Hewitt v Mckensey

[2003] NSWSC 1186

CITATION:	Hewitt v McKensey [2003] NSWSC 1186
HEARING DATE(S):	5 December 2003
JUDGMENT DATE:	16 December 2003
JUDGMENT OF:	McDougall J at 1
DECISION:	See paragraph 83 of judgment
CATCHWORDS:	ARBITRATION - Commercial Arbitration Act 1984 - leave to appeal - whether error of law - whether "no evidence" submission raises error of law arising out of award - whether alleged error substantially affects plaintiff - ARBITRATION - Commercial Arbitration Act 1984 - misconduct - technical misconduct - whether technical misconduct made out - whether discretion to set aside if technical misconduct made out
LEGISLATION CITED:	Commercial Arbitration Act 1984 Commercial Arbitration (Amendment) Act 1990 (No. 100)
CASES CITED:	Balcombe v R A & A R Young Pty Ltd (18 October 1991, unreported) Doran Constructions Pty Ltd v Health Administration Corporation of NSW (CA, 10 October 1994, unreported) Elkateb v Lawindi [1999] NSW SC 720 Ex parte Herman: re Mathieson (1960) 78 WN (NSW) 6 Holland Stolte Pty Ltd v Murbay Pty Ltd (1991) 105 FLR 304, 310 Maccarrone v Oxley (20 June 1986, unreported: BC8600910) Melbourne Harbour Trust Commissioners v Hancock (1927) 39 CLR 571, 588 Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26 Rolland v Cassidy (1888) 13 App Cas 770, 772 R v Orcher [1999] NSW CCA 356 Taciak v Commissioner, Australian Federal Police (1995) 59 FCR 285, 295 The Barenbels [1985] 1 Lloyd's Rep 528, 531-532 Universal Petroleum Co Ltd v Handels und Transport GmbH [1987] 1 WLR 1178, 1189 Warley Pty Ltd v Adco Constructions Pty Ltd (1988) 5 BCL 141 Woodbud Pty Ltd v Warea Pty Ltd (15 June 1995, unreported: BC 9504818)
PARTIES :	Christopher Michael Hewitt (Plaintiff) Hugh Stanley McKensey, Victor John Lewis and Peter Charles Hicks (Defendants)
FILE NUMBER(S):	SC 50143/03
COUNSEL:	M A Ashhurst (Plaintiff) T A Alexis SC/F P Hicks (Defendants)
SOLICITORS:	Hewitts Commercial Lawyers (Plaintiff)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McDOUGALL J

16 December 2003

HUGH STANLEY McKENSEY & ORS

JUDGMENT

HIS HONOUR:

Introduction and background

1 Prior to 28 August 1994, the plaintiff, the defendants and Phillip Anthony Nelson were partners in a firm of accountants known as “Forsythes”. At some time prior to 28 August 1994, Mr Geoffrey Francis Page had also been a partner in that firm. It is not clear when Mr Page left the partnership.

2 On 10 September 1994, the plaintiff, the defendants and Mr Nelson entered into a written agreement described as:

“Proposed basis on which Christopher Michael Hewitt and Phillip Anthony Nelson will retire from the partnership of Forsythes”.

The parties referred, and I will refer, to this agreement as the “Settlement Agreement”.

3 By orders of this Court made on 17 June 1999, and entered on 2 July 1999 (and amended on 6 July 1999), a number of disputes relating to the financial accounts of the partnership for the year ended 30 June 1994 and the period from 1 July to 28 August 1994 were referred to arbitration. In the events that happened, Mr Michael Edward Wayland, a chartered accountant, was appointed arbitrator. Mr Wayland, the plaintiff and the defendants made a written arbitration agreement on 6 February 2002. Mr Nelson was not a party to that agreement. It appears that he had been made bankrupt some time after 28 August 1994. His trustee in bankruptcy advised Mr Wayland that Mr Nelson (and the trustee) did not wish to take part in the arbitration.

4 At a preliminary conference held on 6 February 2003, the parties identified the issues for decision by Mr Wayland as being:

(1) “Dispute 1”: a determination of the accounts of the partnership for the year ended 30 June 1994 and the period 1 July to 28 August 1994; and

(2) “Dispute 2”: the determination of the amount (if any) payable by the plaintiff and Mr Nelson pursuant to clause 12 of the Settlement Agreement.

5 Mr Wayland received evidence, including affidavits from various of the parties and documents, and voluminous written submissions. He published his award on 28 August 2003. His decision in respect of Dispute 1 is not the subject of challenge. However, his decision in respect of Dispute 2 is. So too, although only consequentially, is his decision on costs.

The proceedings

6 In these proceedings the plaintiff, by his amended summons, sought leave to appeal from the award. He asserted either manifest error of law on the face of the award (Commercial Arbitration Act 1984 (“the Act”), s 38(5)(b)(i)) or strong evidence of error of law, the determination of which would be likely to add substantially to the certainty of commercial law (s 38(5)(b)(ii)). In either case, he asserted that the determination of the question of law could substantially affect his rights.

