Cole v Gebauer Nominees Pty Ltd
[2012] WASC 9
•12 JANUARY 2012
COLE -v- GEBAUER NOMINEES PTY LTD [2012] WASC 9
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2012] WASC 9 | |
| Case No: | ARB:22/2010 | 5 JULY 2011 | |
| Coram: | ALLANSON J | 12/01/12 | |
| 19 | Judgment Part: | 1 of 1 | |
| Result: | Leave to appeal granted on ground 2 Leave to appeal refused on grounds 1 and 3 | ||
| B | |||
| PDF Version |
| Parties: | GERHARD JOSEPH COLE PATRICK EDWARD MULLALLY GEBAUER NOMINEES PTY LTD |
Catchwords: | Arbitration Leave to appeal Manifest error of law Failure to determine all of claim |
Legislation: | Commercial Arbitration Act 1985 (WA) |
Case References: | Cargill International SA v Peabody Australia Mining Ltd [2010] NSWSC 88 Champsey Bhara & Co v Jivraj Balloo Spinning & Weaving Co Ltd [1923] AC 48 Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 D & M (Australia) Pty Ltd v Crouch Developments Pty Ltd [2011] WASCA 109 Gordian Runoff Limited v Westport Insurance Corporation [2010] NSWCA 57 Grincelis v House [2000] HCA 42; (2000) 201 CLR 321 Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60 Hartley Poynton v Ali [2005] VSCA 53; (2005) 11 VR 568 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 Ipswich Borough Council v Fisons PLC [1990] 1 Ch 709 Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 Jones v Schiffmann [1971] HCA 52; (1971) 124 CLR 303 Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245; (2002) 27 WAR 287 New Generation Enterprises Pty Ltd v Western Australian Planning Commission [2007] WASCA 89 Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327 Rio Tinto Exploration Pty Ltd v Graphite Holdings Pty Ltd [2007] WASCA 276 Robinson v Harman (1848) 1 Exch 850 Smith and New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272 Tobacco Institute of Australia v National Health and Medical Research Council (1996) 71 FCR 265 Tuta Products Pty Ltd v Hutcherson Bros Pty Ltd [1972] HCA 4; (1972) 127 CLR 253 Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603 Waterford v The Commonwealth of Australia [1987] HCA 25; (1987) 163 CLR 54 Westport Insurance Corporation v Gordian Runoff Limited [2011] HCA 37 Zurich Bay Holdings Pty Ltd v Iluka Midwest Ltd [2009] WASC 237 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- PATRICK EDWARD MULLALLY
Appellants
AND
GEBAUER NOMINEES PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : COMMERCIAL ARBITRATION
Coram : ARBITRATOR D FORRESTER
Citation : GERHARD JOSEPH COLE AND PATRICK EDWARD MULLALLY AND GEBAUER NOMINEES PTY LTD
Catchwords:
Arbitration - Leave to appeal - Manifest error of law - Failure to determine all of claim
(Page 2)
Legislation:
Commercial Arbitration Act 1985 (WA)
Result:
Leave to appeal granted on ground 2
Leave to appeal refused on grounds 1 and 3
Category: B
Representation:
Counsel:
Appellants : Mr D Vilensky
Respondent : Mr A J Power
Solicitors:
Appellants : Bowen Buchbinder Vilensky
Respondent : WHL Legal Pty Ltd
Case(s) referred to in judgment(s):
Cargill International SA v Peabody Australia Mining Ltd [2010] NSWSC 88
Champsey Bhara & Co v Jivraj Balloo Spinning & Weaving Co Ltd [1923] AC 48
Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64
D & M (Australia) Pty Ltd v Crouch Developments Pty Ltd [2011] WASCA 109
Gebauer Nominees Pty Ltd v Cole [2012] WASC 10
Gordian Runoff Limited v Westport Insurance Corporation [2010] NSWCA 57
Grincelis v House [2000] HCA 42; (2000) 201 CLR 321
Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60
Hartley Poynton v Ali [2005] VSCA 53; (2005) 11 VR 568
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640
Ipswich Borough Council v Fisons PLC [1990] 1 Ch 709
Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351
(Page 3)
Jones v Schiffmann [1971] HCA 52; (1971) 124 CLR 303
Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281
Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245; (2002) 27 WAR 287
New Generation Enterprises Pty Ltd v Western Australian Planning Commission [2007] WASCA 89
Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203
Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327
Rio Tinto Exploration Pty Ltd v Graphite Holdings Pty Ltd [2007] WASCA 276
Robinson v Harman (1848) 1 Exch 850
