Fremantle Port Authority v Martin
[2025] WASC 301
•6 AUGUST 2025
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: FREMANTLE PORT AUTHORITY -v- MARTIN [2025] WASC 301
CORAM: LUNDBERG J
HEARD: 23 JULY 2025
DELIVERED : 6 AUGUST 2025
FILE NO/S: ARB 3 of 2025
BETWEEN: FREMANTLE PORT AUTHORITY
Plaintiff
AND
JOHN MARTIN
First Defendant
CONTAINER REFRIGERATION PTY LTD
Second Defendant
FILE NO/S: ARB 4 of 2025
BETWEEN: FREMANTLE PORT AUTHORITY
Plaintiff
AND
JOHN MARTIN
First Defendant
CONTAINER REFRIGERATION PTY LTD
Second Defendant
Catchwords:
Arbitration - Arbitration agreement contained within a long term commercial lease specifically concerning the improvements on the premises not removed by the lessee - Compensation to be paid to lessee for improvements at fair value - Procedure allows for appointment of two valuers and then a third valuer acting as arbitrator - Arbitrator authorised by the lease to resolve 'differences' between the valuers - Arbitrator made determination which plaintiff contends denied it procedural fairness and exceeded his authority under the arbitration agreement
Arbitration - Applications to set aside the arbitrator's determination under the Commercial Arbitration Act 2012 (WA) - Whether determination constituted an 'award' for the purposes of the legislation
Arbitration - Application for relief pursuant to s 34(2)(a)(ii) and s 34(2)(b)(ii) of the Commercial Arbitration Act 2012 (WA) - Whether plaintiff had a reasonable opportunity to present its case - Whether procedural fairness afforded to the lessor – Whether discretion should be exercised to set aside the award
Arbitration - Application for relief pursuant to s 34(2)(a)(iii) of the Commercial Arbitration Act 2012 (WA) - Whether arbitrator exceeded jurisdiction or authority - Whether discretion should be exercised to set aside the award
Arbitration - Application for a decision in relation to arbitrator's ruling on his jurisdiction or authority pursuant to s 16(9) of the Commercial Arbitration Act 2012 (WA)
Legislation:
Commercial Arbitration Act 2010 (WA) s 16, s 18, s 27J, s 34, s 34A
Result:
Relief granted
Category: B
Representation:
ARB 3 of 2025
Counsel:
| Plaintiff | : | Dr E M Heenan SC and B Willesee |
| First Defendant | : | No appearance |
| Second Defendant | : | G R Hancy |
Solicitors:
| Plaintiff | : | Pragma Lawyers |
| First Defendant | : | Douglas Lawyers |
| Second Defendant | : | Lavan |
ARB 4 of 2025
Counsel:
| Plaintiff | : | Dr E M Heenan SC and B Willesee |
| First Defendant | : | No appearance |
| Second Defendant | : | G R Hancy |
Solicitors:
| Plaintiff | : | Pragma Lawyers |
| First Defendant | : | Douglas Lawyers |
| Second Defendant | : | Lavan |
Case(s) referred to in decision(s):
CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2024] HCA 28; (2024) 98 ALJR 1098
Colin Joss & Co Pty Ltd v CUBE Furniture Pty Ltd [2015] NSWSC 735
Edmund Barton Chambers (Level 44) Co-operative Ltd v The Mutual Life & Citizens Assurance Co Ltd (1984) NSW ConvR 55-177
Ivankovic v Western Australian Planning Commission [2020] WASC 401
LPDT v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2024] HCA 12; (2004) 98 ALJR 610
Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] QCA 39
R v Australian Broadcasting Tribunal; Ex parte Hardiman (1980) 144 CLR 13
Spaseski v Mladenovski [2019] WASC 65
TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83; (2014) 232 FCR 361
teleMates (previously Better Telecom) Pty Ltd v Standard SoftTel Solutions Pty Ltd [2011] NSWSC 1365
Table of Contents
A Introduction
B. Proceedings in this Court
Relief sought by the plaintiff
Affidavit material
Written submissions
Role of the Arbitrator
C. Issues arising
D. Factual background
The parties and the commercial lease
The yielding up of the Demised Land
Appointment of valuers
E. Referral to arbitration
First preliminary conference held on 2 July 2024
Position statements provided by the parties
Second preliminary conference held on 29 October 2024
Communication from the Arbitrator on 7 November 2024
Submissions provided by the parties in November 2024
The Arbitrator's Determination on 14 February 2025
F. Relevant principles and legislative framework
Jurisdiction or authority of an arbitrator
Setting aside an award on the ground of procedural unfairness
G. First issue – is the Arbitrator's Determination an award?
The issue
Was there an agreement to arbitrate?
Are the formal requirements satisfied?
Does the determination resolve a substantive issue?
H. Second issue – was there a material denial of procedural fairness?
The issue
Disposition – inability of the plaintiff to present its case
Disposition – the exercise of the discretion
I. Third issue – did the Arbitrator exceed his jurisdiction?
The issues
Disposition in relation to s 34(2)(a)(iii) CAA
Disposition in relation to s 16(9) CAA
J. Conclusion and orders
ATTACHMENT A Relevant Extracts from the Lease
LUNDBERG J:
A Introduction
These reasons concern applications brought by the plaintiff by way of originating summonses in ARB 3 of 2025 and ARB 4 of 2025, both filed on 12 March 2025 and both seeking relief under the Commercial Arbitration Act 2012 (WA) (the CAA) in connection with an arbitration agreement.[1]
[1] Originating summons dated 12 March 2025, being Folio 1 (ARB 3 of 2025); Originating summons dated 12 March 2025, being Folio 1 (ARB 4 of 2025). An amended originating summons, containing only minor amendments, was filed by the plaintiff in ARB 3 of 2025 on 21 July 2025 (Folio 21), in accordance with orders made by consent on 7 May 2025 (Folio 20).
The arbitration agreement in question is to be found in cl 3.18(b)(v) of a long-term commercial lease of land in the Rous Head industrial area to the north of the Fremantle Port, entered into between the plaintiff lessor and the second defendant lessee (the Lease).
The arbitration agreement is specific to the resolution of disputes as to the determination of compensation for the value of improvements made by the second defendant lessee. There is, in addition, a general arbitration agreement contained in cl 11 of the Lease. It is, however, the arbitration agreement at cl 3.18(b)(v) and the related dispute resolution process which is the subject of the present proceedings.
Under the arbitration agreement, the first defendant arbitrator was appointed by the Australian Property Institute at the request of the parties (the Arbitrator). The Arbitrator, who was not legally qualified, issued a determination in the matter on 14 February 2025 (the Arbitrator's Determination), which the plaintiff characterises as an 'award' but, as to that characterisation, the second defendant is less convinced. The Arbitrator's Determination and the course of the arbitration itself are the focus of the present proceedings.
B. Proceedings in this Court
Relief sought by the plaintiff
In ARB 3 of 2025, the plaintiff seeks orders under s 34(2)(a)(ii) and s 34(2)(b)(ii) CAA to set aside the Arbitrator's Determination, and raises contentions in this regard as to the denial of procedural fairness during the arbitration process.
As to the relief to set aside the Arbitrator's Determination, the stated ground for the relief sought is that the plaintiff was not given an opportunity to, and thus was unable to present its case on, the proper construction of the phrase 'fair value', defined by cl 3.18(b)(v) and used in cl 3.18(b)(iii) of the Lease, contrary to s 18 CAA and in conflict with the public policy of the State.
The plaintiff also contends, relying on s 34(2)(a)(iii) CAA that the directions made by the Arbitrator (referred to as directions 1 to 6) were beyond the scope of the submission to arbitration. The plaintiff contends that the scope of the Arbitrator's authority is limited to resolving whether, in circumstances where the term of the Lease has expired by effluxion of time, the 'balance of the Term remaining to which the Valuers must have regard in performing their function is nil or some other period of time and, if some other period of time, what that period of time is', and therefore the Arbitrator did not have authority, in the matter presently referred to arbitration, to determine the monetary value of the 'fair value' of the 'Improvements'.
The term 'Improvements' is defined in the Lease to include 'any building, structure, fence, pipe, cable, road, connection, drain, railway, railway siding, electrical installation, electrical sub-station, gas, sewerage or drainage installation, jetty structure and any alteration, variation or addition to the level or surface of the ground of the Demised Land'.[2] The words 'Term' and 'Valuer' are also defined in the Lease.
[2] Lease, cl 1.1
In ARB 4 of 2025, the plaintiff contends the Arbitrator exceeded the scope of his jurisdiction under the specific arbitration agreement within the Lease and seeks relief under s 16(9) CAA.
Given the obvious connection between the proceedings, orders were made on 8 April 2025 for the proceedings to be case managed and heard together as a single proceeding.[3] The proceedings were heard together on 23 July 2025.
Affidavit material
[3] Folio 11 (ARB 3 of 2025); Folio 11 (ARB 4 of 2025).
At the hearing, the plaintiff relied on the affidavits filed in ARB 3 of 2025, sworn by one of its solicitors, namely Ms Susan Lee Di Francesco, on 12 March 2025 (containing Attachments SLD 1 to SLD 41) and on 24 April 2025 (containing Attachments SLD 42 to SLD 45). I will refer to these as the First Di Francesco Affidavit and the Second Di Francesco Affidavit respectively.
An affidavit in identical terms to the First Di Francesco Affidavit was filed by the plaintiff in ARB 4 of 2025, to which further reference need not be made.
The second defendant relied upon the affidavit of Ms Freya Surma-Litchfield which was affirmed on 1 May 2025 and filed in ARB 3 of 2025 (Surma-Litchfield Affidavit). That affidavit is largely confined to the circumstances concerning the preliminary conference which was held before the Arbitrator on 29 October 2024.
Written submissions
Both parties also filed written submissions ahead of the hearing. I refer to the plaintiff's submissions dated 24 April 2025 (PS) and the second defendant's submissions dated 1 May 2025 (DS).
Role of the Arbitrator
As the appointed arbitrator, the first defendant has properly taken no part in these proceedings and has filed notices of intention to abide.[4] This approach is consistent with the principle expressed in R v Australian Broadcasting Tribunal; Ex parte Hardiman.[5]
[4] Folio 6 (ARB 3 of 2025); Folio 6 (ARB 4 of 2025).
[5] R v Australian Broadcasting Tribunal; Ex parte Hardiman (1980) 144 CLR 13.
C. Issues arising
The following issues arise for determination.
First, whether the Arbitrator's Determination is properly characterised as an 'award' for the purposes of s 34(2) CAA.
Second, assuming the Arbitrator's Determination is an 'award', whether the determination should be set aside by the Court on the basis the plaintiff was unable to present its case during the arbitral proceedings pursuant to s 34(2)(a)(ii) CAA, or for the allied reason that the plaintiff was denied procedural fairness contrary to s 34(2)(b)(ii) CAA.
Third, again assuming the Arbitrator's Determination is an 'award', and in the alternative to the procedural fairness grounds, whether the Arbitrator exceeded the scope of his jurisdiction or authority in issuing the Arbitrator's Determination, such that the specific directions set out in the determination should be set aside pursuant to s 34(2)(a)(iii) CAA. Allied to this issue is an assessment whether the Court should decide the jurisdictional question addressed by the Arbitrator, pursuant to s 16(9) CAA.
