Koolan Iron Ore Pty Ltd v Rizhao Steel Holding Group Co Ltd - [2010] WASC 384

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: KOOLAN IRON ORE PTY LTD -v- RIZHAO STEEL HOLDING GROUP CO LTD [2010] WASC 384

CORAM: KENNETH MARTIN J

HEARD: 3 NOVEMBER 2009

DELIVERED : 3 NOVEMBER 2010

PUBLISHED : 16 DECEMBER 2010

FILE NO/S: ARB 18 of 2010

BETWEEN: KOOLAN IRON ORE PTY LTD
Plaintiff
AND
RIZHAO STEEL HOLDING GROUP CO LTD
Defendant

FILE NO/S :ARB 19 of 2010

BETWEEN :MOUNT GIBSON MINING LTD
Plaintiff
AND
RIZHAO STEEL HOLDING GROUP LTD
Defendant

Catchwords:

Applications to register two arbitral awards - Enforcement of awards as judgments of court - Pending applications for leave to appeal against only part of substantial arbitral damages awards - Registration appropriate

Legislation:

Commercial Arbitration Act 1985 (WA)

Result:

Applications granted

Category: B

Representation:

ARB 18 of 2010

Counsel:

Plaintiff: Mr B A Coles QC & Mr K J Mony de Kerloy
Defendant: Mr F M Douglas QC & Mr S K Dharmananda

Solicitors:

Plaintiff: Freehills
Defendant: Halman Fenwick Willan

ARB 19 of 2010

Counsel:

Plaintiff: Mr B A Coles QC & Mr K J Mony de Kerloy
Defendant: Mr F M Douglas QC & Mr S K Dharmananda

Solicitors:

Plaintiff: Freehills
Defendant: Halman Fenwick Willan

Case(s) referred to in judgment(s):

Cockatoo Dockyard Pty Ltd v Commonwealth of Australia (No 3) (1994) 35 NSWLR 689
Quadwest v Thi [2009] WASC 54

