Aylett v Peter Rowland Catering Pty Ltd
[2008] VSC 467
•11 November 2008
IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
IN THE MATTER of ss 11 and 44 of the Commercial Arbitration Act 1984
No. 6187 of 2008
| RICK ANDREW AYLETT | Plaintiff | |
| and | ||
| PETER ROWLAND CATERING PTY LTD (ACN 006 269 138) | First Defendant | |
| and | ||
| PETER ROWLAND NOMINEES PTY LTD | Second Defendant | |
| and | ||
| BRUCE DUNGEY | Third Defendant | |
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JUDGE: | PAGONE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 November 2008 | |
DATE OF JUDGMENT: | 11 November 2008 | |
CASE MAY BE CITED AS: | Rick Andrew Aylett v Peter Rowland Catering P/L & Ors | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 467 | |
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COMMERCIAL ARBITRATION – Removal of Arbitrator – Unsuitability – Reasonable apprehension of bias – Ebner v Official Trustee in Bankruptcy – Relevance of prior knowledge of the relationship prior to contract – Abuse of process – Commercial Arbitration Act 1984, ss 11(a) and (b), 44 and 45.
ESTOPPEL – Issue raised in earlier proceedings – Whether issue indispensable or fundamental to the decision in the earlier proceedings.
ARBITRATOR – Arbitrator as party – Role and participation of the arbitrator in the proceedings.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Collins with Mr D Christie | Lander & Rogers |
| For the First and Second Defendant | Mr S Stuckey | Frenkel Partners |
| For the Third Defendant | Mr Truong | Ernst & Young |
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HIS HONOUR:
In this proceeding the plaintiff seeks the removal of the third defendant, Mr Dungey, as an arbitrator in an arbitration between the plaintiff and the first and second defendants. The parties to the proceeding agreed to an arbitration in a document described as a "Deed of Acknowledgement" (“the Deed”) dated 20 May 2005. The Deed recorded certain agreements between the parties including for the payment of money to the plaintiff in the event of termination of his employment with the first defendant. The plaintiff’s employment with the first defendant has terminated and the Deed provides that he is to be paid $100,000 if his employment was terminated at his option, but $200,000 if terminated without cause by the first defendant. The plaintiff is to receive no payment if the employment was terminated by the first defendant for just cause, including misconduct or negligence. The Deed also provides for arbitration by Mr Dungey of any dispute under the Deed, and that his decision would be final and binding on the parties.
A dispute has arisen concerning the termination of the plaintiff's employment. The first and second defendants maintained that the plaintiff was not dismissed but, rather, that the plaintiff repudiated his employment contract by accepting a full-time position as chief executive officer with the North Melbourne football club. The plaintiff, in contrast, has demanded payment of $200,000 by letter dated 11 April 2007, but the first defendant maintains that it is liable to no more than $100,000. On 27 April 2007 the solicitors for the first and second defendants rejected the plaintiff’s claim for payment, indicating that there appeared to be a dispute as contemplated by the Deed and that the matter be referred to arbitration by Mr Bruce Dungey. On 1 May 2007 the plaintiff’s solicitors wrote to the first and second defendants’ solicitors stating, among other things, that in their view it was not appropriate for Mr Dungey to arbitrate the dispute because, amongst other matters, it was said that he lacked the impartiality required for him to act in an arbitration.
On 28 May 2007 the plaintiff commenced proceedings in the County Court seeking to recover the amount he asserted as a debt owed by the first and second defendants. On 6 July 2007 the first and second defendants issued a summons seeking that the County Court proceeding be stayed pending the determination of the arbitration. The summons was heard by His Honour Judge Holt in the County Court on 7 August 2007 who ordered that the proceeding be stayed pending determination of the arbitration.
On 9 November 2007 Mr Dungey proposed that a preliminary conference be held in the arbitration on 15 November 2007. There was then further correspondence between the lawyers for the respective parties, and on 24 December 2007 the plaintiff’s lawyers again expressed the view that it was inappropriate for Mr Dungey to continue to act as arbitrator of the dispute. The proceeding in the Supreme Court before me was commenced by Originating Motion dated 14 May 2008 seeking, amongst other things, an order pursuant to s 44 of the Commercial Arbitration Act 1984 (“the Act”) that Mr Dungey be removed as arbitrator in the arbitration.
