Gemcan Constructions Pty Ltd v Westbourne Grammar School
[2020] VSC 429
•10 July 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
ARBITRATION LIST
S ECI 2020 01666
| GEMCAN CONSTRUCTIONS PTY LTD | Plaintiff |
| v | |
| WESTBOURNE GRAMMAR SCHOOL | Defendant |
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JUDGE: | LYONS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 June 2020 | |
DATE OF JUDGMENT: | 10 July 2020 | |
CASE MAY BE CITED AS: | Gemcan Constructions Pty Ltd v Westbourne Grammar School | |
MEDIUM NEUTRAL CITATION: | [2020] VSC 429 | First Revision: 14 July 2020 |
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ARBITRATION – Agreement to arbitrate – Arbitrator and rules to be nominated pursuant to item of schedule to agreement marked ‘Not Applicable’ – Whether valid and binding agreement –Commercial Arbitration Act 2011 (Vic), s 10 (number of arbitrators), s 11(3) (court appointment in absence of agreement) and s 19 (determination of rules of procedure).
ARBITRATION – Commercial Arbitration Act 2011 (Vic), 11(3) – Choice of senior or junior counsel as arbitrator - Experience as arbitrator – Fees of arbitrator – Complexity of factual and legal issues in arbitration – Balancing exercise – Senior counsel appointed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L Connolly | Maddocks |
| For the Defendant | Mr M A Robins QC | Champions Lawyers |
HIS HONOUR:
Introduction
The Applicant, Gemcan Constructions Pty Ltd (‘Gemcan’), seeks an order for the appointment of Mr Toby Shnookal QC as arbitrator of a number of disputes that have arisen under a construction contract (the ‘Contract’) between it and Westbourne Grammar School (‘WGS’). The Contract relates to construction, installation and commissioning of fire, security, electrical, hydraulic and mechanical services and landscaping works at WGS’s Williamstown campus (the ‘Works’).
In this proceeding, Gemcan contended that the disputes have been referred to arbitration pursuant to cl 42.2 of the Contract and that, as the parties cannot agree on an arbitrator, the Court should appoint Mr Shnookal as an arbitrator pursuant to s 11 of the Commercial Arbitration Act 2011 (Vic) (the ‘Act’). By contrast, WGS contended that there is no binding agreement for arbitration in the Contract. This is because the relevant schedules referred to in the arbitration clause to identify the person to nominate the arbitrator and the rules to be applied in the arbitration are marked ‘Not Applicable’ and ‘Nor Applicable’ respectively. Even if there was a valid agreement for arbitration, WGS opposed the appointment of senior counsel as arbitrator, preferring the appointment of a junior counsel.
For the reasons that follow, I have concluded that:
(1)cl 42.2 of the Contract constitutes a valid agreement to refer the disputes to arbitration; and
(2)Toby Shnookal QC should be appointed as arbitrator pursuant to s 11 of the Act.
Material relied upon
In support of its application, Gemcan relied upon:
1.1.an Affidavit of Anna Elizabeth Scannell affirmed 30 March 2020 (‘first Scannell affidavit’);
1.2.an Affidavit of Anna Elizabeth Scannell affirmed 25 May 2020 (the ‘second Scannell affidavit’); and
1.3.an Affidavit of Anna Elizabeth Scannell affirmed 4 June 2020 (the ‘third Scannell affidavit’).
WGS relied upon an Affidavit of Michael John Champion affirmed 13 May 2020 (the ‘Champion affidavit’).
Contract
On or about 25 July 2016, Gemcan entered into the Contract for the Works to take place at WGS’s Williamstown Campus located at 67, The Strand, Newport in the State of Victoria.[1] The Contract comprises:
(1)a formal instrument of agreement signed by the parties (the ‘Formal Instrument’);
(2) the AS 4000-1997 General Conditions (the ‘General Conditions’);
(3)Annexure Part A which sets out the particulars of the project as they relate to the General Conditions (‘Annexure A’); and
(4)Annexure Part B which sets out deletions, amendments and additions to the General Conditions (‘Annexure B’).
[1]First Scannell Affidavit at [3].
Clauses 2 and 3 of the Formal Instrument relevantly provide that:
2. The following documents shall comprise the Contract:
(a) this formal instrument of agreement for construct document;
(b)special conditions incorporating deletions, amendments and additions being Annexure Part B to the Australian Standard General Conditions of Contract AS4000-1997;
(c)Australian Standard General Conditions of Contract AS4000‑1997, incorporating Parts A, and C completed as applicable;
(d) the design documents – Annexure Part D;
(e) the Staging Plan – Annexure Part E;
all of which documents are annexed to this Agreement in either physical or in compact disk electronic format.
