Barry Smith Grains Pty Limited (in liquidation) v Riordan Group Pty Limited

[2010] NSWSC 1072

CITATION:	Barry Smith Grains Pty Limited (in liquidation) v Riordan Group Pty Limited [2010] NSWSC 1072
HEARING DATE(S):	15/09/10
JUDGMENT DATE :	17 September 2010
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	The plaintiff’s application for leave to appeal is allowed. The defendant’s application for an extension of time to apply for leave to appeal is dismissed.
CATCHWORDS:	Arbitration - Judicial supervision/review - Discussion of relevant principles - Gordian Run-off Pty Ltd v Westernport Insurance Corporation (2010) 267 ALR 74 applied - Whether the plaintiff should be granted leave to appeal a question of law arising out of the award under s 38(4)(b) of the Commercial Arbitration Act 1984 - Whether the determination of the question of law sought to be appealed by the plaintiff could substantially affect the rights of one or more of the parties within the meaning of s 38(5)(a) of the Act - Whether the award discloses a manifest error of law on its face within the meaning of s 38(5)(b)(i) of the Act - Whether the defendant should be granted an extension of time to apply for leave to appeal - Technical Team Projects v Noble Dunn (1990) 20 NSWLR 221 applied
LEGISLATION CITED:	Commercial Arbitration Act 1984 Corporations Act 2001
CATEGORY:	Procedural and other rulings
CASES CITED:	Doran Constructions Pty Ltd v Health Administration Corporation of New South Wales (1994) 12 BCL 59 Gordian Run-off Pty Ltd v Westernport Insurance Corporation (2010) 267 ALR 74 Gye v McIntyre (1991) 171 CLR 609 Lloyds Bank NZA Ltd v National Safety Council of Australia Victorian Division (in Liq.) (1993) 10 ACSR 572 Technical Team Projects v Noble Dunn (1990) 20 NSWLR 221
PARTIES:	Barry Smith Grains Pty Limited (in liquidation) (Plaintiff) Riordan Group Pty Limited (Defendant)
FILE NUMBER(S):	SC 2010/00142355
COUNSEL:	Mr D Robertson (Plaintiff) Mr A Trichardt (Defendant)
SOLICITORS:	Henry Davis York (Plaintiff) HWL Ebsworth (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Friday 17 September 2010

2010/00142355 Barry Smith Grains Pty Limited (in liquidation) v Riordan Group Pty Limited

JUDGMENT

The present case

1 In these proceedings, the plaintiff seeks leave to appeal from an arbitral decision pursuant to s 38(4)(b) the Commercial Arbitration Act 1984. The defendant, as well as resisting this application, brings its own application for leave to appeal the arbitral decision.

Relevant background

2 The plaintiff, Barry Smith Grains Pty Ltd, is the trustee of two trusts, the Barry Smith Family Trust (“Trust 1”) and the Barry Smith Family Trust No 2 (“Trust 2”) . Provisional liquidators were appointed to the plaintiff on 26 September 2007. The plaintiff was wound up and the provisional liquidators appointed as joint and several liquidators on 11 February 2008.

3 The plaintiff and the defendant, Riordan Group Pty Ltd, were parties to an arbitration under the rules of the Grain Trade Association relating to the effect of the liquidation of the plaintiff on certain grain contracts to which the plaintiff was a party. In the arbitration the plaintiff, as claimant, sought orders for the payment of $510,000, being the balance in favour of the plaintiff after close out of three grain contracts at the Fair Market Price on the business day following notice of the appointment of provisional liquidators.

4 The defendant, the counterparty to those contracts, defended the claim on the bases:

i. that the NACMA Trade Rules (which governed the contracts) provided that on the liquidation of a party to a contract governed by the rules, the party in liquidation lost all entitlement in respect of contracts which were “in the money” that is the close out of which would result in a balance in favour of the party in liquidation; and

ii. that, if the foregoing submission was incorrect, by virtue of s 553C Corporations Act, the defendant was entitled to set off the amount the plaintiff owed to Riordan pursuant to four other contracts (“the additional contracts”), which were “out of the money” in the amount of $369,465.64 in total.

