Doric Building Pty Ltd v Marine and Civil Construction Co Pty Ltd
[2005] WASC 155
DORIC BUILDING PTY LTD -v- MARINE & CIVIL CONSTRUCTION CO PTY LTD & ANOR [2005] WASC 155
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2005] WASC 155 | |
| Case No: | ARB:13/2004 | 16 MARCH & 11 MAY 2005 | |
| Coram: | MASTER NEWNES | 14/07/05 | |
| 21 | Judgment Part: | 1 of 1 | |
| Result: | Application for leave to appeal adjourned to hearing of s 42 application Application to enforce award refused Application for payment of amount of award into court pending s 42 application refused | ||
| B | |||
| PDF Version |
| Parties: | DORIC BUILDING PTY LTD MARINE & CIVIL CONSTRUCTION CO PTY LTD ROGER K F DAVIS MARINE & CIVIL CONSTRUCTION COMPANY PTY LTD |
Catchwords: | Practice and procedure Application for leave to appeal decision of Arbitrator Commercial Arbitration Act, s 38 Whether should be heard with pending application under s 42 Application for payment of amount of Arbitrator's award into Court pending outcome of application to set aside award for misconduct under s 42 Relevant considerations Application to enforce award and enter judgment Relevant principles Turns on own facts |
Legislation: | Commercial Arbitration Act 1985 (WA) Corporations Act 2001 (Cth) Rules of the Supreme Court, O 81D |
Case References: | Cockatoo Dockyard Pty Ltd v Commonwealth of Australia (No 3) (1994) 35 NSWLR 689 Diploma Construction Pty Ltd v Windslow Corporation Ltd [2005] WASC 74 Doran Constructions Pty Ltd v Health Administration Corporation (NSW) (1994) 12 BCL 104 Forsayth NL v Australasian Gold Mines NL (No 1) (1992) 7 WAR 549 Friend & Booker Pty Ltd v Council of the Shire of Eurobodalla, unreported; SCt of NSW; 20 June 1991 Heaven & Kesterton Ltd v Sven Widaeus A/B [1958] 1 WLR 248 Holland-Stolte Pty Ltd v Murbay Pty Ltd (1991) 105 FLR 304 Lamac Development Pty Ltd v Devaugh Pty Ltd (2002) 27 WAR 287 Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245 London Export Corp Ltd v Jubilee Coffee Roasting Co Ltd [1958] 1 WLR 271 Stannard v Sperway Constructions Pty Ltd [1990] VR 673 Tridon Australia Pty Ltd v ACD Tridon Inc [2004] NSWCA 146 UDR Equipment Pty Ltd v Afkos Industries Pty Ltd (2000) WASC 57 Villani v Delstrat Pty Ltd [2002] WASC 112 Williams v Wallis & Cox [1914] 2 KB 478 Wilson v Glover [1969] NZLR 365 Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 Australian Gas Light Co v ValuerGeneral (1940) 40 SR (NSW) 126 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Brereton v Milstein [1988] VR 508 Commissioner of State Taxation (WA) v Mechold Pty Ltd (1995) ATR 69 Commonwealth v Rian Financial Services and Developments Pty Ltd (1992) 36 FCR 101 Commonwealth v Thiess Contractors Pty Ltd (1991) 4 WAR 425 Construction Engineering (Aust) Pty Ltd v Tambel (Australasia) Pty Ltd [1984] 1 NSWLR 274 Consultants Group International v John Worman Ltd (1985) Con LR 46 Dennis Willco Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267 Exxon Coal Australia Ltd (formerly White Industries Ltd) v Chadtech Pty Ltd [1999] NSWSC 574 Fastspan Buildings v J & A Lovretta, unreported; SCt of WA; Library No 8031; 12 January 1990 Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49 Greaves & Co (Contractors) v Baynham Meikle & Partners [1975] 1 WLR 1095 Hancock v B W Brazier (Anerley) Ltd [1966] 1 WLR 1317 Hayden v Teplitzky (1997) 74 FCR 7 Neal v Secretary, Department of Transport (1980) 29 ALR 350 Ownit Homes Pty Ltd v Batchelor [1983] 2 Qd R 124 Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327 Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264 Tharsis Sulphur & Copper Company v McElroy & Sons (1878) 3 App Cas 1040 Thiess Contractors Pty Ltd v Water Corporation of Western Australia, unreported; SCt of WA; Library No 970561; 28 October 1997 Vodafone Pty Ltd v Supercall Pty Ltd [2003] NSWSC 302 White Constructions (NT) Pty Ltd v Mutton (1988) 57 NTR 8 Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Applicant (Respondent)
AND
MARINE & CIVIL CONSTRUCTION CO PTY LTD
First Respondent (Claimant)
ROGER K F DAVIS
Second Respondent (Arbitrator)
- Applicant (Respondent)
AND
DORIC BUILDING PTY LTD
First Respondent (Claimant)
ROGER K F DAVIS
Second Respondent (Arbitrator)
(Page 2)
Catchwords:
Practice and procedure - Application for leave to appeal decision of Arbitrator - Commercial Arbitration Act, s 38 - Whether should be heard with pending application under s 42 - Application for payment of amount of Arbitrator's award into Court pending outcome of application to set aside award for misconduct under s 42 - Relevant considerations - Application to enforce award and enter judgment - Relevant principles - Turns on own facts
Legislation:
Commercial Arbitration Act 1985 (WA)