3. Except as may be expressly agreed in writing by the parties, in the event of any conflict, difference, ambiguity or inconsistency between anything contained in any documents forming part of the Contract, the provisions of each document listed above the other in clause 2 [sic] shall prevail to the extent of any conflict, difference, ambiguity or inconsistency over any document listed thereunder.
Clause 1 of the General Conditions is headed ‘Interpretation and construction of Contract’. It defines terms used in the Contract and outlines certain principles relevant to its interpretation, including providing relevantly that:
In the Contract:
[…]
h)the law governing the Contract, its interpretation and construction, and any agreement to arbitrate, is the law of the Jurisdiction in Item 8; and
i)if pursuant to Annexure Part B to these General Conditions of Contract, clauses or their parts in these General Conditions are deleted, the Contract shall be read and construed as though the clause or its part has been deleted, whether or not that clause or its part has been struck from these General Conditions.
Item 8 of Annexure A provides that the governing law of the Contract is the law of the ‘State of Victoria’.
Clause 42 of the General Conditions outlines the dispute resolution process under the Contract. It provides:
42.1 Notice of dispute
If a difference or dispute (together called a ‘dispute’) between the parties arises in connection with the subject matter of the Contract, including a dispute concerning:
a) Superintendent’s direction; or
b) claim:
i) in tort;
ii) under statute;
iii)for restitution based on unjust enrichment or other quantum meruit; or
iv) for rectification or frustration,
or like claim available under the law governing the Contract,
then either party shall, by hand or by certified mail, give the other and the Superintendent a written notice of dispute adequately identifying and providing details of the dispute.
Notwithstanding the existence of a dispute, the parties shall, subject to clauses 39 and 40 and subclause 42.4, continue to perform the Contract.
42.2 Conference
Within 14 days after receiving a notice of dispute, the parties shall confer at least once to resolve the dispute or to agree on methods of doing so. At every such conference each party shall be represented by a person having authority to agree to such resolution or methods. All aspects of every such conference except the fact of occurrence shall be privileged.
If the dispute has not been resolved within 28 days of service of the notice of dispute, that dispute shall be and is hereby referred to arbitration.
42.3 Arbitration
If within a further 14 days the parties have not agreed upon an arbitrator, the arbitrator shall be nominated by the person in Item 32(a). The arbitration shall be conducted in accordance with the rules in Item 32(b).
42.4 Summary relief
Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Contract or to seek injunctive or urgent declaratory relief.
Item 32(a) of Annexure A is relevant to which party shall nominate the arbitrator and Item 32(b) is relevant to the rules of the arbitration conducted under cl 42.3 of the General Conditions. Item 32 provides in full:
32Arbitration
(subclause 42.3)
a) Person to nominate an arbitrator
Not applicable
b) Rules for arbitration
Nor [sic] applicable
c) Appointing Authority under UNCITRAL Arbitration Rules
Not Applicable
There was no evidence before me which explains why Item 32 was completed in this way. I note that a number of other Items in Annexure A were also marked ‘N/A’, which I understood to mean ‘not applicable’.
Annexure B is headed ‘Deletions, Amendments and Additions to General Conditions of Contract’ and provides a mechanism for the contracting parties to make deletions, amendments and additions to the General Conditions. Relevantly it contains no deletions, amendments or additions to any aspect of the dispute resolution procedure set out in cl 42, including cl 42.2.
The Dispute
The background to the disputes is set out in the first Scannell affidavit and is not disputed by WGS.
On 5 December 2018, the superintendent under the Contract purported to issue a payment certificate in accordance with cl 37.2 of the Contract for the payment of $68,892.80 excluding GST (the ‘Disputed Payment Certificate’). The Disputed Payment Certificate was prepared on the basis that the balance ‘available’ under the Contract was $700,192.65 from which WGS deducted direct payments to third parties and a claim for liquidated damages.
On 25 October 2019, Gemcan issued a Notice of Dispute (‘NOD’) pursuant to cl 42.1 of the General Conditions in relation to the Disputed Payment Certificate. The matter was then referred to a dispute resolution conference in accordance with cl 42.2 which took place on 7 November 2019.
