Andent Pty Ltd v Thornhill Machine Tools Australia Pty Ltd
[2014] VSC 647
•17 December 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
ARBITRATION LIST
S CI 2014 04090
| ANDENT PTY LTD | Plaintiff |
| v | |
| THORNHILL MACHINE TOOLS AUSTRALIA PTY LTD | Defendant |
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JUDGE: | CROFT J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 November 2014 |
DATE OF JUDGMENT: | 17 December 2014 |
CASE MAY BE CITED AS: | Andent Pty Ltd v Thornhill Machine Tools Australia Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2014] VSC 647 |
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Enforcement of arbitral award – ss 34, 35, 36 Commercial Arbitration Act 2011 - Agromet Motoimport Ltd v Maulden Engineering Co (Beds) Ltd [1985] 2 All ER 436 - IBSSL v Minerals Trading Corp [1996] 1 All ER 1017 - Antclizo Shipping Corporation v The Food Corporation of India [1998] WASC 342.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T. Warner | McDonald Slater & Lay |
| For the Defendant | No appearance by the Defendant. |
HIS HONOUR:
This matter concerns an application under s 35 of the Commercial Arbitration Act 2011 to recognise and enforce an arbitral award. On 20 November 2014, I made orders that the defendant pay the plaintiff the amount under the arbitral award, together with costs and interest, and reserved the publication of my reasons. I now publish the following reasons in support of the orders made on 20 November 2014.
Background
By an originating motion filed on 8 August 2014, the plaintiff seeks to enforce the final arbitral award of Mr Albert Monichino QC, made on 30 July 2014 in the ICC International Court of Arbitration in Case Number 19278/CYK between the plaintiff and the defendant (“the Award”). The Award awards and directs that the defendant:
(a) pay the plaintiff the sum of $59,068.00 in respect of the plaintiff’s claim in the arbitration;
(b) pay the plaintiff the sum of $59,267.00 on account of costs of the arbitration;
(c) pay the plaintiff interest on the award debt (or any part of it remaining outstanding) at the rate of 6% per annum, compounded at quarterly rests, from 7 August 2014 until full payment is made of the award debt.
By an affidavit sworn on 7 August 2014, the plaintiff’s solicitor, Mr Peter Thompson, deposes that the defendant has not complied with the Award. On 12 August 2014, the originating motion filed on 8 August 2014 and the affidavit of Mr Thompson sworn on 7 August 2014 were served on the defendant by post.
At the first return date on 21 August 2014, the plaintiff was represented by Mr Peter Thompson, solicitor, and the defendant was represented by Mr Michael Gullquist, solicitor. Mr Gullquist informed the Court that although he did not have precise instructions, he understood that the defendant wished to make an application under sub-ss 34(2)(a)(i) and 34(2)(a)(iv) of the Commercial Arbitration Act 2011 to set aside the Award on bases that (a) the defendant suffered from an incapacity in its ability to participate fully in the arbitration;[1] and (b) that an unauthorised conference between the arbitrator and the plaintiff took place on 12 July 2014.[2] Also at that hearing, I gave the plaintiff leave to file an amended originating motion which would name the defendant as a party to this proceeding.[3] The plaintiff filed an amended originating motion to that effect on 28 August 2014.
[1]See Transcript dated 21 August 2014, page 3 line 4 to page 10, line 28. See also s 34(2)(a)(i) of the Commercial Arbitration Act 2011, which relates, inter alia, to the setting aside of an arbitral award on the basis that a party to an arbitration agreement was under some incapacity.
[2]See Transcript dated 21 August 2014 page 11 line 14 to page 17 line 5. See also s 34(2)(a)(iv) of the Commercial Arbitration Act 2011, which relates, inter alia, to the setting aside of an arbitral award on the basis that the arbitral procedure was not in accordance with the agreement of the parties.
[3]See Transcript dated 21 August 2014 page 23 line 12 to line 30.