5 In reply, the plaintiff submitted that s 553C did not permit the set-off of debts owed by a company in different capacities and that the debts owing from contracts entered into by the plaintiff as trustee for Trust 1 could not be set off against amounts owing to the plaintiff in respect of contracts entered into by the plaintiff as trustee for Trust 2.

6 On 10 May 2010, the parties were notified of the determination of the Arbitrators by which the plaintiff’s claim was allowed in part in the amount of $140,534.40 plus interest at 9% from 28 September 2007 and costs on a party/party basis.

7 The Arbitrators rejected the defendant’s arguments in respect of the interpretation of the NACMA Trade Rules but accepted that the defendant was entitled to set off pursuant to s 553C Corporations Act all debts owing between the plaintiff and the defendant.

8 The Arbitrators rejected the arguments put by the plaintiff in respect of s 553C. In so finding, the Arbitrators held that the fact that the plaintiff carried on business through two separate trust structures was irrelevant to the entitlement to set-off. The critical part of the arbitrators finding in this respect was as follows:

“In our view it is reasonably clear that the Barry Smith entity which contracted in each case was the Claimant, Barry Smith Grains Pty Ltd, as principal and not as Trustee or agent for any trust. We do not doubt that it was a trustee. However there is no evidence that at the time the brokers bound the parties to the contracts, the brokers were at all conscious of the differing capacities in which the Claimant may have been acting. We agree with the Respondent’s submission that the primary document for each Transaction is the broker’s note and not any subsequently prepared contract confirmation, or invoice. How the Claimant chose to account for those contracts in its own books and records is not really the issue here.

We find that in each of the seven contracts the Respondent contracted with the Claimant, each as principal.”

Overview of the principles concerning judicial review of arbitral decisions

9 The principles which obtain in this area have recently been the subject of close attention in the New South Wales Court of Appeal: Gordian Run-off Pty Ltd v Westernport Insurance Corporation (2010) 267 ALR 74.

10 Allsop P [with whose reasons Spigelman CJ and Macfarlan JA agreed] observed as follows:

104 It can be accepted at once that the context and history of s 38 bear heavily on the proper procedural approach to be adopted. I do not repeat at any length the powerful and cogent reasons of Rogers CJ Comm D in Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 184 especially at 187-189, 192-196, and Sheller JA in Promenade Investments (1992) at 216-223 and 225-227. In that case, the parties had come before Rogers CJ Comm D jointly seeking a concurrent hearing. His Honour declined to accede to the course as to do so would be “entirely inimical to the purposes of the [CA Act]” (at 187). The reasons of Sheller JA (with whom Mahoney JA and Meagher JA agreed, Mahoney JA agreeing generally) also made clear that the leave application should precede the appeal.

105 In 1986, this Court in Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327 refused to construe the CA Act, s 38(5) in its then form in the uniform legislation in a way consistent with Pioneer Shipping Ltd v BTP Tioxide Ltd (The ‘Nema’) (No 2) [1982] AC 724 and Antaios Compania Naviera SA v Salen Rederierna AB (The ‘Antaios’) [1985] AC 191. This view, at the time at odds with other Courts of the Commonwealth, had the potential to expand the likely degree of interference by Courts with arbitral awards. See generally the reasons of Sheller JA in Promenade at 220-221. The Standing Committee of Attorneys-General appointed a Working Group to review the operation of the uniform legislation as well as to report on the implementation of the UNCITRAL Model Law. The Working Group was comprised of experienced and distinguished public servants and professionals.