Corporations Act 2001 (Cth)
Rules of the Supreme Court, O 81D
Result:
Application for leave to appeal adjourned to hearing of s 42 application
Application to enforce award refused
Application for payment of amount of award into court pending s 42 application refused
Category: B
Representation:
ARB 13 of 2004
Counsel:
Applicant (Respondent) : Mr P G Clifford
First Respondent (Claimant) : Mr P A Fyfe
Second Respondent (Arbitrator) : No appearance
Solicitors:
Applicant (Respondent) : Phillips Fox
First Respondent (Claimant) : Jackson McDonald
Second Respondent (Arbitrator) : No appearance
(Page 3)
ARB 14 of 2004
Counsel:
Applicant (Respondent) : Mr P A Fyfe
First Respondent (Claimant) : Mr P G Clifford
Second Respondent (Arbitrator) : No appearance
Solicitors:
Applicant (Respondent) : Jackson McDonald
First Respondent (Claimant) : Phillips Fox
Second Respondent (Arbitrator) : No appearance
Case(s) referred to in judgment(s):
Cockatoo Dockyard Pty Ltd v Commonwealth of Australia (No 3) (1994) 35 NSWLR 689
Diploma Construction Pty Ltd v Windslow Corporation Ltd [2005] WASC 74
Doran Constructions Pty Ltd v Health Administration Corporation (NSW) (1994) 12 BCL 104
Forsayth NL v Australasian Gold Mines NL (No 1) (1992) 7 WAR 549
Friend & Booker Pty Ltd v Council of the Shire of Eurobodalla, unreported; SCt of NSW; 20 June 1991
Heaven & Kesterton Ltd v Sven Widaeus A/B [1958] 1 WLR 248
Holland-Stolte Pty Ltd v Murbay Pty Ltd (1991) 105 FLR 304
Lamac Development Pty Ltd v Devaugh Pty Ltd (2002) 27 WAR 287
London Export Corp Ltd v Jubilee Coffee Roasting Co Ltd [1958] 1 WLR 271
Stannard v Sperway Constructions Pty Ltd [1990] VR 673
Tridon Australia Pty Ltd v ACD Tridon Inc [2004] NSWCA 146
UDR Equipment Pty Ltd v Afkos Industries Pty Ltd (2000) WASC 57
Villani v Delstrat Pty Ltd [2002] WASC 112
Williams v Wallis & Cox [1914] 2 KB 478
Wilson v Glover [1969] NZLR 365
(Page 4)
Case(s) also cited:
Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99
Australian Gas Light Co v ValuerGeneral (1940) 40 SR (NSW) 126
Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139
Brereton v Milstein [1988] VR 508
Commissioner of State Taxation (WA) v Mechold Pty Ltd (1995) ATR 69
Commonwealth v Rian Financial Services and Developments Pty Ltd (1992) 36 FCR 101
Commonwealth v Thiess Contractors Pty Ltd (1991) 4 WAR 425
Construction Engineering (Aust) Pty Ltd v Tambel (Australasia) Pty Ltd [1984] 1 NSWLR 274
Consultants Group International v John Worman Ltd (1985) Con LR 46
Dennis Willco Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267
Exxon Coal Australia Ltd (formerly White Industries Ltd) v Chadtech Pty Ltd [1999] NSWSC 574
Fastspan Buildings v J & A Lovretta, unreported; SCt of WA; Library No 8031; 12 January 1990
Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49
Greaves & Co (Contractors) v Baynham Meikle & Partners [1975] 1 WLR 1095
Hancock v B W Brazier (Anerley) Ltd [1966] 1 WLR 1317
Hayden v Teplitzky (1997) 74 FCR 7
Neal v Secretary, Department of Transport (1980) 29 ALR 350
Ownit Homes Pty Ltd v Batchelor [1983] 2 Qd R 124
Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724
Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327
Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264
Tharsis Sulphur & Copper Company v McElroy & Sons (1878) 3 App Cas 1040
Thiess Contractors Pty Ltd v Water Corporation of Western Australia, unreported; SCt of WA; Library No 970561; 28 October 1997
Vodafone Pty Ltd v Supercall Pty Ltd [2003] NSWSC 302
White Constructions (NT) Pty Ltd v Mutton (1988) 57 NTR 8
Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454
(Page 5)
1 MASTER NEWNES: I have before me four applications, namely, an application by the applicant ("Doric") in ARB 13 for leave to appeal, pursuant to s 38(4)(b) of the Commercial Arbitration Act 1985 (WA) (the "Act"), against the interim and final awards of an arbitrator made on 26 November and 13 December 2004 respectively; an application by the applicant ("Marine & Civil") in ARB 14 and first respondent in ARB 13 to dismiss Doric's application for leave to appeal; an application by Marine & Civil for an order that all money payable by Doric under the awards be paid into Court pending determination of an application made by Doric under s 42 of the Act; and an application by Marine & Civil to enter and enforce the awards as a judgment of the Court. A very substantial volume of material, contained in ten lever arch files, was filed in respect of the four applications, which were heard together.
2 Apart from the matters before me, Doric has also brought an application for an order that the awards be set aside pursuant to s 42(1)(a) of the Act. I will refer to that in due course.