7 At the hearing, the plaintiff sought and was granted leave further to amend his summons to allege, in the alternative, that Mr Wayland was guilty of technical misconduct in two respects. On this basis, the plaintiff sought an order that the award be set aside in so far as it dealt with Dispute 2 and with costs. He also sought an order that the award be varied, in respect of Dispute 2 and as to costs, in certain specified ways.

8 I will deal firstly with the application for leave to appeal, and secondly with the application to set aside the award in part.

The issues

9 At the hearing, Mr Ashhurst of Counsel, who appeared for the plaintiff, defined the error of law that he relied upon (either as “manifest” or as “strongly evidenced”) to be Mr Wayland’s presumed construction and application of the phrase “in connection with” in clause 12 of the Settlement Agreement. Mr Ashhurst said, in substance, that Mr Wayland must have construed those words too widely because he included, in the amounts that he said fell within clause 12:

(1) amounts paid under invoices directed to an entity known as “Forsythes Services” (see para [13] below);

(2) amounts payable in respect of a matter known as “Forsythes Services Pty Ltd and Lonergan” (see para [15] below); and

(3) amounts payable in respect of bankruptcy proceedings commenced by the defendants against Mr Page (again, see para [15] below).

10 In relation to technical misconduct, Mr Ashhurst stated that the plaintiff relied upon:

(1) Mr Wayland’s erroneous assumption, acted on by him, that he was entitled to determine Dispute 2 not according to law, but pursuant to s 22(2) of the Act; and

(2) Mr Wayland’s engagement of the services of a solicitor and arbitrator, Mr James Creer, and the extent of the work in fact performed by Mr Creer (see paras [21] to [26] below).

The Settlement Agreement

11 Clause 12 of the Settlement Agreement provided as follows:

“12 The Retiring Partners will pay to Forsythes (New) upon written request, twenty (20) percentum of any payment or payments made by Forsythes (New) after 28 August 1994, to other parties, in connection with the action in the Supreme Court of New South Wales by Geoffrey Francis Page against Forsythes (Old) within thirty days of Forsythes (New) making such payment or payments.”

12 The retiring partners were the plaintiff and Mr Nelson. Forsythes (New) was the firm Forsythes as constituted with effect from 28 August 1994 (i.e., with effect from the retirement of the plaintiff and Mr Nelson). Forsythes (Old) was the firm as constituted immediately prior to the retirement of the plaintiff and Mr Nelson.

Dispute 2

13 Pursuant to clause 12 of the Settlement Agreement, the defendants claimed from the plaintiff 20% of payments totalling $107,526.49. There was evidence before Mr Wayland that, if accepted, would show that fee notes or invoices had been rendered by solicitors and counsel, and paid by Forsythes (New), in connection with the relevant proceedings. Although some of the invoices had been addressed, not to the firm Forsythes, but to an entity known as “Forsythes Services” (I interpolate that there was a company known as Forsythes Services Pty Ltd that was a party to the proceedings in respect of which the fee notes or invoices were rendered), there was evidence before Mr Wayland that, if accepted, would show that this was done in error, and that the invoices should have been rendered to the partnership.

14 Equally, there was evidence before Mr Wayland that, if accepted, would show that it was the company, Forsythes Services Pty Ltd, to which the invoices should have been, and were intended to have been, rendered.

15 Another matter of significance is the work for which the invoices were rendered. Firstly, the invoices for amounts totalling $9,172.30 on their face related to a matter known as “Forsythes Services Pty Ltd and Lonergan”. This appears to have been a claim for outstanding fees by Coopers and Lybrand (where Mr Lonergan was, at the time, a partner) for some services rendered. Secondly, amounts totalling $28,721.50 related to bankruptcy proceedings commenced by the defendants against Mr Page. Those bankruptcy proceedings were founded on a bankruptcy notice that, in turn, was founded on a judgment debt recovered by the present defendants against Mr Page in proceedings No. 4206 of 1992 in this Court. On 1 July 1997, Beaumont J ordered that the bankruptcy notice be set aside with costs.

16 The question for Mr Wayland, in relation to Dispute 2, was, therefore, whether any or all of the payments in question could be said to be “made by Forsythe (New) after 28 August 1994, … in connection with the action in the Supreme Court of New Wales by Geoffrey Francis Page against Forsythes (Old)”.

17 It would appear that proceedings No. 4206 of 1992 in this Court were the proceedings by Mr Page against Forsythes (Old) referred to in clause 12 of the Settlement Agreement. There is no doubt that the payments, other than what I might call the “Lonergan payments” and the “bankruptcy payments”, were made “in connection with” those proceedings.

Mr Wayland’s decision

18 Mr Wayland decided that the payments did fall within clause 12. He must therefore have decided that a sufficient nexus existed between those payments and the proceedings in this Court to attract the operation of clause 12. However, he did not articulate his reasons for doing so. The plaintiff says that this is because Mr Wayland thought, erroneously, that he was entitled to determine Dispute 2 as an “amiable compositeur” – i.e., in exercise of the powers given by s 22(2) of the Act.