The NOD in fact raised a number of distinct issues in dispute between the parties, ranging in complexity. For convenience, in these reasons, I will refer to the issues raised by NOD collectively as the ‘dispute’. The issues raised are summarised in [84] of the NOD. Broadly, the matters in dispute are:
(1)In NOD [84(a)-(c)] – whether three Show Cause Notices and/or Take Out Notices were valid and effective under the Contract. The Take Out Notices were the subject of an interim claim under the Building and Construction Industry Security of Payment Act 2002 (Vic) (the ‘SOP Act’) that was determined by Robson J in Westbourne Grammar School v Gemcan Constructions Pty Ltd (the ‘previous decision’).[2] The total quantum of those Notices was $241,073.33;
[2][2017] VSC 645.
(2)In NOD [84(d)] – whether Gemcan is entitled to recover the amount of $577,530.54 for Disputed Scope Items outlined in [76] to [79] of the NOD;
(3)In NOD [84(e)-(g)] – whether Gemcan was entitled to recover for variations in the Contract outlined in [6] to [15] of the NOD totalling approximately $142,174.90;
(4)In NOD [84(h)] - in the alternative to (3) above, determining Gemcan’s quantum meruit claim for the works performed by it under the Contract;
(5)In NOD [84(i)] – whether Gemcan is entitled to recover for materials procured for use in Separable Portions (‘SP’) 1, 3 and 4 of the Contract, outlined in [49] to [62] of the NOD totalling $68,000;
(6)In NOD [84(j)] – Gemcan’s entitlement to loss of profit and other damages for WGS’s alleged repudiation;
(7)In NOD [84(k)] – Gemcan’s entitlement to an extension of time to the Date for Practical Completion for SP1 and 4 outlined in [65] to [75] of the NOD;
(8)In NOD [84(l)] – WGS’s entitlement to liquidated damages outlined in [63] to [64] of the NOD;
(9)In NOD [84(m)] – whether Gemcan was entitled to the first and second half of the cash retention used as security under the Contract, as outlined at [79] to [83] of the NOD; and
(10)In NOD [84(n)] – Gemcan’s entitlement to costs and interest.
The parties were unable to resolve the dispute at the conference.
On 22 November 2019, the solicitors for Gemcan wrote to WGS’s solicitors advising that the dispute was referred to arbitration by operation of cl 42.2 of the General Conditions of the Contract and that WGS’s consent was required to appoint an arbitrator in accordance with the cl 42.3. In that letter, Gemcan’s solicitors proposed appointing Mr Toby Shnookal QC as arbitrator, and noted that alternatively Gemcan ‘would be prepared to consider other candidates for arbitrator proposed by [WGS]’.
I note that Mr Shnookal is a former engineer and now Queens Counsel. In 1994, he qualified with the Institute of Arbitrators and Mediators Australia (‘IAMA’) as an arbitrator and commenced his own practice as an arbitrator at that time. He has been engaged as an arbitrator and expert determiner in numerous disputes since then. He is a Grade 1 Arbitrator (highest grade) with IAMA and is a fellow of the Chartered Institute of Arbitrators. He was an inaugural sessional member of the Domestic Building Tribunal and a sessional VCAT member from 1998 to 2008. He was appointed Senior Counsel in 2012. Since 2016, he has only accepted work as an arbitrator, expert determiner, mediator, adjudicator or facilitator. He charges $8000 per day excluding GST.
WGS’s solicitors were not forthcoming with a response, despite follow up emails from the solicitors for Gemcan requesting a response on 3 December and 5 December 2019.
On 5 December 2019, the solicitors for Gemcan sent an email to Mr Shnookal QC seeking that he confirm that he had no conflicts in respect of the arbitration and would be available to arbitrate the dispute in the second half of 2020. Mr Shnookal confirmed those matters by return email on the same day.
On 6 December 2019, WGS’s solicitors provided a response claiming that Annexure A to the Contract makes clear that the General Conditions dealing with arbitration are not enforceable, that the lack of any arbitral rules means there can be no valid arbitration agreement and that WGS did not agree to amend the contract to provide for arbitration.
On 9 December 2019, Gemcan’s solicitors sent an email to WGS’s solicitors rejecting their position and reiterating that cl 42.2 constitutes a valid arbitration agreement pursuant to s 7 of the Act. The email also requested that WGS’s solicitors confirm by 5:00pm on 12 December 2019 that WGS agreed to Mr Shnookal’s appointment or of another mutually agreeable arbitrator, failing which Gemcan would apply to the Court to have an arbitrator appointed pursuant to s 11 of the Act. Confirmation was not forthcoming and the present application was filed on 7 April 2020.