Smith and New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272
Tobacco Institute of Australia v National Health and Medical Research Council (1996) 71 FCR 265
Tuta Products Pty Ltd v Hutcherson Bros Pty Ltd [1972] HCA 4; (1972) 127 CLR 253
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603
Waterford v The Commonwealth of Australia [1987] HCA 25; (1987) 163 CLR 54
Westport Insurance Corporation v Gordian Runoff Limited [2011] HCA 37
Zurich Bay Holdings Pty Ltd v Iluka Midwest Ltd [2009] WASC 237
(Page 4)
- ALLANSON J: This is an application under s 35 of the Commercial Arbitration Act 1985 (WA) for leave to appeal the final award of an arbitrator. The application was heard at the same time as an application for leave to appeal by the respondent to this application. I have published separate reasons in that matter (Gebauer Nominees Pty Ltd v Cole [2012] WASC 10), but have set out the background material in this judgment only.
1 The applicants seek leave to appeal on three grounds:
1. The learned arbitrator erred and made a manifest error of law by allowing that part of the respondent's counterclaim for rent and interest in the aggregate sum of $172,275 which sum was deducted from the award of damages in favour of the appellants in the sum of $500,000 in the face of a complete lack of evidence and was a denial of natural justice to the appellants.
2. The arbitrator erred and made a manifest error of law in having found in the final award that the appellants had lost their opportunity to produce briquettes for a small quality niche market, then failing to allow the appellants any amount in the final award for damages claimed in respect of the plant and equipment contrary to the unchallenged evidence as the value of the plant and equipment.
3. The learned arbitrator erred and made a manifest error of law in having assessed the appellants' damages in the sum of $500,000 (less the counterclaim), failed to take into account that sum damages are to be assessed as at the date of the breach of the contract, which was found by the arbitrator in the interim award dated 1 May 2000 as having been 15 June 1999, not at the date of trial and so failed to allow interest on the damages reckoned from 15 June 1999 to 12 December 2009 thereby depriving the appellants of interest on the amount of damages assessed to which the appellants were clearly entitled.
2 The application for leave was heard and determined separately, following Gordian Runoff Limited v Westport Insurance Corporation [2010] NSWCA 57 [102] - [114] where it was held that an application for leave should be dealt with and finalised before the hearing of the appeal save in exceptional cases.
The underlying dispute
3 The respondent, Gebauer Nominees Pty Ltd (Gebauer Nominees), was the owner of factory premises in O'Connor. In 1998, Gebauer Nominees leased the factory premises to 'Hotrox Charcoal Company' for a
(Page 5)
- term of 24 months, commencing 1 May 1998. The applicants, Mr Gerhard Joseph Cole and Mr Patrick Edward Mullally, had registered the business name Hotrox Charcoal Company (Hotrox).
4 The applicants intended to use the premises to manufacture a type of charcoal briquette which, they said, had a number of commercial and domestic applications. They claimed that, on or about 2 June 1999, rain water entered the factory premises, making them unfit for occupation, and rendering the plant and equipment they had installed in it unusable. The applicants alleged that water had entered the factory because, in breach of its obligations under the lease, the respondent had failed to maintain the premises in good repair. They claimed that, as a result of this breach, they had been unable to manufacture and sell briquettes and as a consequence had suffered damage.
5 The lease provided that any dispute arising out of the lease was to be determined by a single Arbitrator under the provisions of the Commercial Arbitration Act 1985: cl 28.2. The parties referred the dispute to arbitration. The issues for resolution in the arbitration included a counterclaim by the respondent for payment of rent, outgoings and interest. Mr D A Forrester, a barrister, was nominated to conduct the arbitration.