3 It is convenient to turn first to Marine & Civil's application to strike out Doric's application for leave to appeal. The application was made by Marine & Civil on the ground that the notice of originating motion for leave to appeal did not comply with the requirements of O 81D r 10(1)(a) of the Rules of the Supreme Court, in that it failed to set out the question, or questions, of law arising out of the awards. At the hearing of the application, counsel for Doric sought, and obtained, leave to amend the notice of motion to identify specifically the questions of law. In my view that overcame the objection by Marine & Civil and I understood its counsel accepted that. It is therefore unnecessary to consider that matter further.
4 The appeal which Doric seeks to bring arises out of a contract for the design, construction and installation of the underwater observatory at the end of the Busselton Jetty. It is common ground that, in June 2001, the Shire of Busselton invited tenders to design, construct and install the underwater observatory in accordance with certain drawings and specifications. A tender was submitted by Doric. The Shire of Busselton advised Doric by letter of 18 September 2001 that Doric was the "preferred tenderer" for the project. On 8 November 2001, Doric and the Shire of Busselton executed a form of formal instrument of agreement for a design and construct contract in accordance with AS 4303 - 1995, which incorporated general conditions AS 4300 - 1995. The total contract sum was $2,516,000.
(Page 6)
5 On 15 May 2002, Doric and Marine & Civil entered into a written subcontract agreement on a Doric "Subcontract Order" form. The agreement provided, so far as relevant:
"SCOPE OF WORK
Marine & Civil Construction Pty Ltd under this subcontract form alliance [sic] with DORIC Building Pty Ltd to Design and Construct the Busselton Jetty Underwater Observatory (UWO).
The scope of work conforms with but is not limited to the following:
…
The Design and Construction of the UWO will be based on the conforming scheme as amended and outlined in the successful tender submission dated 31 July 2001.
…
DESIGN & DOCUMENTATION
- i) Marine & Civil in conjunction with Doric will Manage the design and documentation to ensure adherence to the tender submission, client performance brief whilst remaining within the head contract value.
…
PROJECT COST CONTROL
i) Marine & Civil in conjunction with Doric will manage project cost control to ensure the project margin is maintained or improved.
…
iv) Doric approval is required prior to Marine & Civil issuing any major work orders.
v) All project costs incurred by Marine & Civil and DORIC are to be reported monthly on an 'open book' format. All costs will require detailed substantiation and approval by DORIC prior to payment.
(Page 7)
- vi) All profits (or losses) will be shared equally between Marine & Civil and DORIC Building Pty Ltd.
…
GENERAL CONDITIONS
i) This Subcontract order is back to back with the Head Contract AS 4000 – 1995 [sic, AS 4300 – 1995] general conditions of contract for design and construct as amended. Refer appendix E, PART A pages 50 to 56 all inclusive.
ii) This subcontract order will be also in accordance with AS 4303 – 1995 general conditions of subcontract for design and construct as amended for the purposes of this subcontract."
7 The terms of AS 4303 – 1995 ("AS 4303"), so far as relevant, provided, in effect, that the subcontractor was appropriately qualified and experienced (cl 4.1(a)), and would execute and complete the work under the subcontract in accordance with the design documents, so that the subcontract works, when completed, would be fit for their stated purpose (cl 4.1(e)). The subcontractor warranted that it had carefully checked that any preliminary designs included in the main contractor's project requirements were suitable, appropriate and adequate for the purpose stated in those project requirements (cl 4.1(c)). The subcontractor acknowledged that those warranties were not affected because the design work (including the preliminary design work) was carried out by or on behalf of the main contractor and included in the main contractor's project requirements (cl 4.2).
8 In AS 4303 a sum of $1000 per day was inserted as the amount of the liquidated damages payable by Marine & Civil in the event that it failed to reach practical completion by the due date. It also provided that if a failure by Marine & Civil caused Doric to be liable for liquidated damages under the head contract, Marine & Civil would be liable to Doric for the amount of those liquidated damages to a maximum of $200,000.
9 The relevant design of the marine works was carried out by Worley Infrastructure Pty Ltd ("Worley"), an engineering consultant specialising in the design of marine works, before the subcontract was entered into.
(Page 8)
- Worley's consultancy fees were paid by Doric. By about December 2001 it appeared that the design of the marine ground anchors, which had been relied upon in calculating the tender price, was inadequate for their intended purpose. The design was found to be inadequate when a detailed study carried out after the award of the head contract, but prior to the award of the subcontract, disclosed that the wave loading that had been included in the preliminary design was inadequate and that more ground anchoring would be required than was originally thought necessary. By May 2002 it was apparent that the required changes to the ground anchoring would be expensive. Doric says that Marine & Civil was aware that extensive changes would be necessary when it entered into the subcontract. In fact, the change in the ground anchoring increased the construction costs of the marine portion of the works by an amount in the order of $1,000,000. Doric thereby incurred a very substantial loss under the head contract.