19 Mr Wayland ordered that the plaintiff and Mr Nelson “pay the party-and- party costs of” the defendants. He did so because, as to Dispute 1, he concluded that the form of the accounts that he determined was substantially as propounded by the defendants. As to Dispute 2, having noted that it “concerned the interpretation and application of Clause 12 of the Settlement Agreement”, he recorded that he had concluded in favour of the defendants on that issue.

20 I should note that, although the plaintiff submitted before me that he had in fact achieved substantial success on a number of the separate questions that were subsumed within Dispute 1, he did not challenge the arbitrator’s conclusion on Dispute 1. However, he said, if he succeeded in these proceedings then the fact (and extent) of that success, coupled with what he said was his partial success on the individual issues comprised within Dispute 1, meant that the basis upon which Mr Wayland awarded costs to the defendants “will be no longer relevant”.

The role of Mr Creer

21 Clause 2.15.2 of the Arbitration Agreement provided:

“2.15 In order to assist the Arbitrator to determine the matter in issue, the Arbitrator:
…
2.15.2 will retain an appropriately experienced barrister nominated by the Parties or in the absence of agreement as selected by the Arbitrator to assist the Arbitrator.
…”

22 The word “will” in clause 2.15.2 is confusingly mandatory in appearance, and an attempt to read it as permissive is rendered somewhat difficult because the preceding sub clause commences with the word “may”. The confusion is not improved by the wording of the following sub clause, which needs, but lacks, either “will” or “may”.

23 Leaving aside those complications, it is not in dispute that Mr Wayland, apparently in reliance on clause 2.15.2, retained Mr Creer to assist him. Mr Creer was not a barrister, although he was (and is) a solicitor of many years’ experience who has for some (unspecified) time practised as an arbitrator and mediator. It was not suggested that Mr Creer was anything other than “appropriately experienced”. The first complaint that was made was that he was not a barrister at all, let alone one “nominated by the Parties”. The second complaint was that, in fact, either Mr Wayland delegated to Mr Creer, or Mr Creer in any event assumed, responsibility for some substantial decision-making, and not just responsibility for matters of form.

24 The evidence shows that, in terms, Mr Creer’s role was to advise Mr Wayland on the wording of the award, and to advise in respect of matters such as his power to order costs. With one possible exception, the evidence does not show that Mr Creer went beyond that role. In relation to costs, Mr Creer made it plain, in a fax dated 18 July 2003 to Mr Wayland, that he could not “settle a costs order” until Mr Wayland had “come to a final decision” as to what that order would be. Accordingly, having referred to the choice that confronted Mr Wayland, Mr Creer said:

“Over to you – once you have exercised your judicial judgment [sic] let me know.”

25 He pointed out, quite correctly, that if Mr Wayland proposed to depart from what was called “the general rule” or the “general position” as to costs, he would need to let Mr Creer know his reasons so that Mr Creer could review the form of words in the award.

26 Thereafter, correspondence passed backwards and forwards between Messrs Wayland and Creer. The plaintiff says that, at the end, Mr Creer took over the decision-making role. However, I think, this is to take out of context the work that Mr Creer did. It is clear that Mr Creer actively tested what it was that Mr Wayland intended to order in relation to costs. It is also clear that, during the exchanges between them, Mr Wayland changed his initial view as to what costs order would be appropriate. But that does not mean that Mr Creer made, and Mr Wayland did not make, the fundamental decision. I do not think that Mr Wayland delegated to Mr Creer, or that Mr Creer assumed, the decision-making role that, under the Arbitration Agreement, was vested in Mr Wayland. I do not think that the assistance that Mr Creer rendered went beyond that which an appropriately experienced barrister could have rendered under clause 2.15.2. See further Mr Ashhurst’s concession referred to in para [75] below.

“In connection with”

27 I have no doubt that it would have been open to Mr Wayland, without any error of law, to conclude that the costs incurred in relation to the bankruptcy proceedings fell within clause 12. The judgment debt on which the bankruptcy notice was founded was recovered in the proceedings to which clause 12 refers. The issue of that bankruptcy notice could properly be characterised as an attempt to enforce the judgment. On that basis, it would be possible to view the costs as having a sufficient nexus with the Supreme Court action to fall within clause 12.

28 It has been said many times that, in substance, the connotation of the words “in connection with” must depend on their context and on the purpose of the statute or document in which they are found: see R v Orcher [1999] NSW CCA 356 at paras [28] to [32], where Spigelman CJ (with whom Grove and Sully JJ agreed) reviewed some of the authorities.

29 As Sackville J pointed out in Taciak v Commissioner, Australian Federal Police (1995) 59 FCR 285, 295, the question in any particular case is what kind of relationship will suffice to establish the connection contemplated by those words in the particular context.

30 Mr Ashhurst submitted that a construction of clause 12 that embraced such a degree of connection would be bad in law. He referred, in particular, to the definition of “dispute” in the Settlement Agreement. That definition was as follows:

“’The Dispute’ means the appeal by Geoffrey Francis Page against the decision of Windeyer on [sic – no date is specified] December 1993 in the matter of Page v McKensey & Ors in the Equity Division of the Supreme Court of NSW, and any subsequent related litigation.”