It was not until the Champion affidavit that WGS raised issues about the suitability of Mr Shnookal as arbitrator of this dispute. The reason why this was not previously raised was not explained. Mr Champion deposed that, given the quantum of, and issues in, the dispute, Mr James Shaw of junior counsel should be appointed as arbitrator. Mr Shaw is also a qualified engineer. He is an experienced junior counsel in building and construction claims including arbitrations. He has been appointed arbitrator in two disputes: in one, the amount claimed was in excess of $850,000. Mr Shaw charges $4000 per day excluding GST, being half the fee of Mr Shnookal.
By letter dated 22 May 2020, Gemcan replied that the subject matter of the dispute was complex, both factually and legally, and that it was therefore appropriate to appoint Mr Shnookal, or a candidate with commensurate experience and qualifications. Gemcan contended that Mr Shnookal’s extensive experience in arbitrations will assist in its efficient and timely hearing and determination. Gemcan stated that the appointment of such an arbitrator would result in the efficient conduct of the arbitration and identification of potential efficiencies to ensure that legal costs were proportionate to the value of the claims in dispute. Gemcan said that it would consider any candidate of commensurate experience and qualification that WGS proposed. There is no evidence of any response to this letter.
I note that the extent of the dispute between the parties has evolved since the NOD was issued. In argument, I was informed that the Show Cause Notices in [17(1)] above relate to sums which WGS claims it is entitled to set-off against monies owing to Gemcan. In addition, WGS contended that Gemcan is in some way estopped from challenging the quantum of that set-off by reason of the previous decision.
Further, in the second Scannell affidavit, Ms Scannell deposed that the amount owing to Gemcan under the Contract is approximately $681,000 plus interest and costs and that the value of WGS’s set-off is approximately $770,000. Thus, Gemcan contended that the difference between the value of their claims and WGS’s counterclaims the subject of the dispute exceeds $1.4 million.
As a result of the matters, there are now two issues for determination:
(1)whether cl 42.2 of the General Conditions of the Contract constitutes a valid agreement to refer the dispute to arbitration; and
(2)if so, who should be appointed to arbitrate the dispute that has arisen between the parties.
The Statutory Framework
Arbitration agreements for domestic commercial arbitrations entered into in Victoria are governed by the Act. Section 7 of the Act outlines the requirements for a valid arbitration agreement under the Act. It relevantly provides:
7 Definition and form of arbitration agreement
(1)An arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2)An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3)The arbitration agreement must be in writing.
(4)An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.
[…]
(8)The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract.
Section 10 relates to the composition of the arbitral tribunal. It provides:
10. Number of Arbitrators
(1) The parties are free to determine the number of arbitrators.
(2)Failing such determination, the number of arbitrators is to be one.
Section 11 of the Act provides mechanisms for the appointment of arbitrators in arbitrations to which the Act applies. It relevantly provides:
11 Appointment of Arbitrators
(1) [omitted]
(2) The parties are free to agree on a procedure of appointing the arbitrator or arbitrators, subject to the provisions of subsections (4) and (5).
(3) Failing such agreement–
[…]
(b)in an arbitration with a sole arbitrator, if the parties are unable to agree on the arbitrator, an arbitrator is to be appointed, on the request of a party, by the Court; and
[…]
(4)Where, under an appointment procedure agreed on by the parties–
(a) a party fails to act as required under the procedure; or
(b)the parties, or 2 or more arbitrators, are unable to reach an agreement expected of them under the procedure; or
(c)a third party, including an institution, fails to perform any function entrusted to it under the procedure–
any party may request the Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
(5)A decision within the limits of the Court’s authority on a matter entrusted by (3) or (4) to the Court is final.
(6)The Court, in appointing an arbitrator, is to have due regard to any qualifications required of the arbitrator by the agreement of the parties and to such considerations as are likely to secure the appointment of an independent and impartial arbitrator.
Finally, s 19 provides for the determination of the rules of procedure. It relevantly provides:
19 Determination of rules of procedure
(1)Subject to the provisions of this Act, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.
(2) Failing such agreement, the arbitral tribunal may, subject to the provisions of this Act, conduct the arbitration in such manner as it considers appropriate.
(3) The power conferred on the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence.