106 In the section of its report on judicial review of arbitral awards, the Working Group was clear in its reiteration of the proposition that one of the main objectives of the uniform legislation was to minimise judicial supervision and review of awards. In this context, the Working Group said the following about the approach of Australian Courts, including this Court in Qantas , in not following the so-called ‘Nema’ guidelines :


“One of the major objectives of the uniform legislation was to minimise judicial supervision and review. The approach adopted by the Australian Courts contrasts with other provisions in the legislation which give effect to this objective. To hear substantive argument on the merits of the appeal before deciding whether or not to grant leave would lead to more awards being opened for review than if The Nema guidelines applied and this would detract from the finality of arbitral awards. The Working Group considered that if arbitration were to be encouraged as a settlement procedure and not as a ‘dry-run’ for litigation, a more restrictive criterion for the granting of leave is desirable than that applied by the Australian Courts. As a matter of policy, the Working Group agreed with Lord Diplock’s statement in The Nema (at page 743) that ‘the parties should be left to accept, for better or for worse, the decision of the tribunal that they had chosen to decide the matter in the first instance’.
…
The Working Group recommends that section 38(5) be expanded to specify the circumstances in which a Court may exercise its discretion under section 38(4) to grant an application for leave to appeal. In particular section 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.”

107 In giving the Second Reading Speech in the Legislative Assembly the Attorney-General for New South Wales in dealing with the new s 38(5) said the following, taken from the Working Group’s Report:


“One of the major objectives of this uniform legislation is to minimise judicial supervision and review. If arbitration is to be encouraged as a settlement procedure and not as a dry run before litigation, a more restrictive criterion for the granting of leave is desirable and the parties should be left to accept the decision of the arbitration whom they have chosen to decide the matter in the first place.”

The same was said in the Second Reading Speech in the Legislative Council.


108 One of the considerations discussed by Lord Diplock in The ‘Nema ’ (at 742-743) was the undesirability of review of arbitration awards where the questions in issue took days to argue.

109 The above considerations of the purpose of the new sub ss (5) and (6) of s 38 make clear what the approach should ordinarily be to this procedural question. Set against a background of the keen recognition that permitting the conduct of substantive arguments on appeal before granting leave would open up for review more arbitration awards than would occur if only truncated argument on leave were permitted, a clear legislative and contextual policy can be discerned that assists in appreciating that except in special, indeed exceptional, cases an application for leave should be dealt with and finalised before the hearing of the appeal. The relevant tasks on a leave application provided for by the text of s 38 also make it important to deal with leave first. The very assessments contemplated by s 38(5)(b)(i) and (ii) are directed to questions that are interlocutory in character and ones that should in terms be answered before full argument about the asserted error of law as an ultimate decision. That said, I am not persuaded that the text and structure of s 38 deny the Court authority to hear argument upon appeal until leave to appeal has been granted.

110 Section 38 reflects a legislative purpose of the recognition of the autonomy of the parties by the respect the Court should give to the arbitrators’ award. Procedures should be adopted which support, not undermine, that recognition of autonomy and respect for the award.

111 The process of hearing full argument on the appeal will almost inevitably subvert the intention to be discerned in the CA Act, s 38 to limit judicial review. It is difficult to decide the questions in s 38(5)(b) if full argument is heard enabling a view to be reached about the ultimate correct answer. A judge will naturally find it difficult, after full argument, to conclude in the negative to both pars (5)(b)(i) and (ii), but to conclude that there was an error. Further, and as importantly, it will, in practical terms, give an appeal to a party without having to satisfy a judge of the character of the error and any other matters contemplated by s 38 (5)(b)(i) or (ii). The procedure of hearing full argument on the appeal undermines the purpose of s 38, as Rogers CJ CommD and Sheller JA said with clarity and force.

112 The context and purpose of leave to appeal in s 38 make it plain what the approach should be except in special, indeed exceptional, cases. I have no hesitation in concluding that the primary judge was wrong in principle to conduct the application as he did. It is a course that is inimical to the purpose of the statute: Promenade at 187-189 (Rogers CJ Comm D) and 221 and 226 (Sheller JA); Mowby Pty Ltd v Moose Property Services Pty Limited [2007] VSC 111 at [4] and Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd [2002] VSCA 113 at [31]; 5 VR 353 at 368.