6 Following a hearing on liability extending over nine days in late 1999 and early 2000, the arbitrator handed down an interim award dated 1 May 2000. In the interim award, the arbitrator found the respondent was in breach of its obligation to perform in a proper and workmanlike manner any structural works to the building which were required to keep the premises maintained in good condition. The arbitrator further found that the applicants were entitled to an abatement of rent from 15 June 1999 because the premises were rendered substantially unfit for occupation and use. Damages, and the amount of any abatement of rent, were still to be determined in the arbitration proceedings.
7 There followed a period of nine years in which there were various interlocutory disputes. The present application is the eighth time this court or the Court of Appeal has been called upon to determine issues arising in the arbitration. The arbitrator recommenced the hearing on 23 February 2009, and heard evidence and submissions over a further 12 days. There were 13 witnesses and many exhibits, including expert reports. The arbitrator delivered his award on 12 December 2009.
(Page 6)
The arbitrator's material findings
The interim award
8 In his interim award, the arbitrator found that the entry of water to the premises had several causes, including the box gutters, inadequate drainage on the eastern side of the premises, and defects in the eastern wall which allowed water to enter at floor level. He found that some leaking was caused by the failure of the applicants to maintain the premises by allowing gutters to become blocked. Overall, however, the leaks and the flooding were caused by a longstanding need for major repairs. He found that the respondent had failed to comply with the requirements of the lease in relation to the western wall, the eastern side drainage system, the eastern wall, the box gutters, and some small sections of the roof which were rusted. The applicants had been unable to make full use of the premises, and parts of them were substantially unfit for occupation from 15 June 1999. Other areas would have been substantially fit for occupation if there was a safe source of electricity, but could not be used because the areas adjacent to the northern and southern switchboards were among those affected by water.
9 The arbitrator concluded, it being an interim award as to liability only, that 'the question of the extent to which the factory could or could not be used for some operations has not been addressed'. Those matters were to be considered in relation to abatement of rent and damages in the final award.
The final award
10 The arbitrator expressed his final award in the following series of questions and answers:
1. Are the claimants entitled to any damages?
Yes
What is the amount?
$500,000
2. Are the claimants entitled to an abatement of rent?
Yes
Between what dates?
15 June 1999 to 6 June 2000.
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- 3. Is the Respondent entitled to a resumption of rent?
Yes.
From what date?
7 June 2000.
4. Is the Respondent entitled to a claim for outgoings?
No.
5. What amount or amounts are involved?
For loss of rent and interest at 15% the amount of $172,275.
6. What is the total adjusted amount due to the Claimants?
The sum of $500,000 less $172,275 or a net $327,725.
1. In 1997, Mr Cole entered into an exclusive agency agreement with a Korean company, Worldzone International of Seoul (Worldzone), under which Worldzone would sell 65 container loads of briquettes in the Korean market between October 1997 and September 1998. At that stage, the applicants had no factory, no means of supplying the briquettes, and no settled source of supply of raw materials. No work had been done to test whether briquettes of the required quality could be produced on a commercial scale.
2. In June 1997, although Mr Cole reported to Worldzone that things were progressing well in regards to the factory and he would be in a position to start shipping in late September, he had not then located a block or building suitable for a factory.
3. In September 1997, Mr Cole advised Worldzone that he had finalised funding arrangements and was travelling to Malaysia to inspect machinery. At that time, he still had no factory site available.
4. In October 1997, Mr Cole advised Worldzone that machines were arriving in December so he would begin shipments in January. An agreement for supply of machinery from Taiwan was entered into
- on 12 November 1997. By 29 March 1998 there were still design and safety problems to be sorted out.
- 5. The agreement to lease the respondent's factory was made only in February or March 1998, with the lease to commence on 1 April 1998. Machinery was installed in June, although only one oven - referred to as the large oven - was then installed.
6. The exclusive agency agreement with Worldzone was extended on 11 September 1998 until 31 October 1999. In August 1998 samples were sent to Worldzone. In November 1998, Worldzone advised that the samples were not up to standard.
7. In January and March 1999, Worldzone expressed its concern about the production situation and asked when the first shipment would be due.
