Dalcon Constructions Pty Ltd v Chu
[2002] WASCA 290
•23 OCTOBER 2002
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: DALCON CONSTRUCTIONS PTY LTD -v- CHU & ANOR [2002] WASCA 290
CORAM: STEYTLER J
HEARD: 17 SEPTEMBER 2002
DELIVERED : 23 OCTOBER 2002
FILE NO/S: ARB 4 of 2002
BETWEEN: DALCON CONSTRUCTIONS PTY LTD
Applicant
AND
VINCENT KUS CHU
DOLLY CHU
Respondents
Catchwords:
Commercial arbitration - Leave to appeal - Building contract dispute - Where quantum meruit claim summarily rejected - Applicant not given opportunity to lead evidence or make submissions - Whether manifest error of law on face of award - Turns on own facts
Commercial arbitration - Leave to appeal - Building contract dispute - Costs of arbitration - Whether arbitrators' discretion concerning award of costs properly exercised - Whether manifest error of law on face of award - Turns on own facts
Legislation:
Commercial Arbitration Act 1985, s 38, s 38(5)
Result:
Leave to appeal granted
Appeal allowed
Category: B
Representation:
Counsel:
Applicant: Mr R A Zilkens
Respondents : No appearance
Solicitors:
Applicant: Zilkens & Co
Respondents : No appearance
Case(s) referred to in judgment(s):
Australian Coal & Shale Employees' Federation v Commonwealth (1953) 94 CLR 621
Board of Education v Rice [1911] AC 179
Chen v Minister for Immigration and Ethnic Affairs (1994) 48 FCR 591
Gold Coast City Council v Canterbury Pipe Lines (Aust) Pty Ltd (1968) 118 CLR 58
House v The King (1936) 55 CLR 499
Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203
Tuta Products Pty Ltd v Hutcherson Bros Pty Ltd (Receivers Appointed) (1972) 127 CLR 253
UDR Equipment Pty Ltd v Afkos Industries Pty Ltd (2000) 22 WAR 221
Case(s) also cited:
Chrulew v BormReid & Co [1992] 1 WLR 176
Harold v Smith (1860) 5 H & N 381; 157 ER 1229
Minister for Aboriginal Affairs v PekoWallsend Ltd (1986) 162 CLR 24
Ozols v Trotman, unreported; SCt of WA (Steytler J); Library No 950412; 9 August 1995
Transport Workers Union of Australia v Leon Laidley Pty Ltd (1980) 28 ALR 589
Tuite v Administrative Appeals Tribunal (1993) 40 FCR 483
STEYTLER J: The applicant is a builder. Between 30 June 1997 and 19 June 1999 it built a house for the respondents pursuant to the terms of a building contract dated 23 May 1997. The applicant and the respondents fell into dispute over the building of the house and they took their dispute to arbitration. The applicant lodged points of claim, relying upon the terms of the building contract which, it said, had been varied on 10 February 1998. It claimed an amount of $11,714.50, said to be owing to it under a progress claim made pursuant to the terms of the contract. It also made claims for damages for breach of the contract and a quantum meruit claim, together totalling over $125,000, as well as claims for interest and costs. The respondents, in their points of defence, denied that the applicant was entitled to anything. Indeed, they said that the applicant had itself breached the building contract. They counterclaimed for damages amounting to $58,366.22.
The arbitration ran for 16 days. Then, on 19 December 2001, the arbitrators handed down an interim award by which they determined that the respondents were to pay to the applicant a sum of $43,029.69 by way of damages, plus interest. On 5 March 2002 they handed down a final award which dismissed the quantum meruit claim and dealt with the costs of the arbitration.
The applicant applied for leave to appeal against the decision of the arbitrators and the application was ordered, if allowed, to be treated as the hearing of the appeal itself. The respondents, being aware of this last‑mentioned order (which had not been opposed by them), chose not to play any part in the hearing of the application. They had been represented by solicitors, but chose to terminate their solicitors' instructions after authorising them, in late August 2002, to inform the Court that the respondents did not wish to participate further in the proceedings and that they would abide the decision of the Court. It seems that their decision may have been influenced by the fact that they have sold their house and now live permanently in Indonesia.
The Grounds of Appeal
The applicant has raised two grounds of appeal. The first is that the arbitrators erred in law in rejecting its quantum meruit claim, by which it had claimed a sum of $50,000, without giving to the applicant the opportunity to lead any evidence or to make any submissions in that respect. The second relates to the costs orders which were made by the arbitrators. What the arbitrators did, in this last respect, was to make orders by reference to three milestones in the course of the arbitration. The first of these was the preliminary conference. Each party was ordered to pay its, or their, own costs of the preliminary conference and to bear half the arbitrators' fees and expenses in that respect. The second was what was described by the arbitrators as the commencement of the "substantive" hearing of the arbitration on 22 August 2001. The applicant was ordered to pay to the respondents a sum of $28,380.25 by way of the arbitrators' fees and expenses between the date of the preliminary conference and 22 August 2001. It was also ordered to pay the respondents' costs, as between party and party, incurred over that period. The third was the date of the final award. The respondents were ordered to pay $74,794.75, being the arbitrators' fees and expenses between 23 August 2001 and the date of the final award. They were also ordered to bear the applicant's costs, as between party and party, over that period. The applicant contends, by ground 2, that the arbitrators erred in law in approaching the issue of costs in that way.
