Haridemos v Labathas
[2015] ACTSC 110
•27 May 2015
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Haridemos v Labathas |
Citation: | [2015] ACTSC 110 |
Hearing Date: | 30 April 2015 |
DecisionDate: | 27 May 2015 |
Before: | Mossop AsJ |
Decision: | The proceedings are dismissed with costs |
Category: | Principal Judgment |
Catchwords: | ARBITRATION – Domestic building dispute – referral to expert determination by written agreement of parties – provision in written agreement for appeal from expert determination under Commercial Arbitration Act 1986 (ACT) – whether parties agreed to dispute resolution process of expert determination or arbitration – parties agreed to expert determination – Court has no jurisdiction under the Act |
Legislation Cited: | Building and Construction Industry (Security of Payment) Act 2009 (ACT) Commercial Arbitration Act 1986 (ACT) |
Cases Cited: | Ajzner v Cartonlux Pty Ltd [1972] VR 919 Capricorn Inks Pty Ltd v Lawter International (Australasia) Pty Ltd [1989] 1 Qd R 8 Foote v Barton Property Partnership No 2 [2014] ACTSC 330 Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd [2007] QSC 206 Re Dawdy & Hartcup (1885) 15 QBD 426 Re Hammond & Waterton (1890) 62 LT (NS) 808 Santos Ltd v Pipelines Authority of South Australia (1996) 66 SASR 38 Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 |
Parties: | George Michael Haridemos (Plaintiff) Mary Labathas (Defendant) |
Representation: | Solicitors Tuggeranong Legal (Plaintiff) Kamy Saeedi Law (Defendant) |
File Number(s): | SC 537 of 2014 |
Introduction
By originating application filed 17 November 2014 the plaintiff, a builder, seeks leave under s 38 of the Commercial Arbitration Act 1986 (ACT) (CA Act) to appeal on a question of law from a decision concerning a dispute between the parties.
The background to the application is that by contracts dated 6 and 7 December 2012 the plaintiff agreed with the defendant to construct two new residences (in addition to the existing residences) on two properties in McKellar. The plaintiff made payment claims and made applications for adjudication under the Building and Construction Industry (Security of Payment) Act 2009 (ACT). That led to the issuing of adjudication certificates under the Act. It appears that those adjudication certificates were then registered as judgments in the ACT Magistrates Court. The defendant disputed the validity of those certificates and caused an appeal process to be initiated. The parties then agreed to attempt to resolve their disputes in accordance with a deed executed on 16 April 2014 (Settlement Deed). In the Settlement Deed the parties agreed to consent orders to finalise the appeal proceedings which had been set in train. The parties then agreed in clause 5 on a process for resolution of the underlying dispute. Clause 5 provided as follows:
5. Expert Determination
5.1 The 5 Bednall Place Judgment is stayed and unenforceable prior to the Expert providing a determination.
5.2 The parties agree that the Expert will be appointed to provide his expert opinion on the value of the works undertaken by [the plaintiff] on the terms attached and marked Schedule B.
5.3 The parties agree to be bound by the determination of the Expert as to the total value of the works and:
(a) In the event that the value determined by the Expert is greater than the Amount Paid, then [the defendant] will pay the further amount within 21 days;
(b) In the event that the value determined by the Expert is less than the Amount Paid, then [the plaintiff] will repay the difference between the Amount Paid and the value determined within 21 days.
5.4 The 5 Bednall Place Judgment is set aside on the Expert providing a determination at which time the parties will be bound by the Expert determination.
5.5 The Expert’s determination will be binding on the parties subject to a right of appeal in accordance with section 38 of the Commercial Arbitration Act 1986 (ACT).
Schedule B referred to in clause 5.2 provided:
Schedule B – Terms of Expert Appointment
1.Alex Feng of Donald Cant Watts Corke (the Expert) is appointed to determine the dispute in accordance with these rules.
2.The Expert’s fees will be paid in equal parts by Labathas and Haridemos in accordance with the fee schedule and invoices provided by the Expert.
3.The Expert must provide a written determination of the value of the works undertaken by Haridemos at 5 Bednall and 6 Bednall considering:
a. The contracts between the parties and the approved plans.
b. Any apparent variations to the plans and adjustments for unapproved variations.
c. Any apparent defects in the works.
d. The submissions and material provided by each party.
4. The Expert is to confirm his appointment in writing to the parties.
5.Within 21 days of receiving the confirmation in paragraph 4 Labathas is to provide the Expert and Haridemos with all documents and evidence on which she wishes to rely.
6.Within a further 21 days from receiving the material in accordance with paragraph 5 Haridemos is to provide the Expert and Labathas with all documents and evidence on which he wishes to rely.
