Study were part of the Revised Scope Book. The Arbitral Tribunal found, in paragraph 13.11, that the figures for operating days, or feed rate (tonnes per year) of 3,750,000 and feed % solids of 39 “must be understood in the context of Mass Balance rather than anticipated performance.” I consider that observation to be consonant with the Arbitral Tribunal’s acceptance in paragraph 7.09 that not all details of the PDC and Mass Balance had contractual effect.

In paragraph 13.14 of the Interim Award the Arbitral Tribunal set out Anaconda’s contentions including –

(a)that the area be capable of operating for 93.15% of the year;
(b)that the area be capable of processing 3,750,000 dry tonnes of ore per year;
…..

(f)that certain operating conditions of the autoclaves be achieved;
(g)that the following extraction rates be achieved
(i)Ni (nickel) 95%
Co 92%

In paragraph 13.15 the Arbitral Tribunal expressly recognised that Anaconda contended that because the Facility was not capable of operating at nominal capacity for the equivalent of 93.15% of the time available, Fluor was in breach of contract; and that “Anaconda further alleges that extraction rates of 95% nickel and 92% cobalt should be achieved and that actual extraction rates are lower”.

The Interim Award then set out extracts from Anaconda’s Opening Submissions in which Anaconda stated that Fluor’s proposal to operate Area 3200 in catch up mode for up to 76% of available time overlooked the fact that the nickel extraction rate of 95% in the autoclaves was necessary for the plant to achieve the design capacity of a nominal 45,000 tonnes per year. Further, the nickel extraction rate was a function of residence time and Fluor, in calculating the extraction rate, relied on a residence time of 90 minutes in the autoclave.

The Arbitral Tribunal, in paragraph 13.16, recognised that “the figures of 45,000 tonnes of nickel and 3,000 tonnes of cobalt are the ‘nominal capacities’ identified in the Introduction to Volume 1 of the Revised Scope Book.”

In paragraph 13.16 the Arbitral Tribunal states “In its opening submissions Anaconda contended that the extraction rate of 95% was ‘warranted’.” While the Arbitral Tribunal recognised the allegation of the extraction warranty, at no point in the Interim Award did it either expressly reject or accept the contention.

In paragraph 13.17 the Arbitral Tribunal noted that Fluor denied Anaconda’s claim for the cost of a fifth autoclave contending, inter alia, that although the Scope Book was a contractual document, not all of its elements were contractual. Further, Fluor contended that “there are a variety of factors which will affect extraction rates”.

In its discussion of the Scope Book in paragraph 13.20 the Arbitral Tribunal stated that the “mass balance in the PDC provides a basis upon which Anaconda could expect to recover nickel and cobalt in the proportions stated. It is a snap shot”.

Paragraph 13.21 of the Interim Award states –

“The rates of recovery are the rates that Anaconda could expect to achieve if a blended ore generally in the proportions set out in the PDC for Area 3100, containing minerals within the range of proportions listed in a slurry containing 39% solids and at a throughput of 115 dry tonnes per hour of ore, were fed through the Facility at the temperatures and pressures and other conditions specified. No test data has been adduced to demonstrate that a T15 blend would produce 95% nickel – but that was Fluor’s problem.”

It should be noted that the reference to “T15” in paragraph 13.21 is a reference to the blend of ore to be used by Anaconda, whereas Sherritt had used a different blend (OC3). Fluor’s contention that Anaconda was obliged to deliver a blend equivalent to OC3 was rejected [paragraph 7.47].

Paragraph 13.26 of the Interim Award states:

“The introduction to Volume 1 of the Scope Book contains the following statement:
“The project design is based upon a capacity of 3.75 Mt/a (dry) feed to the acid leach circuit and a nominal production rate of 45,000 t/a nickel and 3000 t/a cobalt.”

Paragraph 13.28 states:

“In its opening submissions, Fluor accepts the contractual obligation to design and engineer and construct a plant with a capacity of 3,750,000 tpy (in specified conditions, but claims that the meaning of ‘nominal’ is that found in the Oxford English Dictionary ‘existing in name only, in distinction to real or actual; merely stated or expressed without reference to reality or fact’. It is, says Fluor (Opening 181) ‘calculated’ as opposed to ‘specified’.”