10 The essential issues that arose between the parties can be summarized shortly. Doric asserted that under the subcontract Marine & Civil assumed the obligation to design and construct the underwater observatory substructure for the sum of $1,256,160 and expressly warranted that the preliminary design was adequate to produce a structure suitable for its purpose. In fact, the preliminary design of the marine ground anchors was either inadequate as a result of negligent design - for which Marine & Civil was liable under the subcontract – or it was a variation of the head contract and the subcontract, in which case the arbitration was premature as the issue of whether it was variation was still unresolved with the Shire of Busselton. In any event, the extra costs flowing from the changes to the ground anchors was a matter for Marine & Civil alone.
11 Marine & Civil contended that, rather than being a conventional design and construct subcontract, the contract between Doric and Marine & Civil was a joint venture or alliance arrangement. Marine & Civil said it was an express term of the agreement that Marine & Civil would, in conjunction with Doric, manage the design, documentation and construction of the work under the head contract and that all project costs incurred by Marine & Civil and Doric respectively would be reimbursed from the proceeds of the head contract and any profit or loss on the contract would be shared equally between them.
12 The matter was referred to arbitration under the Commercial Arbitration Act1985 (WA) and the hearing took place in October and November 2004.
(Page 9)
13 In his interim award dated 26 November 2004, the arbitrator found that, on the proper construction of the subcontract agreement, Marine & Civil had formed an alliance with Doric to carry out the whole of the contract work. The arbitrator construed an "alliance" to mean "in association with" or "in a joint venture". To that end, Marine & Civil and Doric were to work together, among other things, to manage the design and documentation to ensure performance of the works as required by the head contract and their respective costs were to be paid from the revenue derived under the head contract. The ultimate profit or loss was to be shared equally. That is, if the revenue from the head contract was more than the costs jointly incurred then that excess was to be shared equally. Conversely, if the revenue was less than the costs jointly incurred then that loss was to be shared equally.
14 The arbitrator noted that there were apparent inconsistencies between the express terms of the subcontract order form of 15 May 2002 and AS 4303, which was expressly incorporated into the agreement. The arbitrator considered the evidence of the witnesses who gave evidence as to the circumstances in which the parties entered into subcontract agreement. He concluded from the evidence that Marine & Civil did not represent to Doric that it had expertise in the design of marine structures, nor did Marine & Civil price the work on behalf of the "alliance" for the purposes of the tender. The arbitrator concluded that the subcontract did not define a discrete scope of work for Marine & Civil, separate to the work it was to perform jointly with Doric, and did not contain a lump sum price to be paid to Marine & Civil because it was intended that Marine & Civil would be paid under the profit or loss sharing arrangement.
15 In the light of what he described as "the background facts and circumstances", the arbitrator concluded that while the head contract was a true design and construct contract, the subcontract was not. Marine & Civil's obligation was confined to managing the design and documentation of others, in conjunction with Doric, to achieve a stipulated objective. Marine & Civil was to be paid the costs it incurred and otherwise was to share equally in the profit or loss under the head contract. The arbitrator found that the intention of the parties in incorporating AS 4303 was "to include a framework within which the preceding 'back to back' clause was to operate". It was not intended to alter the fundamental nature of the agreement.
16 The arbitrator rejected Doric's contention that Marine & Civil was liable under the warranties contained in AS 4303. In essence, the arbitrator found that the warranty in cl 4.1(a) did not apply because
(Page 10)
- Marine & Civil did not have a discrete obligation under the subcontract to execute the relevant areas of the work. Its obligation under the subcontract was to manage the work jointly with Doric.
17 The arbitrator found that Marine & Civil did not, by cl 4.1 (c), warrant the design of the substructure, which included the anchor system. Under AS 4303, the warranty applied to a "preliminary design" of the "Subcontract Works" included in the documents in annexure "A" to AS 4303. Those documents, the tender submission and the client tender brief, included Worley's original design of the anchor system. The "Subcontract Works" meant, relevantly, the whole of the work to be executed in accordance with the subcontract. The arbitrator noted that the subcontract provided that Marine & Civil was to perform all of the work under the head contract in alliance with Doric. However, he found that Doric and Marine & Civil had each priced separate portions of the work, with the intention that each would in due course carry out that portion of the work. The arbitrator therefore construed cl 4.1(c) to apply only to those portions of the work priced by Marine & Civil. As Marine & Civil had not priced the anchor system, the warranty had no application to it. The arbitrator reached a similar conclusion in respect of the warranty in cl 4.1(d) of the General Conditions.
18 On the claim by Doric for liquidated damages under the head contract, the arbitrator found there was no evidence that any delay to Doric's performance of the head contract was caused by a breach of the subcontract by Marine & Civil. The claim therefore failed. On the claim by Doric under the subcontract, the arbitrator noted that it was clear the work had not been completed by the date for practical completion under the head contract but concluded that, as there was no discrete scope of work for Marine & Civil under the subcontract, it could not be said that Marine & Civil had failed to reach practical completion by that date. The arbitrator also concluded that it had not been established on the evidence when practical completion under the subcontract had been reached. He added that the notion of liquidated damages in the context of a joint enterprise was inconsistent and unenforceable.
19 By the final award dated 13 December 2004, the arbitrator awarded interest on that sum at the rate of 5 per cent per annum from 1 January 2004 until the earlier of payment or the entry of the awards as a judgment. The arbitrator also ordered Doric to pay Marine & Civil's costs on the Supreme Court scale, on a party/party basis to 5 May 2004 and thereafter on an indemnity basis, plus the arbitrator's fees and the expenses of the
(Page 11)
- arbitration, except for transcription costs which were to be borne by Marine & Civil.