Section 44 of the Act empowers the Court, where satisfied about certain matters, to remove an arbitrator on the application of a party to the arbitration agreement. One of the preconditions to the exercise of the power is that the Court must be satisfied that "an arbitrator or umpire is incompetent or unsuitable to deal with the particular dispute". The word "unsuitable" has been given a wide meaning. In Gascor v Ellicott & Ors[1] Ormiston JA said:
No reason has been put to the court to differ from the conclusions reached by Brooking J on the meaning of the word "unsuitable" in that section as expressed in Stannard v Sperway Constructions Pty Ltd [1990] VR 673 and Korin v McInnes [1990] VR 723. No doubt the word has a wide connotation but I would not conclude that in relation to possible bias or want of impartiality any different test was intended to be imposed by the section from the wide and flexible test of bias now laid down by the High Court.[2]
In this case the plaintiff contended that Mr Dungey should be removed as arbitrator as being unsuitable because of what is said to be a reasonable apprehension of bias by reason of his association and connection with the other defendants.
[1][1997] 1 VR 332. See also R v Gough [1993] AC 646; Michael J. Mustill and Stewart C. Boyd, The Law and Practice of Commercial Arbitration in England (2nd ed, 1989) 250, and Michael J. Mustill and Stewart C. Boyd, Commercial Arbitration: 2001 Companion Volume to the Second Edition (2001) 290.
[2]Ibid [353].
In Ebner v Official Trustee in Bankruptcy[3] Gleeson CJ, McHugh, Gummow and Hayne JJ said about reasonable apprehension of bias alleged against a decision maker:
The apprehension of bias principle admits of the possibility of human frailty. Its application is as diverse as human frailty. Its application requires two steps. First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits. The bare assertion that a judge (or juror) has an “interest” in litigation, or an interest in a party to it, will be of no assistance until the nature of the interest, and the asserted connection with the possibility of departure from impartial decision-making, is articulated. Only then can the reasonableness of the asserted apprehension of bias be assessed.[4]
In Smits v Roach[5] Gummow and Hayne JJ said at 445 that a consideration of the second step requires the articulation of "a logical connection between the matter complained of and the feared deviation" by the decision maker "from the course of deciding on its merits the proceeding."[6]
[3](2000) 205 CLR 337.
[4]Ibid, 345.
[5](2006) 227 CLR 423.
[6]See also Forge v Australian Securities and Investments Commission [2006] 228 CLR 45.
In this case the facts relevant to any apprehension of bias come less from the evidence of the plaintiff than from the evidence filed on behalf of Mr Dungey himself, who was (correctly) joined as a party and participated in the proceeding. Mr Dungey is a qualified accountant and a partner of Ernst & Young in the Assurance and Advisory Business Services Division in Melbourne. He deposed to having had for approximately 20 years an ongoing business relationship with the Peter Rowland Catering group of companies ("the Rowland Group"), which includes the first and second defendants, and with the Peter Rowland family. He currently acts as an accountant and business adviser to the Rowland Group. As part of this role he attends various internal business meetings of the Rowland Group from time to time. In addition he has played golf with Peter Rowland and Paul Lappin (chairman of the first defendant) approximately 6 times over the past 20 years and has attended a number of dinners "for the purpose of promoting business relationships". He is, on his own evidence, well-known both to the plaintiff and to the principals and directors of the first and second defendants. These facts are all matters which relate to, and in my view establish, the matters relevant to the first step as articulated by the High Court in Ebner; that is, in this case they establish an ongoing business, professional, financial, personal and social relationship between Mr Dungey and the first and second defendants both directly and indirectly through their directors and principals; his relationship with the first and second defendants is not one which has come to an end.[7]
[7]Cf Re Polites; Ex parte Hoyts Corp Pty Ltd (1991) 173 CLR 78; Bienstein v Bienstein (2003) 195 ALR 225, 232 [33] (McHugh, Kirby and Callinan JJ).