Paragraph 13.29 states:

“As a matter of calculation, if the annual throughput is 3,750,000 tonnes, and if it is possible to deliver ore to the design percentage of nickel of 1.35% (Area 3200 PDC), and the design recovery is 95%, then total recovery per year in Area 3200 will be 48,094 tonnes Ni per year. This is the model assumed in the Mass Balance (stream 435 – see Sefton para. 25). If, however, the proportion of nickel in ore was the design minimum of 1% (Area 3200 PDC section 8), the tonnage produced will be 35,981 tonnes. These figures require adjustment to take account of downstream losses. Thus, 48,094 tonnes would be reduced to about 45,000 and there would be proportional reductions in the lower figure.”

Paragraph 13.30 states:

“The Arbitral Tribunal accepts that ‘nominal’ does not mean ‘specified’. The only sensible interpretation of the obligations created by the EPC Contract, and thus by the Scope Book, is to state the output expected in given conditions. Thus, when Fluor warranted that its design would satisfy the requirements of the EPC Contract it warranted that if the Facility was fed ore meeting design specification (including nickel content) at the density and blend (T15 not OC3) specified at the rates of throughput necessary to process 3,750,000 tonnes per year to an Area 3200 operating under design conditions, then the tonnage of nickel available for sale would be in the order of 45,000 tonnes.”

In my opinion, the above indicates that the Arbitral Tribunal accepted that there was a contractual obligation on Fluor to provide a capacity to throughput 3.75 million tonnes of dry feed per annum in specified conditions, but it accepted Fluor’s contention that the nominal production of “in the order of 45,000 tonnes” of nickel was not specified in the sense that it was guaranteed in all circumstances. Rather, what Fluor warranted was the production capacity of the Facility which would be expected if the Facility was fed ore meeting design specification at the density and blend specified at the rates of throughput necessary to process 3,750,000 tonnes per year.

Paragraph 13.30 does not contain an express finding that an extraction rate was contractually warranted. Anaconda contends that it contains an implicit finding of such a warranty, in that what is found to be warranted is a Facility which, if fed design ore at the density and blend specified (T15) “at the rates of throughput necessary to process 3,750,000 tonne per year,” would produce a tonnage of nickel available for sale in the order of 45,000 tonnes.

Fluor disputes that paragraph 13.30 embodies an implicit finding of an extraction rate warranty. It refers not to a tonnage of nickel produced from 3,750,000 tonnes but to a tonnage produced from ore fed at throughput rates necessary to process 3,750,000 tonnes per annum. The expression may be said to support Fluor’s reading of two independent warranties of throughput and output. However, Fluor’s reading also depends on establishing a gloss, to the effect that “the rates of throughput necessary to process 3,750,000 tonnes” means “the rates of throughput necessary to process a minimum of 3,750,000 tonnes and an indefinite additional amount.” Such a gloss necessarily excludes any warranted extraction rate.

Neither competing reading is unequivocally borne out by the literal terms of paragraph 13.30. Nevertheless, a warranty of some kind is clearly found. In my opinion, the meaning naturally conveyed by paragraph 13.30 is that submitted by Anaconda. It is also more consistent with commercial common sense. On Fluor’s reading, the extraction rate is irrelevant. There is no obvious purpose for a warranty of a minimum throughput rate if the warranted output of 45,000 tonnes of nickel can properly be produced from an unlimited amount of ore. Ultimately, however, the competing readings of the Interim Award cannot be resolved by reference to paragraph 13.30 alone. It is necessary to consider the Interim Award as a whole.

In paragraph 13.31 the Arbitral Tribunal stated that “the necessity for a 5^th autoclave turns upon two elements. The first requires an investigation into the ability of the Acid Leach Circuit to process 3,750,000 dry tonnes of ore in a 12 month period (“Throughput”). The second examines the tonnage of nickel and cobalt which can be extracted from the processed ore (‘product’).”

The Interim Award proceeds to examine separately the elements of throughput and product extraction rates. Fluor contends that the separate treatment and structure of the discussion logically accords with, and supports, its reading of two discrete warranties, which do not involve an extraction rate.

From paragraphs 13.32 to 13.59, the Interim Award examines evidence in relation to throughput, including expert evidence by both parties on reliability, maintenance, the historic performance of the Facility (including production on a particular day), trials, and lifting throughput by Geho pumps, so that “any reduction in extraction resulting from the consequent shorter retention time was more than compensated by the increase in production rates.” [paragraph 13.39].

