Formosa v Eminent Forms Pty Ltd

Case [2005] SASC 35

SUPREME COURT OF SOUTH AUSTRALIA

(Miscellaneous Appeal: Civil)

FORMOSA & ANOR v EMINENT FORMS PTY LTD

Judgment of The Honourable Justice Bleby

28 January 2005

ARBITRATION - COSTS

ARBITRATOR'S DISCRETION

Appeal pursuant to s 38 Commercial Arbitration Act 1986 against costs award of arbitrator – Building contract dispute – Section 34 Commercial Arbitration Act – Exercise of arbitrator’s discretion to award costs – Whether arbitrator unduly fettered his discretion – Manner in which discretion should be properly exercised – Arbitrator failed in exercise of discretion – Remitted to arbitrator to make award of costs according to law.

Commercial Arbitration Act 1986 (SA) s 34, s 38; Supreme Court Act 1935 (SA) s 40; Supreme Court Rules 1935 (SA) r 101.01, referred to.
Lewis v Haverfordwest Rural District Council [1953] 1 WLR 1486; Cretazzo v Lombardi (1975) 13 SASR 4; Leighton Contractors v Western Australian Government Railways Commission (1966) 115 CLR 575, applied.
Miles v Palm Bridge Pty Ltd [2001] WASC 42; Badge Constructions Pty Ltd v Penbury Coast Pty Ltd [1999] SASC 6, discussed.

FORMOSA & ANOR v EMINENT FORMS PTY LTD
[2005] SASC 35

Miscellaneous Appeal

BLEBY J:

Background

  1. This is an appeal pursuant to s 38 of the Commercial Arbitration Act 1986 against the award of an arbitrator concerning the costs of an interim award which he had previously made. The appeal comes by leave granted by a judge of this Court on 12 November 2004.

  2. The arbitration has a complex and, it would appear, costly history. It arose out of a building contract for alterations to a house. The builder submitted to the owners a first progress claim said to be in accordance with the requirements of the contract. There was a dispute over the entitlement to that payment. The builder then gave notice terminating the contract. The owners issued a notice of dispute which commenced the arbitration process. Points of claim and counterclaim and their respective defences were lodged with the arbitrator.

  3. By way of interim award the arbitrator rejected the builder’s claim for the first instalment and awarded damages to the owners in the sum of $22,164.

  4. The builder appealed, by leave, to this Court: see Eminent Forms Pty Ltd v Formosa & Anor [2004] SASC 192. The appeal was heard by Besanko J. In his decision the Judge rejected all the builder’s complaints relating to the various components of the award of damages determined by the arbitrator in favour of the owners. However, the builder succeeded on an argument that stage 1 of the work was substantially performed. The Judge decided that the builder was entitled to recover the first progress payment minus an allowance for what the arbitrator had found had not been completed, less the damages incurred by the owners, as determined by the arbitrator, for the wrongful repudiation of the contract by the builder. The Judge also considered that the builder would have had a claim on a quantum meruit for the work done less…

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Formosa v Eminent Forms Pty Ltd [2005] SASC 35
Case
[2005] SASC 35
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CaseChat Overview and Summary

In the case of Formosa v Eminent Forms, the dispute arose between the builder and the respondent, with the matter being resolved in the court. The builder, Formosa, contested the award of costs by the arbitrator, asserting that the award was improper and should be reconsidered. The court was tasked with determining whether the arbitrator correctly exercised his discretion in awarding costs and, if not, whether the matter should be remitted to the arbitrator for re-evaluation or if the court should substitute its own discretion.

The central legal issue was whether the arbitrator had properly exercised his discretion in awarding costs to the builder, Formosa. The court had to evaluate whether the factors considered by the arbitrator were adequate and whether the decision was made in a manner that was not capricious but based on good and cogent reasons. The court also had to determine whether it was appropriate to substitute its own discretion in awarding costs or to remit the matter back to the arbitrator for further consideration.

In its reasoning, the court highlighted that the exercise of discretion by the arbitrator should not be reduced to a complex mathematical exercise but should be based on a broad consideration of relevant factors. The court noted that the arbitrator had failed to properly exercise his discretion, leading to the conclusion that the appeal should be allowed and the award of costs set aside. However, the court found that it was not in a position to substitute its own discretion due to the complexity of the issues and the need for the arbitrator to consider all relevant facts. Consequently, the court decided to remit the matter to the arbitrator for a proper exercise of discretion in awarding costs.

The court's final order was to remit the matter to the arbitrator to make an award of costs according to law, with the possibility of some supplementary argument to ensure a fair and comprehensive evaluation.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

One hesitates to identify the relevant circumstances that the arbitrator should have brought to account in this case. Relevant factors would include an assessment of the number and nature of issues argued before him, the time they occupied and who was successful on those issues, whether the arbitrator’s decision was challenged and the extent to which it was upheld by this Court, whether and to what extent the matter on which the builder succeeded in this Court was argued before the arbitrator, whether the costs of those issues have been addressed by the order of this Court, whether offers may have been made in the course of the arbitration which rendered the continuation of the proceedings on that particular point unreasonable and other factors relating to the conduct of the parties. This list is not intended to and cannot be exhaustive but is merely meant to indicate some of the matters which might be relevant in determining whether there should be a departure from what may be regarded as the usual rule. Having said that, it will seldom be that the decision can be reduced to a complex mathematical exercise. Sometimes the exercise of the discretion will require the wielding of a reasonably broad axe. But provided that there are good and cogent reasons for exercising the discretion in a particular way, being reasons related to the conduct or result of the proceedings and which are not capricious, then the discretion will have been properly exercised and is unlikely to be interfered with.Conclusion It follows from what I have said that there was a failure on the part of the arbitrator properly to exercise his discretion in awarding costs to the builder. The appeal must therefore be allowed and the arbitrator’s award of costs set aside. The question remains whether I should substitute for that award the exercise of my own discretion, or whether I should remit the matter to the arbitrator for him to make an award. Many issues were argued on the arbitration. The arbitration appears to have occupied a number of days and the arbitrator’s reasons for his interim award occupy many pages. I cannot be aware of all the relevant matters which might bear on the proper exercise of the discretion to award costs to a particular party and whether that should be the whole or a proportion of the costs to which the party might be entitled upon taxation. Only the arbitrator is cognisant of all the relevant facts and is best equipped to exercise the discretion in this case. I am conscious of the time and probable costs that have been involved in this arbitration and the litigation which has followed. I am reluctant to require the parties to incur any more costs than are necessary. However, I do not consider that I am in a position to decide the question. The question of costs has already been argued before the arbitrator. There may need to be some further supplementary argument, but it should be minimal. In the circumstances, it is appropriate that I should remit the matter to the arbitrator to make an award of costs according to law.

Ratio Decidendi

Legal Principle Established

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