20 Doric now seeks to appeal against the arbitrator's awards.
21 The power of the Court to review the award of an arbitrator is found in s 38(1) of the Act. That provides that, subject to subs (4), an appeal lies on any question of law arising out of an award. Under subs (4), an appeal may only be brought with the consent of all parties to the arbitration agreement or with leave of the Court. It is then provided in subs (5) as follows:
"The Supreme Court shall not grant leave … unless it considers that —
(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."
23 The considerations to be applied on an application for leave under s 38 of the Act were canvassed by Steytler J in UDR Equipment Pty Ltd v Afkos Industries Pty Ltd (2000) WASC 57.
24 In the present case, Doric contends that the arbitrator made errors of law in that the arbitrator failed:
"17.1 to properly construe and apply the warranty provisions of the design and construct sub-contract; and
17.2 to make a finding or provide any reasons as to whether the arbitration was premature.
(Page 12)
- 17.3 to apply the liquidated damages clause in favour of Doric."
25 Doric maintains that its rights have been seriously affected, it having thereby incurred a liability (inclusive of costs and interest) in the order of $1,000,000.
26 Doric also seeks to have the arbitration awards set aside under s 42(1) of the Act on the ground of misconduct of the arbitrator. Leave is not required to bring that application. Section 42(1) provides:
"(1) Where —
(a) there has been misconduct on the part of an arbitrator or umpire or an arbitrator or umpire has misconducted the proceedings; or
(b) the arbitration or award has been improperly procured,
the Court may, on the application of a party to the arbitration agreement, set the award aside either wholly or in part."
(1) the arbitrator has not dealt at all with Doric's claim that the arbitration proceedings are premature; and
(2) the arbitrator has excluded the operation of the contractual warranties and liquidated damages clauses without Doric having been given an opportunity to deal with that issue and without that issue having been raised in the pleadings.
28 Whether there is a sustainable basis for that application is a matter that can only be determined on the hearing of it. It is, however, apparent that there is likely to be significant overlap between the matters in respect of which leave is sought to appeal and the grounds relied upon to constitute misconduct. In those circumstances, to the extent of the overlap, much of the ground is likely to be covered whether or not leave to appeal is granted.
(Page 13)
29 When the matter came on for hearing, I understood that it was to deal with the application to strike out Doric's application on the ground that it did not comply with O 81D, Marine & Civil's application for payment of the amount of the award into Court pending the determination of Doric's application under s 42, and Marine & Civil's application to enter and enforce the awards as a judgment of the Court. Counsel understood that it was also to deal with the application for leave to appeal. I suggested that the more appropriate course in respect of the application for leave to appeal under s 38 was to hear the application for leave together with the appeal, so that relevant material was canvassed only once.
30 Counsel for Marine & Civil, in particular, was not attracted to that course and submitted that the purpose of the two-step process was to enable the Court to determine whether leave should be given in respect of all, or any, of the questions of law or grounds of appeal relied upon by the applicant and, to the extent leave was granted, the substantive merits could then be considered subsequently on the hearing of the appeal.
31 It seems to me that in the normal course, and certainly in cases of any complexity or magnitude (in which category I would include this case), there will generally be much to be said for hearing the application for leave to appeal together with the appeal. Otherwise, in any case where leave to appeal is granted, it is almost inevitable there will be substantial duplication of the affidavit material and submissions on the application for leave to appeal and the appeal itself. That is quite apart from the time necessarily involved in a two stage process and the prospect of successive appeals arising from the application for leave (in respect of which it is now clear that, by leave, an appeal does lie: Lamac Development Pty Ltd v Devaugh Pty Ltd (2002) 27 WAR 287) and any appeal itself.
32 That is particularly the case where the applicant also brings an application under s 42, for which leave is not required, which potentially covers at least some of the same ground as, or similar ground to, the proposed appeal. In my view, in those circumstances it would normally be in the interests of the parties, and of the effective utilisation of the resources of the Court, for the application for leave to appeal, the appeal and the application under s 42 to be heard together. If the various applications are heard separately over time, apart from issues of duplication and delay, there also arises the potential for inconsistent, or apparently inconsistent, decisions. Of course, there may be cases where the circumstances dictate the need for separate hearings. But, in my view, where that course is proposed careful consideration needs to be given to its utility.
(Page 14)
33 In the present case, counsel for Doric indicated that he was not in a position to argue the merits of the appeal on this hearing and had come prepared only to argue the application for leave to appeal. The application under s 42 was not, of course, before me.
34 In my view, in this case the appropriate course is for the application for leave to appeal, the appeal (if leave is granted) and the application under s 42(1), to be heard together. In that way, unnecessary duplication will be avoided and all of the extant applications will resolved at one time. To the extent there may be questions of alternative relief or of an appeal, it is likely they can be dealt with more efficiently than would be possible if the matters are heard separately over a period of time. I am also conscious of the fact that it is likely that the hearing of all of the matters could be set down for hearing on a date within two to three months. I accordingly propose to direct that the matters be dealt with in that way.