The Arbitral Tribunal concluded that “the 150 tph project and the throughput data shows that the autoclaves and surrounding process elements are capable of processing design quantities of material or better” but that for over three years, the reliability of the acid leach process remains woefully low and “whatever the reason it appears that Anaconda has not, as yet, been able to get close to sustained design production levels.” [paragraph 13.41].

Anaconda contended that even if all other parts of area 3200 were 100% reliable, as long as the flash vessels are unreliable it is impossible to process 3,750,000 per year. [paragraph 13.44] The Arbitral Tribunal considered the evidence on four issues crucial to that contention. It concluded, broadly, that Anaconda’s assessment of the future reliability of the flash vessels was unsatisfactory, because it was based on past failure. It did not take into account whether the past failure was a reliable indicator of its likely repetition. [paragraph 13.45]. The Arbitral Tribunal concluded that relining of the flash vessels required a 15-17 day period, not 28 days, as Anaconda contended.

The Arbitral Tribunal accepted Fluor’s contention that running the Facility in catch up mode was “manifest in the dynamic simulation run data in the contract” but stated “the issue for the Arbitral Tribunal, however, is not whether running the plant at 110% was planned but whether it can be done”. The Arbitral Tribunal recognised that Anaconda “contends that it is not possible to run the Facility for extended periods of time at 110%” [paragraph 13.45] and that Fluor advanced a contrary view.

At paragraph 13.55, the Arbitral Tribunal concluded that the computer studies had assumed that the Facility would run in catch up mode for much of the time and stated “The Arbitral Tribunal rejects the suggestion that the whole of the Facility would be imperilled if run in catch up mode”. It concluded that Anaconda had not shown that the effect of surge levels would harm the process.

In relation to whether the corrosion of the autoclave lining would oblige Anaconda to shut down the autoclaves for significant periods, and whether that were relevant, the Arbitral Tribunal, in paragraph 13.56, concluded that a yearly inspection and remedial work would coincide with the annual shut down and would extend the annual shut down by some five days.

The Arbitral Tribunal addressed extra maintenance in paragraph 13.58. It stated that it did not attempt to recalculate overall availability of the autoclaves. The Arbitral Tribunal considered that Anaconda had approached availability on the basis of history and extrapolation, but that extrapolation was legitimate “only if actual developments and actual capacity are taken into account”.

(2)If judgment is entered by the Court in terms of an award, interest shall cease to accrue in pursuance of a direction under this section on the date of the entry of the judgment.”

In Vandervaere v Milan[73] the New South Wales Court of Appeal considered whether the failure of an arbitrator to award interest on outstanding progress payments due to a builder constituted a manifest error of law. The pleadings did not include a claim for interest. The arbitrator deducted the amount found due to the respondent (on which he did not award interest) from that due to the appellant, leaving a balance in the appellant’s favour, on which he awarded interest. The respondent successfully claimed at first instance that there was a manifest error of law on the face of the award. The appellant sought leave to appeal.
[73]BC9201605, Supreme Court of New South Wales, Court of Appeal, 11 September 1992

The error of law found by Rolfe J at first instance was the failure to award interest on the progress payment, on the basis that, under the contract, interest was payable.

On appeal, Clarke JA (with whom Sheller JA and Samuels AJA agreed) found that as the pleadings did not claim interest, the failure to allow interest could not be an error of law on the face of the award.

In that case it was also contended, inter alia, that there was strong evidence of an error of law within terms of s.38(5)(b)(ii) of the Act. The error was said to be the arbitrator’s failure to add interest to the progress payment “before carrying out the balancing exercise in order to determine the amount of the award”[74]. It was argued that as the respondent was entitled to interest under the contract, the arbitrator must deal with the claim “in full” before exercising the power to award interest under s.31 of the Act, which enabled the awarding of interest only in respect of money which the arbitrator has determined to award a party[75].
[74]Ibid, at 3.
[75]Ibid.

Clarke JA rejected the contention that an arbitrator must first award interest on a claim (where contractually payable) prior to set-off against the claim of another party.