8. In February 1999 at a meeting of Hotrox it was reported:
(a) that the large oven would not be used due to environmental matters;
(b) there were new ovens which were still to be tested to ascertain whether they could produce briquettes to the standard achieved by the very small oven in Myaree in which Mr Cole had produced his prototype;
(c) Hotrox should renegotiate the price with Worldzone;
(d) Hotrox should look for a country location, as it needed more room and needed to be away from environmental concerns.
9. In May 1999, Mr Cole noted that the oven was still under construction by engineers, and a number of agreements had been reached to sell sawdust briquettes to various local firms.
10. On 2 June 1999, Mr Cole sent a summary to Mr Mullally in which he stated that two ovens were in operation, and the yearly output based on sales value was $263,952. The arbitrator noted that the calculation of sales value appears to have been on the basis of non-stop production, without any allowance for breakdown, failure in the supply of raw material, failure of the machinery, or failure in the gas or electricity supply.
(Page 9)
12 The water entry problem occurred in June 1999. The arbitrator analysed the position at June/July 1999, as follows. At the beginning of June, there were three ovens installed including the large oven. Three more ovens had been delivered but not set up. None of the smaller ovens had been tested over a period of time with full loads to ascertain their potential to produce charcoal of the required standard. The factory was producing very little charcoal. In an earlier section of the reasons, 'Technical Analysis of Hotrox Process', the arbitrator found that no laboratory testing had been done of the finished product; and that it was a 'major question', still unanswered, whether regular firings of the small ovens when full could produce the product shown to (and accepted by) Worldzone.
13 The arbitrator referred to expert evidence critical of the design of the ovens. He also referred to expert evidence regarding the need for safe and effective planning for the safe dispersal of heat from the factory. He found that at June/July 1999, the applicants had not given thought to the planning and location of equipment and had not:
1. planned for safe provision of gas pipelines to the ovens;
2. planned for the number and position of vents to the flares on the roof (the means by which heat from the ovens was released);
3. planned for the position of flares on the roof;
4. considered the space required to load and unload ovens safely;
5. considered the overall temperatures likely to be incurred in the building;
6. analysed whether the wood log producing machinery would be able to keep up with demand from the number of ovens;
7. discussed their proposal with authorities, including the local government.
14 The arbitrator found that there were no operating manuals or temperature guides for the ovens. Perhaps most significantly, the arbitrator found the factory was too small for the number of ovens needed to produce the amount of briquettes required under the agreement with Worldzone.
15 The arbitrator further found that Mr Cole was not prepared to reveal his process for producing the briquettes. This could cause difficulty with
(Page 10)
- potential Asian markets. Further, because Mr Cole refused to reveal the process, he was unable to get business backing. He had been told that $3.2 million funding was needed for a pilot plant and research facility. It appears there was no evidence that such funding was obtained. Instead Mr Cole had obtained the assistance of Mr Mullally to obtain some capital, and then to persuade the Export Finance & Insurance Corporation to assist with a loan.
16 The arbitrator made the following finding:
Mr Cole made the fundamental error of thinking that all he had to do was to replicate the small pilot box at Myaree to a larger size and the results would be the same. When he tried to do so with the large oven it did not work. While references were made to the environmental aspects which caused it to be abandoned, no records of any kind were produced to show that even with a partially full oven, the briquettes were all of a uniform standard. It was also noted that the large oven took too long to load, fire and unload for the number of briquettes to be produced … Mr Cole knew the technical processes required, but ignored the need to develop those processes to the point of producing charcoal to the necessary standard in a commercial operation.
17 He concluded:
[Mr Cole had] developed a top class charcoal briquette on an experimental basis, and may have reached the correct size and shape of oven … but the position had not been reached to prove beyond doubt that the ovens were the correct size and makeup [when] he was held up by the flooding of the factory … [H]e ran out of further time and capital to develop that oven, which certainly involved the issue raised by Professor Zhang as to whether one burner in the oven would be sufficient for a full load. That aspect was never investigated nor did Mr Cole produce any documentation to show how he had assessed the appropriate size. Presumably the oven was just reduced in size, but no calculations were done to prove that this would work as well as the prototype at Myaree. Nor was any evidence produced to show the size, shape and capacity of that oven at Myaree or its relationship to the large or small ovens to be used at Fremantle. There was also the matter of the safety aspects of the factory … We also have the factor of the size of the factory and of the lack of space available to produce the amount of briquettes to satisfy the requirement of the Agency Agreement.