11 Later Allsop P had occasion to examine the meaning of certain of the terms used in the legislation :

116 As to the question of “manifest error on the face of the award”, Mr Pembroke SC, who, with Mr T Mehigan, appeared for the reinsurers, conceded during the hearing of the appeal that the primary judge was wrong to conclude that the construction given to the Insurance Act , s 18B by the arbitrators was manifestly wrong. That concession was entirely properly made. The argument to the contrary, however, was pressed below and for some time in this Court. These circumstances make it important to restate the content of the phrase, lest it be taken too lightly by those considering the question. The proper approach can be taken from the reasons of Kirby P and Mahoney JA in Natoli v Walker at 212-215 and 223, respectively, and from the reasons of Sheller JA in Promenade Investments at 225-226. The error must be more than arguable; it must be evident or obvious; there must be powerful reasons leaving little or no doubt on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law. In using these accepted appellate authorities I should not be taken to have overlooked the similarly expressed and equally valid views of Rogers CJ Comm D in Promenade Investments at 192 that the argument for leave should be strong and apparently compelling after a fairly rapid examination of the matter.

117 It is important to distinguish the phrase “manifest error” in this context from a similarly worded phrase, with a quite different meaning, in another, quite different, context: “plainly or clearly wrong” in the context of the decision of an intermediate appellate Court as to whether to follow or depart from a previous Australian intermediate appellate Court on a question of law. In Gett v Tabet [2009] NSWCA 76; 254 ALR 504 at 558-567 [261]-[301], this Court discussed the meaning of “clearly” or “plainly” wrong in this precedential context. The important matter to grasp about such phrases in that context is that a later Court is not restricted to a preliminary examination to form its views. The question of “plainly” or “clearly” wrong does not involve the speed or obviousness of the appreciation of the error at a preliminary examination, but rather, amongst other things, the degree of conviction with which error is perceived: see in particular Gett v Tabet at 563 [282]-[284], Chamberlain v R (1983) 72 FLR 1 at 8-9 (Bowen CJ and Forster J) and Clutha Developments Pty Ltd v Barry (1989) 18 NSWLR 86 at 99-100 (Gleeson CJ).

118 The difference is not a product of some overly refined ascription of meaning to adjectives and adverbs that are otherwise, to a degree, synonymous. Rather, the difference is rooted in the different contexts which point to different meanings. The phrase “manifest error” in s 38 is in the context of review of arbitration awards in a section of a statute exhibiting a Parliamentary policy of restricted judicial review of and interference with arbitral awards. The phrase “plainly” or “clearly” wrong is in a wider constitutional context of intermediate Courts disposing of cases according to law and giving proper weight and balance to the views of equivalent Courts around Australia.

Strong evidence of an error of law: s 38(5)(b)(ii)

119 The meaning of s 38(5)(b)(ii) is connected with the meaning of “any question of law arising out of the award” in s 38(2).

120 The history and context of s 38(5)(b)(i) and (ii) were discussed by both Rogers CJ Comm D and Sheller JA in Promenade . The phrase “question of law arising out of an award” had been narrowly construed in England in Athens Cape Naviera SA v Deutsche Dampfschiffahrts-Gesellschaft Hansa AG (The ‘Barenbels’) [1985] 1 Lloyd’s Rep 528 and Universal Petroleum Co v Handels Und Transport GmbH [1987] 1 WLR 1178; [1987] 1 Lloyd’s Rep 517 to questions arising from the award and the supporting reasons, and not “arising out of the arbitration”. It was held that, an applicant for leave could not bring evidence to show that the arbitrator had in some way legally erred. An applicant was limited to adducing evidence to persuade the Court that the arbitrator should be ordered to produce more reasons. These cases, however, permitted a respondent to adduce evidence to persuade the Court to refuse leave or to refuse to remit for further reasons on the ground that there would be no different conclusion if leave or remitter were granted.

121 Prior to 1990, the approach adopted in the Commercial List was, in substance, to follow Universal Petroleum , but to permit a degree of evidence to understand the award and reasons: see for example Warley v Adco Constructions Pty Ltd (1989) 5 BCL 141 (Smart J); Donvito v Diebman (Supreme Court of New South Wales, Giles J, 3 March 1989, unreported); Abignano Ltd v Electricity Commission of New South Wales (1987) 3 BCL 290; Graham Evans & Co Pty Ltd v SPF Formwork Pty Ltd (1992) 8 BCL 147; and see generally M Jacobs Commercial Arbitration: Law and Practice Vol 1B pp 8870-8880.