His Honour observed:

“The power to award interest which is invested in the courts … and arbitrators is an adjectival one which enables the tribunal, be it court or arbitrator, to do more complete justice between the parties than would otherwise have been possible. It is not designed to compensate the party for loss arising out of a cause of action but to provide compensation for the circumstance that money has been outstanding to a party for a period of time. It is, of course, trite that the power should be exercised in a manner that achieves substantial justice between the parties.
Save for observing that under s.31 of the Act there is no power to award interest upon interest, there would not seem to me to be any specific procedure which should be followed by an arbitrator when a claimant succeeds in its claim and its opponent succeeds in a counterclaim. In cases in which that occurs (and where there is no contractual entitlement to interest) it would be open to an arbitrator, as it seems to me, to award each party interest on the amount it successfully claimed and then balance one figure against the other. Alternatively, the arbitrator may deduct the amount allowed to one party from the amount allowed to the other and award interest on the balance. The adoption of one approach rather than the other would not, in my view, involve error of law. Is it different where one party is entitled to interest upon part of the amount awarded pursuant to the contract between the parties? I think not. It would, in my view, have been open to the arbitrator to allow the respondent interest under s.31 of the Commercial Arbitration Act 1984 in respect of part of the amount the respondent was held entitled to and interest under the contract in respect of the progress payment. Likewise interest could have been awarded to the appellants under the Act on the amounts to which they were found to be entitled,. In those circumstances the ultimate amount awarded would reflect the balance between the two claims. Such an approach would not, in my opinion, have involved error of law.”[76]

[76]Ibid, at 6-7.

Fluor contended that far from being denied an opportunity to adduce evidence, Anaconda did adduce evidence “to the opposite effect of that they now say they want to advance” and the arbitrators relied upon it[77] in concluding that a pro rata approach was fair.
[77]T.412.

Fluor, in this context, pointed to Exhibit SOR6 Section G, Appendix 1 of the affidavit of Stephen O’Reilly sworn 4 October 2002, being part of Anaconda’s closing submissions which dealt with quantum of past rectification costs. Item 2 was interest on past costs. Interest was claimed as past rectification costs as and when those costs were said to be incurred. Schedule 1 then calculated interest.[78]
.[78] T.413

Mr Young QC for Fluor pointed out that the “Estimates of Interest Applicable to Rectification Expenditure” prepared by Anaconda, and in evidence before the Arbitral Tribunal, showed expenditure month by month, as to when it was incurred, and from the date or month of incurring interest was claimed[79]. He observed that there was no means whereby the arbitrators could have discerned from the face of the Schedule in evidence before them that the project management fee (much of which was disallowed) was a component of the sum of $8,371,877 incurred in September 2001, rather than being progressively entered when project management took place and rectification costs were incurred.
[79]T.414.

In paragraph 17.03 of the Interim Award, the Arbitral Tribunal accepted as accurate Anaconda’s schedule of rectification expenditure with interest calculated from the end of the month following the date on which the rectification expenditure was incurred, and apparently assumed that the management fee for rectification was also included month by month as a mark-up as and when rectification expenditure was incurred.

The arbitrators also had before them the evidence of Mr Lohman. The Third Witness Statement of David Lohman, November 2001 at paragraph 110 p.24 states that the management fee was applied as “a standard industry fee at 18% to the base price for the services which it provided.” The witness statement then listed a number of activities, including supervision of sub-contracts, procurement, personnel and senior management services.

The services listed appear continuous and progressive in nature. With that evidence before them, I am satisfied that it was reasonable for the arbitrators to infer that the management fee was likewise incurred month by month and incorporated in Schedule 1 on that basis[80]. Mr Myers QC pointed out that the evidence did not show that the management fee was incurred month by month, rather than in September 2001, and Mr Young QC did not assert that it did. Rather, he contended that such an inference was reasonable on the basis of the Schedule.
[80]T.410.

I am satisfied that Anaconda was not denied an opportunity to put evidence about the dates of incurring expenditure for rectification and the nature of the management fee; and, further, that the arbitrators proceeded on the basis of the pro rata approach which was fair given the evidence before them or what might reasonably be inferred from it, if not expressly stated. It is not submitted that Anaconda was, at that stage, denied the opportunity to lead more precise or detailed evidence. It had the opportunity to make submissions as to how interest should be calculated in the light of the different permutations of principal findings[81] which might ultimately be made.
[81]T.418

Although Anaconda subsequently became aware that the method of awarding interest ultimately adopted by the Arbitral Tribunal had an adverse impact and desired an opportunity to amplify or qualify some details, I do not consider that such circumstances entail denial of natural justice constituting technical misconduct on the part of the Arbitral Tribunal.