The second step identified in Ebner requires an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits. In this case it is said that amongst the matters which Mr Dungey would need to decide in an arbitration between the plaintiff and first and second defendants are the facts about the termination of employment which will in part depend upon questions of credit. Fundamental to the dispute between the parties, and which must therefore be the subject of any arbitration, are the facts about the termination of the plaintiff’s employment. The plaintiff contends that his employment was terminated by the first defendant "without cause" and, therefore, that he is entitled to the payment of $200,000. The first and second defendants contend that, at very least, it was the plaintiff who terminated the employment at his own option which would entitle him, at best, only to $100,000. Part of the disputed facts concerning the events are set out in particulars to a proposed defence to the County Court proceedings filed as an exhibit to an affidavit in the stay proceeding.
It is, I think clear, that any arbitration concerning the plaintiff’s entitlement upon termination (if any) will involve finding facts likely to depend upon the credit of the testimony of the plaintiff and of the individuals who speak on behalf of the first and second defendants. Some of the facts relevant to the arbitration are known personally by Mr Dungey. On 12 December 2006 Mr Dungey read a newspaper article which referred to the plaintiff and the North Melbourne football club. That led him to call Mr Lappin to make him aware of the article and to inform Mr Lappin that he (Mr Dungey) would ring Mr Rowland because the latter would need to speak with the plaintiff. Mr Dungey next spoke to Mr Lappin shortly after 12 December 2006 when the latter informed Mr Dungey that the plaintiff was "leaving us". In this matter, therefore, Mr Dungey has a direct connection with the parties and with the potentially relevant facts to the inquiry he needs to undertake. There is, therefore, a logical connection between the matter and the feared deviation from the course of deciding the case on its merits. This is not a case where there is a “bare assertion” of Mr Dungey having an interest in a party to the mediation; rather, this is a case where his interest in the first and second defendants is of a kind or nature (business, professional, financial, personal and social) that is connected with potential findings against the plaintiff.
I am satisfied on the material before me that Mr Dungey is unsuitable to deal with the arbitration within the meaning of s 44 of the Act. The first and second defendants maintained, however, that the plaintiff cannot rely upon s 44 of the Act because the relationship between Mr Dungey and the role of the group were always known to him and that he willingly entered into the Deed pursuant to which the arbitration is to be conducted. The plaintiff contended, in contrast, that whatever the law may have been before 1984, he is not now prevented from relying upon s 44 because of the specific provisions enacted in 1984 in s 45(1) which provide:
(1)A party to an arbitration agreement is not prevented from alleging in any legal proceedings with respect to the agreement that an arbitrator is not or may not be impartial, suitable or competent by reason of a power of appointment having been exercised by that party in relation to the appointment of that arbitrator or by reason of facts or circumstances that that party knew or ought to have known when exercising that power.
(2)For the purposes of this section, where an arbitrator is named or designated in an arbitration agreement, a party to the agreement shall be deemed—
(a)to have exercised a power of appointment in relation to the appointment of that arbitrator; and
(b)to have exercised that power at the time when the party entered into the arbitration agreement.
Section 45 operates in circumstances such as the present. Here there is an agreement for arbitration by a nominated arbitrator who one of the parties to the agreement now wishes to contend "is not or may not be impartial, suitable or competent". The plaintiff is by force of the provision, therefore, not prevented from making that contention by reason of a power having been exercised by the plaintiff in relation to the appointment of Mr Dungey (that is, by having agreed to Mr Dungey being the nominated arbitrator under the Deed) or by reason of facts or circumstances that the plaintiff knew and ought to know when exercising that power (that is by his knowing of Mr Dungey’s relationship with the first and second defendants).