35 I turn then to the applications by Marine & Civil to enforce the awards and to enter judgment for Marine & Civil in the amount of the awards, and for an order that the money payable under the awards be paid into Court or secured pending the determination of Doric's application under s 42(1) of the Act. As I have said, Marine & Civil's application to dismiss the awards for failure to comply with O 81D was, in my view, overcome by the amendment to the application for leave to appeal which was made by counsel for Doric at the hearing and I did not understand counsel for Marine & Civil to take issue with that.
36 Section 42(3) of the Act provides that, where an application is made under s 42(1), the Court may order that any money payable by the applicant under the award shall be paid into Court or otherwise secured pending the determination of the application. As I have said, Doric has made an application under s 42(1), which appears to cover, to some extent at least, the same or similar ground to its application under s 38 of the Act.
37 It was submitted on behalf of Marine & Civil that the merits of Doric's case under s 42(1) were a relevant consideration in determining whether money payable by the awards should be paid into Court or otherwise secured. It was submitted that Doric's case was, at best, weak. It is therefore necessary to form some view of the strength of Doric's case.
38 An application under s 42(1) is, of course, a procedure quite distinct from an appeal against an award. Section 42(1) is concerned with "misconduct" of an arbitrator. It is not intended to elevate any error of law into misconduct under s 42 so as to provide a means by which an
(Page 15)
- application for leave to appeal under s 38 can be circumvented: Friend & Booker Pty Ltd v Council of the Shire of Eurobodalla, unreported; SCt of NSW; 20 June 1991; Forsayth NL v Australasian Gold Mines NL (No 1) (1992) 7 WAR 549.
39 For the purposes of s 42, "misconduct" is defined by s 4(1) of the Act to include corruption, fraud, partiality, bias and a breach of the rules of natural justice. The jurisdiction to set aside an award is part of the court's function to ensure that the power of the court to enforce an award is not abused by the court being required, ultimately, to enforce an award made in breach of, or in a departure from, the contractual, statutory or common law requirements for arbitration: Stannard v Sperway Constructions Pty Ltd [1990] VR 673.
40 In the sense in which it is used in s 42, "misconduct" is not confined to serious misconduct but includes "technical" misconduct such as making a mistake as to the scope of the authority conferred, or by making an error of law of a character which might amount to misconduct: London Export Corp Ltd v Jubilee Coffee Roasting Co Ltd [1958] 1 WLR 271. It does not involve personal turpitude on the part of an arbitrator and does not amount to much more than a mishandling of the arbitration in such a way as is likely to cause a substantial miscarriage of justice: Williams v Wallis & Cox [1914] 2 KB 478 per Atkin J at 485 and Doran Constructions Pty Ltd v Health Administration Corporation (NSW) (1994) 12 BCL 104.
41 However, as the learned authors of Halsbury's Laws of Australia, vol 1 (2), observe at par 25-530, it is not possible to give an exhaustive definition of what may amount to misconduct on the part of an arbitrator. Erroneous findings of fact or law will not usually constitute misconduct, nor will every irregularity of procedure which may have occurred: Heaven & Kesterton Ltd v Sven Widaeus A/B [1958] 1 WLR 248; Wilson v Glover [1969] NZLR 365 and Holland-Stolte Pty Ltd v Murbay Pty Ltd (1991) 105 FLR 304. But misconduct may occur where an arbitrator fails to decide all the matters referred to him: Holland-Stolte Pty Ltd v Murbay Pty Ltd (supra) at 309; Villani v Delstrat Pty Ltd [2002] WASC 112 at [41]; or if the arbitrator fails to afford procedural fairness to a party.
42 In this case, as I understand the position, Doric contends that the arbitrator mishandled the proceedings by failing to deal with Doric's contention that the arbitration proceedings were premature, and has denied Doric procedural fairness by excluding the warranty and liquidated
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- damages clauses of the contract when that was not in issue on the pleadings and without having given Doric an opportunity to deal with it.
43 The first issue is whether the arbitrator failed to deal with an issue in the arbitration, namely that the arbitration proceedings were premature. In the course of the making of the final award, counsel for Doric submitted to the arbitrator that the issue had been raised in cl 16.1 of Doric's points of defence but had not been dealt with in the interim award. In his final award the arbitrator said that no such issue had been pleaded by Doric and there was therefore no reason for it to be considered. The arbitrator went on to say that while the issue had not been raised on the pleadings, it had been raised by Doric in submissions and was clearly dealt with in the interim award. The arbitrator said that, in any event, after cl 16.1 was pleaded the superintendent under the head contract had certified practical completion.
44 Clause 16.1 of Doric's points of defence pleaded to par 10 of Marine & Civil's points of claim. In par 10, Marine & Civil pleaded the amount of the costs incurred under the subcontract and the income received under the head contract, and alleged that a loss of $630,728 would be incurred at the completion of the project. In par 16.1 of its points of defence Doric denied par 10 of the points of claim and pleaded that "neither the final sum payable under the Head Contract nor the Head Contract Margin can yet be determined as the Head Contract has not reached practical completion and all claims for payment have yet to be determined". By way of particulars, Doric said the works were not complete, Marine & Civil had indicated there was a viable claim for variation under the Head Contract for changes to the work and the final amount payable had not been certified by the head contract superintendent.