The relevant legal principles are discussed at paragraphs 51 to 67. Misconduct does not encompass every mistake. It can encompass deciding the case on the basis of an issue which was not a live issue in the arbitration, as in The Vimeria, on which Anaconda principally relies in this context. The circumstances said to amount to misconduct in relation to Anaconda’s interest order are distinguishable from such cases. It is not that the Arbitral Tribunal decided the case on the basis of an issue which was not live or not put to the parties. Rather, it did not provide an opportunity for further submissions on interest after having disclosed its principal findings and indicating its proposed approach to interest.

I do not consider that, having called for and received extensive written submissions on all relevant matters, including interest, procedural fairness required the Arbitral Tribunal to publish its principal findings to the parties, together with its proposed method of dealing with interest, and invite further submissions. In my opinion, the claim pursuant to s.42 of the Act in relation to Anaconda’s interest order is not made out.

FLUOR’S INTEREST ORDER

By amended originating motion filed 18 February 2001 Anaconda seeks a declaration that there has been misconduct on the part of the Arbitral Tribunal or misconduct of the proceedings within the meaning of s 42 of the Act in ordering, declaring or deciding that Anaconda owes Fluor, among other sums, the sum of $22,412,858. (“Fluor’s interest order”).

The misconduct is said to be constituted by failure to accord Anaconda natural justice that amounts, or is likely to amount, to a serious miscarriage of justice. The general context of that contention is, (as in the case of Anaconda’s interest order), the failure of the Arbitral Tribunal to indicate the possible bases on which it proposed to assess interest and to invite or receive submissions on that after the determination of the principal issues.

Anaconda also contends that the Arbitral Tribunal’s determination of Fluor’s interest order was based on an error of law, in that it misconstrued Clause 4.3(d) of the EPC Contract. There is no reference to Clause 4.3(d) in the relevant provision of the Interim Award, but Anaconda alleges that, to the extent that error is not manifest on the face of the Interim Award, the want of sufficient reasoning itself constitutes misconduct. Further, due to the failure to provide the parties with an opportunity to make submissions on interest after determination of the principal issues, the error was not pointed out to the Arbitral Tribunal.

The alleged error of law on which Anaconda relies is said to arise in the following way:

In paragraph 17.10, the Interim Award states:

Interest on Fluor’s claims is computed by adopting the starting date proposed by Fluor (13 January 2000) leading in the Arbitral Tribunal’s determination to an amount of A$22,412,858.

That award equates to 10% interest from 13 January 2000 until 1 September 2002 on a sum of $45,150,000. [Interim Award, paragraph 16.38 FCI:]

Anaconda did not dispute that Fluor provided security retention moneys of $45,150,000 which Anaconda drew down, but claimed an entitlement to apply the moneys to rectification of defects and to set off its claims against the sum. [Interim Award, paragraph 16.04].

Anaconda was ultimately awarded approximately $150 million in this stage of the arbitration. Fluor was found to be entitled to approximately $85 million, so Anaconda received a net award of approximately $42 million.[82]
[82][T.56].

The EPC Contract, in clause 4.1, provides for Fluor to provide security to Anaconda on Fluor’s obligations under the EPC Contract.

Clause 4.3 of the EPC Contract relevantly provides:

(a)The Owner is not obliged to pay the Contractor interest on the Approved Security.
(b)…
(c)…
(d)If the Owner makes a call upon the Approved Security and obtains cash as a consequence, the Owner shall be obliged to pay interest on the amount of any cash payments in excess of the sum to which the Owner is entitled at the time of such call. The sum attracting interest will be further reduced by any unsatisfied amounts which subsequently become payable by the Contractor to the Owner, at the time such amounts become payable.

Anaconda contends that at the time it drew down the cash, it was entitled to more than $45,150,000. Interest, therefore, should not have been awarded to Fluor on the $45,150,000 security moneys under the terms of the EPC Contract, but it clearly was, as arithmetically that is how the figure of approximately $22 million in paragraph 17.10 in the Interim Award was reached.