7.Labathas is to provide any further material in response within 14 days of receiving the material in accordance with paragraph 6.
8. The Expert is entitled to request further evidence or documentation from either party prior to making the determination.
9.The parties are required to do all things reasonably necessary to facilitate the Expert’s role in this process.
10. The parties agree to be bound to the determination of the Expert subject to a right of appeal in accordance with section 38 of the Commercial Arbitration Act 1986 (ACT).
Neither the parties’ submissions nor the evidence before me explains why clause 5 deals with the stay of (clause 5.1) or setting aside of (clause 5.4) the 5 Bednall Place Judgment and not the judgment relating to 6 Bednall Place when Schedule B contemplates a valuation of the works undertaken on both properties.
Section 38 of the CA Act provides:
38 Judicial review of awards
(1) Without prejudice to the right of appeal conferred by subsection (2), the court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award.
(2) Subject to subsection (4), an appeal shall lie to the Supreme Court on any question of law arising out of an award.
(3) On the determination of an appeal under subsection (2) the Supreme Court may by order—
(a) confirm, amend or set aside the award; or
(b) remit the award, together with the Supreme Court’s opinion on the question of law which was the subject of the appeal, to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration;
and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make the award within 3 months after the date of the order.
(4) An appeal under subsection (2) may be brought by any of the parties to an arbitration agreement—
(a) with the consent of all the other parties to the arbitration agreement; or
(b) subject to section 40, with the leave of the Supreme Court.
(5) The Supreme Court shall not grant leave under subsection (4) (b) unless it considers that—
(a) having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of 1 or more parties to the arbitration agreement; and
(b) there is—
(i) a manifest error of law on the face of the award; or
(ii) strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.
(6) The Supreme Court may make any leave which it grants under subsection (4) (b) subject to the applicant complying with any conditions it considers appropriate.
(7) Where the award of an arbitrator or umpire is amended on an appeal under subsection (2), the award as amended shall have effect (except for this section) as if it were the award of the arbitrator or umpire.
The defendant did not consent to the appeal under s 38(4)(a). Therefore the plaintiff sought leave under s 38(4)(b) and submitted that ss 38(5)(a) and 38(5)(b)(i) were satisfied. The critical issue for the purposes of those provisions would be whether or not the plaintiff had demonstrated ‘a manifest error of law on the face of the award’ for the purpose of s 38(5)(b)(i).
The defendant submitted that the process embarked upon by the parties was not in fact an arbitration and as a consequence, notwithstanding the terms of clause 5.5 of the Settlement Deed and paragraph 10 of Schedule B to that deed, s 38 of the CA Act did not give jurisdiction to the Court to hear an appeal from the decision.
Issue - was there an arbitration?
As the existence of an arbitration within the meaning of the CA Act is a precondition to the exercise of a power to grant leave under s 38 it is appropriate to deal with that question as a preliminary point.
Section 38 of the CA Act excludes any jurisdiction of the Court to ‘set aside or remit an award’ on the ground of error of fact or law on the face of the award except for the appeal on a question of law ‘arising out of an award’ provided for by s 38(2). The ‘award’ to which those sections refer is an award of an arbitrator made under an ‘arbitration agreement’ which, subject to the terms of the CA Act, is final and binding on the parties to the arbitration agreement: s 28. ‘Arbitration agreement’ is defined as ‘an agreement in writing to refer present or future disputes to arbitration’. The term ‘arbitration’ is not defined. If the agreement between the parties is not an ‘arbitration agreement’ then Mr Feng was not an arbitrator and the provisions of the CA Act, including s 38, do not apply.
The fact that the parties have agreed that the decision of Mr Feng would be subject to an appeal under s 38 of the CA Act cannot have the effect of itself conferring on the Court a jurisdiction which under the terms of the CA Act it does not have: Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 163, 165. Clause 5.5 may however be a provision which might be used in the interpretation of the meaning of clause 5, in particular in determining whether or not what the parties agreed upon was an arbitration within the meaning of the CA Act.
Authorities
The question of whether an agreed process for determining an issue is a process of arbitration on the one hand or a process of expert determination on the other has arisen on many occasions because the term ‘arbitration’ has not been defined in Acts giving statutory effect to decisions arrived at through arbitration. As a consequence the issue has, as here, arisen where one party contends that the statutory provisions apply, but the other party contends that they do not. That will be of significance because of the different obligations upon, and different approaches that must be taken to review the decisions of, arbitrators or experts.