122 Warley went on appeal ((1992) 8 BCL 300), but the question of the correctness of Universal was not squarely addressed. At 302, Kirby P said it was arguable. See also Rogers CJ Comm D in Promenade at 194.

123 The question whether the terms of s 38(5)(b)(ii) expand the role of evidence in an application under s 38 beyond the limits discussed in Universal remains to be considered. In Promenade at 223 and 226-227 Sheller JA left open the question of the meaning of s 38(5)(b)(ii) and whether its terms widen the role for evidence beyond that discussed in Universal Petroleum . Sheller JA said at 226-227:

“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 that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. The requirement that the question be one the determination of which may add substantially to the certainty of commercial law indicates that it should be one of wider and greater importance than, for example, the construction of a one-off clause in the context of a particular agreement between the parties. One can discern here the sort of limitation which Lord Diplock had in mind. The expression ‘commercial law’ should be given no narrow construction. The expression ‘strong evidence that the arbitrator … made an error of law’ suggests first what might otherwise be called on the leave application a strong prima facie case and second an error of law not manifest on the face of the award and demonstrable by evidence. The amendment may have been intended to redress in part the balance which Smart J in Warley's case (at 147) described as not wholly satisfying or sensible and to enable not merely the respondent to support the award by reference to extrinsic material but the applicant to seek leave to reverse it by reference to such material. However an appeal lies only on a question of law arising out of the award. The reconciliation of subs (2) and subs (5)(b)(ii) must await an appropriate case.”

124 No detailed argument took place before this Court about this issue. The parties’ arguments proceeded on the basis that even if the arbitrators’ error was not “manifest”, the terms of s 38(5)(b)(ii) (“strong evidence”) required a strong prima facie case to be revealed. It was not submitted by Mr Jackman SC, who, with Mr Faulkner, appeared for Gordian, that the “evidence” contemplated by s 38(5)(b)(ii) did not encompass the reasons for the award. His submissions, at times, flirted with the proposition that if recourse were necessary only to the award (including the reasons) to identify and consider the error in question, only s 38(5)(b)(i) was relevant. However, I did not understand him ultimately to put this. See 4 November 2009 transcript pp 42-43.

125 I will return to the relationship between s 38(2) and (5)(b)(ii) and the meaning of “question of law arising out of the award” later in these reasons.

126 The positing of these two levels of strictness for the identification of legal error (“manifest error”: (b)(i) and “strong evidence that the arbitrator made an error of law”: (b)(ii)) can be seen to be a reflection of aspects of Lord Diplock’s speech in The ‘Nema ’. In The ‘Nema’, at 742-743 Lord Diplock discussed the proper approach to the construction of “one-off” clauses and the “rather less strict criteria” that were appropriate for the construction of standard form contracts in respect of which a high degree of legal certainty for the relevant market was required. In such cases where there was a standard form contract operating in a market (implicitly overseen by English Courts according to English law) Lord Diplock said at 743:


“But leave should not be given even in such a case, unless the judge considered that a strong prima facie case had been made out that the arbitrator had been wrong in his construction; and when the events to which the standard clause fell to be applied in the particular arbitration were themselves ‘one-off’ events, stricter criteria should be applied on the same lines as those that I have suggested is appropriate to ‘one-off’ clauses.”

In this context, the importance of standard form contracts in the operation of commercial markets and the role of the Courts in the support thereof by clarity and consistency had, only four years before in 1977, been lucidly and commandingly expressed by his Lordship in Federal Commerce & Navigation Co v Tradax Export SA (The ‘Maratha Envoy’ ) [1978] AC 1 at 7-8.


127 What therefore has to be shown, as a first step, is that there was strong evidence, in the sense of a strong prima facie case, that the arbitrators were wrong in law. Only if this exists does one move on to the additional consideration as to whether the determination of the question (of law) may or may be likely to add substantially to the certainty of commercial law. The Court needs to be careful not to downgrade the statutory requirement of “strong evidence”, that is a strong prima facie case of legal error, because of the “interesting” or important legal question involved. The remit of arbitrators includes the making of errors; that is an inevitable part of any process of dispute resolution. Arbitrators may deal with “interesting” or important questions. How and what errors are to be corrected depends on the statute in question. Here, it must be shown that there is a strong prima facie case that the arbitrators were wrong on a question of law.