31 Mr Ashhurst submitted that, because the parties had turned their attention to the question of “subsequent related litigation” in their definition of “the Dispute”, their failure to include equivalent words, amplifying the reference to the Supreme Court proceedings, in clause 12 must be regarded as deliberate.

32 I do not think that this is correct. The definition of the Dispute is important not in itself but because it is finalisation of the Dispute that determines the “Settlement Date”. In turn, it is determination of the Settlement Date that brings into operation, and plays a part in quantifying, the payment obligations (called “Settlement Payment”) of the parties to the Settlement Agreement. However, unlike most other payment obligations for which the Settlement Agreement provides, the obligations imposed on the plaintiff and Mr Nelson by clause 12 are not to be included in, or paid by instalments as part of, the Settlement Payment. They are to be paid “upon written request” and, it would appear, within 30 days of the making of the relevant payments by Forsythes (New). The very fact that the obligations created by clause 12 are independent of the Settlement Payment obligations created elsewhere under the Settlement Agreement indicates to me that Clause 12 is to be construed on its own terms.

33 Once it is appreciated that the words “in connection with” are wide enough to embrace the bankruptcy payments, then the question of whether or not they are embraced is, in my view, a question of fact. That is to say, it is in my view a question of fact as to whether a sufficient relationship exists (or is shown to exist) between the bankruptcy payments and the proceedings referred to in Clause 12. It follows that I do not view Mr Wayland’s determination, in so far as it deals with the bankruptcy payments, as showing any manifest error of law.

34 Further, in my view, the question of whether or not there is evidence to support a conclusion of fact reached by an arbitrator may not be a question of law arising out of the award. That is so even where, it is said, no reasonable arbitrator could have reached the challenged conclusion of fact. Under s 38(2) of the Act, an appeal will lie (subject to agreement or leave under sub s (4)) “on any question of law arising out of an award”. If it is necessary to go beyond the award to examine the question, then the question cannot be said to be one “arising out of” the award. Thus, where it is said that there is no evidence to support a particular conclusion (or, as I have put it earlier, that no reasonable arbitrator could have come to that conclusion) it is necessary, if the submission is to be made good, to examine the evidence that was before the arbitrator. This cannot be done under s 38. See The Barenbels [1985] 1 Lloyd’s Rep 528, 531-532 (Robert Goff LJ, who gave the judgment of the Court); Universal Petroleum Co Ltd v Handels und Transport GmbH [1987] 1 WLR 1178, 1189.

35 If an award does not make it clear upon what basis an arbitrator reached a particular conclusion of fact, the Court may remit the matter to the arbitrator pursuant to s 43 of the Act. If the arbitrator then reconsidered the matter and gave further reasons, it may be that a question of law “arising out of the award” (as so supplemented) may be seen to arise. But that has not been done in the present case.

36 In Warley Pty Ltd v Adco Constructions Pty Ltd (1988) 5 BCL 141, Smart J, having referred to and considered (among others) the authorities referred to in para [34] above, concluded at 146-147 that the Court could “go to the relevant and often bulky documents to understand and assess the point being made on the leave application”: particularly in respect of (for example) the contract and related documents, a knowledge of which “is sometimes assumed in the award”. By contrast, his Honour noted that it would be “another matter for the Court to have to go through the evidence and the materials to deal with a no evidence point or a point that upon the whole of the evidence certain conclusions were not reasonably open”. As I understand it, his Honour was of the opinion that the latter approach was not available in an application for leave under s 38. If I am correct in so understanding what his Honour said, then I respectfully agree.

37 The position may well be the same in relation to the Lonergan payments. For example, it may have been the case that the services of Mr Lonergan were retained by Forsythes (whether Old or New, and whether by the partnership or by one of the partnership’s controlled or associated entities, does not matter for the present purposes), in relation to the proceedings brought by Mr Page. If they were, then it would have been open to Mr Wayland to conclude that those payments fell within clause 12; indeed, it might not have been open to him to conclude otherwise.

38 Mr Wayland’s reasoning on this point appears to have been that, because the parties (including, relevantly, the plaintiff) accepted that the whole of the amounts totalling $107,437 were “not prima facie capable of explanation other than for legal expenses relating to Plaint 4206 of 1992”, then he did not need to look too closely at the relevant connection.

39 The statement that I have quoted comes from paragraph 4.5 of Mr Wayland’s award. In turn, he is quoting from paragraph 3.7 of the “Final Submission” made to him by the plaintiff’s legal representatives under cover of a letter of 5 June 2003. This statement, when read in context (including the other submissions made on behalf of the plaintiff), does not in my view amount to an admission, let alone an unequivocal one, that the entirety of the fees related to those proceedings. It had been the plaintiff’s position that both the bankruptcy payments and the Lonergan payments were exceptions to the prima facie position, and I do not think that it was appropriate to read the “Final Submission” as marking some unheralded and inexplicable retreat from that position.