Chapter 18 of the Award provides:

18.Award

For the above reasons, and rejecting all claims and contentions to the contrary, the Arbitral Tribunal hereby:
(A)DECLARES that Fluor owes Anaconda the total sum of A$147,606,926 (one hundred forty-seven million six hundred six thousand nine hundred twenty-six Australian Dollars), being the total of the following amounts:

- A$

4,055,485

(per Paragraph 7.67)

- A$

13,575

(per Paragraph 7.67)

- A$

45,988,238

(per Paragraph 8.84)

- A$

5,252,132

(per Paragraph 8.84)

- A$

1,466,147

(per Paragraph 8.87)

- A$

173,868

(per Paragraph 9.21)

- A$

3,535,625

(per Paragraph 9.26)

- A$

392,083

(per Paragraph 9.36)

- A$

405,143

(per Paragraph 9.40)

- A$

659,818

(per Paragraph 10.12)

- A$

1,941,963

(per Paragraph 10.18)

- A$

2,740,770

(per Paragraph 11.34)

- A$

12,726,927

(per Paragraph 11.34)

- A$

6,648,047

(per Paragraph 11.46)

- A$

475,604

(per Paragraph 11.53)

- A$

3,276,189

(per Paragraph 12.35)

- A$

30,566,700

(per Paragraph 14.43)

- A$

5,000,000

(per Paragraph 15.83

to which have been added (and included in the aforementioned total amount) interest in the following amounts.

- A$

13,729,663

(per Paragraph 17.07)

- A$

6,475,949

(per Paragraph 17.08)

- A$

2,083,000

(per Paragraph 17.09)

(B)DECLARES that Anaconda owes Fluor the total sum of A$107,795,176 (one hundred seven million seven hundred ninety-five thousand one hundred seventy-six Australian Dollars), being the total of the following amount:

- A$

85,382,318 (per Paragraph 16.39) to which has been added interest in the following amount

- A$

22,412,858 (per Paragraph 17.10).

(C)DECLARES that Anaconda’s debt to Fluor is offset by its larger entitlement against Fluor.
(D)ORDERS Fluor therefore forthwith to pay to Anaconda the amount of A$39,811,750 (thirty-nine million eight hundred eleven thousand seven hundred fifty Australian Dollars), and that interest thereon is payable, from the date of this Interim Award, at the same rate as that at which interest is payable on a judgment debt of the Supreme Court; any interest that so accrues shall be deemed to form part of this Interim Award.’

Relevant aspects of the award of interest were corrected by the Arbitral Tribunal pursuant to the Corrections to the Interim Award made on 11 November 2002.

Anaconda contends that Fluor’s interest order involves an error of law on the face of the Interim Award as clearly, as a matter of arithmetic, Fluor has been awarded interest on the $45 million security moneys, contrary to the terms of the EPC Contract clause 4(3)(d) that interest was not payable if the Owner (Anaconda) was entitled, at the time, to a greater sum.

Anaconda further contends that Fluor itself did not submit at the hearing, in terms, that interest was payable on the $45,150,000. Fluor contended that if Fluor were in breach of the EPC Contract, Anaconda was entitled to call for only so much as was necessary to maintain security against compliance by Fluor with its obligations under the EPC Contract. Anaconda asserts that Fluor thus indirectly acknowledged that it was not entitled to interest if Anaconda was entitled to more than $45,150,000 (as the Arbitral Tribunal ultimately found).

In the circumstances, Anaconda contends that there was technical misconduct, in that the Arbitral Tribunal either ignored the submissions of both parties or failed to give them the opportunity to consider Fluor’s interest claims in the light of the actual findings, including that of Anaconda’s entitlement to more than $45,000,000.[83] Alternatively, it is said that there was a manifest error of law, or, if not, misconduct in the sense that no sufficient reasons are given for the purposes of understanding the Interim Award.[84]
[83][T.307].
[84][T.307].

Fluor contended that, in essence, Anaconda advanced an argument of error of law – the disregard of Clause 4(3)(d) of the EPC Contract - “dressed up” as technical misconduct in order to circumvent the restrictions of a case based on error of law. However, the construction of Clause 4(3)(d) of the EPC Contract was disputed, both at the hearing before the Tribunal and before the Court. Anaconda contended that the ‘entitlement’ in Anaconda which precluded Fluor’s entitlement to interest on the security moneys in Clause 4(3)(d) referred to all moneys ultimately held to be payable to Anaconda under the Interim Award, which would retrospectively be treated as if it were payable as of the date of the draw down of the cash retention moneys.