(4) The power conferred on the tribunal also includes the power to make orders or give directions for the examination of a party or witness on oath or affirmation.
…
(6) An order made or direction given by an arbitral tribunal in the course of arbitral proceedings is, by leave of the Court, enforceable in the same manner as if it were an order of the Court and, where leave is so given, judgment may be entered in terms of the order or direction.
Issue 1: Is there a valid arbitration agreement?
Submissions
Gemcan submitted that cl 42.2 of the General Conditions of the Contract is a valid arbitration agreement when construed objectively according to what a reasonable person would understand by the language used. This is because that clause expressly provides that where a dispute has not been resolved within 28 days of service of the notice of dispute, ‘that dispute shall be and is hereby referred to arbitration’.
It submitted that the failure in Annexure A to identify a party to nominate an arbitrator or to identify the rules to be used in an arbitration under the Contract in Items 32(a) and (b) does not render that agreement invalid. These are matters of procedure or machinery. Relevantly, ss 10(2), 11(3), and 19(2) of the Act provide mechanisms for the number of arbitrators, the choice of an arbitrator and the rules to be used in the absence of agreement in these matters.
By contrast, WGS submitted that the words used in Items 32(a) and (b) of Annexure A evince an objective intention by the parties to exclude reference to arbitration under cl 42 of the Contract. WGS noted that Item 32 was headed ’Arbitration’. Further, it noted that this was not a case where these Items were just left blank: the words ‘Not Applicable’ and ‘Nor Applicable’ had been used.
WGS submitted that the parties used this explicit language to exclude the essential procedural aspects under cl 42.3. It submitted that the parties made these bespoke changes in Items 32(a) and (b) of Annexure A which should be read in preference to the standard form contractual clauses such that they evince an intention not to refer disputes under the Contract to arbitration.
WGS submitted that this contention is reinforced by the preamble to Annexure A, which states that:
This Annexure shall be completed and issued as part of the tender documents and, subject to any amendments, to be incorporated into the Contract, is to be attached to the General Conditions of the Contract and shall be read as part of the Contract.
WGS submitted that its construction was consistent with a commercial common sense reading of the Contract.[3] It submitted that the parties have used explicit language in Items 32(a) and (b) which would be rendered otiose by Gemcan’s construction. It further submitted that it does not make objective commercial sense to construe those provisions of the Contract as the parties agreeing ‘not to agree who would appoint the arbitrator and which arbitral rules would be used’. This was because the provisions in the Act which might apply if there were a valid agreement for arbitration involved further costs including those of a court application for appointment of an arbitrator like this.
[3]In line with the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116-7 [46]-[51] (‘Mount Bruce Mining’).
As a consequence, WGS submitted that there was no valid and binding agreement to refer the dispute to arbitration and the application under s 11 of the Act for appointment of an arbitrator is not properly made.
In reply, Gemcan submitted that if the parties had anticipated using another form of dispute resolution they could have done so by utilising Annexure B, as they did for other parts of the Contract. Further, it noted that Items 32(a) and (b) of Annexure A relate to 42.3 and not to 42.2, by which disputes are referred to arbitration. As such, they should have no effect on the operation of cl 42.2.
Analysis
Section 7 of the Act outlines the requirements for a valid arbitration agreement under the Act. That definition is relevant for the purpose of determining whether the provisions of the Act apply in this case. However, the primary issue in dispute in this proceeding is whether cl 42 of the General Conditions of the Contract constitutes a valid and binding agreement for arbitration at law. Indeed, the argument before me proceeded on the basis that, if cl 42 constitutes a valid and binding agreement to arbitrate, then that agreement constitutes a valid arbitration agreement pursuant to s 7 of the Act.
The relevant legal principles, accepted by the parties, are set out by the High Court in Mount Bruce Mining. There, French CJ, Nettle and Gordon JJ stated that:
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.[4]
[4]Mount Bruce Mining (2015) 256 CLR 104, 116-7 [46]-[51].
I note that in written submissions and in the course of oral argument I was referred to a number of cases which it was submitted would assist in interpreting what the parties meant by ‘not applicable’ in the context of similar standard form contracts. However, as I expressed in argument and as was accepted by counsel for the parties, consistent with the established principles, I am to construe the provisions of this Contract by reference to its terms and the context in which it was entered into.
After considering the terms of the Contract and submissions of the parties, I have concluded that cl 42 in its context evinces an intention to create, and does create, a valid and binding agreement to refer disputes that have not resolved between the parties to arbitration. This is for the following reasons.