45 It appears from his written outline of closing submissions at the arbitration that counsel for Doric specifically advanced the contention that the arbitration was premature. Notwithstanding what the arbitrator says in his final award, I have been unable to find in the interim award any clear reference to the issue of whether the arbitration was premature.
46 It appears, however, from an affidavit sworn by Mr Richard Kendall on 19 January 2005, on behalf of Doric, that the assertion that the arbitration was premature had been raised earlier by Doric's solicitors, in a letter of 20 April 2004 to the solicitors for Marine & Civil. The issue was apparently argued at some length at a preliminary hearing before the arbitrator on 30 April 2002 on what was, in effect, an application by Doric to adjourn the arbitration until after the variation claim under the head
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- contract had been determined by the Shire of Busselton. The arbitrator declined to accede to that application. Accordingly, while in the interim award there does not appear to be any reference to the issue of whether the arbitration was premature, it is not clear that, so far as the issue was raised again at the arbitration hearing, it was anything more than a repetition of the issue determined by the arbitrator at the preliminary conference.
47 It is next claimed by Doric that the arbitrator excluded the warranty and liquidated damages clauses of the contract when that was not in issue on the pleadings and without having given Doric an opportunity to deal with it.
48 In pars 12 and 15 of its points of defence and counterclaim, Doric pleaded the warranties in cl 4.1 of AS 4303 and in pars 20 and 21 it pleaded a breach of them by Marine & Civil. It pleaded a claim for liquidated damages in par 27 of its counterclaim.
49 In par 17 of its points of reply, Marine & Civil denied par 12 of the points of defence and further denied that it had checked the preliminary design, saying it was not qualified to do so. It pleaded that Worley was to, and did, carry out the design of the substructure and Doric was to construct it. In par 19 of its reply, Marine & Civil denied par 15 of the points of claim and referred to its plea in par 17, and to the plea in par 9 of the points of claim as to the express terms of the subcontract. The latter plea refers to the terms of the Doric "Subcontract Order" form of 15 May 2002 but does not refer to AS 4303. In relation to the claim for liquidated damages, Marine & Civil denied par 7 of Doric's counterclaim and said "that an extension of time has been granted".
50 On the material before me I am not entirely certain what is meant by Doric's contention that the arbitrator "excluded" the warranty and liquidated damages clauses of the contract "without having given Doric an opportunity to deal with them". The exclusion appears to be a reference to the decision of the arbitrator that there was an alliance or joint venture between the parties, rather than an ordinary subcontract relationship, and, it is contended, the approach of the arbitrator then to read down the warranty provisions to make them consistent with that conclusion. As I understand his award, the arbitrator did not "exclude" the warranty and liquidated damages provisions in the sense that he simply dismissed them as having no contractual force. Rather, he found that they did not apply in the circumstances. However, the basis on which the arbitrator found that the warranty and liquidated damages clauses did not apply does not
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- appear to have been clearly raised in the pleadings, although it would seem from the written outlines of submissions of the parties at the arbitration hearing that the issues referred to by the arbitrator in his awards were canvassed by the parties in argument at the arbitration.
51 As this matter is still to be finally determined, I do not consider that I should endeavour to express any final view as to the merits of Doric's contentions on the application. It is sufficient to say that I do not regard the application as unarguable. Against that background I turn to the second limb of this application.
52 Counsel for Marine & Civil acknowledged that the application under s 42(3) was by way of security, to ensure that if Doric's application ultimately failed the money payable under the awards was still available. In particular, it was contended by Marine & Civil that the amount of the awards should be secured to ensure that it was not dissipated or put beyond reach by Doric pending the outcome of the s 42 application.
53 It was submitted that, on the evidence, there was "a very high risk that Doric's liquid assets would be dissipated in the time it takes to hear and determine Doric's application under s 42". It was further submitted that Marine & Civil was entitled, having been totally successful in the arbitration, "to have the comfort of knowing that the moneys payable under the Arbitrator's Awards would in fact be available to it once Doric's application to set aside the Awards has been finally dismissed and Doric, knowing that it is liable under the Awards to pay Marine & Civil close to $1,000,000, should not be given the time and opportunity to arrange its affairs so as to avoid its liabilities under the Awards if its application to set aside the Awards is totally unsuccessful".
54 Doric submitted there was no basis for any apprehension by Marine & Civil that Doric would be unable to pay the amount of the awards if the application were unsuccessful, or that it had any intention of arranging its affairs so that its assets were beyond the reach of Marine & Civil.
55 Marine & Civil relied on an affidavit of Martin Jones, a chartered accountant and a partner in the accountancy firm, Ferrier Hodgson. Mr Jones annexed to his affidavit a report he had prepared at the request of the solicitors for Marine & Civil. In his report, dated 31 January 2005, Mr Jones says that he was asked to advise on two questions; namely, whether Doric had the financial capacity to pay the awards and whether there was any risk involved if no order was made to pay the money into Court.