On 4 September 2014, I made the following orders:
1.The defendant file and serve any affidavit in response to the affidavit in support of the originating motion by 10 September 2014.
2.The plaintiff file and serve any affidavit in reply by 24 September 2014.
3.The matter is listed for a further directions hearing on 3 October 2014.
…
On 10 September 2014, the defendant filed two affidavits: an affidavit of Anthony Eric Thornhill, a director of the defendant, sworn on 10 September 2014; and an affidavit of Mr Gullquist sworn on 10 September 2014. Those affidavits raise various matters, most of which are irrelevant and relate to the merits of the Award. That said, some of the matters deposed to in the affidavits relate to the defendant’s foreshadowed application under s 34 of the Commercial Arbitration Act 2011. In this respect, the affidavit of Mr Thornhill states:
10.The exchange rate clause and variants of it generally, in my experience, operate quite smoothly protecting the interest of both parties. In this instance, the Plaintiff made no enquiry as to what its currency exposure might be and made no endeavour, as far as I am aware, to hedge against that exposure. Almost three years after the contract was completed and the equipment delivered, installed and commissioned for the AUD amount quoted the Defendant then sought to apply a notional movement in exchange rates over the course of the contract to the entire contract price;
11.This approach, by the Plaintiff, is of course completely wrong and the Defendant entered the Arbitration process making this point from the outset and confidently intending to put forward those elements of the supply of the equipment which the Defendant had no choice other than to transact in Euro ie no control over and the actual exchange rates at which those payments were made;
12.At the same time both the Defendant and its supplier were mindful of maintaining the confidentiality of their pricing data which is regarded as essential intellectual property of their’s;
13.It is, at least in my respectful view, difficult to think of a greater incapacity than being precluded from putting forward the actual data upon which the relevant exchange rate clause should have been applied. It is unthinkable and a miscarriage of justice in the extreme that in preference the arbitrator should make an award based upon an alternative offered by the Plaintiff which is plainly wrong and a commercially ridiculous proposition;
…
17.It is submitted that the refusal of the Arbitrator to apply straightforward rules designed to maintain confidentiality and in the alternative opt for an obviously wrong outcome has caused the complete and overwhelming incapacity of the Defendant to fairly make its case;
18.On the 13th August 2014 I received a set of documents from the Plaintiff’s solicitor. One of these is the Plaintiff’s solicitors’ detailed tax invoice dated 1 November 2013. Item 23 reads, “12/7/13 Attending in conference with Arbitrator - $1,505.00”. It is apparent that a conference was held between the Arbitrator and the Plaintiff’s solicitor over some hours on the business day immediately preceding the all-parties conference on the 15th July being the only conference scheduled for the arbitration. This, on its face, is a significant failure to adhere to the arbitration process and schedule and the obvious perception generated by an unheralded on party-only conference is cause for significant concern about the process adopted and the efficacy of the outcome ie the Award;
…
On 25 September 2014, the plaintiff filed a further affidavit of Mr Thompson sworn on 23 September 2014. In so far as that affidavit is of possible relevance, it states:
20.It appears to be suggested on behalf of the Defendant (albeit indirectly) that Mr Monichino and I had some improper contact on 12 July 2014, which is a basis to set aside the Award.
21.Although the Plaintiff does not concede that if such a meeting took place it would constitute grounds to have the Award set aside under any part of s. 34 of the Act, I confirm that no such meeting on 12 July 2014 between myself and Mr Monichino took place.
Mr Thompson’s affidavit also attests that the defendant has failed to pay any of the amounts it was directed to pay by the Award.
On 30 September 2014, Mr Gullquist requested the adjournment of the directions hearing listed for 3 October 2014. On 2 October 2014, I made the following orders:
1.The directions hearing is adjourned to 10:00 am on Wednesday, 8 October 2014.
2.The hearing of the application described in the Plaintiff’s Amended Originating Motion filed on 28 August 2014 is listed for 10:30 am on Wednesday, 8 October 2014, subject to any orders that may be made at the directions hearing scheduled for that date.