The genesis of this provision can be traced to the amendments made in 1934 to the equivalent UK legislation as a result of representations made to the MacKinnon Committee.[8] The effect of the corresponding (albeit not precisely identical) New Zealand provision was recently said to modify the exception to the general rule so that a party to a contract which contained provision for submission of future disputes to arbitration before a person closely associated with the other party is not deprived of the benefit of the rule found in s 44 by reason of having previously agreed to arbitration by the person.[9] Section 45(1) contemplates a lack of “impartiality” as relevant to a ground for disqualification and I think it unlikely that parliament intended the test for arbitrators to be different from that developed more generally in public law.[10]
[8]Michael J. Mustill and Stewart C. Boyd, The Law and Practice of Commercial Arbitration in England (2nd ed, 1989) 480-1.
[9] Cantebury Pipe Lines Ltd v Attorney-General [1961] NZLR 785. See also Mustill and Boyd, above n 8, 134-5, 480-1, 580.
[10]See references in n 1 above.
A finding of reasonable apprehension of bias does not necessarily lead to the disqualification of an arbitrator under ss 44 and 45 of the Act, but is a factor to take into account in the exercise of the power under s 44. There may well be circumstances where an apprehension of bias will not necessarily lead to the conclusion that the person appointed to arbitrate is not suitable. The fact that parties had agreed to a nominated person as arbitrator may, in some cases, outweigh the “technical” apprehension of bias. In such cases, not to enforce the bargain may be demonstrably unjust or unfair, and, in all the circumstances, it may not be sufficient to conclude that the particular connection was so logically connected to the arbitrator’s task so as to doubt the impartiality of the arbitrator in performing the arbitration.[11] In this case, however, I would exercise the power under s 44 to remove the arbitrator because in this case the findings of credit that probably need to be made make Mr Dungey unsuitable as an arbitrator. It is not hard to conceive of very many other disputes that might have arisen under the Deed of which Mr Dungey would have been a suitable and appropriate arbitrator notwithstanding (if not because of) his connection with the parties; the particular dispute which has arisen is not one of them. There is no special skill or attribute of Mr Dungey which qualifies him in any special or particular way. On the contrary, such special or particular position which he has in relation to these parties may influence his findings of the facts based upon his evaluation of the credit of each person’s testimony consciously or unconsciously.[12] In this case, therefore, and in light of the particular dispute which has arisen, such special skill or attribute which Mr Dungey may have, is that which makes him unsuitable.
[11]Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337, 345 (Gleeson CJ, McHugh, Gummow and Hayne JJ); Cf the test of “justifiable doubt” in Michael J. Mustill and Stewart C. Boyd, Commercial Arbitration: 2001 Companion Volume to the Second Edition (2001) 413 [101].
[12]See Justice K Mason “Unconscious Judicial Prejudice’ (2001) 75 ALJ 676.
The first and second defendants next contended that the plaintiff was estopped from relying upon s 44 by reason of an issue estoppel arising from the decision of his Honour Judge Holt in the County Court on the application for a stay. The County Court proceedings were commenced by the plaintiff to recover an amount as a debt alleged to be owed by the first and second defendants. The plaintiff relied upon the Deed in his statement of claim but made no reference to the agreement in the Deed for disputes to be referred to arbitration by Mr Dungey. The first and second defendants in the proceeding before me issued a summons in the County Court proceedings on 6 July 2007 seeking a stay of those proceedings. A draft defence was filed without making any reference to the arbitration agreement in the Deed. Written submissions were filed on the County Court stay application which, however, relied upon the arbitration agreement. It is clear from the written submissions (filed as an exhibit in the proceedings before me), and from the submissions to me, that the suitability of Mr Dungey as an arbitrator was argued before Judge Holt.
His Honour granted the stay but the only evidence before me of his Honour’s reasons for decision was a paragraph in an affidavit by Mr Marcou, a solicitor acting for the first and second defendants, who deposed as follows:
His Honour gave his decision orally at the conclusion of argument. He determined that there was no sufficient reason advanced by the plaintiff why the matter should not be referred to arbitration. He held that as the plaintiff and Peter Roland were two men of business who had freely entered into this agreement, there was no reason that it should not be given effect to. He stated that there was nothing to suggest that the defendants (being the first and second defendants to [the Supreme Court] proceeding) were not ready willing and able to refer the dispute to arbitration.