D. Factual background
The parties and the commercial lease
The plaintiff in both proceedings is the Fremantle Port Authority, which is an incorporated body established under the Fremantle Port Authority Act 1902 (WA) and continued in existence as a port authority pursuant to the Port Authorities Act 1999 (WA). The ownership and management of the Port of Fremantle is vested in the plaintiff.
In the mid-1990s, the plaintiff entered into the Lease for vacant land in the Rous Head area, which forms part of the land owned and controlled by the plaintiff.[6] This area is now a highly developed industrial area, dominated by vast numbers of sea containers and numerous warehouses.
[6] First Di Francesco Affidavit, Attachment SLD-1.
The Lease was entered into on 21 September 1995, for a term of 21 years.[7] The Lease was later varied by deed dated 20 June 1997, then subsequently assigned to the second defendant by deed dated September 2003, and its term was extended on four occasions.[8]
[7] Lease, item 3 of the Schedule. The stipulated date of expiration of the Lease was 31 December 2016.
[8] First Di Francesco Affidavit, Attachments SLD-2, SLD-3, SLD-4, SLD-5 and SLD-6; Second Di Francesco Affidavit, Attachment SLD-42. The second defendant was named Robbins Enterprises Pty Ltd at the time of assignment of the lease.
The Lease related to premises situated at Lot 50B, Rous Head Road,[9] which covered some 18,316 square metres. The Lease included an obligation, binding upon the lessee, to develop the land in accordance with plans and specifications to be approved by the plaintiff.[10] I will refer to the premises as the Demised Land.
[9] The precise history of the lease is not relevant for present purposes, nor is the change in the land area covered by the lease over time.
[10] Lease, cl 13 (Special Terms), and item 11 of sch 1.
At the core of the dispute between the parties, and the present proceedings, is a contractual provision within the Lease which was engaged with respect to 'Improvements' on the Demised Land not removed by the second defendant, as lessee, at the conclusion of the lease period. The relevant clause is cl 3.18(b) of the Lease. The full terms of the clause, which is headed 'Yielding Up', together with other relevant terms of the Lease, are extracted in Attachment A to these reasons.
This provision incorporates a regime by which compensation would be paid by the plaintiff to the second defendant for these 'Improvements' at a price agreed upon by the parties, or in the absence of agreement, at a 'fair value' to be settled in accordance with the procedure stipulated in the Lease.
The procedure allows for the appointment of a valuer by each of the plaintiff and the second defendant, and where the two valuers fail to reach agreement, the 'differences' between them are to be 'resolved' by a third valuer, expressly stated to be acting as an arbitrator.
The material parts of cl 3.18, which forms part of the numerous covenants in cl 3 to the Lease (headed 'Lessee's Covenants'), are as follows:
3.18 Yielding Up
…
(b) Removal of improvements
…
(iii)Any Improvements not removed by the Lessee either as of right (in accordance with sub-clause 3.18(b)(i)) or by requirement of the Authority (in accordance with sub-clause 3.18(b)(ii)) shall be deemed abandoned by the Lessee and shall become the property of the Authority without the Authority being deemed guilty of conversion. Compensation shall be paid by the Authority to the Lessee for the Improvements at a price agreed upon by the parties or in the case no agreement is reached within one (1) month of such expiration or sooner determination of this Lease, the Authority shall pay a fair value to be settled in accordance with the provisions of sub-clause 3.18(b)(v).
…
(v)The “fair value” referred to in sub-clause 3.18(b)(iii) of the Improvements, failing agreement between the parties, shall be such value as shall be determined by agreement between two Valuers one of whom is nominated by each of the Authority and the Lessee and, where such two Valuers fail to reach an agreement, the differences between such two Valuers shall be resolved by a third Valuer acting as an arbitrator appointed at the request of either party by the President and the provisions of the Commercial Arbitration Act 1985 shall apply. If the Authority or the Lessee fail to immediately appoint or nominate a Valuer, the appointment shall be made by the President at the request of either party. The Valuer's costs shall be borne equally by the parties. The parties agree to be bound by the decision of the two (2) Valuers (if the two (2) Valuers have so agreed the determination) or the third Valuer acting as an arbitrator (as the case may be). Either party may be represented by his solicitor or other legal representative in any arbitration proceedings. The “fair value” of such Improvements shall be the value thereof as installed or erected on the Demised Land for the ongoing use thereof by the Lessee in its business having regard to the age, condition and state of repair thereof and the balance of the Term remaining. (italics added)
It is not in dispute that the second defendant did in fact develop the Demised Land by way of 'Improvements' during the term of the Lease. In brief, these developments included two main warehouses, a two-level office, administration and amenities area incorporated into the western warehouse, two smaller warehouses or storage sheds, together with an extensive hardstand area for the storage of sea containers.[11]
The yielding up of the Demised Land
[11] First Di Francesco Affidavit, Attachment SLD-11 (page 132).
The plaintiff and second defendant agreed a series of extensions to the Lease, which extended the term through to midnight on 28 February 2018. Following the expiration of that extended term, the second defendant remained in possession and occupation of the Demised Land as a monthly tenant pursuant to cl 5.3 of the Lease.
On 30 August 2018, the second defendant gave notice it would yield up the premises to the plaintiff by 30 November 2018, leaving the above mentioned improvements in place on the Demised Land.[12] The notice given by the second defendant recorded its 'expectation' to be compensated for the improvements at 'fair value', in accordance with the provisions of the Lease.
[12] First Di Francesco Affidavit, Attachment SLD-7.
On 20 November 2018, the plaintiff gave written notice that it would not require the second defendant to remove the improvements from the Demised Land pursuant to cl 3.18(b)(ii) of the Lease.[13] The letter issued by the plaintiff further noted that the second defendant still had the right to remove the improvements prior to the end of the holding over period and affirmed that any improvements that remained on the Demised Land after that time would be deemed to be abandoned and owned by the plaintiff. The letter also sought to arrange a time for the parties to meet to discuss make good requirements and any compensation payable for the improvements under the Lease.
Appointment of valuers
[13] First Di Francesco Affidavit, Attachment SLD-8.
The giving of the notice on 30 August 2018 initiated an exchange of correspondence between the parties as to whether the compensation could be agreed pursuant to cl 3.18(b)(iii).[14] As it happens, agreement on this issue eluded the parties.
[14] First Di Francesco Affidavit, Attachments SLD-7 and SLD-8, by way of example.
As the parties were unable to agree the amount of the compensation within the contractual period, which they had extended by agreement, each party took steps to appoint their own valuer. On 25 February 2019, the plaintiff appointed Mr David Molony as its valuer, and the second defendant appointed Mr Tony Gorman as its valuer (the Valuers).[15]
[15] First Di Francesco Affidavit, Attachments SLD-9 and SLD-10.
Mr Gorman produced a detailed report dated 15 January 2019, assessing the fair value of the improvements at $2,000,000.[16] Rather than a detailed valuation report, Mr Molony prepared two letters setting out his views,[17] identifying a critical part of the contractual regime as being, in his view, the requirement to have regard to the 'balance of the Term remaining'. The second defendant maintains a criticism that the documents produced by Mr Molony do not constitute proper valuations as required by the contract. I am satisfied, for the purposes of these proceedings and this Lease, that Mr Molony's letters together constitute a proper valuation, albeit a concise assessment of the fair value.
[16] First Di Francesco Affidavit, Attachment SLD-11.
[17] First Di Francesco Affidavit, Attachment SLD-12 (being letters dated 30 October 2018 and 13 November 2018, both of which pre-date his formal appointment as valuer although I do not understand anything to turn on this timing).
It is presently unnecessary to extract the substance of the Valuers' opinions because the Valuers then met and prepared a joint conferral statement, dated 26 March 2019 (Joint Conferral Statement).[18] This statement recorded the issues which they agreed or disagreed upon, and provides a convenient summary of their positions.
[18] First Di Francesco Affidavit, Attachment SLD-13.
As the terms of the Joint Conferral Statement assume some importance in the submissions advanced by the parties, it is necessary to extract the statement in its entirety:[19]
[19] Paragraphs 8, 9 and 10 of the statement are redacted in the version produced to the Court.
We can confirm that the two Valuers agree and disagree on various issues surrounding the matter which are summarised as follows:
1.Both David Molony (DM) and Tony Gorman (TG) agree with the position that if the assumed term referred to in part (v) of the aforementioned Lease clause is to be interpreted as Nil, it would follow that the Fair Value of the improvements would be Nil.
This interpretation is based on normal valuation principles where the value of a leasehold interest is dependent on tenure, amongst other things, and in the event the tenure is Nil there would be no ability to hypothetically enjoy the benefits of the leasehold interest over any period of time.
On the other hand, both DM and TG agree that if the Fair Value was to be based assuming some form of term (i.e. not Nil) that there would be a degree of value associated with the leasehold interest. The quantum of the value would depend on a number of factors, including the length of the assumed term.
2.DM confirms he has not undertaken an analysis over a hypothetical lease term as his interpretation of clause 3.18(b)(v) is that the term in this instance is Nil. Until such time as an analysis is undertaken, DM was unable to determine a potential quantum of value.
3.DM confirms that his advice to FPA was based on his own interpretation of the relevant lease clauses.
4.Both DM and TG agree that the clause has been included in the Lease Agreement for a reason – which the Valuers expect will be better explained by the Parties to the Lease in due course.
5.TG's interpretation of the Lease is that within the compensation clauses there is an implied requirement for fairness. In his opinion this should come with the assumption of a reasonable term or assumed unexpired tenure.
For the purposes of TG's most recent assessment, he has adopted an unexpired term of 20 years for the determination of compensation. This has been adopted due to this being consistent with some unexpired terms relating to existing leases within the Port confines.
6.DM is of the opinion there is no specific requirement within the Lease to assume any form of term other than the 'balance of the Term remaining'. Term is defined in the Lease and at the date of assessment of compensation the balance of the Term equates to Nil. On this basis, DM considers it then follows the value is Nil given the agreed position of the Valuers with regards to methodology in the event of Nil tenure.
7.TG accepts that if clause 3.18(b)(v) is taken literally the balance of the Term remaining is Nil. However, TG does not consider the literal interpretation represents a fair outcome.
TG holds the position that for the purpose of a valuation to establish Compensation to the Lessee, the phrase “ongoing use thereof by the Lessee in Its business” (refer to 3.18 (b) (v) should be Interpreted as a hypothetical Lessee, who will benefit from ongoing use In its business. TG holds the position that the Improvements (owned by Robbins) continue to offer utility and that an Incoming Lessee will gain benefit from. TG also holds the view that the FPA's position will be improved as a result of the improvements remaining on the site, with FPA having the ability to lease out a fully developed property (at higher rents), as distinct from the current position whereby FPA leases unimproved land.
8.Redacted.
9.Redacted.
10.Redacted.
11.DM and TG believe it is relevant to establish why the compensation / yielding up clauses of the Lease exist, and in what circumstance would the 'Fair Value' not necessarily be Nil and whether the current circumstance is one such instance based on correct interpretation.
12.DM and TG agree that any form of valuation in perpetuity would not be relevant as all land within the Rous Head Industrial Precinct is leased on finite terms (such is the nature of leasehold).
13.TG and DM both acknowledge that when viewed in perpetuity the improvements would hold some value, however there is a divergence between the Valuers with regards to the term to be assumed in the assessment of 'Fair Value'.