40 However, I do not think that even on this basis, Mr Wayland’s determination in relation to the Lonergan payments shows manifest error. Firstly, for the reasons that I have given in paras [34] to [36] above, I do not think that a “no evidence” submission necessarily raises an error of law arising out of the award. But even if I am wrong in this, or even if what I have said may be distinguished because (for example) it is plain on the face of the award how Mr Wayland reached the conclusion that he did in respect of the Lonergan payments, I do not think that there is manifest error. That is, as I have sought to show, because although the question of the proper construction of the words “in connection with” in their contractual context is a question of law, the application of those words as a matter of fact is not. Given that it is not impossible that the Lonergan payments could have had a sufficient connection with the proceedings referred to in clause 12 so as to be, relevantly, connected with those proceedings, there can be no manifest error of law.

41 At most, in my opinion, this aspect of the matter would fall within s 38(5)(b)(ii): i.e., it would afford evidence (and perhaps strong evidence) of an error of law. If, however, the plaintiff is driven to rely on s 38(5)(b)(ii), then in my opinion the application for leave should be dismissed because there is no basis for saying that a resolution of the question will add in any way, let alone substantially, to the certainty of commercial law. That is because, to the extent that there is a question of law involved, it turns upon the proper construction of the words “in connection with”. As I have observed, the precise relationship that those words connote in any case is a matter of context. There is so much authority on this point that it can hardly be said that the certainty of commercial law would be enhanced by repetition; on the contrary, there is at least a risk that any repetition may detract from the present state of certainty.

The “Forsythes Services” issue

42 Mr Ashhurst submitted that, for clause 12 to be engaged, it was necessary not only that the relevant payments (see paras [14] and [15] above) be “made” by Forsythes (New), but also that Forsythes (New) should have been liable to make them. Further, he argued, the facts show that it was the company, Forsythes Services Pty Ltd, and not the partnership Forsythes (New), that was liable to make the payments.

43 Even if Mr Ashhurst’s first submission be correct, it does not mean that there is an implicit error of law in Mr Wayland’s conclusion. At most, there was required to be resolved a dispute of fact. Mr Wayland found, in paragraph 10 of his award, that the payments were made by Forsythes (New). There was evidence before him to support the finding (if it needed to be made) that Forsythes (New) were liable to make that payment. Clearly, there can be no manifest error of law displayed by the finding that he did make. Neither, in my view, does it afford any, let alone strong, evidence of an error of law.

“Substantially affect the rights of one or more parties”

44 I should make it clear that, if I had found that all the challenges were otherwise made out, I would have found that, notwithstanding the relatively small amounts involved, the impugned determinations substantially affected the plaintiff’s rights, within the meaning of s 38(5)(a) of the Act. In this context, Mr Ashhurst relied upon the decision of Yeldham J in Maccarrone v Oxley (20 June 1986, unreported: BC 8600910) and the decision of Giles J following it in Balcombe v R A & A R Young Pty Ltd (18 October 1991, unreported).

45 In substance, Yeldham J said that the question was not one of the amount of money involved in view in the abstract, but its relationship to the amount of the award. Giles J, following what his Honour had said, concluded (at p 9 of the unreported judgment) of the word “substantially” that it was likely to have been used “in a relative sense”. I respectfully agree.

46 The relationship between the amount of the award and the amount at issue depends on which of the challenges one looks at. If one looks at the bankruptcy fees and the Lonergan fees between them, they make up over one third of the total amount of the claim. If the dispute in relation to them were resolved in the plaintiff’s favour then, relative to the total amount in dispute, the outcome would substantially affect the plaintiff’s rights.

47 If, however, (as I think is the case) the only possible argument is in relation to the Lonergan fees, I would not have concluded that a determination of that issue alone in favour of the plaintiff could be said to “substantially affect the rights of” the plaintiff. In isolation, the amount is small (the plaintiff’s 20% share of the gross figure is a little over $1,800) and out of all proportion to the costs that would be incurred in having this issue reconsidered. In a relative sense, the amount at issue is under 10% of the total of the claim that was considered in Dispute 2. On neither basis, in my view, can it be said that any redetermination of the dispute in relation to the Lonergan fees would substantially affect the plaintiff’s rights.

Conclusion: leave to appeal

48 In my opinion, the challenges relied upon to support the application for leave to appeal fail.

Section 22(2)

49 As I have noted in para [18] above, Mr Wayland thought that he was entitled, and apparently purported, to determine Dispute 2 as an “amiable compositeur”. The plaintiff contended that he was not entitled to do so. The defendants contended that he was.

50 Clause 2.2 of the Arbitration Agreement, under the rubric “Procedures and Arbitrator’s Powers”, provided as follows:

“2.2 The Arbitrator will determine questions that arise in the course of the arbitration, according to law unless the Parties agree to the Arbitrator determining questions by reference to considerations of general justice and fairness”.