KENNETH MARTIN J:
(These reasons were delivered orally and have been edited from the transcript. For convenience, this decision, as part of a series of ex tempore decisions for decision, will be referred to as 'Rizhao 2'.)
These are my reasons for decision in respect of the applications brought by the plaintiff in each of these matters, namely ARB 18 of 2010, Koolan Iron Ore Pty Ltd v Rizhao Steel Holding Group Co Ltd and ARB 19 of 2010, Mount Gibson Mining Ltd v Rizhao Steeling Holding Group Co Ltd, seeking to enforce arbitral awards pursuant to s 33 of the Commercial Arbitration Act 1985 (WA).
I refer for convenience mainly to the Koolan Iron matter and the application by originating summons therein of the plaintiff (Koolan Iron) seeking leave pursuant to s 33 to enforce an arbitral award of the Hon Murray Gleeson AC QC made 16 August 2010, as a judgment of this Court.
A like application is, as I have indicated, made in the Mount Gibson matter, ARB 19 of 2010, in respect of a second award by the same arbitrator made on the same date. Both awards were made against the defendant (Rizhao).
Section 33 of the Commercial Arbitration Act provides that an award made under an arbitration agreement may, by leave of the Court, be enforced in the same manner as a judgment or order of the Court to the same effect, and where leave is so given, judgment may be entered in terms of the award.
It is clear on the authorities that the issue of leave is a matter for the discretion of the Court. But any grant of leave in respect of enforcement by reference to s 33, is to be exercised judicially.
In the task I am guided first by observations found in a well accepted line of case authority that commences with observations of Rolfe J in the New South Wales Supreme Court, in Cockatoo Dockyard Pty Ltd v Commonwealth of Australia (No 3) (1994) 35 NSWLR 689.
The provisions of the Commercial Arbitration Act New South Wales are essentially on all fours with the West Australian Commercial Arbitration Act. In Cockatoo Dockyard, at page 695 – 696, Rolfe J said:
Prima facie, … a party with the benefit of an award can seek to enforce it by resort to s 33. It is necessary for a party resisting an order under s 33 to establish a reason why the award should not be enforced. A reason may be that the Court considers the award is arguably vitiated by appealable error, or by other circumstances making it susceptible of being set aside in accordance with a provision of the Act. In other words it may well be an appropriate exercise of the Court's discretion not to grant leave if an application for leave to appeal is on foot or if an application has been made to set aside the award, for example, on the ground of misconduct. However unless an attempt is being made to have the award set aside I have difficulty envisaging other circumstances in which the discretion can be exercised. Certainly I do not regard s 33 as a 'back door' method of appealing against an award in so far as it constitutes a decision by the arbitrator how he should exercise his discretion. The discretion given does not include, in my opinion, an ability to re-visit the way in which the arbitrator exercised his discretion where, otherwise, his discretion is not subject to attack in accordance with the Act. A contrary conclusion would, I believe, be totally at odds with the obvious intention and philosophy of the Act.
Rizhao, in fact, has commenced proceedings in the Supreme Court of Western Australia (being GDA 16 of 2010 in the case of Koolan Iron and then GDA 17 of 2010 in the case of Mount Gibson) seeking leave to appeal against both arbitral awards. Those matters (the leave applications only) have been set down for determination before me on Tuesday, 16 November 2010.
Furthermore, the respondents to Rizhao's applications seeking leave to appeal the Arbitrator's awards ‑ have brought therein, their own interim applications ‑ seeking security for costs but, as well, seeking the substantive payment into court of all components of the arbitral awards of the Arbitrator in both the Koolan Iron and the Mount Gibson matters (an amount, aggregating both awards, of just over US$114 million). Those interim applications, in each appeal, are to be determined before me tomorrow (see Rizhao 3).
In the circumstances, therefore, a challenge by Rizhao to the two arbitral awards, on the basis of pending applications seeking leave to appeal, as criteria necessary identified by Rolfe J in the Cockatoo Dockyard case, is met.
(I should say that the GDA matter 16 of 2010 has now been renumbered as ARB 24 of 2010. The other GDA matter concerning Mount Gibson will shortly be renumbered by an ARB number.)
The key question then, in terms of the exercise of my discretion to allow registration of both awards against Rizhao under s 33, must be assessed in a number of contexts. Perhaps at the forefront of that consideration are the terms of Iron Ore Supply Agreements containing the parties' arrangements for submission of their disputes to arbitration. In the case of Koolan Iron that is the Haematite Supply Agreement of 5 June 2007.
Dispute resolution provisions in both Iron Ore Supply Agreements are found at cl 20. I have already had occasion at a previous hearing to deal with aspects of the Iron Ore Supply Agreements concerning Koolan Iron and Mount Gibson, in particular by cl 21.7. That subclause provides for a choice of law and choice of jurisdiction, as follows:
This agreement is governed by the laws in force in Western Australia and where applicable the Commonwealth of Australia. The parties submit to the exclusive jurisdiction of the Courts of Western Australia and any courts that may hear appeals therefrom in respect of any proceedings in connection with this agreement.
I observe in respect of the history of both these applications to register under s 33, that there were initially filed on behalf of Rizhao, conditional appearances – that raised the validity of service by facsimile upon Rizhao of notice of this originating process issued out of the Supreme Court of Western Australia, upon Rizhao in the People's Republic of China – to where the facsimile was transmitted from Australia.
I have dealt at prior hearings (see Rizhao 1) with the service validity issues ‑ essentially a challenge against service, or the grant of leave to serve out of the jurisdiction. However, all service validity issues have now been consensually resolved and so, are no longer relevant. By a minute of proposed consent orders signed off by me yesterday, the parties have reached agreement that Rizhao's applications to set aside service, alternatively to revoke leave to serve out of the jurisdiction, made under its summons of 20 September 2010, be dismissed with no orders as to costs. I made orders in those terms, on the papers.
So Rizhao has now filed unconditional appearances in both ARB matters, constituting an unequivocal submission to the jurisdiction of the Supreme Court of Western Australia and obviating any formerly problematic issues as to the regularity of service of these proceedings seeking orders under s 33.
I return to the Iron Ore Supply Agreements provisions concerning dispute resolution. These obviously played an important part in supporting each of the arbitral awards. My attention has been drawn to the provisions of subcl 20.6(a) and 20.7 which are in these terms. Under the heading 20.6, Arbitration Award Final:
(a)any arbitral award shall be binding and final on the parties; (b) the parties shall carry out any arbitral award without delay..........made in accordance with this agreement.
Subclause 20.7 provides:
Judgment on the award rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of the award and an order for enforcement.
The evidence before me in each matter (ie ARB 18 and 19 of 2010) comprises affidavits sworn by Elizabeth Eileen Macknay on 26 August 2010. It is sufficient for me to refer just to Ms Macknay's affidavit sworn in the Koolan Iron proceedings, ARB 18.
Ms Macknay appends to her affidavit the Iron Ore Supply Agreement, the Reasoned Award of the Arbitrator and as well, a letter at page 138 of that affidavit, essentially demanding payment from Rizhao in respect of the amount awarded pursuant to the learned Arbitrator's award of 16 August 2010.
The evidence before me today is that the award amounts together, in excess of US$114 million, presently remain wholly unmet.
No evidence was relied upon by Rizhao in resisting today's applications. Its submission was that today I ought not make any orders, in the exercise of discretion under s 33 ‑ on the basis that this would be an inappropriate exercise of discretion at this time, bearing in mind the pendency of Rizhao's undetermined applications for leave to appeal ‑ listed for 16 November 2010. It is submitted by Rizhao that it would be more appropriate to simply allow the hearings seeking leave to appeal to run their course, and then, depending upon the outcome, to then decide the issue of discretion by reference to s 33.
On the other hand, the plaintiffs invoke the observations of Rolfe J in Cockatoo Dockyard, to which I referred, submitting the significance of parties agreeing to submit to an external determination of their disputes outside court, and then their agreement to abide the outcome of any external determination ‑ as an important policy consideration which the court should respect.
It is emphasised that Rolfe J observed that the application for leave to register under s 33, should not be allowed to become a 'back door' method of seeking to challenge an arbitral award.