Decisions of arbitrators will be governed, in addition to the terms of the arbitration agreement, by the statutory requirements relating to their decisions such as the form of the award and the obligation to give reasons: CA Act s 29. The decisions are also made binding by statute: s 28, subject to the grant of a limited statutory entitlement to appeal: s 38.
On the other hand, statute does not regulate the conduct of expert determinations. The principles to be applied in reviewing the determinations of an expert appointed under an agreement between parties are summarised in Foote v Barton Property Partnership No 2 [2014] ACTSC 330 at [62]-[66] (‘Foote’). The fundamental question for a court in reviewing the determination of an expert is not usually whether it is right or wrong but whether it is in accordance with the terms of the agreement between the parties. Whether or not, and the extent to which, reasons are required to be provided by an expert are matters which are also dependent upon the terms of the contract between the parties.
Whether or not the parties have agreed to the conduct of an arbitration or the making of an expert determination depends upon the proper characterisation of the process contemplated by the parties’ agreement. ‘There is no formula of universal application which will determine whether the decision-maker is an arbitrator and each case must be decided on its own facts’: Santos Ltd v Pipelines Authority of South Australia (1996) 66 SASR 38 at 46 (‘Santos’).
In Re Dawdy & Hartcup (1885) 15 QBD 426 at 429-430 (‘Re Dawdy & Hartcup’) Lord Esher MR said:
The word “arbitration” in s. 17 of the Common Law Procedure Act has been construed as meaning an arbitration to be conducted according to judicial rules, where the person who is appointed arbitrator is bound to hear the parties, to hear evidence if they desire it, and to determine judicially between them. He must have a matter before him which he is to consider judicially. As a consequence of this, it has been held that if a man is, on account of his skill in such matters, appointed to make a valuation, in such a manner that in making it he may, in accordance with the appointment, decide solely by the use of his eyes, his knowledge, and his skill, he is not acting judicially; he is using the skill of a valuer, not of a judge. In the same way, if two persons are appointed for a similar purpose, they are not arbitrators, but only valuers. They have to determine the matter by using solely their own eyes, and knowledge, and skill. We must, therefore, look at the agreement and see whether one or more persons are appointed to value, and in what way they are to act.
In Capricorn Inks Pty Ltd v Lawter International (Australasia) Pty Ltd [1989] 1 Qd R 8 McPherson J said (at 15):
The distinction depends upon a range of factors of varying importance and weight depending on the circumstances; but generally what must be in contemplation is that there will be “an inquiry in the nature of a judicial inquiry”: see Re Carus-Wilson & Greene (1886) 18 QBD 7, 9 per Lord Esher MR.
On appeal in the same case Andrews CJ said (at 28):
A primary function of an arbitrator is to hear and resolve opposing contentions and may be described, for purposes of discussion as to the distinction between his role and that of a valuer or an assessor, as quasi-judicial. Where an appointee is directed to make an appraisal in money terms of property value or loss or damage or the like by the use of some special knowledge or skill possessed by him, without being required to hear parties, his function is that of a valuer or assessor.
The fact that the parties in their agreement have described the decision-maker either as an expert or as an arbitrator is a matter to be taken into account but is not determinative. In Ajzner v Cartonlux Pty Ltd [1972] VR 919 at 928-929 Pape J referred to a number of authorities for the proposition that the title given by the parties to the person was not determinative as to whether or not that person was acting as an arbitrator or a valuer. The test was instead that identified by Williams J in Re Hammond & Waterton (1890) 62 LT (NS) 808 at 809 where his Lordship said:
The view which I take is this, that in every case it is necessary to look, not only at the exact words of the agreement, but also at the subject-matter with which the agreement deals. Then it can be ascertained whether the parties intended that a mere valuation should take place or an arbitration.
(See also Santos at 47-48.)
After a lengthy review of the authorities Mullins J in Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd [2007] QSC 206 at [72]-[73] said:
[72] What is significant is that an arbitration entails the mandatory requirement that the arbitrator must act judicially. Experts are not bound to act judicially and it is inconsistent for an expert to do so where the expert is required to make use of the expert’s own expertise. That does not preclude an expert from acting judicially, if that is how the expert chooses to act and, in the particular case, the expert is acting in a way that accords with the terms of the expert’s appointment. Although it is usual for an expert to be chosen under the contractual method of appointment by reference to a particular expertise, it is not an essential characteristic of an expert determination that the expert is obliged to make use of the expert’s expertise in making the expert determination, provided the expert acts in accordance with the terms of the appointment.
[73] Because arbitration has a statutory framework, but expert determination is governed by the terms of the contract between the parties and depends on the content of the contractual terms chosen by the parties, it is easier to identify the indicia of an arbitration, than the indicia of an expert determination. The analysis of what parties have agreed upon will usually be in terms of whether the process is or is not arbitration.