128 An assessment of this question at the procedural level of a leave application requires the demonstration by arguments appropriate to a leave application of a strong prima facie case of legal error. The restriction of argument to a form appropriate to a leave application is not restricted to “manifest error”. It might be obvious that in that context argument would necessarily be short. It might also be that a strong prima facie case of error requires the display of something more than obvious error. Nevertheless, it is the evidence of a prima facie case of error that is required to be strong. The longer the debate that is required to demonstrate the asserted error, the likely more contestable is the argument. The procedural context is again important. The strength of any argument and the strength of the prima facie case of error is not assessed after full concurrent argument on appeal. It is to be assessed by reference to argument suitable to a leave application in which the task is to assess the strength of the case for error, not decide the case for error.

129 If, as here, a public statute is involved, it may be necessary for the Court hearing the application for leave to become familiar (if it is not already) with the text, structure and context of the Act and provision in question. Likewise, a familiarity with the relevant commercial subject (here, insurance and reinsurance) can be gained (if not held already). The judge hearing the application needs these matters of background. In the Commercial List they generally exist.

Turning to the plaintiff’s application for leave to appeal

12 The plaintiff contends that the arbitrators have misapplied s 553C of the Corporations Act and thereby made a manifest error of law. The manifest error is said to appear in the third and fourth paragraphs on page 4 of the award (extracted above).

The potential effect of the determination of the present question

13 Under s 385(a) of the Commercial Arbitration Act 1984 the Court shall not grant leave under subsection 4(b) unless it considers that, having regard to all of the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement.

14 I accept that in all the circumstances, the determination of the present question – namely whether the arbitrators properly applied s 553C – could substantially affect the rights of both of the parties since it will resolve whether and to what extent any set-offs are available.

Does the award disclose a manifest error of law on its face within the meaning of s 38(5)(b)(i)?

The relevant law

15 Section 553C of the Corporations Act provides:

Insolvent companies--mutual credit and set-off

(1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:


(a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and

(b) the sum due from the one party is to be set off against any sum due from the other party; and

(c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

(2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.

16 It is an elementary proposition that in order for a set-off to be available under s 553C, the relevant credits, debts or dealings must have been “mutual”, in the sense that they must have been held by the same persons and in the same capacity. This can be readily gleaned from the leading decision on set-off - Gye v McIntyre (1991) 171 CLR 609 - wherein the High Court held at 623 [in relation to the equivalent bankruptcy provision but the comment is equally applicable to s 553C]:

… there are three aspects of the section's requirement of mutuality. The first is that the credits, the debts, or the claims arising from other dealings be between the same persons. The second is that the benefit or burden of them lie in the same interests. In determining whether credits, debts or claims arising from other dealings are between the same persons and in the same interests, it is the equitable or beneficial interests of the parties which must be considered …

17 Thus in Lloyds Bank NZA Ltd v National Safety Council of Australia Victorian Division (in Liq.) (1993) 10 ACSR 572 the Full Court of the Victorian Supreme Court held that a bank which held moneys as trustee could not set off its liability to pay those moneys to the company in liquidation against the company’s debts to the bank.

Application to the present case

18 It is apparent from the above-extracted passage of the arbitral award that the arbitrators: relied on the brokers’ lack of knowledge of the plaintiff’s various capacities at the time of contracting; focussed on the brokers’ notes as the relevant contractual documents; and dismissed how the plaintiff chose to account for the contracts in its own records as irrelevant.