18 It was against that background that the arbitrator said he was required to determine 'what damages if any arise out of the failure to repair the roof with reasonable alacrity or the drain to the east of the factory'.
(Page 11)
19 Despite his earlier findings, the arbitrator found that on the balance of probabilities Mr Cole had arrived at the correct size of oven which would produce a full load or close to it of charcoal briquettes of the quality he had achieved at Myaree. He apparently arrived at this conclusion as a result of his finding that 'the [r]espondent did not prove that this new oven was as hopeless as the large one at cooking the charcoal briquettes to the required temperature in a short space of time'. He also found that the respondent's expert, Professor Zhang, 'did not produce any concrete evidence to disprove Mr Cole's conclusions that he now had the correct size of oven'.
20 The arbitrator repeated his conclusion that Mr Cole's assumptions that he could fill the factory with ovens to fulfil the orders for Worldzone were 'clearly incorrect'. There was insufficient space, no plans were available for the essential flares on the roof, and no one in authority (including the owner) had been approached. No consideration had yet been given to safety, or to proper planning. Any more than five ovens had to be properly planned and properly approved. He concluded:
It appeared Mr Cole was banking on delivering a container load to Korea as initial evidence of the fact that they were now in business. Given the enthusiasm of Worldzone for the product, there is little doubt that they could have done a deal with the claimant to produce smaller loads to allow them to hold on to an exclusive and highly discerning niche market.
21 The arbitrator concluded, in effect, that the applicants would not have been able to meet their agreement with Worldzone, but had lost the opportunity to negotiate a different agreement to produce briquettes 'for a small quality niche market which is far, far less in value than [Mr Cole's] original inflated ideas'. He assessed damages on the basis of a small number of loads for shipment to Korea for sale in that limited niche market.
22 The arbitrator also did not accept that the applicants were, in June 1999, in a position to supply briquettes, but assessed damages on the basis that the applicants were on the cusp of being able to commence business, although on a minor scale. He found 'in the circumstances an actual assessment of the likely outcome of production on a small scale is not possible to be made either in actual financial or in percentage terms'. He assessed damages in the amounts detailed in the award: see [10] above.
23 Following the delivery of the final award, the applicants' solicitors wrote to the arbitrator inviting him to correct the award under s 30 of the Commercial Arbitration Act so as to allow interest from the date of breach
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- of the lease. They submitted that damages in the final award should be assessed as at 15 June 1999, the date of breach of the lease, and that interest on that sum was payable from 15 June 1999 to the date of the final award.
24 In response the arbitrator sent a letter to each party dated 10 February 2010 in which he advised:
The final award being a global award of general damages to the date of the final award, interest does not apply, especially as the award of 1 May 2000 was only an interim award.
25 Both parties agreed that the letter was incorporated in and should be read as part of the award.
The appeal
26 The appeal to this court is under s 38 of the Commercial Arbitration Act. The role of the court is very circumscribed. In New Generation Enterprises Pty Ltdv Western Australian Planning Commission [2007] WASCA 89, Pullin JA (Miller JA agreeing) said:
Section 38 is concerned with finality in arbitration proceedings and is designed to limit the intervention of courts in arbitration. The philosophy of the section is that the election of parties is to have their disputes resolved by arbitration: and this should be respected in the sense that awards should not be scrutinised with an overcritical eye and the courts should exercise restraint in seising themselves of legal questions: Masawa Australasia Pty Ltd v J Corp Pty Ltd [2000] WASC 5. Section 38(5) was amended in 1997 to strengthen the restriction against the grant of leave to appeal (Ukrainian Association of Western Australia in Perth (Inc) v Squire Constructions Pty Ltd [2004] WASC 4) [44].