First, cl 42.2 is clear and unambiguous in its terms. The last sentence expressly provides that, if the dispute is not resolved within 28 days of service of the notice of dispute, ‘that dispute shall be and is hereby referred to arbitration’. This evinces a clear and objective intention that disputes arising under that clause of the Contract are to be referred to arbitration if they are not resolved within 28 days of the notice of dispute. That is to say, the words of this clause reveal the objective intention of the parties that arbitration is the means by which the parties turned their minds in considering how disputes were to be resolved.
Second, in my opinion, the phrases ‘Not Applicable’ and ‘Nor Applicable’ in Items 32(a) and (b) of Annexure A in the context of cl 42.3 do not evince an intention to negate the referral to arbitration in cl 42.2 of the Contract. Annexure A provides the particulars for certain clauses of the Contract. Item 32 is headed ‘Arbitration’, but the particular clause to which Items 32(a) and (b) relate is cl 42.3. That clause is not the clause which refers disputes to arbitration. Rather, cl 42.3 provides the mechanisms by which the arbitrator is to be nominated and applicable arbitral rules are to be chosen if the parties do not agree within 14 days of the matter being referred to arbitration pursuant to cl 42.2.
As such, in my opinion, the use of the terms to the effect of ‘Not Applicable’ for these Items of Annexure A does not detract from the parties’ intention to refer disputes to arbitration pursuant to cl 42.2. Rather, it impacts upon the mechanism by which certain procedural aspects of that arbitration are to be decided. I will comment upon the mechanism to be applied further below. However, I do not consider the words used in Item 32 in the context of cl 42.3 relevantly affect the intention of the parties to refer certain disputes to arbitration, or affect the validity of any referral to arbitration itself, without which these Items are not enlivened in any event.
As noted above, WGS submitted that Gemcan’s construction rendered the words to the effect of ‘not applicable’ in Item 32 otiose and, in accordance with principle, those words should be given effect. However, in my view, WGS’s construction that the words in Item 32(a) and (b) result in no agreement to arbitrate renders the clear words of cl 42.2 ‘that dispute shall be and is hereby referred to arbitration’ nugatory and of no effect whatsoever. In my view, that cannot be the objective intention of the parties.
Third, and related to the second point, Annexure B confirms the objective intention of the parties was not to negate the referral to arbitration. It is the primary document by which the General Conditions are to be amended. This is confirmed by clause 2(b) of the Formal Instrument, cl 1.1(i) of the General Conditions and the title of Annexure B itself, namely ‘Deletions, amendments and additions to general conditions of contract’.
There is no deletion, amendment or addition in Annexure B to any part of cl 42 at all, and specifically not to cl 42.2 which refers disputes to arbitration. In my view, the lack of any such amendments in Annexure B is consistent with an objective intention of the parties that cl 42.2 is to have effect, and for matters in dispute to be referred to arbitration. In this regard, I note that Annexure B takes priority over the General Conditions and Annexure A in resolving any ambiguity in any documents forming part of the Contract, pursuant to cl 3 of the Formal Instrument.
Fourth, and related to the second point, I am of the opinion that, in order to create an enforceable agreement for arbitration, the parties by their language need only objectively intend to refer certain disputes or categories of dispute which have arisen or may arise to arbitration. The disputes which were the subject of a Notice of Dispute and which had not been resolved within the time specified by that clause would be referred to arbitration.
The machinery for the appointment of the arbitrator and the rules to be applied at the arbitration are not essential characteristics of an enforceable arbitration agreement, in particular, one that is subject to the provisions of the Act. The Act provides a statutory framework for the resolution, review and enforcement of domestic commercial arbitrations in Victoria. As set out above, s 7 provides, in substance, that an arbitration agreement is an agreement in writing by the parties to submit to arbitration all or certain disputes which have arisen or may arise between them. It mirrors the requirement of an agreement to arbitrate at law.
If such an agreement is established, ss 10 and 11 provide a mechanism for the parties to agree on the number of, and a procedure for appointing, arbitrators and failing such agreement, for the number of arbitrators to be one and for the arbitrator to be appointed by the Court. Further, s 19 provides that the parties are free to agree on the rules of procedure to be followed by the arbitral tribunal and, failing such agreement, the arbitral tribunal may, subject to the provisions of the Act, conduct proceedings in such manner as it considers appropriate.