14.Both Valuers consider the interpretation of the subject clauses would benefit from legal input, and are currently at an impasse as to the 'Fair Value' with the information at hand.
15.With the Information at hand, DM and TG have been unable to agree the Fair Value.
We trust the above represents a satisfactory summary of the various Issues both agreed and disagreed between the two Valuers in this instance.
It will immediately be evident from the Joint Conferral Statement that there were differences between the approaches favoured by the Valuers. A question as to the proper construction of cl 3.18(b)(v) starkly emerges as an important issue impacting the valuation exercise.
Mr Molony approached the task on the basis the express language of the clause required the valuer to have regard to the balance of the term of this particular Lease, rather than to adopt or assume a value drawn from some other lease or leases in the area. As the term of this Lease had expired, Mr Molony regarded the valuation exercise as producing a nil value. Mr Gorman agreed that if the assumed term had expired (or was nil, using their language) then the valuation exercise would produce a nil value for the 'Improvements'.
However, Mr Gorman considered there was an implied requirement of fairness in the clause, and the phrase 'ongoing use thereof by the Lessee in its business' required that the valuer identify a hypothetical lessee who would benefit from the ongoing use of the 'Improvements' in its business. For the purpose of his valuation, Mr Gorman had assumed an unexpired term of 20 years, on the basis that period was consistent with some unexpired terms of existing leases to which the plaintiff was a party.
Significantly, both Mr Molony and Mr Gorman agreed that the interpretation of cl 3.18(b) would benefit from 'legal input'.
E. Referral to arbitration
There was then a significant hiatus in the matter, around 5 years. Indeed, not until February 2024 were steps taken by the parties to refer the matter to arbitration and request the appointment of an arbitrator.[20] In March 2024, the first defendant was appointed as an arbitrator pursuant to the arbitration agreement in the Lease.[21]
[20] First Di Francesco Affidavit, Attachment SLD-14.
[21] First Di Francesco Affidavit, Attachment SLD-15.
This extensive delay was not explained in the materials. That said, as the delay preceded the referral to arbitration, I do not consider the length of this delay is determinative or indeed particularly relevant to the issues raised by the plaintiff in this Court.
What is important, and the focus of the relief sought by the plaintiff, is that a process then unfolded before the Arbitrator between April 2024 and February 2025. During this process, both parties were represented by solicitors and counsel. Indeed, towards the end of the process, the Arbitrator sought consent to engage his own legal representation, which consent was forthcoming. It is evident the Arbitrator then received some form of legal advice from an independent solicitor, although the substance of that advice was not communicated to the parties.
I will now summarise the salient steps taken in the arbitration process. It should be observed that there is very little disagreement between the parties as to the course of events in the arbitral proceedings, other than as to the precise events of the second preliminary conference held on 29 October 2024. There are three separate accounts of that conference. Ultimately, as I will explain, I do not consider it necessary to analyse the precise language used by the parties or the Arbitrator at that conference.
First preliminary conference held on 2 July 2024
On 3 April 2024, the Arbitrator called a preliminary conference.[22] The notification of the preliminary conference issued by the Arbitrator stated that the purpose of the conference was to establish an arbitration procedure and set the conditions upon which the arbitration would proceed. The notice included an agenda which identified 13 matters for consideration at the preliminary conference, including the following:
'(c) Discovery of Relevant Documents';
'(d) Define the Parameters of the Dispute'; and
'(e) Discussion as to the Method of Exchange'.
[22] First Di Francesco Affidavit, Attachment SLD-16.
By way of context, I should observe that the form by which the parties requested the nomination of an arbitrator (by the Australian Property Institute) did not require the parties to specify the nature or scope of the dispute sought to be arbitrated. At least initially, then, the Arbitrator was not cognisant of the issues in dispute.
On 27 June 2024, the solicitors for the plaintiff wrote to the Arbitrator providing the plaintiff's comments on each of the agenda items ahead of the preliminary conference.[23] The plaintiff's solicitors identified the existence of the Joint Conferral Statement which set out the differences between the valuer and highlighted a construction question as to the operation of cl 3.18(b)(v) which it asserted should be referred to this Court for determination pursuant to s 27J(1) CAA. The consent of the Arbitrator was sought pursuant to s 27J(2)(a) CAA to have this point of law referred to the Court for determination.[24]
[23] Second Di Francesco Affidavit, Attachment SLD-45.
[24] See points (d)(iv) and (d)(v) of the plaintiff's response to the Arbitrator: Attachment SLD-45.
On 28 June 2024, the solicitors for the second defendant wrote to the Arbitrator providing the second defendant's comments on each of the agenda items ahead of the preliminary conference.[25] The second defendant rejected the proposal for referral to the Court, and appeared to advocate for the Arbitrator to determine the valuation question, with the parties to exchange points of claim for that purpose. The second defendant's document, under heading '(d) Define the Parameters of the Dispute', stated as follows:
The issue in the arbitration is the fair value of improvements that the FPA agreed to pay to the claimant when a lease came to an end. The issue is not the value of a lease that has come to an end.
The claimant [i.e. the second defendant] contends that to date the FPA has not produced any valuation evidence in expert form or that has applied valuation principles of that addressed the correct issue.
The parties have not agreed facts but the format suggested by the claimant addresses the means to reach agreement and identify what remains in issue.
No experts have conferred for the purposes of the arbitration. The timetable of steps suggested by the claimant raises the possibility of expert conferral in this distinct arbitration process where the true issue is to be addressed. The first step is to determine the value of the improvements based on valuation principles.
The claimant has provided the FPA with evidence of the value of the improvements. It is a matter for the FPA if it chooses to run a case without supporting expert evidence.
The timetable of the steps suggested by the claimant should lead to identification of any point of law and also whether any more submissions and argument are required to resolve it.
The arbitration should address all issues raised by the parties and not proceed in the manner that appears to be suggested by the FPA.
[25] First Di Francesco Affidavit, Attachment SLD-18.
The second defendant also gave notice in the above document that its expert was Mr John Del Dosso. That is, it had appointed a fresh expert valuer for the purposes of the arbitration. With respect, that is not a step contemplated by the procedure in the Lease.
The second defendant's response to the Arbitrator provides the first indication that the parties were approaching the arbitration from quite different perspectives. The second defendant had briefed a new expert, and promoted an approach by which the Arbitrator would determine the fair value of the improvements. In contrast, the plaintiff's response to the Arbitrator pointed to the importance of the Joint Conferral Statement, did not propose that any experts would be called by the plaintiff, and identified the need for a point of law to be referred to the Court for determination as an anterior step to any further processes in the arbitration itself.
The first preliminary conference was held on 2 July 2024. The issues identified by the Arbitrator under headings (c), (d) and (e) in his agenda dated 3 April 2024 were not resolved by the parties.[26] The Arbitrator circulated a summary of the conference on 10 July 2024, in which he recorded that three actions had been agreed in respect of the matters covered by those headings.[27]
[26] See above para [45].
[27] First Di Francesco Affidavit, Attachment SLD-19.
In brief, the second defendant would first provide a position statement including the facts and propositions of law relied on together with a list of supporting documents, the plaintiff would then provide a responsive statement, with the matter thereafter being listed for a further preliminary conference as the third action.
At this stage of the arbitration process, the parties remained in disagreement as to the parameters of that process. The outcome of the first preliminary conference was for the parties to provide position statements to advance the discussion as to the parameters, or scope, of the arbitration process.
Position statements provided by the parties
On 1 August 2024, the second defendant provided its position statement.[28] This statement was prepared by newly engaged lawyers, not the solicitors who had attended on behalf of the second defendant at the first preliminary conference. This change in representation may explain why the statement addressed the substantive issues in the arbitration, rather than being confined to the 'scope' of the arbitration process.
[28] First Di Francesco Affidavit, Attachment SLD-21.
The second defendant's position statement asserted that the 'fair value' of the improvements was the issue for determination in the arbitration and identified a higher range of valuations upon which it would rely (being in the range of $4.1m to $4.9m, representing a substantial increase on the valuation of Mr Gorman). The statement traversed the factual background to the dispute, the nature of the improvements, the terms of the Lease, and the construction advocated by the second defendant.
On 17 September 2024, the plaintiff provided its position statement.[29] Consistent with the position it advanced at the first preliminary conference, the plaintiff's position statement posited a narrow scope of the arbitration, as follows:
The 'dispute' which the parties by cl 3.18(b)(v) of the lease…have agreed to submit to arbitration is the resolution of 'the differences between' the two valuers nominated by each of the parties pursuant to the same clause for the purpose of determining the 'fair value' of the 'Improvements' referred to in cl 3.18(b)(iii) of the Lease.
[29] First Di Francesco Affidavit, Attachment SLD-22.
The plaintiff's position statement identified the Joint Conferral Statement and asserted that the differences set out in that statement defined the scope of the arbitration. The plaintiff also placed reliance on a decision of the New South Wales Court of Appeal which had examined an arbitration clause in materially the same terms as cl 3.18(b)(v) of the Lease, namely Edmund Barton Chambers (Level 44) Co-operative Ltd v The Mutual Life & Citizens Assurance Co Ltd.[30] The approach of the majority in that decision, being Moffitt P and Samuels JA, as explained by the plaintiff in its position statement, supports the view that it is only the determination of the differences between the experts which may be referred by the parties to arbitration by a third person under a clause such as cl 3.18(b)(v) of the Lease.
[30] Edmund Barton Chambers (Level 44) Co-operative Ltd v The Mutual Life & Citizens Assurance Co Ltd (1984) NSW ConvR 55-177 (Edmund Barton Chambers).
The plaintiff again urged an approach, also said to be supported by the decision of the majority in Edmund Barton Chambers, by which the proper construction of cl 3.18(b)(v) of the Lease, as a question of law, would be referred to the Court for determination.
Unsurprisingly, given the central approach advocated by the plaintiff in its position statement, the plaintiff did not articulate in that statement any arguments as to the proper construction of the 'fair value' definition in cl 3.18(b)(v) of the Lease.
Second preliminary conference held on 29 October 2024
On 29 October 2024, a lengthy second preliminary conference was held. The parties were each represented by counsel and solicitors at the conference. There is no official or authorised transcript of the conference available, and no summary was prepared by the Arbitrator.
However, the parties adduced in evidence before me the typed versions of the contemporaneous file notes taken by the parties' respective solicitors, which record the parties' arguments as to the scope of the arbitration and the purpose of the second preliminary conference. The first file note was prepared by Ms Di Francesco, a solicitor for the plaintiff.[31] The second file note was prepared by Ms Black, another lawyer acting for the plaintiff.[32] The third file note was prepared by Ms Surma-Litchfield, a solicitor for the second defendant.[33] Each of these sets of notes is extremely detailed, providing an almost verbatim account of the conference.
[31] First Di Francesco Affidavit, Attachment SLD-23.
[32] First Di Francesco Affidavit, Attachment SLD-24.
[33] Surma-Litchfield Affidavit, Attachment FSL-01.
I was taken through the file notes in careful and comprehensive fashion by senior counsel for the plaintiff. The following matters are apparent from those documents, on my assessment:
(a)The plaintiff's central position was that the purpose of the second preliminary conference was to determine the scope of the arbitration in the sense of defining the jurisdiction of the Arbitrator. The plaintiff's counsel placed reliance on the Edmund Barton Chambers decision and proposed that the question of law be referred to the Supreme Court.