27 The clear policy of the Actis 'to achieve speedy economic and informal relief to parties to arbitration agreements. Curial involvement is to be kept to a minimum': Lamac Developments Pty Ltd v Devaugh Pty Ltd[2002] WASCA 245; (2002) 27 WAR 287 [110].
28 An appeal is limited to a question of law arising out of the award: s 38(2). It is further limited by the requirement in s 38(4), that an appeal may only be brought by the consent of all parties, or by leave of the court. The respondent does not consent to the applicant bringing an appeal.
29 By s 38(5):
The Supreme Court shall not grant leave under subsection (4)(b) unless it considers that -
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- (a) having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement; and
(b) there is -
(i) a manifest error of law on the face of the award; or
(ii) strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.
31 The first requirement is that the appeal is on a question of law, the determination of which could substantially affect the rights of one or more of the parties. Questions of law, however important, should not go forward for decision if, as between the immediate parties, the matter is largely academic: Ipswich Borough Council v Fisons PLC [1990] 1 Ch 709, 721. Relevant factors include the amount in issue, and the relationship between the costs of the appeal and the significance of the question of law to be determined: Cargill International SA v Peabody Australia Mining Ltd [2010] NSWSC 887 [139].
32 Second, there must be a manifest error of law on the face of the award. After I heard argument in this matter, the High Court handed down its decision in Westport Insurance Corporation v Gordian Runoff Limited[2011] HCA 37. French CJ, Gummow, Crennan, and Bell JJ, in a joint judgment, said of s 38(5)(b)(i), that it required that 'the existence of error be manifest on the face of the award, including the reasons given by the arbitrator, in the sense of apparent to that understanding by the reader of the award': [42]. They expressly disapproved of earlier authority 'requiring the error of law itself to have a particular quality or character so as to include within par (b)(i) facile errors and to exclude those of complexity': [45]. The majority did not expressly comment on the authorities regarding the need for courts to exercise restraint in intervening in matters which have gone before an arbitrator. But the quality or character of the error is to be considered at the stage of the exercise of the court's discretion whether to grant leave, and is not part of the question whether an error of law is manifest on the face of the award: Westport Insurance [47].
(Page 14)
33 The requirement that the error be 'on the face of the award' cannot be ignored. Each party has, in its submissions, referred to documents, including submissions to the arbitrator. I can have regard to those documents only to the extent they are incorporated in the award: Champsey Bhara & Cov Jivraj Balloo Spinning & Weaving Co Ltd [1923] AC 480, 487; Tuta Products Pty Ltd v Hutcherson Bros Pty Ltd[1972] HCA 4; (1972) 127 CLR 253. On when documents are so incorporated, see Zurich Bay Holdings Pty Ltd v Iluka Midwest Ltd [2009] WASC 237 [14] - [16].
34 The combined requirements of s 38(5)(a) and (b) have been described as a threshold to the exercise of the court's discretion to grant leave. Even if those requirements are satisfied, the applicants must still show that the discretion should be exercised in their favour: see Westport Insurance [29]; Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203, 225 - 226; Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327, 333; and see D & M (Australia) Pty Ltd v Crouch Developments Pty Ltd [2011] WASCA 109 [17].
35 Finally, the effect of a grant of leave is to permit an appeal to the court under s 38(2), confined to a question of law arising out of the award. In relation to s 38(2), the plurality in Westport Insurancereferred to the remarks of Brennan J in Waterford v The Commonwealth of Australia [1987] HCA 25;(1987) 163 CLR 54, 77 - 78, where, speaking of the appeal to the Federal Court from the Administrative Appeals Tribunal, his Honour said:
36 The error of law which an appellant must rely on to succeed must arise on the facts as the AAT has found them to be or it must vitiate the findings made or it must have led the AAT to omit to make a finding it was legally required to make. There is no error of law simply in making a wrong finding of fact.
Consideration of the grounds of appeal
Ground 1
37 The arbitrator stated that, on the respondent's evidence, the premises were fit for occupation from 6 June 2000 and rent became again payable from then. There is no challenge to those conclusions. He also accepted the amount of arrears as assessed by the respondent, together with interest at 15% 'as set down in the lease'.