Fluor, in contrast, contended that the “entitlement” in Anaconda which precluded Fluor’s entitlement to interest on the security moneys called down under Clause 4(3)(d) of the EPC Contract, was an ascertained entitlement at the time of the call, and would not encompass any as yet unascertained or uncrystallised entitlements in Anaconda. According to Fluor, Anaconda’s “entitlement” in the context of Clause 4(3)(d) of the EPC Contract is not to be construed so as to cover retrospectively identified and determined entitlements.[85]
[85][T.425].

In support of its construction of Clause 4.3(d) Fluor relied on Glass v Defence Force Retirement and Deakin Benefits Authority[86] in which the Full Court of the Federal Court construed a term permitting a contributing member of a fund to take certain action if he had previous employment “upon the termination of which a transfer value became payable”. The Court stated that the ordinary English meaning of “payable” was “capable of being paid”. It found no warrant in the legislation to give “payable” the extended meaning of “which is payable or could become payable”. The Court considered that if an amount is not capable of being paid “unless and until a specified election shall have been made, or some other event shall have happened, it is not “payable” in accordance with that ordinary English meaning.”[87]
[86][1992] 38 FCR 534.
[87]Ibid, at 537.

In essence, Fluor contends that there is no manifest legal error, but rather, that the Arbitral Tribunal calculated Fluor’s interest order consistently with Clause 4(3)(d) as properly construed. Further, the Arbitral Tribunal had a wide discretion in relation to the award of interest. Although it did not expressly flag to the parties its intentions prior to making the determination, it received submissions on Clause 4(3)(d). In those circumstances, it was not incumbent upon the Arbitral Tribunal to publish a draft Interim Award and to invite further submissions.[88] In so far as Anaconda led different or insufficiently detailed evidence, or made submissions which it now wishes to enlarge or qualify, Anaconda must abide the outcome.
[88][T.432].

I consider the alleged manifest error of law is merely arguable, rather than obvious and capable of recognition without the benefit of prolonged adversarial argument. Further, I am mindful, in the context of both interest claims, of Cole J’s caveat that the power under s.42 must not be used to circumvent the restrictive rights of appeal under s.38 of the Act. Some real dereliction of duty on the part of the arbitrators is required. In my opinion, neither of the impugned interest awards involve arbitral conduct comparable to that impugned in The Vimeira, in which the case was determined on the basis of an issue which was not “live” or “in the ring” throughout the arbitration, and had been adverted to only in order to confirm its irrelevance.

The parties in the present case were not denied the opportunity to adduce evidence or make submissions in relation to interest, over which the Arbitral Tribunal had wide discretion. The extent to which they addressed interest in the light of possible ultimate findings on principal issues was a matter within their judgment. I accept Fluor’s contention that the natural justice did not impose an obligation on the Arbitral Tribunal to publish a draft award and to invite further submissions on interest.

In the circumstances, I do not consider that Anaconda has established its claim in relation to Fluor’s interest order pursuant to s.38(5) or s.42 of the Act.

---

- A$	4,055,485	(per Paragraph 7.67)
- A$	13,575	(per Paragraph 7.67)
- A$	45,988,238	(per Paragraph 8.84)
- A$	5,252,132	(per Paragraph 8.84)
- A$	1,466,147	(per Paragraph 8.87)
- A$	173,868	(per Paragraph 9.21)
- A$	3,535,625	(per Paragraph 9.26)
- A$	392,083	(per Paragraph 9.36)
- A$	405,143	(per Paragraph 9.40)
- A$	659,818	(per Paragraph 10.12)
- A$	1,941,963	(per Paragraph 10.18)
- A$	2,740,770	(per Paragraph 11.34)
- A$	12,726,927	(per Paragraph 11.34)
- A$	6,648,047	(per Paragraph 11.46)
- A$	475,604	(per Paragraph 11.53)
- A$	3,276,189	(per Paragraph 12.35)
- A$	30,566,700	(per Paragraph 14.43)
- A$	5,000,000	(per Paragraph 15.83

- A$	13,729,663	(per Paragraph 17.07)
- A$	6,475,949	(per Paragraph 17.08)
- A$	2,083,000	(per Paragraph 17.09)

- A$	85,382,318 (per Paragraph 16.39) to which has been added interest in the following amount
- A$	22,412,858 (per Paragraph 17.10).

[2003] VSC 275

28 July 2003