I will consider each of these grounds in turn.
The Quantum Meruit Claim
The quantum meruit claim which was made by the applicant was said to have arisen as a consequence of work performed by one of its directors, Mr James Figliomeni. In its points of claim the applicant pleaded that Mr Figliomeni, on behalf of the applicant, had spent time and effort in assisting the respondents with selections of fittings and other items for their home. He was said to have spent in excess of 400 hours in this endeavour and the applicant claims to be entitled to be reasonably remunerated for his work at a rate of $125 per hour. The respondents deny that the applicant is entitled to anything in that respect.
On 23 August 2001, being the sixth day of the arbitration, there was some discussion about this claim. The upshot of that discussion was that it was agreed that the quantum meruit claim should be decided separately from the rest of the arbitration. Counsel for the applicant, Mr Zilkens, then made sure that he correctly understood what the arbitrators had in mind. He asked whether he was then required to "stay away from" the quantum meruit claim "completely" because it was to be dealt with as a separate issue. He was told, in effect, that he should and that the arbitrators would make an interim award which would not deal with this issue. It was confirmed that it would be "a split case". One of the arbitrators, Mr Alan Swann, said that the quantum meruit claim would, if necessary, become "another separate hearing … after the interim award". He went on to say:
"… [I]t will not be part of this hearing and we'll make arrangements, if necessary, either before we close at the end of this hearing or we'll leave it, hand down the interim award, and then make further arrangements."
The quantum meruit claim was consequently not addressed by the parties, whether by way of evidence or submissions, at any time prior to the handing down of the interim award. While the claim was mentioned in the interim award, no determination was made in respect of it, as had been foreshadowed.
Then, in their final award dated 5 March 2002, without any warning and without hearing any evidence or submissions from the parties in respect of the quantum meruit claim, the arbitrators dismissed that claim. They said that it was not sustainable. They also said that, in their reasons given on the interim award, they had omitted to address this issue and that, while it had been included in an earlier draft, it had been "unavoidably missed in the final printing".
In summarily rejecting this claim, without giving the applicant any chance to be heard or to lead any evidence in support of it, it seems that the arbitrators overlooked the fact that they had earlier agreed that the claim should be deferred. Their error, which is apparent on the face of the final award, the arbitrators' reasons having been appended to that award (as to which see Gold Coast City Council v Canterbury Pipe Lines (Aust) Pty Ltd (1968) 118 CLR 58 and Tuta Products Pty Ltd v Hutcherson Bros Pty Ltd (Receivers Appointed) (1972) 127 CLR 253 at 258), resulted in a patent breach of the rules of procedural fairness (as to which see, for example, Board of Education v Rice [1911] AC 179 at 182 and Chen v Minister for Immigration and Ethnic Affairs (1994) 48 FCR 591).
The Issue of Costs
The arbitrators' reasons, in respect of the issue of costs, are relatively brief. They said:
"We have considered this matter carefully and judiciously and have reached our conclusions taking into account the following basic underlying facts:
•Costs would generally 'follow the event' unless special circumstances warrant a different result.
•The parties in their final submissions acknowledge that there are special circumstances that influence a special order as to costs.
•The Claimant/Builder won but at a much lower value than claimed.
•The Interim Award clearly demonstrates the failures by both parties and, or, their agents, in the execution and administration of the contract and the reference and arbitration.
•The long delays from the Preliminary Conference to the Hearing beginning on 23rd August 2001.
•The analysis of the time spent during the arbitration on the evidence and presentation of the respective cases, and the wasted time on non‑sustainable matters.
•At the first Hearing on 27th March 2001 - the third day, the Arbitrators conferred with the legal representatives and requested they explain and discuss the overall situation with their clients. The Arbitrators were concerned at the mounting costs relative to the financial claims and considered that the parties should discuss with a view to attempting to negotiate a resolution and, or, to consider a Section 27 Conference with an independent mediator. Although the representatives made every effort to assist the parties to reach a resolution, their decision was to continue.
•Personal letter from the Claimant/Builder to the Respondent/Proprietor dated 15th June 2001 with an Offer for Settlement and this is clearly an Offer of Compromise. This letter is also significant as the proposal from the Builder was for the Proprietor to make a payment of $42,000.00 and implying that each party shall pay their own costs and share the arbitration costs."