It was contended for the first and second defendants that the effect of his Honour’s order was to have decided the issue before me; namely, that Mr Dungey should be removed as arbitrator pursuant to the power under s 44 of the Act.
An issue estoppel will not arise merely because an issue was raised in a former proceeding even if a finding is made upon it.[13] It will only arise where an issue ruled upon by a court in earlier proceedings was indispensable or fundamental to the ultimate decision in the case.[14] In Blair & Perpetual Trustee Co Ltd v Curran[15] Dixon J said:
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived.[16]
The proceeding before Judge Holt was for a stay of an arbitration not for the removal of Mr Dungey as its arbitrator. The suitability of Mr Dungey as the arbitrator may have been a matter urged upon his Honour either for or against the stay but the proceeding was plainly not directed to his removal. His suitability was not something which was legally indispensable to the conclusion that a stay of an arbitration be granted or refused. Indeed, the very last sentence in the very last paragraph of the written submissions filed by the plaintiff against the stay asserted that the stay, if granted, was likely to lead to the matter coming back before the Court “on an application under s 44 in any event”. In other words, counsel for the plaintiff urged in the stay proceeding that the entitlement to bring proceedings under s 44 was a matter independently relevant to whether or not the stay should be granted. It would be wrong to place too much emphasis upon the assertion by counsel in the written submissions, but it does suggest that the proceeding before his Honour was not conducted upon a basis that the outcome in that case would preclude a separate application under s 44 of the Act: his Honour certainly need not have ruled on that, and did not purport to do so, in order to determine the particular matter that was before him. A practical test of whether a finding is fundamental to create an issue estoppel is sometimes said to be whether it is possible to appeal against a relevant finding.[17] Applying that test, it is plain that the decision of his Honour Judge Holt did not permit an appeal on the basis that Mr Dungey should be removed as an arbitrator or a finding that he was suitable to deal with the particular dispute.
[13]Lombardo v Stuart Bros Pty Ltd [1967] 2 NSWR 39; Theo v Official Trusteein Bankruptcy (1996) 70 FCR 317.
[14]Blair & Perpetual Trustee Co Ltd v Curran (1939) 62 CLR 464, 531-2 (Dixon J); Commonwealth v Sciacca (1988) 17 FCR 476.
[15](1939) 62 CLR 464.
[16]Ibid, 532.
[17]Murphy v Abi-Saab (1995) 37 NSWLR 280, 288 (Gleeson CJ).
Linked to the submission about issue estoppel was a contention by the first and second defendants that the proceeding before me was an abuse of process. The first and second defendants may understandably be aggrieved by the proceeding commenced in the Supreme Court under s 44 because, if for no other reason, of the substantial degree of overlap of evidence and other material between this application and that before Judge Holt in the County Court. However, the proceedings are separate and distinct and involve different jurisdictional bases. Furthermore, the stay application in the County Court was not made by the party bringing this proceeding in this Court. The likelihood of a proceeding under s 44 of the Act was foreshadowed in the written submissions in the stay proceedings in the County Court without, as far as I can see, particular jurisdictional objections or other sufficient complaint as would now justify concluding that this proceeding was an abuse of process.
The plaintiff also seeks an order under either s 11(1)(a) or (b) of the Act. The former permits the Court to appoint a person as arbitrator in place of the person removed, the latter permits the Court to order that the arbitration agreement shall cease to have effect with respect to the dispute to which the arbitration relates. The plaintiff prefers an order that the arbitration agreement shall cease to have an effect although the remedy or relief he sought includes, albeit in the alternative, an order to appoint as arbitrator another person in place of Mr Dungey. The first and second defendants obviously prefer that Mr Dungey continue as arbitrator but submit that I should order the appointment of another person as an arbitrator if I order his removal pursuant to s 44 of the Act. They pointed in support of this submission to the fact that the Deed was entered into upon the assumption that disputes would be resolved by arbitration with little formality by a person familiar with business affairs. The preferable course, in my opinion, is that another person be appointed as an arbitrator instead of Mr Dungey and that, to that extent, the agreement of the parties in the Deed be given effect. The parties made submissions about the process which I should adopt in determining who should be appointed as arbitrator and I will direct that each party be permitted to file and serve within seven days an affidavit, or affidavits, each identifying the names of no more than three people, together with appropriate submissions, to be considered for appointment as arbitrator of the dispute between the parties arising under the Deed by reason of termination of the plaintiff’s employment.