At the directions hearing on 8 October 2014, Mr T. Warner of Counsel appeared for the plaintiff, and Mr Gullquist appeared for the defendant. Mr Gullquist informed the Court that the defendant’s proposed application under s 34 of the Commercial Arbitration Act 2011 would also relate to the defendant’s inability to present its case at the arbitration, as contemplated in sub-section 34(2)(a)(ii). The following exchange ensued:[4]
[4]See Transcript dated 8 October 2014, page 5, line 27 to page 6, line 5, and page 8, line 3 to line 12.
His Honour: So you’re now seeking to rely on 34(2)(a)(ii) as well.
Mr Gullquist: Yes Your Honour.
His Honour: Well I think if that’s the case you’re going to have to file a formal application because this can’t be – you can’t run an ambulatory application because affidavit material has been provided on the basis of s 34(2)(a)(i) and s 34(2)(a)(iv). It’s a matter of procedural fairness. The party on the other side must know what they’re responding to.
…
His Honour: …
Now presumably Mr Gullquist you’re not going to suggest that the setting aside proceedings won’t be pursued in which – the point is – there’s no setting aside proceeding before me if we’re being very strict procedurally. So you should file an originating motion in the usual way with supporting affidavit in your foreshadowed setting aside proceeding. Obviously indicating the grounds upon which you rely and the affidavit will presumably address those grounds.
On 8 October 2014, I made the following orders:
1. The matter is adjourned to a directions hearing on 6 November 2014.
2.Thornhill Machine Tools Australia Pty Ltd (ACN 065 719 422) is named as Defendant in the proceeding.
…
Under “OTHER MATTERS,” the orders provided:
Leave was given, on 21 August 2014, to amend the Originating Motion by the addition of Thornhill Machine Tools Australia Pty Ltd as a defendant. An amended Originating Motion was filed accordingly. As a result of issues raised at the Directions Hearing on 10 October 2014 it is desirable to make a formal order confirming the giving of such leave – an order which is to be taken to be effective as and from 21 August 2014.
The following timetable was agreed in respect of the Defendant’s oral application to have the Award the subject of the Plaintiff’s Originating Motion set aside pursuant to s. 34 of the Commercial Arbitration Act 2011:
(a)the Defendant file and serve an Originating Motion setting out the grounds upon which it relies and any affidavit in support by 4:00 pm on 15 October 2014;
(b)the Plaintiff file and serve any affidavit in reply by 4:00 pm on 22 October 2014; and
(c)the Defendant’s Originating Motion described in sub-paragraph (a) above be listed for directions along with this proceeding on 6 November 2014.
If the parties consider they are able to proceed with the hearing of the Originating Motions on 6 November 2014, they are to communicate this to the Court at the earliest possibility.
The defendant did not file the proposed originating motion or any affidavit in support.
On 31 October 2014, Mr Gullquist emailed my Associates advising that his instructions in this matter had been terminated, and that he intended to appear on 6 November 2014 as a courtesy to the Court. At that time, Mr Gullquist had not filed a notice of solicitor ceasing to act.
At the directions hearing on 6 November 2014, Mr Gullquist, who did not have instructions to appear, purportedly appeared as amicus curiae, and undertook to file a notice of solicitor ceasing to act forthwith.[5] As the defendant was otherwise not represented on that day, I set the proceeding down for trial on 20 November 2014.
[5]Mr Gullquist filed the notice of solicitor ceasing to act on 6 November 2014.
The order setting the proceeding down for trial on 20 November 2014 was served on the defendant by post to the defendant’s registered address on or about 6 November 2014.
At the trial on 20 November 2014, the defendant was not represented. On the basis of the evidence before the Court and the plaintiff’s submissions I made the following orders:
1.The defendant pay the plaintiff the sum of $59,068 in respect of the plaintiff’s claim in International Chamber of Commerce (ICC) International Court of Arbitration Case No. 19278/CYK (the Arbitration).