51 Section 22(1) of the Act provides that any question arising for determination under an arbitration agreement must be determined in law “unless otherwise agreed to in writing”. Section 22(2) provides that, if the parties to an arbitration agreement so agreed in writing, the arbitrator may determine a question “by reference to considerations of general justice and fairness”.

52 There is no evidence of any agreement in writing for the purposes of s 22(2). Nor is there any evidence of any agreement (regardless of form) whatsoever except the statement by Mr Wayland in paragraph 7 of his award as follows:

“7. In the preliminary conference held on 6 February 2003 the parties asked the Arbitrator to determine [Dispute 2] pursuant to Clause [sic] 22(2) of the Commercial Arbitration Act 1984, that is, as “amiable compositeur”. The Arbitrator agreed to determine this issue on that basis.”

53 There is nothing in the minutes of the preliminary conference to support what is said in paragraph 7 of the award. However, as was pointed out by Mr Alexis SC (who appeared with Mr Hicks of Counsel for the defendants), the minutes themselves note that Mr Wayland “had not recorded this meeting verbatim”. It followed, Mr Alexis said, that there might have been such an agreement.

54 I do not accept this submission. The passage that I have just quoted was followed by a statement that Mr Wayland “would prepare minutes containing his directions, which he would circulate to the parties”. One would have thought that something as important as an agreement for the purposes of s 22(2) – even if not in writing, as that section requires – would have been recorded in those minutes had it been struck at the preliminary conference.

55 Another matter of significance is that both the plaintiff and his solicitor, each of whom was present at the preliminary conference, have given sworn evidence that, to the best of their respective recollections, no agreement was reached at the preliminary conference of the kind referred to in paragraph 7 of the award. Mr Alexis submitted that the wording of these affidavits (“I have no recollection … as far as I can recall … “) was insufficiently firm to overturn the presumption created by paragraph 7 of the award. I do not agree, particularly having regard to the content of the minutes.

56 Further, and most significantly, as Mr Ashhurst pointed out, the first defendant and his solicitor were both present at the meeting. Neither of them put on any evidence whatsoever of what was said at the meeting. In the circumstances, Mr Ashhurst said, I should draw the Jones v Dunkel inference, from the unexplained failure to call either of these gentlemen, that their evidence would not have assisted the defendants on this point. I agree.

57 I therefore find that there was no agreement, written or oral, of the kind referred to by Mr Wayland in paragraph 7 of his award. It is accordingly unnecessary to consider whether, and if so upon what basis, an oral agreement might have been enforceable.

58 It seems to me to follow almost inevitably that, in determining the matter under s 22(2) and not under s 22(1), Mr Wayland misconducted himself, for the purposes of s 42 of the Act.

59 I should note that Mr Alexis submitted that, even if Mr Wayland had purported to act as “amiable compositeur”, it did not follow that he had not determined Dispute 2 according to law. Mr Alexis based this submission upon the analysis by Young J, in Woodbud Pty Ltd v Warea Pty Ltd (15 June 1995, unreported: BC 9504818), of what was encompassed in the power given by s 22(2) to determine a question “by reference to considerations of general justice and fairness”. His Honour observed at BC p 19, basing himself on Ex parte Herman: re Mathieson (1960) 78 WN (NSW) 6 and Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26, that a power to decide something in accordance with equity and good conscience does not mean that the decision-maker can disregard the law completely. However, as his Honour then noted, the position of an amiable compositeur was somewhat different, and indeed was a conception “extremely difficult to fit … into the common law”.

60 His Honour referred at BC p 20 to the judgment of Lord Selborne, giving the reasons to the Privy Council, in Rolland v Cassidy (1888) 13 App Cas 770, 772, where his Lordship said that a power to decide something as amiable compositeur would not ordinarily entitle the arbitrator “to disregard all law”, but that “the least effect which can reasonably be given to the words is, that they dispense with the strict observance of those rules of law the non observance of which, as applied to awards, results in no more than irregularity”.

61 Young J said that it was “most debatable” whether s 22(2) went much further than this, but expressed the view that it might go beyond evidentiary and procedural rules, and might, for example, permit the amiable compositeur to disregard (for example) technical rules relating to evidence, deeds and contracts. His Honour said at BC p 21 that there was an “absolute ceiling … where the doctrine of manifest disregard by the arbitrator of his mandate comes into play”.

62 I do not think that it is necessary for me to seek, with any further precision, to define the role of an arbitrator under s 22(2). I say this because there is not the slightest reason to suspect that Mr Wayland had any true conception of what (if any) were the limits that might be implied into the power to decide a dispute according to considerations of general justice and fairness. Specifically, there is not the slightest reason to think that Mr Wayland saw that power as entitling him to disregard technical rules (such as the parol evidence rule, the doctrine of the corporate veil or the doctrine of privity of contract), but not as entitling him altogether “to disregard all law”. Certainly, it was not suggested that anyone had referred Mr Wayland to the decision of Young J in Woodbud; nor would they have had any occasion to do so given that, as I have found, there was no agreement that Mr Wayland was empowered to determine Dispute 2 under s 22(2) of the Act.