Application of authorities
Applying the principles identified in these authorities the Court must make a determination whether the Settlement Deed provided for an arbitration or expert determination. The features of the Settlement Deed which tell against the contemplated process being an arbitration are as follows:
(a)the person making the determination is referred to as the ‘Expert’;
(b)the nature of the result of the process is described as a ‘determination’ rather than an ‘award’ or decision;
(c)clause 5.2 indicates that the Expert is appointed to provide ‘his expert opinion’ on the value of works undertaken;
(d)paragraph 3 of Schedule B provides that the Expert must provide ‘a written determination of the value of the works’;
(e)a matter not in the Settlement Deed but clearly a significant fact known to both parties was that the person identified in the agreement as the Expert namely Alex Feng of Donald Cant Watts Corke was a quantity surveyor holding himself out as having particular expertise in estimating the value of construction works.
I have not made reference to the headings to clause 5 or Schedule B because clause 3.2 of the Settlement Deed provides that ‘headings are for convenience only and do not affect the interpretation of this Deed’.
The features of the agreement which point in the direction of the process being an arbitral process are as follows:
(a)clause 5.5 refers to the availability of a right of appeal under s 38 of the CA Act which would only be available if the process was an arbitration;
(b)there is a process for the provision to the Expert and the other party of documents and evidence which can be argued to be consistent with a judicial process.
In my opinion, notwithstanding the terms of clause 5.5 of the Settlement Deed, the process agreed to by the parties was an expert determination and not an arbitration. Looked at as a matter of substance the process contemplated was to be one in which the expert applied his own expertise to the assessment of the value of the works in the light of the material put forward by the parties and was not engaging in a quasi-judicial process of determining the case. That conclusion is, in particular, driven by the use of the words ‘his expert opinion’ in clause 5.2.
Having regard to the terms of the balance of clause 5 which emphasise the expert nature of the process, I do not consider that the reference in clause 5.5 to the CA Act is either determinative or has such interpretive force as to permit the balance of clause 5 to be interpreted as an arbitration process rather than, as the words suggest, an expert determination. That conclusion is consistent with the authorities which indicate that the title given to the decision-maker is not determinative of the nature of the function being performed. If the title given is not determinative then nor can the inclusion of a reference to an appeal which would only be available to an arbitration be determinative.
Further, I do not consider that the agreed process involving provision of material to Mr Feng was sufficient to indicate that the process was a quasi-judicial one, rather than one involving the application of Mr Feng’s own expertise. It was a necessary mechanical step to provide information to the expert and permit him to consider, in reaching his valuation, the matters referred to in paragraph 3 of Schedule B. The process did not indicate that what is described as an expert determination was in fact a quasi-judicial process. I do not consider that the statements of Lord Esher MR in the quote from Re Dawdy & Hartcup set out above mean that unless the process is wholly dependent upon only the expertise of the decision-maker it cannot be an expert determination. Rather, as the decision in Santos (at 46-48) illustrates, there may be a number of factors that need to be weighed in reaching a decision in a particular case.
As a result of this conclusion the CA Act and, in particular, s 38 of the Act does not apply and the application must be dismissed.
Had I reached the opposite conclusion then I would have found that the award by Mr Feng disclosed on its face a manifest error of law namely a failure to ‘include in the award a statement of the reasons for making the award’ as required by s 29(1)(c) of the CA Act. Notwithstanding that the scope of reasons required to be provided by an arbitrator may vary upon the issues put forward for determination, in the present case the substance of the decision was a table outlining particular values for the works undertaken and particular deductions from the value that might otherwise be of the works. No reasons were given for the deductions even in circumstances where the deductions were clearly contested on the material that was provided to Mr Feng. However as I have concluded that the agreement between the parties was for an expert determination and not an arbitration and there was no requirement in the terms of the agreement that the expert provide reasons for his decision this conclusion does not assist the plaintiff.
Because the process contemplated was not an arbitration upon which the provisions of the CA Act could operate, any challenge to the enforceability of the determination must be in accordance with the principles summarised in Foote.
In the light of my conclusion that the Court lacks jurisdiction it is unnecessary to rule on those paragraphs of the plaintiff’s affidavit sworn 17 November 2014 (paragraphs 15, 19, 21 and 30) which related to asserted errors in the decision and did not go to any matter relevant to the question of jurisdiction.
Order
The proceedings are dismissed with costs.
| I certify that the preceding thirty [30] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Associate Justice Mossop. Associate: Date: 27 May 2015 |
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