(b)The plaintiff's counsel did not develop his client's construction arguments, as to the scope of the term 'fair value', in any particular detail, merely outlining a precis of the arguments. The plaintiff's counsel expressly indicated that the plaintiff had not yet fully articulated its submissions in this regard.
(c)The second defendant's counsel did not appear to have a copy of the Arbitrator's direction dated 10 July 2024, to which I have referred earlier in these reasons. This may have been a result of the change in legal representation for the second defendant and the failure by the former instructors to provide the document to counsel. This tends to explain, at least in part, why the second defendant's counsel addressed the Arbitrator at the conference on the substantive construction issues arising in relation to the definition of 'fair value' in cl 3.18(b)(v), and sought to produce background documents said to be relevant to that construction exercise, rather than focusing only on the question of the arbitrator's jurisdiction.
(d)The Arbitrator observed that the concept of 'fair value' was not one used by valuers. He noted that valuers generally tended to focus upon the concept of 'market value'. The Arbitrator is also recorded as referring to items (c), (d) and (e) in the direction he issued on 10 July 2024, and apparently accepting that the issue was a legal question not a valuation matter. The Arbitrator is recorded as raising the need for legal advice to be obtained by him on the issue.
The outcome of the second preliminary conference was a direction by the Arbitrator for the parties to provide further submissions as to the terms of the question of law and the basis on which it should be referred to the Court.
Communication from the Arbitrator on 7 November 2024
On 7 November 2024, prior to the plaintiff providing its statement of its proposed question of law for referral to the Court, the Arbitrator sent an email to the parties seeking 'to clarify' certain matters with the parties.[34] In summary, the Arbitrator:
(a)asked the parties if they agreed that the Arbitrator's jurisdiction was to resolve the differences between the Valuers; and
(b)asked the parties if they agreed that the Joint Conferral Statement records that the Valuers agreed that if the 'balance of the Term' is nil then the 'fair value' is nil, therefore there is no difference between the Valuers for the arbitrator to resolve, and that the difference between the Valuers is the 'implied balance of the term remaining given the lease term has expired (i.e.) Nil or 20 years'.
[34] First Di Francesco Affidavit, Attachment SLD-25.
The Arbitrator suggested that if the parties agreed with the above points then the proposed referral of a question of law with respect to the construction of the Arbitrator's jurisdiction under cl 3.18(b)(v) of the Lease would fall away.
On 8 November 2024, the solicitors for the plaintiff responded advising that, subject to one point of clarification, they agreed with the positions put by the Arbitrator.[35] The opening paragraph of the email from the plaintiff's solicitors states:
Your email below reflects, except in one detail, the position advanced by the respondent at the preliminary conference held on 29 October 2024. That detail is that the respondent submits that the difference between Mr Gorman and Mr Molony is not purely whether the "balance of the Term remaining" should be assumed to be "Nil or 20 years", but whether it should be "Nil or some other number and, if the latter, what number?". That is, as you identify below, a question of law concerning the proper construction of the Lease. That is why the respondent has requested your consent to refer that question of law for determination by the Supreme Court pursuant to s 27J of the Commercial Arbitration Act 2012 (WA).
[35] First Di Francesco Affidavit, Attachment SLD-26.
The email from the plaintiff's solicitors then clarified the next steps in the matter following the second preliminary conference. The solicitors asked for confirmation whether the Arbitrator's email of 7 November 2024 should be treated 'as a ruling on [the Arbitrator's] jurisdiction and the scope of [his] authority pursuant to s 16(8) of the Commercial Arbitration Act … or whether the question of [the Arbitrator's] jurisdiction remains an open dispute between the parties'. The email specifically noted that, if the Arbitrator's email represented a ruling on jurisdiction:
… then the consequence is that the only issue between the parties for determination in this arbitration is the proper construction of cl 3.18(b)(v), and we repeat our client's request for you to provide your consent to the respondent applying for the leave of the Supreme Court for determination of that question of law.
Otherwise, if it remains an open issue, we will file our submissions concerning your jurisdiction and the scope of the arbitration and accompanying minute of proposed directions on Tuesday.
Finally, given the foregoing, the plaintiff's solicitors confirmed it was not their client's intention to file submissions on the substantive issue of the proper construction of cl 3.18(b)(v). However, and importantly for the purposes of the present proceedings before this Court, the solicitors stated that:
Once the question of your jurisdiction is confirmed, it would be appropriate for the usual course to be followed of the claimant filing its case on the substantive issue first, followed by the respondent (whether that question is to be determined by you as Arbitrator or the Supreme Court.
On 9 November 2024, the solicitors for the second defendant responded advising that, in effect, they did not agree with the position put by the plaintiff.[36] Indeed, the email reflects a disagreement with the approach favoured by the Arbitrator, as revealed by the outcome of the second preliminary conference and the Arbitrator's email of 7 November 2024. Relevantly, the email from the second defendant's solicitors stated:
[36] First Di Francesco Affidavit, Attachment SLD-27.
The Claimant [i.e. the second defendant] prefers to continue the process that was to occur as resolved at the last lengthy hearing on 29 October 2024. That is, for the Respondent [i.e. the plaintiff] to make its submissions on its proposed issue of law and then the Claimant will respond. The arbitration has not yet advanced enough to be sending off a narrow issue, suitable for the Respondent's purposes only, for determination by a Court.
…
The Respondent should be putting all of its submissions to you within the resolved two-week period, and not something narrow that might leave in reserve unstated material that might be revealed at a later date. The Respondent has the onus of persuading you to give consent and then to obtain leave of the Court.
This arbitration is likely to raise a number of questions of law, including what is meant by "differences", and "shall pay compensation", the ambit of the task of the arbitrator to "resolve the differences", the relevance of other terms of the lease including the obligation to improve the land and the steps leading to the obligation imposed on the Respondent to pay compensation, and the requirement to know background circumstances at the time of contracting as an aid to determining the meaning of a term of a contract. Should the matter be referred to the Court the Respondent's preference is that as many applicable questions of law are resolved, so that the arbitration is not drawn out by a series of applications to the Court.
The Claimant's position is that the dispute is broader than the narrow ambit suggested by the Respondent. The Claimant should be permitted to put its case and have it resolved. It should not be limited to the confined case that is the Respondent's case. That includes all pertinent legal issues, the ambit of the dispute, and ensuring that the Respondent has disclosed all documents that are relevant to the Claimant's case and not just what the Respondent says or wants to say.
The Claimant can present submissions to support these arguments and material has already been given to the Respondent's lawyers and was offered to you before and at that last hearing. The Claimant expected that this would occur in accordance with the outcome of the last hearing.
We do not read the notes of the experts' conferral in the way set out in your email. Importantly in paragraph 1 reflects confusion and assumptions by the experts about what is to be valued, the improvements, the lease, any hypothetical lease and construction of the meaning of lease. The zero value conclusion is based on valuing the actual lease. The Claimant contends that approach was erroneous. The task is to value the improvements, not the actual lease. That is why the Claimant has sought and obtained further evidence. The lease required that when the lease ended (in Mr Molony's terms the "balance of the term remaining" was "nil") compensation "shall be paid". His interpretation clashes with that command "shall", which applies when a lease has ended.
On the other hand Mr Gorman did not simply insert another but longer figure into the term into the phrase "balance of the term remaining" in the lease. Quite appropriately he compared the assessed value of an hypothetical lease with improvements against the value without the improvements. That is an approach well understood by the law. In personal injury cases loss of earning capacity is determined, by reference to anticipated loss of earnings, which rationally can only be hypothetical because the events have not happened. The same is true for any assessment of current (e.g. capital) commercial loss based on calculated a present discounted value of anticipated future loss of periodic payments.
The Respondent [sic - this appears to have been intended to refer to the Claimant] does not see the outcome of the arbitration will be resolved properly by putting alternative figures into the term "balance of the term remaining". That is arguably inappropriate when the lease has ended and there is no such balance. In that event the term [is] inapplicable rather than a phrase that invites insertion and application of a number. When the lease ended the phrase is inapplicable because there was no such "balance", or it invites an approach to valuation of improvements that acknowledges the lease has ended rather than valuation of the actual lease itself for a "nil" period remaining. The alternative approach is comparison of hypotheticals.
We do not agree that the task of resolving differences is confined to extracting particular words from the experts' conferral memorandum, not placing them in context, and then choosing between alternatives. There is nothing so limiting in the lease terms. The Claimant submits that the Respondent has endeavoured to persuade you by an approach to contract construction that the Claimant contends is both unorthodox and erroneous. We have already put the contended correct approach to the Respondent. The Claimant should have an opportunity, as was resolved at the last hearing, to put submissions to you after the Respondent has provided its submissions. The fundamental differences between the experts were that they did not agree on the amount that was to be paid as compensation or how that amount was to be determined.
The parties, both originally and upon assignment of the lease to the Claimant, knew that valuable improvements were to be (and were) placed on the land and they knew that valuable improvements were left on the land which, by the application of the terms of the lease, the Respondent chose to keep and agreed to pay compensation for. A lay person would conclude that the improvements did not have zero value. The Respondent has kept them without paying for them. That would be an extraordinary outcome if that were to be permitted.
On 11 November 2024, the Arbitrator wrote to the parties stating that, considering the responses, the parties should proceed to file their submissions concerning his 'jurisdiction and the scope of the arbitration'. As I read the course of the correspondence, this reflected an acceptance by the Arbitrator of the approach which had been favoured by the plaintiff, namely that the issue of jurisdiction and scope of the arbitration was to be determined as an anterior step to the filing of submissions on the construction issues associated with the term 'fair value' in cl 3.18(b)(v) of the Lease.
Submissions provided by the parties in November 2024
On 12 November 2024, the plaintiff provided its submissions on jurisdiction and a minute of proposed directions.[37] The minute of proposed directions sought an order determining the jurisdiction of the arbitrator by reference to the difference recorded by the Valuers in the Joint Conferral Statement, namely as being whether the 'balance of the Term remaining' to which the Valuers must have regard in performing their function is nil or some other period of time, and then an order referring the question of law concerning the proper construction of that aspect of cl 3.18(b)(v) of the Lease to the Supreme Court for determination pursuant to s 27J(2) CAA.
[37] First Di Francesco Affidavit, Attachments SLD-29 and SLD-30.
On 26 November 2024, the second defendant provided its submissions in response.[38] The second defendant's submissions did not engage with the question of jurisdiction raised in the plaintiff's submissions, but instead contended that 'issues should be reformulated and the [plaintiff] should disclose documents' before any question of law was referred to the Supreme Court.
[38] First Di Francesco Affidavit, Attachment SLD-31.
The primary focus of the second defendant's submissions was as to the proper construction of the phrase 'balance of the Term remaining' in the definition of 'fair value' in cl 3.18(b)(v) of the Lease, rather than the parts of that clause which defined the Arbitrator's jurisdiction.
As the second defendant's submissions went beyond what had been contemplated and addressed the proper construction of the definition of 'fair value', on 27 November 2024, the solicitors for the plaintiff wrote to the Arbitrator and the solicitors for the second defendant seeking the second defendant's consent to the plaintiff filing submissions in reply or otherwise having the matter relisted so that submissions in reply could be made orally.[39]
[39] First Di Francesco Affidavit, Attachment SLD-32.
On 28 November 2024, the Arbitrator notified the parties that he had received their respective submissions and would respond by 11 December 2024.[40]
[40] First Di Francesco Affidavit, Attachment SLD-33.