19 In my view this part of the arbitrators’ reasoning in question contains a manifest error of law on the face of the award– in the sense of an error that is evident or obvious and supported by powerful reasons – for the following reasons. Firstly, the arbitrators plainly focussed upon the situation at the time of contracting, but s 553C applies to “an insolvent company that is being wound up”. Thus the relevant focus is on the situation at the time of the plaintiff’s liquidation, not at the time of contracting. Secondly, the arbitrators clearly placed weight on the brokers’ lack of knowledge of the capacity in which the plaintiff may have been acting. However, such knowledge is not a relevant consideration when applying s 553C. Rather, the focus is on the capacity in which the plaintiff held the contracts at the time of liquidation (irrespective of some other party’s knowledge of that capacity). The arbitrators further incorrectly dismissed how the plaintiff chose to account for the contracts in its internal records as irrelevant – and this error was repeated in the findings of the award where the distinction between trust 1 and trust 2 was dismissed as “an internal audit issue” - when in fact that evidence would appear to go to the capacity in which the plaintiff was acting at the point of liquidation.

20 The defendant submitted in this Court that the arbitrators’ finding that the plaintiff was contracting as a principal was a finding of fact and thus did not disclose an error or question of law. However, in my view the arbitral finding does disclose a manifest error of law in that by misconstruing s 553C the arbitrators did not make the proper inquiry required of them by the relevant principles.

21 In my view it is appropriate to refrain from applying the relevant principles to the facts at hand until the full hearing of the appeal.

Turning to the defendants’ application

The defendant’s application for an extension of time

22 The defendant conceded that its application for leave to appeal had not been made within the 28-day period set by UCPR r 47.4(2).

23 The defendant first submitted that its application for leave to appeal was made in the context of a cross-claim and therefore did not have to be made within the 28 day period set by UCPR r 47.4(2), meaning there was no need to apply for an extension of time. The defendants contended for this result on the basis that r 47.4(2) should be read consistently with Practice Note SC Eq 9, which in paragraph 11 incorporates paragraphs 12 to 17 of Practice Note SC Eq 3 and thus makes provisions for the making of cross-claims. The defendants essential submission was that if all applications for leave to appeal had to be made within the 28 day period set by UCPR r 47.4(2), there would have been no reason to make provision in Practice Note SC Eq 9 for the making of cross-claims.

24 In my view, as the plaintiff submitted, the provision for cross-claims in Practice Note SC Eq 9 is of a general nature and cannot be said to have been made in contemplation of applications under s 38(4)(b) of the Commercial Arbitration Act 1984. Thus I do not think it assists the defendant in escaping the need to apply for an extension of time.

Turning to the requirements for gaining an extension of time

25 In Doran Constructions Pty Ltd v Health Administration Corporation of New South Wales (1994) 12 BCL 59 at 61, Cole JA, Gleeson CJ and Kirby P agreeing, held that the trial judge had correctly applied the relevant principles regarding an extension of time for leave to appeal. The trial judge had in turn quoted from the judgment of Cole J, as his Honour then was, in Technical Team Projects v Noble Dunn (1990) 20 NSWLR 221 at 231, wherein his Honour held that for a successful application there must be: first, explanation for delays, secondly, a substantial point to be argued, and thirdly, demonstration of injustice if the applicant is prevented from arguing the point. Additionally, in Doran at 61 Cole JA approved the trial judge’s statement that the whole position of the parties has to be considered. See further Technical Team at 226-232, including the following useful passage at 231-232:

As the Court of Appeal restated in Galea, if injustice is caused by
declining an extension, it must be granted: see also Wiedenhofer v The Commonwealth of Australia (1970) 122 CLR 172 at 175 per Gibbs J. In determining whether injustice would follow refusal, no narrow view dominated by the desire of the applicant to argue a point of law is to be taken. Explanation of delay, whilst frequently spoken of as a separate requirement is, in my view, in truth an ingredient to be weighed in determining where justice lies. If a party itself has brought about the non-compliance with the Rules, that fact may weigh heavily against a finding of claimed injustice from refusal. On the other hand, as Kirby P recited in David v National Panasonic (Australia) Pty Ltd other causes of delay such as lack of funds, legal advisers' delays, mistake and other matters, may weigh in explanation of delay and thus in whether injustice would result from refusal. The position of the respondent must also be weighed in the balance. That party is entitled to assume the litigation will be conducted in accordance with the primary rules imposing time limits.