63 I hasten to say that the misconduct that I have found is of what is often called a technical kind. I do not intend to suggest that Mr Wayland was guilty of any form of personal impropriety. There is no evidence whatsoever to support such a conclusion, nor was any submission put to me that there was. However, it is clear that, although there is no personal impropriety, an arbitrator may misconduct himself or herself where he or she makes a mistake “which has or may have unjustly prejudiced a party”: Melbourne Harbour Trust Commissioners v Hancock (1927) 39 CLR 571, 588 (Isaacs J). See, generally, Doran Constructions Pty Ltd v Health Administration Corporation of NSW (CA, 10 October 1994, unreported), where the authorities are reviewed.

64 Mr Ashhurst says that, therefore, the award should be set aside in so far as it determined Dispute 2. He conceded that, if Mr Wayland could have come to no other conclusion than he did, then the award should not be set aside. However, he said, even if it had been open to Mr Wayland to come to the view that he did (because of the width of the relationship that may be conveyed by the words “in connection with”), nonetheless the award should be set aside because Mr Wayland had not in fact turned his mind to that question. In substance, Mr Ashhurst’s submission was that the plaintiff had suffered prejudice because he had lost, or had not received, the opportunity to have Mr Wayland consider his case, and decide it, on the basis of a proper appreciation of the essential issue. Mr Ashhurst further submitted that the plaintiff had suffered prejudice by reason of Mr Wayland’s decision on costs – a matter to which I will turn later in these reasons.

65 In my view, the prejudice to which the plaintiff points is more apparent than real. If, as I have said, Mr Wayland’s decision was not vitiated by error of law, and was open to him on the facts, then it cannot be said that the plaintiff has suffered a “wrong” decision because Mr Wayland misconceived the process by which he was to come to the conclusion that he did. It may well be that another arbitrator (or, for that matter, Mr Wayland), considering the matter according to law and in the light of the exposition of principle contained in these reasons, might come to a different decision. But I do not think that the loss of that opportunity – be it great or small – is, of itself, a sufficient factor to justify setting aside the relevant part of Mr Wayland’s award.

66 In this context, I also take into account the circumstance that, on my view of the case, the only area (apart from costs) where there is any real argument that, had the matter been properly considered, Mr Wayland might have come to a different view is that relating to the Lonergan payments. The gross amount of the Lonergan payments was, as I have noted, a little over $9,000 and it was, as I have also noted, less than 10% of the total amount in issue. In net terms, the amount of the award referable to the Lonergan payments was a little over $1,800.

67 If misconduct (whether technical or otherwise) be made out, then in my view it is not mandatory to set aside the whole or relevant part of the award. Rather, I think, if misconduct be established there arises a discretion to grant relief by way of setting aside the award in whole or in part. Miles CJ so stated in Holland Stolte Pty Ltd v Murbay Pty Ltd (1991) 105 FLR 304, 310. Although what his Honour said was, strictly speaking, unnecessary for his decision (because he had concluded that there was no misconduct) it was, in my respectful opinion, correct.

68 Rolfe J came to the same view in Elkateb v Lawindi [1999] NSW SC 720 at [72], [102]. Again, what his Honour said may be regarded, strictly speaking, as obiter dictum, because his Honour found that there was no misconduct. Again, however, I respectfully agree.

69 I should note that Mr Marcus Jacobs QC in Commercial Arbitration Law and Practice (Law Book Company looseleaf) at paragraph 40.799/9 refers to the decision of Miles CJ in Holland Stolte and “respectfully submits” that his Honour had erred in holding that, once misconduct was established, there was still a discretion whether or not to grant relief. Mr Jacobs says, without elaboration, that this is because “once the jurisdictional facts are established viz that there has been misconduct as defined, relief must follow”. I do not agree. The correct analysis is, as the section says, that once the “jurisdictional facts” are established, the Court may grant the relief that the section provides. That, in my view, means that the Court may decide whether or not to grant any relief at all; and, if it decides to grant relief, to decide what relief (within the scope of the section) is appropriate. It cannot mean that the discretion is limited to choosing the appropriate relief from that which is authorised by the section. This choice depends, not on the “jurisdictional facts” that are proved, but on an analysis of the impact of the misconduct that, by hypothesis, those facts demonstrate on the terms (and outcome) of the award.

70 Section 42 itself is not expressed in mandatory terms: when (among other things) misconduct is established, the Court “may” set aside the award either wholly or in part. To read the word “may” as “must” would be inconsistent with the underlying philosophy of, so far as possible, minimising curial interference with arbitral awards. It may be noted that this philosophy was manifested, in relation to appeals, by the amendments to s 38 that were effected by the Commercial Arbitration (Amendment) Act 1990 (No. 100). I do not accept that the legislature intended that any misconduct, even of the most technical kind and involving the most minimal of consequences, must require that the award be set aside in whole or in part. In my view, a recognition of the discretion that the word “may” ordinarily implies is necessary both to give effect to the underlying legislative philosophy and to avoid expense and multiplicity of proceedings.