38 The applicants submit that there was no evidence to support the counterclaim, and there was a breach of natural justice in allowing it. In particular, they submit that the arbitrator accepted a schedule of loss and
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- interest to 29 July 2009 that had been prepared by the respondent and provided as part of the respondent's closing submissions. They submit that the arbitrator accepted that claim even though the respondent had not proved the amount of rent it was entitled to. They were denied natural justice because they had no opportunity to cross-examine the author of the schedule.
39 The applicants also submit that the lease was not in evidence, or was not relied on by the respondent.
40 I am satisfied the lease was in evidence. In his reasons, the arbitrator listed the standard lease agreement dated 2 May 1998, in the documents that were in evidence. Determination of rent owed, and interest on it, was a matter of calculation from the provisions of the lease. The arbitrator said the amount was $75,217.19 'as assessed by the respondent'. It is not clear from reading the award whether he simply accepted the respondent's calculation, or agreed with it. I am not satisfied that there is an error of law in accepting a calculation based the provisions of the lease. If there was an error in the calculation of the rent due, it was an error of fact. No question of law arises.
41 Finally, the applicants say there is a dispute regarding the rate of interest used by the arbitrator. But there is nothing on the face of the award to show that the arbitrator used a wrong rate because he misconstrued the lease, or for some other reason that reveals an error of law.
42 There is, in my opinion, no basis to grant leave in respect of ground 1.
Ground 2
43 The applicants submit that they clearly made a claim for damages for expenditure on plant and equipment. The award does not provide damages for the cost of plant and equipment installed and commissioned by the applicants. Ground 2 alleges error of law in failing to allow any amount in respect of that claim.
44 The arbitrator had already, in the interim award, found the respondent liable for breach of the lease. The exercise of assessing damages was to be carried out according to the principle that the applicants are to be placed in the same situation with respect to damages, so far as money can do it, as if the contract had been performed: Tabcorp Holdings Ltd v Bowen Investments Pty Ltd[2009] HCA 8; (2009) 236
(Page 16)
- CLR 272, 286 [13]; Robinson v Harman(1848) 1 Exch 850, 855; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64, 80. The applicants bore the onus to prove the nature and extent of the damages they suffered as a result of the respondent's breach of the lease: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603, 608, 612, 627, 628, 640; Commonwealth v Amann Aviation Pty Ltd (80). It is normally assumed, however, that a party would have at least recovered their outlay on the contract, and the party in breach has at least an evidential onus of proving the contrary: Commonwealth v Amann Aviation (86 - 89, 108, 126, 156).
45 The arbitrator awarded damages on the basis of lost commercial opportunity, and made no findings regarding the applicants' claim for damages for expenditure. A failure to advert to a particular matter or submission does not of itself necessarily mean that the matter was not considered: Tobacco Institute of Australia v National Health and Medical Research Council(1996) 71 FCR 265, 279. But the arbitrator's failure to make any findings from which the court can infer that he considered reliance damages, where there was evidence before him of the applicants' outlay, demonstrates error in law.
46 The alleged error goes to a substantial part of the applicants' claim. I am satisfied that determination of the question of law could substantially affect the rights of the parties to the arbitration, and the application for leave also meets s 38(5)(a).
Ground 3
47 The substance of ground 3 is that the arbitrator erred in law in failing to assess damages as at the date of breach of the contract.
48 The arbitrator found in the interim award that, from 15 June 1999, at least some areas of the respondent's factory were substantially unfit for occupation by the applicants due to the entry of water. The applicants submit that the breach of contract was thus found to have occurred in June 1999, and damages should have been assessed at that date with interest to the date of the award. The arbitrator, however, said that he made a global award of damages to the date of the final award and that interest did not apply.
49 The general rule is that damages are assessed at the date of breach: Johnson v Perez[1988] HCA 64; (1988) 166 CLR 351, 367. The rule is not universal, and 'must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount of damages which will
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- most fairly compensate him for the wrong he has suffered': Johnson v Perez(355 - 356, 367, 371, 380); Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [26]; Smith and New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254, 265. I doubt that the arbitrator needed to choose the later date, rather than the date of breach, in order to ensure the applicants were adequately compensated. He could properly have taken into account the failure of the applicants' business, even if making his assessment as at the date of breach: Johnson v Perez; Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281; and HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640. Although the rule that damages are to be assessed at the date of breach is not inflexible, there was nothing in the circumstances of this case that required departure from the general rule.