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56 In his report, Mr Jones concluded that on the basis of the information available to him, the Doric group of companies is solvent and has the financial capacity to pay the moneys payable under the awards. It is appears from the financial information to which Mr Jones refers that the group carries on a substantial and profitable construction business and that over the last four years, which is the period examined by Mr Jones, the group has maintained significant cash resources. As Mr Jones did not have access to the financial information of Doric itself, but only to the group accounts, he was unable to comment on the capacity of Doric itself to pay the money. In his report, Mr Jones says, however, that Doric Group Holdings is the holding company of Doric and should the payment of the awards cause Doric to become insolvent and be placed in liquidation, in his opinion it is strongly arguable that the liquidator could recover the money from Doric Group Holdings pursuant to s 588W of the Corporations Act. Mr Jones goes on to offer the opinion that it is "highly likely that liquid assets could be dissipated from [Doric] and the group during the time that it would take to have Doric's application under s 42 heard and determined". If that occurred, Mr Jones considered that the costs involved in "unwinding transactions and receiving funds using the insolvency provisions of the [Corporations Act] would be substantial and even then Marine & Civil could rank only as an unsecured creditor in any dividend distribution".
57 I accept Doric's objection that the opinions offered by Mr Jones are not admissible evidence. It is, in any event, not clear to me what Mr Jones means when he says that it is "highly likely" that liquid assets "could be dissipated". If he means "would be dissipated", there is simply no evidence to support that view. If he means, as I think he does, that it would not be a difficult task to dissipate the liquid assets, I would not regard that as of significant weight in the absence of anything to suggest that such dissipation might occur. There is no such evidence. In the end, all that I think can properly be drawn from Mr Jones's affidavit is that the group is solvent and has the capacity to pay the moneys payable under the awards, but Mr Jones is unable to comment specifically on the capacity of Doric itself to do so.
58 In the circumstances, I am not satisfied that, at this stage, sufficient has been shown to justify an order for payment into Court or to secure the amount of the awards and I would decline to make such an order. It would, of course, be open to Marine & Civil to make a further application should circumstances change.
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59 That leaves the application by Marine & Civil under s 33 of the Act, for leave to enforce the arbitration awards in the same manner as a judgment of the Court and to enter judgment in terms of the awards.
60 Section 33 provides that an award made under an arbitration agreement may, by leave of the Court, be enforced in the same manner as a judgment or order of the Court, and where leave is so given, judgment may be entered in terms of the award. As Giles JA observed in Tridon Australia Pty Ltd v ACD Tridon Inc [2004] NSWCA 146 at [11], the procedure under s 33 is a procedure with a purpose, the purpose being to enable the successful party to an arbitration to obtain the material benefit of the award in an easier manner than suing on the award.
61 Marine & Civil relied on the decision of McKechnie J in Diploma Construction Pty Ltd v Windslow Corporation Ltd [2005] WASC 74 for the proposition that the appropriate course in circumstances such as the present is for an order to be made that the award be entered as a judgment of the Court, but that the judgment be stayed upon payment of the amount of the award into Court, pending the determination of any existing appeal against the award.
62 Marine & Civil accordingly sought on the hearing of the application orders that judgment be entered and that the judgment be stayed upon payment into Court by Doric of the amount of the awards. In other words, Marine & Civil appeared, in effect, to seek to obtain by an indirect route, security for the amount of the award pending the outcome of the challenges to it.
63 I accept the submission of counsel for Doric that Diploma Construction v Windslow is not authority for the broad principle contended for by Marine & Civil. In Diploma Construction v Windslow, two of the four grounds of appeal for which the respondent was seeking leave were considered to be arguable and the other two were considered to be without any merit. In respect of the grounds which it was found were without merit, an ascertainable sum of money was payable under the terms of the award. McKechnie J considered that, in the circumstances, the convenient way to enable the enforcement of the part of the award where the appeal had no prospect of success was to order that judgment be entered for the full amount of the award, but, as to the balance of the award, enforcement of the judgment would be stayed upon payment into Court of the amount payable under that balance of the award. The case turned on its particular facts. It is also significant that in that case there was no pending application under s 42 of the Act.
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64 In Cockatoo Dockyard Pty Ltd v Commonwealth of Australia (No 3) (1994) 35 NSWLR 689, Rolfe J said (at 695):
"Prima facie, and so much was conceded by Mr Bennett, a party with the benefit of an award can seek to enforce it by resort to s 33. It is necessary for a party resisting an order under s 33 to establish a reason why the award should not be enforced. A reason may be that the Court considers the award is arguably vitiated by appealable error, or by other circumstances making it susceptible of being set aside in accordance with a provision of the Act. In other word, it may well be an appropriate exercise of the Court's discretion not to grant leave if an application for leave to appeal is on foot or if an application has been made to set aside to [sic the] award, for example, on the ground of misconduct."
65 It seems to me that the pending application by Doric under s 42 is of significance in that context. As I have said, the jurisdiction of the Court to set aside an award is part of the Court's function to ensure that its power to enforce an award is not abused by the Court being required, ultimately, to enforce an award made in breach of, or in a departure from, the contractual, statutory or common law requirements for arbitration. In my view, a Court should hesitate to give leave to enforce an award and to enter an award as a judgment, where there is pending an application to set aside the award under s 42 for misconduct. Where the application is plainly devoid of any merit different considerations may apply but, on the material before me, I do not consider the present application can be so categorised.
66 In light of the existing applications for leave to appeal under s 38 and to set aside the awards under s 42 of the Act, at this stage I would refuse leave to enforce the awards and to enter judgment.
67 I will hear the parties on the appropriate form of orders and costs.
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