On 29 November 2024, the solicitors for the second defendant advised the plaintiff and the Arbitrator that the second defendant opposed the plaintiff having any right of reply, whether in writing or through an oral hearing.[41] Accordingly, the plaintiff had no opportunity to respond to the second defendant's submissions dated 26 November 2024 on the construction of the term 'balance of the Term remaining' in the definition of 'fair value'.
[41] First Di Francesco Affidavit, Attachment SLD-34.
On 9 December 2024, the Arbitrator provided the parties with his first response to their submissions.[42] He said that he required independent legal advice on the question of the scope of his jurisdiction in the matter and would be obtaining that at the cost of the parties.
[42] First Di Francesco Affidavit, Attachment SLD-35.
On 13 December 2024 and 21 December 2024, the solicitors for the parties responded to the Arbitrator's proposal that he would take independent legal advice.[43] Relevantly, the plaintiff clarified the central question, stating that, as both parties agreed that the question of jurisdiction concerns identification of what are 'the differences' between the Valuers, the 'jurisdiction question' is not 'is the arbitrator bound by paragraph 1 of the Valuers' Joint Conferral Statement'. The plaintiff's solicitors then indicated their client would consent to, and agree to pay half the cost of seeking legal advice as to what are 'the differences' between the Valuers referred to arbitration, on the basis that both parties' position statements and submissions filed to date are provided to the lawyer.
[43] First Di Francesco Affidavit, Attachments SLD-36 and SLD-38.
On 6 February 2025, the Arbitrator wrote to the parties advising that he would issue directions in the matter on or before 14 February 2025.
The Arbitrator's Determination on 14 February 2025
On 14 February 2025, the Arbitrator wrote to the parties providing them with his 'directions'.[44] This is the Arbitrator's Determination to which I have earlier referred in these reasons.
[44] First Di Francesco Affidavit, Attachment SLD-41.
The document the Arbitrator provided contained the following headings: 'Key Issue', 'Directions', 'Documents Considered', 'Review of Valuers' Methodology', 'Issues with Valuers' Approaches', and 'Valuation Approach and Methods'. It is necessary to set out the entirety of the document, which is as follows:
Further to my letter dated 9 December 2024 I provide my directions in the matter as detailed below.
Kev Issue
My role as arbitrator is to resolve the differences between the Valuers.
Directions
I propose the following:
1 The parties shall each, pursuant to clause 3.18(b)(v) of the lease, instruct their respective Valuers to determine fair value of the Improvements using the Cost Approach.
2 In determining the fair value pursuant to clause 3.18(b)(v) in accordance with my direction 1 above, the Valuers shall have regard to an opinion of the replacement cost (new) of the improvements, as at the relevant date, prepared by a Quantity Surveyor jointly agreed between the parties.
3 In the event that that the parties cannot agree on a Quantity Surveyor I will nominate one on application by either party.
4Upon receipt of the Quantity Surveyor report the valuers will prepare and exchange their opinion of the fair value of the improvements
5It the Valuers cannot agree the fair value of the improvements then I will resolve the differences between them.
6Should the valuers agree the fair value of the improvements then the Arbitration process is at an end.
Documents Considered:
Report by Tony Gorman (15 January 2019)
Letters from David Molony (30 October 2018 & 2019)
Joint Conferral Statement of Gorman & Molony (26 March 2019)
The Lease operates as a ground rent arrangement under the Fremantle Port Authority Act (FPAA). Clause 3.18 (Yielding Up) governs compensation for Improvements upon lease expiration.
Specifically, Clause 3.18(b)(iii) requires the Authority to pay the Lessee a "fair value0 for improvements, to be settled under Clause 3.18(b)(v). This fair value must "have regard to" age, condition, state of repair, and the remaining lease term.
Review of Valuers' Methodology
Based on my review of the expert report/comments, I find that both Valuers' approaches do not align with the lease requirements.
Issues with Valuers' Approaches
Both valuers have focused on the phrase "balance of the term remaining", resulting in assessments of leasehold interest, which includes the land value. However, the fair value of improvements does not take into account the land.
The lease defines "Improvements" separately from "Demised Land”.
Therefore, obtaining a court ruling on this phrase is unnecessary, as the fair value assessment concerns improvements, not the leasehold Interest.
The lease has expired, therefore the balance of the term is not a factor. Irrespective, it is not a factor in determining the fair value of improvements.
While Sub-clauses 3.18(a)(i) & (ii) address lease expiration or early termination, they do not impact fair value of the improvement's calculations.
Reference to the balance of the term remaining is but one of the factors described in the lease clause. Furthermore the valuers are not constrained to just those factors described in the lease clause in determining the fair value of the improvements.
The direction "having regard to age, condition and state of repair" is effectively legal speak for obsolescence which triggers the cost approach from which flows the valuation method(s) to estimate the added value of improvements, namely:
(1)Value based on sales of comparable properties (improvements only)
(2)Value based on replacement cost (new) of improvements less accrued depreciation replacement cost (factors of obsolescence)
The absence of market based comparable transactions of improvements excluding land, even in the broader property market, in my mind focuses on the cost approach.
I conclude that the valuers have not properly addressed the question "what does the clause require the valuer to find?".
In summary the assessment of fair value is a cost and depreciation scenario.
Valuation Approach and Methods
The valuers will be aware of the relevant approaches and methods contained in the General Standards of the International Valuation Standards (IVS 105).
The relevant date of valuation is 30 November 2018, therefore IVS 2017 is the applicable IVS publication.
The directions within the Arbitrator's Determination describe a process by which the parties are to instruct their respective valuers to determine the fair value of the Improvements using 'the Cost Approach', with a quantity surveyor to be appointed to prepare an opinion of the 'replacement cost (new) of the improvements, as at the relevant date'. The Arbitrator stipulated that the valuers shall have regard to this opinion in determining the fair value. The valuers would then exchange their opinions and if they could not agree then the Arbitrator would resolve the differences between them.
Further, in his explanation for the above approach, the Arbitrator stated that, by focussing on the phrase 'balance of the term remaining', both Valuers have erred by valuing the leasehold interest, which includes land value, when the fair value of the improvements does not take into account the value of the land. The Arbitrator concluded that, based on his review of the Valuers' reports, both of their approaches did 'not align with the lease requirements'. The proper approach to valuing the 'fair value' of the improvements, according to the Arbitrator, was to use a cost and depreciation scenario.
The Arbitrator further stated that it was unnecessary to refer the matter to this Court as to the proper meaning of cl 3.18(b)(v)of the Lease.
I turn now to address the relevant principles and the applicable legislative framework, before specifically addressing the issues which require determination in these proceedings.
F. Relevant principles and legislative framework
Jurisdiction or authority of an arbitrator
The jurisdiction or authority of an arbitral tribunal is based on the parties' agreement, having regard to the foundational principle of party autonomy. This point was noted in the relatively recently decision of the High Court in CBI Constructors Pty Ltd v Chevron Australia Pty Ltd.[45] In that matter, a plurality of the High Court explained that the jurisdiction of the tribunal depends on the context and extent of the parties' voluntary consent and agreement to submit their commercial dispute to arbitration, subject of course to the jurisdiction conferred by statute.[46]
[45] CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2024] HCA 28; (2024) 98 ALJR 1098 (Chevron Australia).
[46] Chevron Australia [15] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ).
At [31], the plurality stated the point as follows:[47]
The source of the arbitral tribunal's jurisdiction to resolve a dispute, and its mandate, competence or authority to act, is the arbitration agreement.
[47] Chevron Australia [31] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ).
Further, the plurality observed that the paramount object of the CAA, which is to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense, is sought to be achieved in part by enabling 'the parties to agree how their commercial disputes are to be resolved through arbitration'.[48]
[48] Chevron Australia [16] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ) (original emphasis).
It is well accepted, of course, that an arbitral tribunal is competent to determine its own jurisdiction.[49] This is encapsulated in the principle of competence-competence and finds voice in s 16(1) CAA:
16. Competence of arbitral tribunal to rule on its jurisdiction (cf. Model Law Art 16)
(1)The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.
[49] Chevron Australia [31] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ).
The arbitrator may rule on an objection to jurisdiction either as a preliminary question or within an award on the merits (s 16(8) CAA). However, the ability of the arbitrator to rule on his or her own jurisdiction is not unfettered. The plurality in Chevron Australia made the point as follows:[50]
An arbitral tribunal cannot confer on itself an authority which it does not rightly have if it makes an erroneous decision as to its authority. That is, an arbitral tribunal cannot by its own decision create, expand or extend its own authority.
[50] Chevron Australia [32] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ).
A finding of an arbitral tribunal as to its jurisdiction under s 16(8) CAA is open to be addressed or corrected by the Court pursuant to s 16(9) CAA. There are, within the CAA, statutory requirements which must be satisfied when a challenge to jurisdiction is made by a party. Specifically:
(a)a party wishing to deny the jurisdiction of an arbitral tribunal must do so no later than the submission of the statement of defence (s 16(4) CAA);
(b)a party who considers that an arbitrator is exceeding the scope of his authority must raise the issue as soon as the matter alleged to be beyond scope is raised during the arbitration (s 16(6) CAA);
(c)notwithstanding the time limits for raising issues with jurisdiction referred to in the CAA, an arbitrator may consider any objections raised at a later time if he considers the delay in raising them was justified (s 16(7) CAA); and
(d)where an arbitrator makes a ruling on an objection to jurisdiction, a party may apply to the Court within 30 days for a decision on the arbitrator's jurisdiction (s 16(9) CAA).
I should pause here to note that there is an overlap between s 16 CAA and s 34(2)(a)(iii) CAA (which is extracted below). The latter provision empowers the Court to set aside an award if the award contains decisions on matters beyond the scope of the arbitration, amongst other things. The plurality in Chevron Australia observed that these provisions are directed to the same question, namely whether an arbitral tribunal has exceeded its authority.[51] The Court observed as follows:[52]
[37]Sections 16 and 34(2)(a)(iii) are directed to the same question – whether an arbitral tribunal has exceeded its authority. Section 16 addresses it as a preliminary question and recognises that an arbitral tribunal may continue the proceedings and make an award while that preliminary question is before the courts. Section 34(2)(a)(iii) addresses the question after a binding award (whether it be interim or final) has been made. The fact that, in the face of an objection to the jurisdiction of the arbitral tribunal, the tribunal continues the arbitral proceedings under s 16 or determines the substantive issues as part of a final award subject to a set aside application under s 34(2)(a)(iii) cannot alter the fundamental proposition that an arbitral tribunal cannot expand its own jurisdiction. The order in which the challenge to the jurisdiction of an arbitral tribunal is considered and determined by the tribunal – whether as a preliminary question or as part of a substantive hearing which considers the substance of the issue as part of an award – cannot be used by the tribunal to expand its own jurisdiction.
[51] Chevron Australia [37] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ). See also the observations of Jagot and Beech-Jones JJ at [68].
[52] Chevron Australia [37] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ).
Where a finding as to jurisdiction is made within an award on the merits, a challenging to that finding might appropriately be brought as an application to set aside the award pursuant to s 34(2)(a)(ii) CAA. Where a ruling on jurisdiction is undertaken by an arbitrator as a preliminary question only, not being an award on the merits, a challenge thereto is permissible under s 16(9) CAA, subject to satisfaction of the procedural requirements which are contained within s 16 CAA.