I note that it was open for parties in this case to agree upon an arbitrator or the rules to be applied after the relevant dispute was referred to arbitration by virtue of cl 42.2. In this regard, the provisions of ss 10, 11 and 19, in so far as they refer to agreement on these matters, are not limited to agreement in the arbitration agreement itself. Thus, contrary to WGS’s submission, the parties were not forced to incur the costs of a Court proceeding to have these issues resolved: it was always open to WGS to agree on these matters based on the actual issues in dispute.
As a result, I have concluded cl 42.2 of the General Conditions constitutes a valid and binding referral to arbitration of a dispute under cl 42.1 that has not resolved between the parties. As noted above, the argument before me proceeded on the basis that, if cl 42 constitutes a valid and binding agreement to arbitrate, then that agreement also constitutes a valid arbitration agreement pursuant to s 7 of the Act. This is confirmed by my analysis above.
As the parties have a valid arbitration agreement under the Act but have not agreed on the number of arbitrators or how any arbitrators are to be appointed:
(1) the number of arbitrators shall be one pursuant to 10(3) of the Act;
(2) an arbitrator is to be appointed by the Court pursuant to Gemcan’s application under s 11 of the Act.
Issue 2: Appointment of an arbitrator
Submissions
Gemcan submitted that Mr Shnookal QC is an appropriate arbitrator for the dispute referred to arbitration. This is in the context where the dispute raises complex factual legal issues and the value of Gemcan’s claim and WGS’s counterclaims exceeds $1.4 million. Gemcan contended that such a dispute, or more accurately such a range of disputes, required an experienced and appropriately qualified arbitrator.
Gemcan acknowledged the difference in the fees of Mr Shnookal and Mr Shaw. However it submitted that Mr Shnookal’s extensive experience as a tribunal member and arbitrator was likely to result in the arbitration being conducted in the most efficient way possible in light of the nature of the dispute.
WGS submitted that Mr Shaw is a more appropriate arbitrator for the dispute. First, it rejected the contention that there is any unusual complexity in the dispute which would warrant a senior counsel arbitrator. In this regard, it noted that many of the matters in the NOD were the subject of a successful challenge to an adjudication under the SOP Act which was the subject of the previous decision. It submitted that the decision in that case means that the real quantum in dispute is actually in the range of $550,000 excluding interest and costs.
Second, it submitted that the consideration of an arbitrator’s fees is relevant to the Court’s decision to appoint a particular arbitrator.[5] It submitted that both proposed arbitrators have an engineering background and experience in construction law, and as such Mr Shaw should be preferred because his appointment would cost half the amount of Mr Shnookal QC. WGS further submitted that, even if the quantum of the claim is over $1 million it still does not justify the appointment of Mr Shnookal as the arbitrator in circumstances where Mr Shaw is an eminent specialist junior counsel.
[5]Thiess Contractors Pty Ltd v Holiday Villages (Australia) Pty Ltd Unreported, NSWSC, 31 March 1995, Giles CJ Comm D (‘Thiess’).
In reply, Gemcan noted that the previous decision was a judicial review of an interim adjudication and does not give rise to an estoppel over the determination of the disputed matters. It submits that in any event, whether an issue estoppel arises would be one of the complex matters to be determined at arbitration.
Analysis
Section 11 gives the Court the power to appoint an arbitrator in the absence of agreement between the parties in respect of an arbitration agreement to which the Act applies. Under s 11(5) the decision of the Court is final. Further, s 11(6) provides that the Court, in appointing an arbitrator, is to have due regard to two principal factors: first, any qualifications required of the arbitrator by the agreement of the parties; and second, to such considerations as are likely to secure the appointment of an independent and impartial arbitrator.
There is limited jurisprudence surrounding the application of s 11 of the Act. In Commercial Arbitration in Australia (2nd ed., Lawbook Co., 2013), the learned author states that ‘[t]he Court’s choice of arbitrator will generally depend on the nature of the dispute and the issues involved’.[6]
[6]Commercial Arbitration in Australia (2nd ed., 2013) 137.
The authorities to which I was referred relate to whether the arbitrator should be a lawyer or have some other particular expertise relevant to the nature of the dispute in question. They suggest that:
(1) where the subject matter of the dispute requires some technical experience or expertise, the choice of arbitrator should reflect this; and
(2) by contrast, where the resolution of the dispute involves an assessment of facts and the credibility of witnesses, an arbitrator with a legal background may be more appropriate.