The arbitrators' reasoning for arriving at the conclusion ultimately reached by them is not at all apparent from what they said. The fact that the applicant "won but at a much lower value than claimed" cannot justify an approach to costs of the kind taken. Nor can the mere fact of "failures by both parties … in the execution and administration of the contract and the reference and arbitration". Also, as to the "long delays" between the preliminary conference and 23 August 2001, all that the arbitrators have said in that respect (and this was said in their interim award) was that they were "mainly due to the … [applicant]". More importantly, no attempt appears to have been made by the arbitrators to analyse what, if any, effect those delays had on costs. Nor is the significance of the discussion on 27 March 2001 readily apparent. While it is obvious that there was good reason for the arbitrators' concern at the mounting costs, it is difficult to see how the decision to continue with the arbitration, taken together with the other factors referred to, could result in an award of costs of the kind made. Nor is it apparent what weight was accorded to the applicant's (open) offer of settlement made on 15 June 2001. It is not apparent that the arbitrators took into account the fact that the applicant was ultimately successful in obtaining more money than it had been prepared to accept in this offer. Finally, so far as the factors of "time spent during the arbitration … and … wasted time on non‑sustainable matters" are concerned, the arbitrators were undoubtedly right in saying that these are factors which should be taken into account, but nothing was said by them as to how they were taken into account and, indeed, their seemingly arbitrary use of the milestones to which I have referred appears to be inconsistent with any considered analysis of the wasted time and costs.
In all of these circumstances it seems to me, with due respect, to be plain that the arbitrators' reasons, insofar as they have given them, do not support the award of costs which they have made. Indeed, it is difficult to see upon what basis they could have arrived at the decision reached by them, when regard is had to the factors to which they have referred.
There may well have been circumstances which justified a special order as to costs, including some of those referred to by the arbitrators. In particular, it is true that the applicant had received very much less than it had claimed, although as I have pointed out, the quantum meruit claim (which formed a significant part of the overall claim) should have been left over for later determination. However, it is equally true that the respondents failed in their counterclaims and, as I have said, no attempt appears to have been made to evaluate how much time, and money, was expended on issues in respect of which each of the parties was successful or unsuccessful. Also, while delays may be relevant, insofar as they were brought about by the conduct of one or other of the parties, there has, as I have also said, been no real analysis of those delays and what, if any, impact they had on costs. Moreover, the arbitrators may have overlooked the fact that much of the cost incurred by the parties would have related to "getting up", which preceded the commencement of the arbitration. There has seemingly also been no attempt to differentiate between the costs incurred prior to the settlement offer and those incurred thereafter. All of these factors needed to be considered.
It consequently seems to me, with due respect, that the result arrived at by the arbitrators necessarily reflects a failure on their part to exercise a proper discretion (see Australian Coal & Shale Employees' Federation v Commonwealth (1953) 94 CLR 621 at 627). They appear quite plainly to have acted on a wrong principle, to have failed to make any real analysis, for the purposes of an award of costs, of the success or failure of each party on the various issues before them, to have failed to assess what was the responsibility of each party for wasted costs (and, so far as delays were concerned, to what extent each delay resulted in wasted costs) and to have given little weight to the offer of settlement which had been made by the applicant, each of these having been material considerations (as to which, see House v The King (1936) 55 CLR 499 at 504).
Leave to Appeal
Under s 38 of the Commercial Arbitration Act 1985, an appeal on a question of law arising out of an award lies to the Supreme Court where leave is given to bring that appeal. Section 38(5) provides that the Court shall not grant leave unless it considers that, having regard to all 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 and there is either a manifest error of law on the face of the award or 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.
Here there is no suggestion that anything that I am to determine might add, or be likely to add, substantially to the certainty of commercial law. Consequently, the only issues, in considering whether or not there should be a grant of leave, are whether the determination of the questions of law which have been raised could substantially affect the rights of one or more of the parties to the arbitration agreement and whether there was a manifest error of law on the face of the award.
As to the latter point, I have previously said, in UDR Equipment Pty Ltd v Afkos Industries Pty Ltd (2000) 22 WAR 221, at par 51, that this Court should adopt what has been said by Sheller JA in Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203. There, Sheller JA said (at 225 ‑ 226) that, before leave is granted, there should be "powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law".
In my opinion there was, for the reasons which I have already given, a manifest error on the face of the award, in this sense, in each of the respects raised by the grounds of appeal. Indeed, I am satisfied of this on more than merely a preliminary basis. I am also satisfied that, having regard for the reasonably large (to a small proprietary company) sums of money involved, the determination of the questions raised could substantially affect the rights of one or more of the parties. That being so, it follows that leave to appeal should be given.
The Appeal
Leave having been given, it follows inevitably from what I have said, taken together with the fact that the application for leave was to be treated as the hearing of the appeal itself, if leave should be granted, that the appeal should be allowed. It also follows that the appropriate orders should be that:
(a)those parts of the arbitrators' award dismissing the quantum meruit claim and deciding who should bear the costs of the arbitration (including the arbitrators' fees) be set aside; and
(b)the matter be remitted to the arbitrators for:
(i)determination of the quantum meruit claim after giving to the parties an opportunity to lead evidence and to make submissions in that respect; and, once that has been done,
(ii)redetermination of the issue of costs in the light of these reasons.
8
1