In the present proceedings, the plaintiff pursues both pathways. The plaintiff seeks relief in ARB 3 of 2025 pursuant to s 34(2)(a)(iii) CA, as well as relief pursuant to s 16(9) CAA in ARB 4 of 2025, both of which go to a question as to jurisdiction or authority.
Setting aside an award on the ground of procedural unfairness
The plaintiff accepted that the scope for setting aside an award is very narrow.[53]
[53] PS [55].
Section 34 CAA expressly provides that recourse to the Court against an arbitral award may be made only by an application for setting aside in accordance with s 34(2) or s 34(3), or by an appeal under s 34A.
The legislation is described as striking 'an appropriate balance between ensuring the integrity of the arbitral process and the policy of 'minimal curial intervention', which is commonly accepted in international practice and underlies the Model Law'.[54] The High Court was there addressing s 34(2)(a)(iii) CAA in particular, which is engaged where the arbitral tribunal has exceeded its jurisdiction, but the careful approach to curial intervention applies generally across the grounds set out in s 34 CAA, including the procedural fairness grounds relied upon by the plaintiff.
[54] Chevron Australia [41] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ). Model Law is a reference to the UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006).
The terms of s 34 CAA are as follows:
34.Application for setting aside as exclusive recourse against arbitral award (cf. Model Law Art 34)
(1)Recourse to the Court against an arbitral award may be made only by an application for setting aside in accordance with subsections (2) and (3) or by an appeal under section 34A.
Note for this subsection:
The Model Law does not provide for appeals as under section 34A.
(2)An arbitral award may be set aside by the Court only if —
(a)the party making the application furnishes proof that —
(i)a party to the arbitration agreement referred to in section 7 was under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication in it, under the law of this State; or
(ii)the party making the application was not given proper notice of the appointment of an arbitral tribunal or of the arbitral proceedings or was otherwise unable to present the party's case; or
(iii)the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or
(iv)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Act;
or
(b)the Court finds that —
(i)the subject matter of the dispute is not capable of settlement by arbitration under the law of this State; or
(ii)the award is in conflict with the public policy of this State.
(3)An application for setting aside may not be made after 3 months have elapsed from the date on which the party making that application had received the award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal.
(4) The Court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside of proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal's opinion will eliminate the grounds for setting aside.
As earlier noted, the plaintiff seeks relief in ARB 3 of 2025 pursuant to s 34(2)(a)(ii) and s 34(2)(b)(ii) CAA.
The former provision is engaged where a party was unable to present its case, which is the express language employed within s 34(2)(a)(ii).
The latter provision is engaged where the award is in conflict with the 'public policy of this State', which the plaintiff asserts includes a requirement that a party be afforded procedural fairness. As to this point, there is little doubt that the 'public policy' of Western Australia incorporates principles of procedural fairness. In Colin Joss & Co Pty Ltd v CUBE Furniture Pty Ltd,[55] Hammerschlag J (as his Honour then was) observed that an award which is infected with a sufficiently material breach of the rules of natural justice will be in conflict with the public policy of New South Wales. That, of course, would equally apply in Western Australia, as Kenneth Martin J subsequently accepted in Ivankovic v Western Australian Planning Commission.[56]
[55] Colin Joss & Co Pty Ltd v CUBE Furniture Pty Ltd [2015] NSWSC 735 [44] (Hammerschlag J).
[56] Ivankovic v Western Australian Planning Commission [2020] WASC 401 [221] (Kenneth Martin J).
The discretion to set aside an award on this basis requires that the applicant demonstrate some real unfairness or real practical injustice, as to the manner in which the arbitration was conducted or resolved, and must do so by reference to established principles of natural justice or procedural fairness.[57]
[57] Colin Joss & Co Pty Ltd v CUBE Furniture Pty Ltd [45] (Hammerschlag J).
Importantly, Hammerschlag J continued, the public policy ground in s 34(2)(b)(ii) 'is not concerned with mere procedural imperfections but with a negation of rights which our legal system recognizes as being fundamental and therefore matters of public policy'.[58] When making this observation, his Honour mentioned the need to remember that arbitrators are frequently not legally trained, and their 'procedural behaviour and awards should not be scrutinised with an overcritical or pedantic eye and should be viewed with commonsense and without undue legality'.[59] I respectfully agree. This reflects the practical reality of many of the awards which are challenged in this Court.
[58] Colin Joss & Co Pty Ltd v CUBE Furniture Pty Ltd [46] (Hammerschlag J).
[59] Colin Joss & Co Pty Ltd v CUBE Furniture Pty Ltd [47] (Hammerschlag J).
The conduct of arbitral proceedings must be seen in the context of the requirement in s 18 CAA that the parties 'must be treated with equality and each party must be given a reasonable opportunity of presenting the party's case'. The concept of a 'reasonable opportunity' was examined by the Queensland Court of Appeal in Mango Boulevard Pty Ltd v Mio Art Pty Ltd,[60] by reference to the equivalent provisions to s 34(2)(a)(ii) and the s 34(2)(b)(ii) CAA, as follows:
[23] It was submitted that natural justice and procedural fairness arise under both limbs, and a breach of the rules of natural justice is one that causes real practical injustice. In this context it is not necessary to prove that there would have been a different outcome had the hearing been fair. It is sufficient to show that the denial of procedural fairness deprived Mango Boulevard of the possibility of a successful outcome.
[24] Further, it is well accepted in the context of arbitrations that a party is denied a reasonable opportunity of presenting its case where the Arbitrator introduces a new idea of his own on which the parties have not been able to comment or adduce evidence. If the Arbitrator intended to raise and rely upon his own issue, he was obliged to fairly reveal the issue so that the parties could, as a minimum requirement of procedural fairness, be given a full opportunity to understand, test and rebut the issue. The obligation on the Arbitrator is to provide a fair opportunity to address his arguments on all of the essential building blocks in his conclusion. (footnotes omitted)
[60] Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] QCA 39 [23] - [24] (Morrison JA, with whom Fraser and McMurdo JJA agreed).
The plaintiff recognises that the Court retains a discretion whether to set aside an award pursuant to s 34 CAA, referring to Spaseski v Mladenovski,[61] among other authorities.[62]
[61] Spaseski v Mladenovski [2019] WASC 65 [64] and [112] (Kenneth Martin J).
[62] PS [67] – [68].
In the course of examining the issue in Spaseski v Mladenovski, Kenneth Martin J referred to the unanimous decision of the Full Federal Court in TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd,[63] which decision concerned the provisions of the International Arbitration Act 1974 (Cth). In that matter, the Full Federal Court addressed the discretion and the importance of demonstrating some real unfairness or real practical injustice as follows:
The above leads one to the conclusion that Arts 34 and 36 should be seen as requiring the demonstration of real practical injustice or real unfairness in the conduct of the reference or in the making of the award. The rules of natural justice are part of Australian public policy. The assessment as to whether those rules have been breached by reference to established principle is not a matter of formal application of rules disembodied from context, or taken from another statutory or human context. The relevant context is international commercial arbitration. No international arbitration award should be set aside for being contrary to Australian public policy unless fundamental norms of justice and fairness are breached. Each of Art 34 and 36 contains a form of discretion or evaluative decision: “may be set aside” (Art 34), “may be refused only” (Art 36). It is not profitable to seek to differentiate between the engagement of public policy under the Articles and a supposedly separate and a later question whether to exercise the discretion; nor is it profitable, but only likely productive of difficulty or error, to read into Arts 34 and 36 any precise notions of required prejudice or other preconditions to the exercise of any discretion. The provisions (ss 8(7A), 19 and Arts 34 and 36) deal with fundamental conceptions of fairness and justice. It suffices to say that no international award should be set aside unless, by reference to accepted principles of natural justice, real unfairness and real practical injustice has been shown to have been suffered by an international commercial party in the conduct and disposition of a dispute in an award. It is likely that real prejudice, actual or potential, would be a consideration in the evaluation of any unfairness or practical injustice.
[63] TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83; (2014) 232 FCR 361 [111] (Allsop, Middleton and Foster JJ) (TCL Air Conditioner).
In the broader administrative law setting concerned with jurisdictional errors, not the more confined context of arbitral disputes, the requirement that a denial of procedural fairness must be material has recently been examined by the High Court. In LPDT v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs,[64] a plurality of the Court stated:
[14]The question in these cases is whether the decision that was in fact made could, not would, "realistically" have been different had there been no error. "Realistic" is used to distinguish the assessment of the possibility of a different outcome from one where the possibility is fanciful or improbable. Though the applicant must satisfy the court that the threshold of materiality is met in order to establish that the error is jurisdictional, meeting that threshold is not demanding or onerous.
[15]What must be shown to demonstrate that an established error meets the threshold of materiality will depend upon the error. In some cases, it will be sufficient to show that there has been an error and that the outcome is consistent with the error having affected the decision. Where the error is a denial of procedural fairness arising from a failure to put the applicant on notice of a fact or issue, the court may readily be able to infer that, if fairly put on notice of that fact or issue, the applicant might have addressed it by way of further evidence or submissions, and that the decision-maker would have approached the applicant's further evidence or submissions with an open mind. In those cases, it is "no easy task" for the court to be satisfied that the loss of such an opportunity did not deprive the person of the possibility of a successful outcome. Importantly, a court called upon to determine whether the threshold has been met must be careful not to assume the function of the decision-maker: the point at which the line between judicial review and merits review is crossed may not always be clear, but the line must be maintained. This case affords an example.
[16]In sum, unless there is identified a basis on which it can be affirmatively concluded that the outcome would inevitably have been the same had the error not been made, once an applicant establishes that there has been an error and demonstrates that there exists a realistic possibility that the outcome of the decision could have been different had that error not been made, the threshold of materiality will have been met (and curial relief will be justified subject to any issue of utility or discretion).
[64] LPDT v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2024] HCA 12; (2004) 98 ALJR 610 [14] - [16] (Gageler CJ, Gordon, Edelman, Steward, Gleeson and Jagot JJ).
While this conclusion is sufficient to determine the present proceedings, it remains necessary to address the jurisdiction issues raised by the plaintiff given the ongoing nature of the dispute between the parties.
Third issue – did the Arbitrator exceed his jurisdiction?
The issues
The plaintiff raises a contention in ARB 3 of 2025, by way of alternative relief in that proceeding, that the directions made by the Arbitrator exceeded his authority. That issue is raised by reference to s 34(2)(a)(iii) CAA. As I have earlier noted, there is a degree of overlap between this provision and the operation of s 16(9) CAA, which is the provision relied upon by the plaintiff in ARB 4 of 2025. In that proceeding, the plaintiff argues that the Arbitrator exceeded the scope of his jurisdiction or authority on the referral which was made to him by the parties.
The plaintiff in effect contends that the Arbitrator found, incorrectly, that his jurisdiction extended beyond resolving the differences between the Valuers as to the balance of the Term remaining which should be assumed for the purpose of calculating the fair value of any compensation to be paid.[77] The plaintiff emphasises that the key feature of the contractual mechanism in cl 3.18(b)(v) of the Lease is that it requires expert determination by consent between each party's appointed expert valuer, and the role of the third valuer, who may be appointed as an arbitrator, is confined to resolving 'differences' between the two appointed experts if and when they arise.[78]
[77] PS [104].
[78] PS [110].