Resolution

In present circumstances, I am of the view that I should at this time affirmatively exercise the discretion I hold to allow enforcement of the arbitral awards under s 33 and then to make orders as sought in accordance with the plaintiff's minutes in ARB 18 and 19 of 2010.
It seems to me first, that whilst acknowledging that there are indeed unresolved applications for leave to appeal on foot by Rizhao, as against both awards, these applications for leave to appeal do not challenge the entirety of the monetary arbitral awards. The two awards, in aggregate, against Rizhao approach together, US$114 million. But from materials filed, the argued points of law that Rizhao will seek to raise by leave (if granted) challenge only some of the learned Arbitrator's damages conclusions ‑ reached in terms of the level of amounts of loss of bargain damages awarded against Rizhao for breach of contract ‑ in each arbitration.
Without attempting absolute numerical precision, it appears that in respect of an overall aggregate exposure of US$114 million, that only about US$40 million, or just over one‑third of both damages awards (I am speaking the total of both awards) is the subject of Rizhao's potential challenge, assuming leave to appeal were to be granted, and then further assuming that following appeals are upheld upon Rizhao's challenges. Only to that limited extent then, of about US$40 million, would the damages awards made against Rizhao by the learned Arbitrator be potentially revised, downwards.
That to my mind I think is a powerful and distinguishing situation here ‑ in terms of contrast with other cases ‑ where the entirety of an arbitral award is under potential challenge. It seems then that on this basis, even the attaining of ultimate success for Rizhao on its leave to appeal challenges ‑ will not detract from a subsistence of a substantial monetary damages award exposure in Rizhao to these plaintiffs, Koolan Iron and Mount Gibson ‑ in the order of some US$70 million.
The submissions of senior counsel for the plaintiffs, refer to the provisions in the Supply Agreements, in particular subcl 20.6 and 20.7, to which reference has been made. This was in a context of considerations relevant to the exercise of the discretion under s 33, by reference to a court forming, on occasion where appropriate, some sort of preliminary assessment as to the overall potential merits of either a mooted or actual application for leave to appeal challenge; in other words, as to the potential merits of the asserted error(s) of law challenges sought to be run.
There are observations by Master Sanderson in a decision in this Court Quadwest v Thi [2009] WASC 54 delivered on 17 March 2009, suggesting that it may be a difficult task for a court to form too reliable a preliminary view about the strength of challenges to lengthy arbitral decision – in evaluating or seeking to evaluate the potential merits of a foreshadowed application for leave to appeal against an arbitral award. Those observations, see [15] and [17] in Master Sanderson's reasons, seem here to be particularly apposite to present circumstances, in my view.
In the present case, I must also be cautious at this point in terms of evaluating the plaintiffs foreshadowed arguments that the effect of cl 20.6(b) and 20.7 can constitute, for the purposes of the Commercial Arbitration Act, by s 40 ‑ some sort of 'lockout' against Rizhao's applications for leave to appeal - on the basis that those provisions, read together, constitute an 'exclusion agreement' against curial challenge - as referred to by s 40(1) of the Commercial Arbitration Act.
As to that, these are issues about which I have not yet heard full argument, in terms of any interrelationship as between s 40 and s 41 of that Act and to the question of whether or not this may be a dispute arising out of a 'Commodity Contract', as defined in s 41(2) of the Act. Those questions all seem to me to be matters ripe for future consideration and determination on another day.
Here and now, is difficult in terms of me making any preliminary assessment as to the merits of Rizhao's leave applications. I can do no more than observe that they have been regularly filed and so, will be determined in due course, on the basis of arguments yet to be heard between the parties. So that aspect of the submissions by the plaintiffs (as to lack of potential merit) does not constitute a significant component of my decision today ‑ in terms of me assessing now, the potential merits of Rizhao's applications for leave ‑ in a context of the applications to enforce the arbitral awards in accordance with s 33. I, in effect, defer all those questions to another day.
But another consideration influencing my conclusion today, and bearing in mind the Rizhao pending challenge is to only part of the total amount of the awards, is that nothing I have said today prevents or locks out a potential application on behalf of Rizhao to seek a stay of the enforcement of the awards as entered and registered under s 33. That would be on a basis of an application for a stay by Rizhao properly made. Such a stay application has not yet been made by Rizhao, but may occur. It would, at that time, need to be determined in accordance with the orthodox principles governing stay applications. That path towards a stay, or partial stay, seems to me to be a potential remedy open and available, in appropriate circumstances, to Rizhao to pursue, notwithstanding my decision today to give leave to the plaintiffs to enforce and register their awards under s 33.
I am satisfied by reference to the plaintiffs' fulfilment of requirements under s 33 and O 81D of the Rules of the Supreme Court 1971 (WA), in terms of the material required to support registration of the awards, that it is an appropriate case to grant leave under s 33 in each application.
I make orders accordingly to that effect, on both matters.