The present case

26 The time for filing an application for leave to appeal expired on 7 June 2010. The defendant’s summons and application for an extension of time were filed on 31 July 2010.

27 In my view the only part of the delay which can properly be attributed to the defendant is the period between when the defendant was notified of the award on 10 May 2010 and when it instructed its current solicitors on 15 June 2010. It must be borne in mind that the defendant’s application for leave to appeal seeks to disturb the arbitral award on a basis that is significantly different to the plaintiff’s application for leave to appeal. Furthermore, the defendant seeks to alter the ultimate findings of the arbitrators, such that the defendant will not be liable to pay the plaintiff anything. [Whereas in the award the defendant was found to be liable to the plaintiff for $140, 534.40 after the relevant set-off occurred]. Thus the defendant’s application is not truly “responsive”, in the sense that the circumstances for making it only arose once the plaintiff applied to disturb the award, as envisaged by Allsop P in Goardian at [275], [280].

28 It is significant that the defendant was first notified of the award – and thus the result and points of law which they now seek to appeal - on 10 May 2010. If the defendant wished to impugn the award on the basis that it should not properly have been found to be liable to the plaintiff for any amount, it could have instructed legal representatives and, set in train the process of filing an application for leave to appeal, much earlier. I note here that the plaintiff informed the Court, and this was not disputed, that the defendant was legally represented at the arbitration itself, including by counsel (although not by its current legal representatives). The appropriate inference from this is that the defendant was aware of its legal options, including an appeal, on or around 10 May 2010, when it was notified of the award. If the defendant was somehow, through no fault of its own, unaware of its legal options in relation to the award until 15 June 2010 when it instructed its current solicitors – which seems unlikely -this was not made clear to the Court, and the onus is clearly on the defendant to explain the delay.

29 The defendant’s attempted explanation for the delay is contained in an affidavit of Mr Maurice John Thompson, sworn 30 July 2010, who deposes that the defendant sought advice following receipt of the plaintiff’s summons (filed on 7 June 2010). However, there is no explanation as to why the defendant did not seek advice from Mr Thompson or elsewhere prior to this point. This would have been the appropriate course if the defendant wished – as it now seeks to do – to disturb the award on a basis that, as outlined above, goes beyond merely being “responsive” to the plaintiff’s application. There is also no explanation why, even after receipt of the plaintiff’s summons, it took the defendant another week to provide instructions to Mr Thompson.

30 I note that I am not satisfied prima facie that all of the points raised in the defendant’s application for leave to appeal are of no substance. The point in relation to the proper interpretation of the relevant rules clearly involves fine arguments of interpretation. In these circumstances, it would not be appropriate to dismiss the defendant’s application for an extension of time on the basis that such an extension, if granted, would be futile: see Technical Team at 227.

31 I accept that there is not any relevant prejudice to the plaintiff because they themselves seek leave to appeal and thus the defendant cannot be accused of delaying the finality of this litigation.

32 I further accept that the defendant would be significantly disadvantaged if it were not allowed to rely on its application for leave to appeal. The defendant would be prevented from appealing the questions of law arising out of the award that it wishes to have overturned. Thus the defendant would be restricted to rebutting points raised by the plaintiff in its appeal, for which I have granted leave. However, applying a relevant principle from Technical Team, extracted above, such disadvantage to the defendant does not lead to a finding of injustice were an extension refused, since the defendant itself brought about the non-compliance with the rules.

33 Ultimately, with the defendant having failed to explain a significant delay - as is outlined above - in my view the just result is to refuse the defendant’s application for an extension of time.

34 The orders of the Court are accordingly as follows:

i. The plaintiff’s application for leave to appeal is allowed.

ii. The defendant’s application for an extension of time to apply for leave to appeal is dismissed.

iii. The parties are to agree with the Court on a date when the plaintiff’s appeal can be heard. On that occasion the defendant will be restricted to rebutting points raised by the plaintiff in its appeal.

iv. Costs are reserved and the parties will be given an opportunity to address as to costs at an appropriate future date.
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