That is not the issue in this application: both parties seek the appointment of a lawyer who also has an engineering qualification. The real issue is whether the person appointed should be more senior with more experience as an arbitrator (with a higher fee) or less senior with less experience as an arbitrator (with a lower fee).
The authorities and statutory framework, together with common sense, make plain that determining the appropriate arbitrator is a balancing exercise, relevantly in this case between:
(1)the experience and qualifications of each candidate to determine the issues in dispute, having regard to the nature, complexity and magnitude of those issues;[7] and
(2)the proportionality of the arbitrator’s fees to the quantum of the dispute.[8]
[7]The Act s 11(6).
[8]Thiess Contractors Pty Ltd v Holiday Villages (Australia) Pty Ltd (Unreported, NSWSC, 31 March 1995), Giles CJ Comm D.
Balancing these factors in this case, I consider that Mr Shnookal is the appropriate arbitrator to determine the dispute.
First, I consider the legal and factual issues in the dispute are complex. While the nature of the individual claims in the NOD are common in construction disputes, collectively they involve determination of competing and complex factual and legal issues. This is evident from the extent of the issues set out in the NOD including the Show Cause Notices and Take Out Notices (and whether they were valid), disputed scope of works, disputed variations, claims for extension of time, and claims for liquidated damages, general damages and/or quantum meruit. This is apart from the estoppel alleged by WGS by reason of the previous decision.
In my view, the extent of the complexity of the issues in dispute is reflected by the estimates of the arbitration given by the parties. Counsel for WGS estimated that the arbitration of the dispute would take between five and seven hearing days. Counsel for Gemcan did not cavil with that estimate.
Second, the claims and counterclaims raised by the dispute are of significant value to the parties. Based on my review of the Disputed Payment Certificate, the NOD and the affidavits filed in the proceeding, I have formed the view that the total of the amounts claimed by Gemcan and WGS in dispute exceed $1.4 million.
Third, while both arbitrators are qualified in the area of construction and engineering disputes, Mr Shnookal also has significant experience acting as a tribunal in various arbitrations and as a member of VCAT for 10 years. I refer to my comments in [20] above. In my view, his extensive experience as a tribunal member and arbitrator is likely to result in the arbitration being conducted in the most efficient way, both in its hearing and in the delivery of the reasons for decision.
This last matter is of some significance. From my experience as a judge, writing reasons for decision is different from writing a memorandum of advice. I am conscious that the reasons to be provided by a trial judge are not necessarily the same as reasons to be provided by an arbitrator. However, I consider that the extensive experience of Mr Shnookal as a tribunal member and an arbitrator will result in great efficiency in the manner in which, and the time within which, reasons for decision in this arbitration will be provided.
I am conscious that Mr Shaw has significant experience in construction and engineering matters: he is both a well-known and well-respected junior counsel in this area. However, his experience as an arbitrator is much more limited than Mr Shnookal’s experience. It is evident that the disputes arising from this Contract are hard fought and I consider it likely that the arbitration will be conducted in a similar manner. In the context of this dispute, I consider it is more likely to be dealt with efficiently by an arbitrator with significant experience acting in the role of a tribunal, rather than as counsel with more experience in appearing at arbitrations.
Fourth, I am conscious that the daily fee of Mr Shnookal is twice the daily fee of Mr Shaw. This is to be expected given his experience in arbitral proceedings and position as Senior Counsel. I am also conscious that, based on the hearing estimates, the difference between the fees charged by Mr Shnookal may exceed $50,000 in total.
However, even taking into account the significant difference in fees, I consider that Mr Shnookal’s experience as a tribunal member and arbitrator is likely to result in the arbitration being conducted in the most efficient way, both its hearing and in the delivery of the reasons for decision. In these circumstances, given the complex nature of the issues in dispute and the value of the claims made, I consider that it is appropriate that he is appointed as the arbitrator in this dispute.
Conclusions
In light of these reasons, I consider that:
(1) cl 42.2 of the Contract constitutes a valid agreement to refer the dispute to arbitration; and
(2) Toby Shnookal QC should be appointed as arbitrator pursuant to s 11 of the Act.
I request that the parties confer and submit a form of order to give effect to these reasons.
Further, in my preliminary view, Gemcan is entitled to its costs of the proceeding to be paid on a standard basis. Unless the parties inform me by 4:00pm on 17 July 2020 that alternative costs orders are sought. I will also make a costs order in accordance with my preliminary view.
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