71 If, as I think is the case, there is a discretion whether or not to set aside an award once technical misconduct is found, then I would not exercise it in favour of setting aside the award in this case. I simply cannot accept that the interests of justice require that a dispute over an amount of $1,800 should be remitted to another arbitrator for consideration. (I say “another arbitrator” because the plaintiff submitted that, if I were to set aside the award, I should not remit the matter to Mr Wayland for further consideration, but should remit it to another arbitrator. It is possible that I could, pursuant to s 43 of the Act, remit the matter to Mr Wayland for further consideration but, unless another arbitrator is appointed by the parties, I do not think that I have the power to remit the matter to another arbitrator for consideration.)

72 If the matter were remitted to another arbitrator for consideration, then that arbitrator would be required to familiarise himself or herself with the whole of the dispute. The parties would be entitled to do (and, no doubt, would do) what they have already done – i.e., furnish that arbitrator with a variety of evidentiary material, and with voluminous and argumentative submissions. The costs of the exercise would be out of all proportion to the amount involved. Even if, as indicated in the preceding paragraph, the only power that I had were to remit the matter to Mr Wayland for further consideration, the amount at issue would be likely to be dwarfed by the costs of the exercise. I simply do not accept that the search for perfect justice requires that I impose that exercise on the parties.

73 I am conscious, of course, that the amount at issue is not just the amount of $1,800, but also in effect includes the costs order that Mr Wayland made. As I have said, I will deal with that in a later section of these reasons.

The retainer of Mr Creer

74 I have set out above in paras [21] to [26] above the relevant provisions of the Arbitration Agreement and my conclusions as to what the evidence showed as to Mr Creer’s involvement. Because of the conclusion that I have expressed in para [26], the only remaining arguable “misconduct” is that Mr Wayland, in purported exercise of the power given to him by clause 2.15.2 of the Arbitration Agreement, engaged a solicitor rather than a barrister.

75 Even if, in these days of common admission, that could amount to technical misconduct, it certainly does not seem to me that it would justify setting aside, in whole or in part, Mr Wayland’s award. That is so, not only because of the conclusion to which I have come, set out in para [26], but also because, as Mr Ashhurst very properly conceded in submissions, a barrister “properly” retained under clause 2.15.2 could properly have given the advice that Mr Creer gave; Mr Wayland could properly have acted on that advice; and there would be no resulting misconduct. On that basis (to return to the formulation of Isaacs J in Melbourne Harbour Trust Commissioners that I have referred to in para [63] above) the mistake that was made has not prejudiced, unjustly or otherwise, the plaintiff. Indeed, if one analyses the matter that way, it could be said that the mistake does not even amount to misconduct.

The flow-on effect on costs

76 The plaintiff’s submission was that Mr Wayland’s exercise of his discretion as to costs was vitiated because of the underlying alleged errors that I have referred to above. It was not said that there was any separate vitiating feature.

77 It would therefore follow that the plaintiff has not made out a case for relief, either under s 38 or under s 42, in relation to costs. However, the matter of costs requires attention for two separate reasons.

78 Firstly, it may be said, against the view that I expressed in para [47] above, that a redetermination of the underlying dispute could substantially affect the plaintiff’s rights because, even though the amount relating to the Lonergan dispute was small (in both relative and absolute terms), the amount of costs could not be so characterised. The evidence showed that, pursuant to Mr Wayland’s costs order, the defendants had applied to have their costs assessed. The total claimed exceeded $54,000. Even if – a matter upon which I express no view – that amount may be found, upon assessment, to be more than the defendants’ entitlement, it is clear that there will be a substantial sum payable under the costs order.

79 However, even if the award, in so far as it dealt with the Lonergan dispute, were in some way reconsidered, and determined in favour of the plaintiff, it does not follow that the costs order would be markedly different. It would still be the case, on this hypothesis, that the defendants had succeeded (as Mr Wayland found) in relation to Dispute 1 and had succeeded substantially as to Dispute 2. (I reiterate that the Lonergan fees amounted to less than 10% of the total amount in issue in Dispute 2.) In those circumstances, the possibility that the costs discretion might be exercised differently if the dispute over the Lonergan fees were redetermined in favour of the plaintiff does not seem to me to be sufficiently high to justify a conclusion, contrary to what I have said in para [47] above, that the redetermination would not substantially affect the plaintiff’s rights.

80 The other significance of the costs order is that referred to in para [64] above. However, on analysis, I do not think that the burden of the costs order can amount to a separate instance of prejudice. It seems to me that what I have said in para [65] above is sufficient to answer this point also.

Conclusions and orders

81 In my opinion, the challenges relied upon to support the application under s 42 fail.

82 It follows, from what I have just said in conjunction with the conclusion expressed in para [48] above, that the plaintiff has failed to sustain any of the challenges advanced by his further amended summons.

83 I therefore make the following orders:

(1) Order that the further amended summons be dismissed.

(2) Order the plaintiff to pay the defendants’ costs.
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Last Modified: 12/17/2003