50 The applicants submit that the arbitrator erred in law in not assessing damages at the date of breach and, as a result, failed to allow interest on the damages from that date. There are difficulties with this submission. Section 31(1) of the Commercial Arbitration Act is in similar terms to s 32(1) of the Supreme Court Act 1935. The function of an award of interestis to compensate a plaintiff for the loss or detriment they have suffered by the delay in receiving damages to which they theoretically became entitled at the time of the breach: Grincelis v House [2000] HCA 42; (2000) 201 CLR 321 [16]; Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60, 66; Rio Tinto Exploration Pty Ltd v Graphite Holdings Pty Ltd [2007] WASCA 276 [46] - [47]. Assuming interest was claimed, it was in the arbitrator's discretion whether to award interest on the whole or any part of the award, for the whole or any part of the period from when the cause of action arose. Interest on damages for lost opportunity may be assessed from a later time than that of the original breach of contract: Hartley Poynton v Ali [2005] VSCA 53; (2005) 11 VR 568 [108] - [110]. It is likely, having regard to the way in which the arbitrator expressed his conclusions in the award (including the letter of 10 February 2010), that he found the losses assessed were not all incurred at the date of the breach.
51 The applicants' major difficulty, however, stems from the way in which the arbitrator arrived at his award. The arbitrator said in the award that he was taking a global approach and awarding a lump sum. Further, he said he was following the statement in Jones v Schiffmann, and that guesswork was permissible (see Jones v Schiffmann [1971] HCA 52; (1971) 124 CLR 303, 308). He advised the parties, in his letter of 10 February 2010, that he made a global award of general damages to the
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- date of the final award and 'interest does not apply'. Given how the arbitrator arrived at the final sum, it is not apparent on reading the award that the sum of $500,000 does not take into account all of the applicants' loss, including any detriment suffered by the applicants in being kept out of their money.
52 Accordingly, I would not grant leave on this ground. The applicants must demonstrate that, having regard to all of the circumstances, determination of the question of law raised in the appeal could substantially affect the rights of the parties to the arbitration: s 38(5)(a). They need to show that by making a global award to the date of the final award the arbitrator has not fairly compensated them for the loss they suffered. I am not satisfied that determination of the question of law raised in this ground affects the question of whether the applicants were fairly compensated, and thus could substantially affect the parties' rights. In so finding, I should note that in the related application brought by the present respondent, I have found that the arbitrator's reasons for arriving at the sum of $500,000 fall short of the requirements of the Commercial Arbitration Act.
53 In their written submissions in the appeal, the applicants also submit that there is strong evidence that the arbitrator erred in not allowing interest, and the determination of the question is likely to add substantially to the certainty of commercial law: see Commercial Arbitration Act, s 35(4)(b)(ii). The submission goes outside the ground of appeal. In any event, the question whether to award interest is a matter of discretion. The principles relating to the exercise of the discretion are settled. The application of those principles to the facts of this case would not add to, and is not likely to add to, the certainty of commercial law. And, for the reasons set out above, the applicants do not meet the requirements of s 38(5)(a).
Disposition of the application for leave
54 Accordingly I am satisfied that, in relation to ground 2 only, the applicants meet the requirement of s 38(5)(a) and (b)(i).
55 It remains in the discretion of the court whether, in the circumstances, leave should be granted: D & M (Australia) Pty Ltd v Crouch Developments Pty Ltd [17]. In exercising that discretion, I take into account that s 38 is concerned with finality in arbitration, and the intervention of the courts should be strictly limited. I am particularly concerned that this matter has already taken more than 10 years, 21 days of hearing before the arbitrator, and many applications in this court. I
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- also, however, take into account the potential consequence for the applicants of refusing leave. A very significant part of their claim has not been determined.
56 The applicants should have leave to appeal in relation to ground 2 only.
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