2.The defendant pay the plaintiff the sum of $59,267 on account of costs of the Arbitration, which includes ICC administrative expenses and the Arbitral Tribunal’s fees and expenses.
3.The defendant pay the plaintiff interest on the amounts listed in orders 1 and 2 (or any parts thereof that remain outstanding) at the rate of 6% per annum, compounded at quarterly rests, from 7 August 2014 until full payment is made.
4.The defendant pay the plaintiff’s costs of this proceeding, fixed at $14,217.98.
Enforcement of the Arbitral Award
Prima facie, the party with the benefit of an award can seek to enforce it under s 35 of the Commercial Arbitration Act 2011. Under the provisions of s 35, subject to the considerations enumerated in s 36, the Court must enforce an arbitral award. Section 35 provides:
35Recognition and enforcement (cf Model Law Art 35)
(1)An arbitral award, irrespective of the State or Territory in which it was made, is to be recognised in this State as binding and, on application in writing to the Court, is to be enforced subject to the provisions of this section and section 36.
(2)The party relying on an award or applying for its enforcement must supply the original award or a copy of the original award.
(3)If the award is not made in English, the Court may request the party to supply a translation of it into English.
The prima facie right to recognition and enforcement of an arbitral award is consonant with the common law view that the issuing of an arbitral award gives rise to an implied promise that the award will be honoured.[6] In Agromet Motoimport Ltd v Maulden Engineering Co (Beds) Ltd,[7] Evans LJ said:
…Conceptually the claim arises under a contractual undertaking to honour the award. This may mean that the party against whom the award is made becomes under an immediate obligation to pay the amount of the award, which strictly should be construed as a liquidated debt obligation. Alternatively, if the claim is for damages for breach of the implied promise to pay then a reasonable period should be allowed for the necessary payment to be made. This period would be co-extensive with whatever is allowed by 'forthwith'. If regard is had to the time need for the payment process, then this period might be, say, 28 days. It could hardly be longer than, say, three months.
His Lordship made similar remarks in IBSSL v Minerals Trading Corp.[8] In Antclizo Shipping Corporation v The Food Corporation of India,[9] Master Bredmeyer quoted the statement of Evans LJ reproduced in the above paragraph with approval. In my view, the conceptual basis for the recognition and enforcement of an arbitral award is as elucidated by his Lordship in Agromet Motoimport Ltd v Maulden Engineering Co (Beds) Ltd.[10]
[6]Agromet Motoimport Ltd v Maulden Engineering Co (Beds) Ltd [1985] 2 All ER 436.
[7][1985] 2 All ER 436.
[8][1996] 1 All ER 1017 at 1022 (Evans LJ).
[9][1998] WASC 342.
[10]See also D Jones, Commercial Arbitration in Australia, (2nd ed., Thomson Reuters, 2013), [11.100] – [11.140].
It follows that the arbitral award should be recognised and enforced unless any of the grounds enumerated in s 36 apply, or unless a successful application is made to set aside the arbitral award under s 34. As indicated previously, the defendant foreshadowed an intention to apply to set aside the arbitral award under s 34. Despite being given ample opportunity to make that application, the defendant did not do so, and did not offer any explanation for failing to do so. Therefore, there is currently no application to set aside the arbitral award under s 34 before the Court. Nevertheless, the grounds enumerated in s 36 overlap with those enumerated in s 34, and in particular, sub-ss 34(2)(a)(i) and 34(2)(a)(iv) are phrased in almost identical terms to sub-ss 36(1)(a)(i) and 36(1)(a)(iv). For that reason, the following reasons apply equally to s 36, and to s 34, as though an application to set aside the arbitral award had in fact been made.