The final matter to consider concerns the role and participation in these proceedings of Mr Dungey. He was, quite properly, made a party to the proceeding, being a person affected by the orders sought by the plaintiff. I have grave reservations, however, about the appropriateness of an arbitrator actively participating in the proceeding unless necessary.[18] It is fundamental to the confidence of the parties to an arbitration that the arbitrator should maintain independence and impartiality and should at all times be seen to be doing so. An arbitrator will often be a proper party to an application for removal because the order may need to operate on the arbitrator. An appropriate course for an arbitrator where removal is sought will usually be to indicate a willingness to abide by the outcome of the Court’s decision without participating in the dispute.
[18]Stannard v Sperway Constructions Pty Ltd [1990] VR 673; Najjar v Haines (1991) 25 NSWLR 224; Mond v Berger [2004] VSC 150 (Unreported, Dodds-Streeton J, 3 May 2004); Grimwade v Meagher [1995] 1 VR 446, 455 (Mandie J); R v Australian Broadcasting Tribunal; Ex parte Hardiman (1980) 144 CLR 13, 35-6 (Gibbs, Stephen, Mason, Aickin and Wilson JJ); BTR PLC v Westinghouse Brake and Signal Co (Aust) Ltd (1992) 106 ALR 35, 53 (Lockhart and Hill JJ); Geographical Indications Committee v The Honourable Justice O’Connor (2000) 64 ALD 325.
There may be some circumstances where it would be wrong to make affirmative findings of misconduct without the arbitrator being heard on such findings.[19] In this case the arbitrator participated in the proceeding by filing affidavits and submissions on the issues generally. Both the affidavits and submissions may have exposed the arbitrator to criticism of partiality or, at least, of some want of impartiality. The written submissions filed on behalf of the arbitrator purported to make no submissions “on the evidence or the appropriate orders beyond orders for costs” but did contain written submissions concerning the proper construction of ss 11 and 44 of the Act which may be thought to favour one or other side in the proceeding. In oral submission, counsel for Mr Dungey said that his client’s only interest was to ensure that no order for costs would have been imposed upon him. The better course to secure that outcome would have been to have informed the Court that the third defendant would simply abide by the decision of the Court but wished to be heard in the event that orders for costs were sought against him. An arbitrator who actively and adversarially participates in a proceeding may become liable for costs.[20] In this case, on the material available to me, there seemed little prospect of an order for costs against Mr Dungey personally in these proceedings other than by his participation in them.[21]
[19]Stannard v Sperway Constructions Pty Ltd [1990] VR 673; Keirl vKelson [2004] VSC 224 (Unreported, Byrne J, 27 August 2004) [19]; Mond v Berger [2004] VSC 150 (Unreported, Dodds-Streeton J, 3 May 2004); Telecomputing PCS Pty Ltd v Bridge Wholesale Acceptance Corp (Aust) Ltd (1991) 24 NSWLR 513, 517 (Rogers CJ).
[20]Mond v Berger [2004] VSC 150, (Unreported, Dodds-Streeton J, 3 May 2004) [72]; Najjar v Haines (1991) 25 NSWLR 224, 248 (Clarke JA).
[21]See Mond v Berger [2004] VSC 150, (Unreported, Dodds-Streeton J, 3 May 2004) [69] – [72].
Accordingly, I will order that:
(1)Mr Dungey be removed as arbitrator in the dispute between the plaintiff and the first and second defendants as unsuitable with the meaning of s 44 of the Act;
(2)The plaintiff and the first and second defendants each file and serve by 19 November 2008 any affidavits and submissions upon which they wish to rely for the appointment under s 11(1)(a) of the Act of a person as arbitrator in place of Mr Dungey; and
(3)I will adjourn the further hearing of this proceeding to 21 November 2008.
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