The plaintiff further submits that the arbitrator's role is not to usurp or supplant the primary role of the expert valuers in the dispute resolution process, and replace it with his or her own independent views as to the approach to the assessment of the fair value of any compensation.[79]
Disposition in relation to s 34(2)(a)(iii) CAA
[79] PS [110].
The specific relief sought in ARB 3 of 2025 is an order that the directions made by the Arbitrator be set aside pursuant to s 34(2)(a)(iii) CAA. The directions form part of the Arbitrator's Determination, which I have found is an arbitral award issued by the Arbitrator for the purposes of the legislation.
In essence, the directions made by the Arbitrator proceed on the basis that the appointed Valuers will apply the cost and depreciation approach, being the approach to valuation the Arbitrator considered was applicable under cl 3.18(b)(v) of the Lease. The directions are predicated on the Arbitrator's assessment that the 'balance of the Term remaining' in cl 3.18(b)(v) of the Lease is 'not a factor' in determining the fair value of the improvements.
It falls to determine whether the Arbitrator did exceed his jurisdiction or the scope of his authority when determining the matter. This question is to be addressed by reference to the correctness standard, and without any measure of judicial deference to the arbitrator's interpretation.[80] To answer that question, attention must be directed to the arbitration agreement.
[80] Chevron Australia [45], [47] and [48] (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ) and [92] (Jagot and Beech-Jones JJ).
The text provides that the third valuer, acting as an arbitrator, only has authority to resolve the 'differences' between the two valuers appointed by the parties. In my respectful opinion, the choice of language here is clear and without ambiguity. The parties did not agree that a dispute as to the 'fair value' of the 'Improvements' would be resolved by having the third valuer determine that question. That is, the terms of cl 3.18(b)(v) of the Lease do not provide that the third valuer is empowered to perform the same function as either of the party-appointed valuers.
In contrast to the broad language of cl 11.1 of the Lease, which contains the general arbitration referral provision, the parties elected within cl 3.18(b)(v) of the Lease to adopt a narrower procedure with a more confined scope of authority.
I accept the submission advanced by the plaintiff that the proper construction of cl 3.18(b)(v) of the Lease should be approached in a similar manner to the construction favoured by the majority of the New South Wales Court of Appeal in Edmund Barton Chambers. That authority was relied upon by the plaintiff during the arbitral proceedings, as noted at [57] above. The clause in that case is materially similar to cl 3.18(b)(v) of the Lease.
In Edmund Barton Chambers, the Court considered the operation of a rent review clause in a commercial lease. The lease provided that, where a rent review notice was given, the current market rent would be determined by two valuers appointed by each of the parties. In the event the two valuers could not agree on the rent, 'a third valuer so qualified shall be appointed by the two (2) valuers to determine as an arbitrator any points of difference between such valuers'.
The majority of the Court, Moffitt P and Samuels JA, held that the third valuer was to be appointed upon the existence of an actual disagreement between the valuers appointed by the parties. Further, if the intended function of the third valuer had been to make an independent determination of value, 'it would have been simple enough to have so provided in direct terms' in the drafting of the clause.[81]
[81] Edmund Barton Chambers (57,256) (Moffitt P, Samuels JA agreeing).
Moffitt P, with whom Samuels JA agreed, concluded that the words 'determine … any points of difference' defined the subject matter of the determination that the arbitrator was asked to make under the lease.[82] The subject matter was not the 'current market rent', but the 'points of difference' between the valuers.
[82] Edmund Barton Chambers (57,256) (Moffitt P, Samuels JA agreeing).
Moffitt P rejected the contention that the amount of the current market rent itself was a point of difference. His Honour held that, where a difference emerges between the appointed valuers at a point prior to the calculation or determination of value, any ultimate difference in the determination of value would not itself be a difference within the meaning of the clause. A construction by which the phrase 'any points of difference' was held to include differences as to the ultimate answer, when there are disagreements on matters which the ultimate answer depends on, 'would render unnecessary the determination of the points of difference' in the experts' methodology or approach.[83]
[83] Edmund Barton Chambers (57,257) (Moffitt P, Samuels JA agreeing).
The approach to the clause favoured by Moffitt P may well lead to an iterative process, in which the arbitrator resolves more than one difference between the valuers, in a sequential fashion. That might strike an observer as cumbersome and time consuming, but it would nonetheless reflect the parties' agreement which gives primacy to having the value determined by the two independent valuers appointed by the parties.
Hutley JA disagreed in the result, holding that the time for the appointment of the third valuer had not yet arisen. His Honour accepted, however, that the exact amount of rent was not a point of difference which could be determined by the arbitrator under the clause.[84]
[84] Edmund Barton Chambers (57,258) (Hutley JA).
The terms of the clause in Edmund Barton Chambers are sufficiently similar to the present contractual provision that I consider I should follow the decision of Moffitt P as to its construction. I do not accept, as submitted by the second defendant, that the authority can be distinguished. Further, his Honour's reasoning is persuasive and gives effect to the clear text of the provision in question.
In my opinion, the scope of cl 3.18(b)(v) of the Lease, when seen in the context of the Lease as a whole, is such that an arbitrator appointed thereunder is granted a narrow and confined authority to resolve identified 'differences' between the parties' valuers. The arbitrator is not authorised to determine the final value, or travel beyond this confined remit.
In the present circumstances, the 'difference' between the Valuers was critically focused on the phrase 'balance of the Term remaining', and whether, on its proper interpretation in the present context, the 'Term' should be taken to be nil or whether some non-zero period of time should be assumed. This was the issue referred to arbitration, having regard to the terms of the Joint Conferral Statement and the language of cl 3.18(b)(v) of the Lease, and noting that the initial referral by the Australian Property Institute was itself silent on the scope of the referral. This confines the Arbitrator's jurisdiction in the present case.
Further, the Joint Conferral Statement did not identify any difference between the Valuers as to the relevance or otherwise of the land value, the cost approach, sales of comparable properties, replacement cost, or accrued depreciation, as correctly noted by the plaintiff in its submissions.[85]
[85] PS [118].
As I have earlier noted, the directions are predicated on the Arbitrator's assessment that the 'balance of the Term remaining' in cl 3.18(b)(v) of the Lease is 'not a factor' in determining the fair value of the improvements
Rather than address, or resolve, the difference between the Valuers which was referred to the Arbitrator pursuant to cl 3.18(b)(v) of the Lease, which was focused on the approach to be taken to the 'balance of the Term remaining', and in respect of which the Valuers agreed that if the term was nil then the value would be nil, the Arbitrator has ignored this component of the definition of 'fair value'. In doing so, the Arbitrator has addressed a dispute not contemplated by the referral to arbitration and has exceeded his authority.
Put another way, the Arbitrator in this case had no jurisdiction or power to find that, in respect of the matter on which they were agreed, the Valuers had applied the wrong approach to valuing the improvements. The only question referred to the Arbitrator for arbitration concerned the point of difference between them – namely whether they should assume a non-zero period of time for the 'balance of the Term remaining' and, if so, what that period of time should be. That was a question of law concerning the proper construction of the Lease.
The alternative relief sought by the plaintiff under s 34(2)(a)(iii) CAA is to set aside the Arbitrator's Determination. That relief should be granted, in my opinion and there is no basis to refrain from exercising the discretion in favour of the plaintiff in this regard.
Disposition in relation to s 16(9) CAA
I turn next to the relief sought in ARB 4 of 2025. There are some procedural matters which must be addressed in the context of the relief sought by the plaintiff under s 16(9) CAA. There is a time limitation in s 16(9) CAA, and there is also question whether the plaintiff properly raised a 'plea' that the Arbitrator was exceeding his authority. However, it is not necessary for the plaintiff to demonstrate that an 'award' was issued for the purposes of s 16(9) CAA. This is because, as is made clear in s 16(8) CAA, an arbitral tribunal may rule on its jurisdiction either as a preliminary question or in an award on the merits.
As to the time limitation, I accept that the plaintiff brought its objection to the Arbitrator's Determination within the 30 day time period provided for in s 16(9) CAA. The Arbitrator's Determination was issued on 14 February 2025 and these proceedings were filed with the Court on 12 March 2025.
As to whether a jurisdiction 'plea' was raised, it is notable that the CAA, within s 16(4), s 16(5), s 16(6), s 16(7) and s 16(8), refers to the raising of issues with jurisdiction by way of a 'plea'. As the plaintiff observed in its submissions, the concept of a 'plea' is not otherwise explained within the legislation. I accept that the concept does not require that the objection be raised in a formal pleading. Some support for this proposition can be found in the decision of teleMates (previously Better Telecom) Pty Ltd v Standard SoftTel Solutions Pty Ltd,[86] which was relied on by the plaintiff's senior counsel.
[86] teleMates (previously Better Telecom) Pty Ltd v Standard SoftTel Solutions Pty Ltd [2011] NSWSC 1365 [47] (Hammerschlag J).
In my view, whatever the breadth of the term, the plaintiff had sufficiently raised its objections as to jurisdiction during the course of the arbitral proceedings and the present case is not one in which fine distinctions as to what might constitute a 'plea' require analysis. In the absence of any pleadings ordered to be filed by the Arbitrator, the plaintiff repeatedly made clear its position that the Arbitrator should not resolve more than the difference between the Valuers as to whether they should assume a non-zero 'balance of the Term remaining' when determining the value to the second defendant of the ongoing use in its business of the 'Improvements'. The plaintiff filed written submissions on the issue, and its counsel made oral submissions at the second preliminary conference to this effect. Nothing more than this was required.
Taken together, this conduct constituted the necessary plea that the Arbitrator would exceed the scope of his jurisdiction if he proceeded other than to determine the difference recorded by the Valuers in the Joint Conferral Statement. That 'difference' was asserted to be whether the 'balance of the Term remaining' to which the Valuers must have regard in performing their function was nil, or some other period of time.
For the reasons expressed above when addressing the challenge under s 34(2)(a)(iii) CAA, I accept that by determining these broader matters beyond the resolution of the differences between the Valuers, the Arbitrator exceeded his jurisdiction. The plaintiff's contention as to jurisdiction is undoubtedly correct and, in my view, the Arbitrator exceeded the scope of the authority granted to him by the arbitration agreement under this Lease. This should be corrected pursuant to the Court's power in s 16(9) CAA. The orders I propose to make in this regard, which are in the form of declarations, are set out below.
J. Conclusion and orders
For the foregoing reasons, I propose to order as follows:
1.Pursuant to:
(a)both s 34(2)(a)(ii) CAA and s 34(2)(b)(ii) CAA; and
(b)s 34(2)(a)(iii) CAA,
the determination dated 14 February 2025 made by the first defendant as arbitrator under the arbitration agreement in cl 3.18(b)(v) of the Lease, including the directions identified therein, shall be and is hereby set aside.
2.Pursuant to s 16(9) CAA, it is declared that:
(a)the scope of the first defendant's authority, in his capacity as arbitrator under cl 3.18(b)(v) of the Lease, is to resolve the differences between the Valuers appointed by the parties under cl 3.18(b)(v) of the Lease;
(b)the 'difference' between the Valuers appointed by the parties under cl 3.18(b)(v) of the Lease is whether, on a proper construction of that clause, in circumstances where the Lease has expired by effluxion of time, the 'balance of the Term remaining' to which both Valuers must have regard in performing their function is:
(i)nil; or
(ii)some other period of time; and
if some other period of time, what that period of time is;
(c)the scope of the first defendant's authority, in his capacity as arbitrator, under cl 3.18(b)(v) of the Lease, is to resolve the 'difference' between the Valuers appointed by the parties under cl 3.18(b)(v) of the Lease as described in order 2(b) above; and
(d)the first defendant does not have authority, in the matter presently referred to arbitration, to determine the monetary value of the 'fair value' of the 'Improvements' (unless the arbitrator determines that the 'balance of the Term remaining' to which the Valuers must have regard is nil in which case the value, as agreed by the Valuers appointed by the parties, is nil).