Incapacity
Sub-sections 34(2)(a)(i) and 36(1)(a)(i) both relate, in part, to the situation where a party to the arbitration was under some incapacity. They are phrased in almost identical terms. Sub-section 34(2)(a)(i) provides:
(2) An arbitral award may be set aside by the Court only if –
(a)the party making the application furnishes proof that –
(i)a party to the arbitration agreement referred to in section 7 was under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication in it, under the law of this State…
Sub-section 36(1)(a)(i) provides:
(1)Recognition or enforcement of an arbitral award, irrespective of the State or Territory in which it was made, may be refused only—
(a)at the request of the party against whom it is invoked, if that party furnishes to the Court proof that—
(i)a party to the arbitration agreement was under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication in it, under the law of the State or Territory where the award was made…
Counsel for the plaintiff submits, and, in my view, correctly, that the incapacity referred to in these provisions refers to the ordinary notion of capacity to enter into a legally binding contract. In this respect, Professor Jones in Commercial Arbitration in Australia states the position as follows:[11]
The question of capacity will be resolved by the application of normal contractual principles, which do not merit detailed analysis here. Lack of capacity due to intoxication or minority will rarely arise in the context of arbitration. The most typical circumstance in which the issue of capacity arises is where an employee or other persons representing the contracting party is not in fact authorised to enter into the arbitration agreement on behalf of the contracting party. The effect of the alleged lack of capacity may also be tempered by principles of the law of agency such as ostensible authority, or by legislation.
[11]D Jones, Commercial Arbitration in Australia, (2nd ed., 2013, Thomson Reuters), [10.220].
Mr Gullquist, for the defendant, did not put any written or cogent oral submission to the Court as to why the defendant was relevantly incapacitated, nor any affidavit material in support of any such proposition. Nor did the affidavit material filed on behalf of the defendant advance the position in this respect. In this regard, I refer to the affidavit of Mr Thornhill sworn on 10 September 2014, in which Mr Thornhill deposes:
13.It is, at least in my respectful view, difficult to think of a greater incapacity than being precluded from putting forward the actual data upon which the relevant exchange rate clause should have been applied. It is unthinkable and a miscarriage of justice in the extreme that in preference the arbitrator should make an award based upon an alternative offered by the Plaintiff which is plainly wrong and a commercially ridiculous proposition;
…
17.It is submitted that the refusal of the Arbitrator to apply straightforward rules designed to maintain confidentiality and in the alternative opt for an obviously wrong outcome has caused the complete and overwhelming incapacity of the Defendant to fairly make its case;
A party to an arbitration agreement is not under any incapacity in any presently relevant sense by reason of an inability to rely on certain evidence, or submissions, during an arbitration. The defendant did not adduce any evidence of incapacity in the relevant sense, and there was no suggestion that the second limb of sub-s 34(2)(a)(i) or 36(1)(a)(i), which relates to the validity of the arbitration agreement, applied.
Procedure and Composition of the Tribunal
Sub-sections 34(2)(a)(iv) and 36(1)(a)(iv) both relate to the requirement of a party’s right to be heard and other aspects of procedural fairness. Again, they are phrased in almost identical terms. Sub-section 34(2)(a)(iv) provides:
(2)An arbitral award may be set aside by the Court only if –
(a)the party making the application furnishes proof that –
(iv)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Act…
Sub-section 36(1)(a)(iv) provides:
(1)Recognition or enforcement of an arbitral award, irrespective of the State or Territory in which it was made, may be refused only—
(a)at the request of the party against whom it is invoked, if that party furnishes to the Court proof that—
(iv)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the State or Territory where the arbitration took place…
Again, the matters relied on by the defendant in this respect are unclear. It is apparent, however, from the affidavit material filed on behalf of the defendant that the defendant alleges the plaintiff and the arbitrator conducted a conference together without the defendant’s presence, knowledge or consent; an event which would, it is contended, invoke the provisions of sub-ss 34(2)(a)(iv) and 36(1)(a)(iv). In this regard, I refer to the affidavit of Mr Thornhill sworn on 10 September 2014, in which Mr Thornhill deposed:
18.On the 13th August 2014 I received a set of documents from the Plaintiff’s solicitor. One of these is the Plaintiff’s solicitors’ detailed tax invoice dated 1 November 2013. Item 23 reads, “12/7/13 Attending in conference with Arbitrator - $1,505.00”. It is apparent that a conference was held between the Arbitrator and the Plaintiff’s solicitor over some hours on the business day immediately preceding the all-parties conference on the 15th July being the only conference scheduled for the arbitration. This, on its face, is a significant failure to adhere to the arbitration process and schedule and the obvious perception generated by an unheralded on party-only conference is cause for significant concern about the process adopted and the efficacy of the outcome ie the Award;
Mr Thomson, solicitor for the plaintiff, refutes that allegation in his affidavit sworn on 23 September 2014:
20.It appears to be suggested on behalf of the Defendant (albeit indirectly) that Mr Monichino and I had some improper contact on 12 July 2014, which is a basis to set aside the Award.
