Formosa v Eminent Forms Pty Ltd

[2004] SASC 364

SUPREME COURT OF SOUTH AUSTRALIA

(Miscellaneous Appeal)

FORMOSA & ANOR v EMINENT FORMS PTY LTD

Reasons for Decision of The Honourable Justice Vanstone

12 November 2004

APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA - WHEN APPEAL LIES - BY LEAVE OF COURT

Application for leave to appeal pursuant to s 38 Commercial Arbitration Act 1986 - costs award of arbitrator - arbitrator denying himself discretion - leave to appeal granted.

Commercial Arbitration Act 1986, s 38, referred to.
Badge Constructions Pty Ltd v Penbury Coast Pty Ltd (1999) SASC 6; Hudson's Building and Engineering Contracts (10th ed, 1979, London, Sweet & Maxwell), considered.

FORMOSA & ANOR v EMINENT FORMS PTY LTD
[2004] SASC 364

Miscellaneous Appeal

1. VANSTONE J:This is an application for leave to appeal pursuant to s38 of the Commercial Arbitration Act 1986 against an award made by an arbitrator under an arbitration agreement in a building contract.  This was the final award, dealing only with the matter of costs.  I heard the application on an ex parte basis.

2. This is not the first time the matter has come before this court.  In July Besanko J determined an appeal against the interim award made by the arbitrator.  His Honour allowed the appeal on a quite limited basis and in place of the arbitrator’s finding in favour of the property owners, gave a balance judgment of a little over $12,000 in favour of the contractor.

3. Subsequently the matter went back to the arbitrator for his decision on the issue of the costs of the reference.  Both sides sought such costs.  The matter was not without difficulty because the owners had succeeded on almost all issues before the arbitrator, including as to the contractor’s wrongful repudiation of the contract, and the argument which the contractor successfully mounted before Besanko J was not one which it had pursued before the arbitrator.

4. Upon the costs argument the arbitrator was referred to the judgment of Debelle J in Badge Constructions Pty Ltd v Penbury Coast Pty Ltd (1999) SASC 6. There the judge quoted observations in Hudson’s Building and Engineering Contracts (10^th edition) dealing with circumstances which might in this context justify departure from the general rule that costs follow the event.

5. It is argued by the applicant property owners that the arbitrator has in effect treated those observations, and the favourable reference of Debelle J to them, as constituting some sort of immutable rule binding him to find that costs should go in favour of the party securing the balance judgment.  In his reasons for decision he said that if he “were not constrained by the law as expressed in Badge Constructions …” he would have made a costs order favouring the owners.  Later he said he was “obliged by the current law” to make an award in favour of the contractor.

6. I agree with counsel for the applicants that in effectively denying himself a discretion in the matter and in making an award in favour of the contractors where he plainly considered that the justice of the situation favoured the owners, the arbitrator made a manifest error of law, such as to vitiate his award.  Unfortunately the costs of the arbitration are, I am told, very substantial;  they have indeed rather swamped the value of the building work.  This decision therefore substantially affects the rights of the parties.

7. Accordingly there will be leave to appeal in terms of the proposed notice of appeal annexed to the affidavit of Kim Cindy Formosa.