I will hear from the parties in relation to the above orders, and as to the appropriate costs orders which should now be made.
ATTACHMENT A
Relevant Extracts from the Lease
1.DEFINITIONS AND INTERPRETATION
1.1Definitions
In this Lease unless the contrary intention appears the following expressions shall have the following meanings:-
…
'Current Market Rental' means the best current open market annual rental value that can be reasonably obtained for the Demised Land:
(a)on the basis that the Demised Land is available for leasing for the Term and any additional options for renewal and disregarding the fact that part of the Term will have elapsed at the Rent Review Date;
(b)on the basis that the covenants on the part of the Lessee in this Lease have been fully performed at the Rent Review Date;
(c)on the basis that the Demised Land is unimproved vacant land;
(d)having regard to current open market annual rental values of comparable premises, whether vacant or occupied and whether any rental value thereof has been arrived at through new lettings or rent reviews or renewals of existing tenancies or otherwise;
(e)having regard to services provided by the Authority which are included as part of the Lessee's entitlements under this Lease;
but ignoring:
(f)any rent free period, financial contribution or other concession customarily or likely to be offered to new tenants of vacant premises;
(g)any value attaching to goodwill created by the Lessee's occupation of the Demised Land;
(h)any value attaching to any licence or permit the property of the Lessee in respect of the business carried on by the Lessee at the Demised Land;
(i)any deleterious condition of the Demised Land if such condition results from any work carried out on the Demised Land by the Lessee or by any breach of any terms of this Lease by the Lessee and
(j)any decrease in the value of the Demised Land by reason of the occupancy or use of the same by the Lessee or any person deriving an interest in the Demised Land through the Lessee;
…
'Improvement(s)' includes any building, structure, fence, pipe, cable, road, connection, drain, railway, railway siding, electrical installation, electrical sub-station, gas, sewerage or drainage installation, jetty structure and any alteration, variation or addition to the level or surface of the ground of the Demised Land;
…
'Term' means the term mentioned in Item 3 of the Schedule commencing on the Date of Commencement and expiring on the Date of Expiration and includes any renewal or extension thereof;
…
'Valuer' means a natural person who:-
(a)is licensed under the Land Valuers Licensing Act 1978; and
(b)has not less than five (5) years experience (including not less than two (2) years experience in Australia); and
(c)is a member of the Australian Institute of Valuers and Land Economists (Inc) (Western Australian Division); and
(d)has experience in assessing rental values of properties of a similar nature to the Demised Land; and
…
3.LESSEE'S COVENANTS
The Lessee covenants with the Authority:-
…
3.18Yielding Up
(a)Generally
(i)Upon the expiration or sooner determination of the Term but subject to the provisions of sub-clauses 3.18(a)(ii) and 3.18(b) of this Lease to peaceably surrender and yield up to the Authority the Demised Land clean and free from rubbish and in good and substantial repair and safe condition in accordance with the Lessee's Covenants or in the event of any part thereof having been replaced or renewed during the Term as nearly as possible in the same condition as at the date of such replacement or renewal having regard to the age thereof damage by earthquake aircraft riot civil commotion fire flood lighting storm tempest reasonable wear and tear war damage and act of God only excepted.
(ii)At or prior to the determination or termination of the Term to take remove and carry away from the Demised Land all signs fixtures fittings plant machinery equipment or other articles upon the Demised Land in the nature of trade or tenant's fixtures brought upon the Demised Land by the Lessee and the Lessee shall in such removal forthwith make good to the satisfaction of the Authority any damage (including and without limitation to fill in, consolidate, level off and repair any excavation, hole or unevenness in or to the surface of the Demised Land thereby caused) which may be occasioned by such removal.
(iii)Any signs fixtures fittings plant equipment or other articles not removed in accordance with sub-clause 3.18(a)(ii) shall be deemed absolutely abandoned by the lessee, and shall become the absolute property of the Authority without compensation to the Lessee (without prejudice however to the other rights remedies and interest of the Authority contained or implied in this Lease) and may be sold or stored in the absolute discretion of the Authority at the cost in all respect of the Lessee.
(b)Removal of Improvements
(i)In addition to the rights and powers granted to the Lessee under sub-clause 3.18(a) and PROVIDED THAT the Lessee shall not then be in default under the provisions of this Lease, the Lessee may during the last thirty (30) days prior to the expiration or sooner determination of the Term, take down, remove and carry away any Improvements which the Lessee has brought onto the Demised Land with the consent of the Authority and shall make good to the satisfaction of the Authority any damage (including and without limitation to fill in, consolidate, level off and repair any excavation, hole or unevenness in or to the surface of the Demised Land) whatsoever caused to the Demised Land by such taking down, removal and carrying away.
(ii)If the Lessee shall not have done so as of right under the provisions of sub-clause 3.18(b)(i) the Lessee shall, if required to do so by the Authority, remove from the Demised Land within seven (7) days of the expiration or sooner determination of the Term, any Improvements which the Lessee has brought on to the Demised Land with the consent of the Authority and shall make good any damage (including and without limitation to fill in, consolidate, level off and repair any excavation, hole or unevenness in or to the surface of the Demised Land) whatsoever caused to the Demised Land by such taking down, removal and carrying away.
(iii)Any Improvements not removed by the Lessee either as of right (in accordance with sub-clause 3.18(b)(i)) or by requirement of the Authority (in accordance with sub-clause 3.18(b)(ii)) shall be deemed abandoned by the Lessee and shall become the property of the Authority without the Authority being deemed guilty of conversion. Compensation shall be paid by the Authority to the Lessee for the Improvements at a price agreed upon by the parties or in the case no agreement is reached within one (1) month of such expiration or sooner determination of this Lease, the Authority shall pay a fair value to be settled in accordance with the provisions of sub-clause 3.18(b)(v).
(iv)It is expressly agreed that the Authority shall be entitled to set off against such compensation referred to in sub-clause 3.18(b)(iii), any amount due up to the date of termination of this Lease to the Authority from the Lessee and unpaid in respect of any arrears of Rent or breach of any of the Lessee's Covenants on the part of the Lessee herein contained or on any other account whatsoever. In addition, if the Authority shall have any further or other claims against the Lessee the Authority may elect to pay such compensation (or balance thereof) into an interest bearing account in the names of the Lessee and the Authority with an authorised trustee investment. No withdrawal shall be made therefrom without the prior written consent of both parties provided that the Authority may withdraw moneys therefrom to satisfy any judgment it may obtain against the Lessee without the prior written consent of the Lessee provided further that after completion and full satisfaction of all actions by the Authority against the Lessee, the moneys (or the balance thereof, if any) shall be paid to the Lessee.
(v)The “fair value” referred to in sub-clause 3.18(b)(iii) of the Improvements, failing agreement between the parties, shall be such value as shall be determined by agreement between two Valuers one of whom is nominated by each of the Authority and the Lessee and, where such two Valuers fail to reach an agreement, the differences between such two Valuers shall be resolved by a third Valuer acting as an arbitrator appointed at the request of either party by the President and the provisions of the Commercial Arbitration Act 1985 shall apply. If the Authority or the Lessee fail to immediately appoint or nominate a Valuer, the appointment shall be made by the President at the request of either party. The Valuer's costs shall be borne equally by the parties. The parties agree to be bound by the decision of the two (2) Valuers (if the two (2) Valuers have so agreed the determination) or the third Valuer acting as an arbitrator (as the case may be). Either party may be represented by his solicitor or other legal representative in any arbitration proceedings. The “fair value” of such Improvements shall be the value thereof as installed or erected on the Demised Land for the ongoing use thereof by the Lessee in its business having regard to the age, condition and state of repair thereof and the balance of the Term remaining.
(emphasis added)
(c)Security
Notwithstanding any other provisions of sub-clause 3.18(b), as security for the payment of all moneys which are or may become payable by the Lessee under this Lease, the Lessee as beneficial owner hereby charges in favour of the Authority all the Improvements which the Lessee now has or may erect or install on the Demised Land during the Term.
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11.ARBITRATION
11.1Refer to Arbitration
Except as otherwise expressly provided within this Lease, if any dispute, question or difference shall arise between the parties as to the meaning, operation or effect of the provisions of this Lease or as to their rights or liabilities under this Lease such dispute, question or difference shall be referred to the arbitration of an independent Arbitrator to be appointed by the person for the time being fulfilling the office of President of the Law Society of Western Australia (Inc) whose decision or award shall be conclusive and binding on the parties and any such submission to arbitration shall be deemed to be a submission to arbitration within the meaning of the Commercial Arbitration Act 1985 and SUBJECT TO the provisions of that Act, a reference to arbitration in accordance with the provisions hereof shall be a condition precedent to any action or other legal proceedings between the parties relating to such dispute, question or difference. The Arbitrator shall have power to award costs and either party may make such award a judgment of the Court. In any arbitration proceedings either party may be represented by his solicitor or other legal representative.
11.2No Arbitration by Agreement
Nothing contained. within this clause 11 shall prohibit the parties from agreeing that any dispute, question or difference arising between them pursuant to the provisions of this Lease, may not be submitted to arbitration.
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13.SPECIAL TERMS
The special terms covenants and conditions (if any) set out in Item 11 of the Schedule shall be deemed to be incorporated in this Lease as if fully set out herein and in the event of there arising any inconsistency with the terms covenants and conditions contained in this Lease then the terms covenants and conditions set out in Item 11 of the Schedule shall prevail.
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THE SCHEDULE
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11.SPECIAL TERMS
11.1Lessee's Works
(a)The Lessee HEREBY COVENANTS AND AGREES to develop the Demised Land, at the Lessee's own cost and expense in all respects, in accordance with the plans and specifications first approved by the Authority ('the Lessee's Works').
(b)The Lessee's Works shall be constructed and installed in accordance with the following terms and conditions:
(i)the Lessee shall submit for the approval of the Authority detailed final plans and specifications, including an appropriate Engineer's certificate, if requested by the Authority ('the Plans') for the Lessee's Works as soon as reasonably practicable;
(ii)prior to the commencement of the Lessee's Works or any part thereof, the Plans shall be first approved in writing by the Authority (which approval may be withheld in the absolute discretion of the Authority);
(iii)the Lessee shall, at its own cost and expense in all things, in a proper and workmanlike manner and with materials of first class quality and to the satisfaction of the Authority expeditiously complete the Lessee's Works. The Lessee shall make good any damage to the Demised Land and shall indemnify the Authority against all actions, proceedings, costs, damages, claims or demands occasioned by the acts or omissions of the Lessee or its servants, agents or contractors in the construction of the Lessee's Works or the exercise or purported exercise of any rights hereunder;
(iv)the Lessee shall commence the Lessee's Works as soon as reasonably practicable and shall complete the Lessee's Works within two (2) years of the Date of Commencement.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
LM
Associate to the Honourable Justice Lundberg
6 AUGUST 2025
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