21.Although the Plaintiff does not concede that if such a meeting took place it would constitute grounds to have the Award set aside under any part of s. 34 of the Act, I confirm that no such meeting on 12 July 2014 between myself and Mr Monichino took place.
I accept Mr Thomson’s evidence, which in my view explains that the basis of Mr Thornhill’s inference as to what occurred was an erroneous inference based on erroneous information in the relevant invoice. It seems to me to be an extraordinary, and unlikely, proposition that an arbitrator would meet in secret with only one party to an arbitration. I note that the defendant did not adduce any further evidence on this point. Further, at the directions hearing on 8 October 2014, Mr Gullquist, solicitor for the defendant, was invited to cross-examine Mr Thomson as to the contents of his affidavit sworn on 23 September 2014, and in particular, as to the alleged unauthorised conference, but did not do so.[12] In sum, the defendant did not adduce any evidence that would support a finding invoking sub-ss 34(2)(a)(iv) or 36(1)(a)(iv).
Inability to be heard
In oral submissions at the directions hearing on 8 October 2014, Mr Gullquist, on behalf of the defendant, suggested that sub-s 34(2)(a)(ii) would also be relied on by the defendant in support of an application to set aside the Award. This was the first occasion on which the defendant informed the Court – or the plaintiff - that sub-s 34(2)(a)(ii) would be relied upon. As indicated previously, no further affidavit material, or submissions, were filed on behalf of the defendant after 8 October 2014. As a result, the matters that the defendant may have sought to rely upon in support of an application under sub-s 34(2)(a)(ii), or sub-s 36(1)(a)(ii), which is phrased in identical terms, are unknown. On the basis of the affidavit material that was filed, I am of the view that sub-ss 34(2)(a)(ii) and 36(1)(a)(ii) are not applicable. I note that arbitral tribunals should be afforded wide latitude in conduct hearings with a view to ensuring procedural fairness and efficiency.[13]
[13]See D Jones, Commercial Arbitration in Australia, (2nd ed., 2013, Thomson Reuters), [10.230].
Conclusion
For the preceding reasons, the arbitral award is recognised and is enforceable.
Costs
The plaintiff relied on the affidavit of Mr Thomson, solicitor for the plaintiff, sworn on 20 November 2014 in support of an application for costs on the Supreme Court (Chapter I Appendices A and B Amendment) Rules 2013 totalling $14,217.98. Having regard to the contents of the affidavit, I am satisfied that these costs are fair and reasonable, and I would add, they are modest considering the legal work done on behalf of the plaintiff.
As I indicated at the conclusion of the hearing, I am of the view that the usual authorities would indicate that a non-standard costs order would have been warranted having regard to the manner in which the defendant conducted these proceedings. An order for indemnity costs according to the retainer would, in my view, have been appropriate. I do, however, entirely respect the plaintiff’s position, assisted, no doubt, by the good judgment of its counsel and instructing solicitor, that it was, by then, more important to conclude the proceedings immediately, though with a more modest costs order.
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