Kyren P/L v Wunda Projects Australia P/L - [2008] SADC 161

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
KYREN P/L v WUNDA PROJECTS AUSTRALIA P/L
[2008] SADC 161
Reasons for Decision of His Honour Judge Clayton
24 November 2008
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES
ARBITRATION
Appeal from decision of District Court Master ordering trial of action by arbitration contrary to the wishes of one party.
HELD: The possibility of an expedited hearing did not justify referral to arbitrator against the wishes of an party. Additional expenses of arbitration provided reason to not order arbitration.
Supreme & District Court Civil Rules 2006 6R 292; District Court Act 1981 s 33, referred to.
Mayfield v Zadow and Zadow [2006] SADC 70 ; O'Brien Lovrinov Crafter Pty Ltd v Corradini (1999) SASC 159; Mac Audio & Anor v Eddy & Anor (1999) SASC 443 ; Honeywell Pty Ltd v Austral Motors Holdings Ltd (1980) QR 355; AT & NR Taylor and Sons Pty Ltd v Brival Pty Ltd (1982) VR 762; Park Rail Developments Pty Ltd v Pearce Associates Pty Ltd (1987) 8 NSWLR 123, considered.

KYREN P/L v WUNDA PROJECTS AUSTRALIA P/L
[2008] SADC 161

On 23 October 2008 Master Norman ordered that this action be determined by arbitration. Kyren Pty Ltd, the defendant, opposed the making of that order and has now appealed from that decision.
The plaintiff, Wunda Projects Australia Pty Ltd, is a building contractor. Kyren Pty Ltd is the owner and developer of land at North Terrace Adelaide. On 2 June 2006 the parties entered into a contract for Wunda Projects Australia Pty Ltd to carry out work on land known as the Palais Apartment Building. The action relates to that contract. Kyren Pty Ltd terminated the contract and had the work completed by another contractor. Wunda Projects Australia Pty Ltd claims an amount of approximately $1 million for the cost of work which it performed but for which it has not been paid. Kyren Pty Ltd counterclaims an amount of approximately $800,000 for damages for breach of contract.
This action was commenced on 19 March 2007. It has been keenly contested by the parties and there has been a great deal of interlocutory activity.
It is useful to have regard to some, but not all, of the history of the matter to put the present appeal into perspective. Wunda Projects Australia Pty Ltd claimed that it is suffering prejudice by reason of being kept out of the moneys which are owing to it and applied for an early trial. The Master accepted that there was urgency in resolving the dispute and on 25 March 2008 he referred the action to a listing conference. On 1 April 2008 the trial of the action was listed for 7 October 2008. At that time the estimated length of the trial was 14 days.
On 29 July 2008 Kyren Pty Ltd applied to vacate the trial date. On 22 August 2008 the Master refused the application but indicated his readiness to assist with the preparation for an urgent trial. Kyren Pty Ltd appealed from the Master’s refusal to vacate the trial date. On 12 September 2008 His Honour Judge Smith dismissed the appeal with the result that the proposed trial date of 7 October 2008 remained in place.
Then on 19 September 2008 the Master did vacate the trial listed for 7 October 2008. On 24 September 2008 the Master made orders with respect to the service of experts reports and amended pleadings and ordered "the action is to be listed for trial as soon as possible after 31 December 2008 and the parties are expected to be ready for trial". He fixed a listing conference for 25 September 2008 for priority listing as a 20 day trial.
On 1 October 2008 the plaintiff filed an application seeking an order that the action be listed for trial urgently or in the alternative that Mr Stephen Walsh QC be appointed arbitrator. That application was argued before the Master on 9 October 2008 and the Master's reasons for his decision advising that he proposed to make an order referring the matter to arbitration were posted to the parties on 23 October 2008. He fixed 27 October 2008 for a further directions hearing and to settle the minutes. Since that time the Master has worked with the parties to prepare the matter for a hearing. Some progress has been made in shortening the length of the hearing.
An appeal from the decision of a Master is by way of rehearing. Supreme and District Court Civil Rules 2006 6R 292. Subrule (3) provides that the court may draw inferences of fact from evidence taken at the original hearing and may in its discretion hear further evidence on a question of fact. In Lunn’s Civil Procedure the learned author states (6R292.1.5) that at common law an appeal by rehearing is a trial over again on the evidence used in the court below together with such additional evidence as may be received on the appeal with such a judgment as ought to be given on all of the evidence. I mention the nature of an appeal by rehearing because there have been some changes in facts between the time of the hearing before the Master and the present. It would make a mockery of the process if an appeal concerned with the manner in which an action should be tried was determined on outdated information. In Mayfield v Zadow and Zadow [2006] SADC 70 Judge Smith said:
The appellate Court in a rehearing is deciding the matter as at the time of the hearing of the appeal and so may have regard not only to the evidence adduced in the lower court, but also to any further relevant evidence.
In O'Brien Lovrinov Crafter Pty Ltd v Corradini (1999) SASC 159 Martin J was confronted with a case which was somewhat similar to the present. His Honour found the judge hearing an appeal from the Master fell into error in not treating the matter as a rehearing in which he was free to exercise his own discretion, without regard to the manner in which the Master had exercised the discretion. His Honour said:
The rule is quite plain. The judge may exercise the discretion without regard to the manner in which is exercised by the Master. The rule does not require the District Court judge to ignore the manner in which the Master exercised discretion.
In Mac Audio & Anor v Eddy & Anor (1999) SASC 443 the court made the following observation with respect to appeals to the Supreme Court from a magistrate.
This appeal is by way of rehearing and not by way of rehearing de novo: SCR 97.17. An appellate court is required to make an independent assessment of the material that was before the learned magistrate and may draw any inferences from the facts which may be appropriate: Warren v Coombes (1979) HCA; (1979) 142 CLR 531. An appellate court, hearing an appeal is not, however, entitled to substitute its own discretion for that of the magistrate in the court below unless an error in the exercise of the discretion can be detected: Mullet v Gabriel (1989) 52 SASR 330 at p 333. For this purpose there will be such an error where matters which should have been taken into account were not taken into account or where matters which would not have been taken into account were taken into account.
Section 33 of the District Court Act 1981 provides that the court may refer an action for trial by an arbitrator. Also r 221(1) provides that the court may on its own initiative or on application by a party appoint an arbitrator. Subrule (2) specifically states "the arbitrator is to be appointed if practicable with the agreement of the parties (but the agreement is not essential)". Accordingly there can be no doubt that the Master had the power to make the order which he did. The question which arises is whether the Master exercised his discretion correctly when he ordered that the action be referred to arbitration against the wishes of Kyren Pty Ltd.
In O'Brien Lovrinov Crafter Pty Ltd v Corradini Martin J said that where the parties do not consent to the appointment of an arbitrator the power should only be exercised where there is good reason why the court should not deal with the legal issues involved in the case. Martin J referred to Honeywell Pty Ltd v Austral Motors Holdings Ltd (1980) QR 355 where Campbell J, who was dealing with a similar situation, said:
In my opinion that discretion should rarely be exercised in the absence of consent of both parties. I think there is much force in the argument for the defendant that every person is as a general rule entitled to have his civil disputes tried and determined in a court of law and that the discretion to refer to arbitration should in the absence of consent be exercised only in cases of an exceptional nature.
Martin J also referred to AT & NR Taylor and Sons Pty Ltdv Brival Pty Ltd (1982) VR 762 and Park Rail Developments Pty Ltd v Pearce Associates Pty Ltd (1987) 8 NSWLR 123 where the same principle was acknowledged. In allowing the appeal against the order to refer the action to arbitration Martin J said:
30. While I appreciate the point made that courts in recent times more amenable to referring matters to an arbitrator, it seems to me at the least, a party is entitled to have the court determine the relevant issues such as these unless good reason exists to direct otherwise. In expressing the matter in this way, I am not endeavouring to enunciate a definitive principle. In my opinion good reason to direct otherwise has not been established with respect to the particular issues that the appellant wishes to be determined by a court. It also appears that those issues have the potential to impact upon the other question as to whether there is then a failure to comply with section 23.
31. In all the circumstances, in my opinion the Master erred in directing that the particular issues of whether there was a contract in existence between the parties and, if so, what the terms of the contract were, be referred to an arbitrator. Even if it could not strictly be said that he erred, in the exercise of my discretion I would allow the appeal. The appellant is entitled to have the issues determined by a court and those issues are better suited for determination by a court.
O'Brien Lovrinov Crafter Pty Ltd can be distinguished on the basis that the issues that had been referred to arbitration related to the existence and terms of the contract and were strictly legal issues. The nominated arbitrator was not a legal practitioner but a very experienced and respected arbitrator with a building background.
In his reasons the Master referred to the decisions in Park Rail Developments Pty Ltd v Pearce and O'Brien Lovrinov Crafter Pty Ltd. He correctly identified the principles to be applied. The ultimate conclusion of the Master was:
66. Taking all these matters into account, I am satisfied, in the exceptional circumstances of this case, that it is appropriate to have the matter determined by arbitration. The delay until trial in the present circumstances, even an expedited trial, is excessive in my view. The extra expense will be offset by the matter being resolved promptly. Whilst the party should in the ordinary course be entitled to have the court determine relevant legal issues, in this instance there is good reason to direct otherwise.
In my opinion the Master erred in deciding that the delay provided good reason for the court to direct that there be an arbitration instead of a determination by the court in the ordinary course. I also find that the Master erred in finding that the extra expense would be offset by the matter being resolved promptly. There was no evidence of the way in which the extra expense would be offset.
So far as the delay is concerned the matter was not ready for trial on the proposed trial date of 7 October 2008 and was probably not ready for trial at the time the Master made his order referring the matter to arbitration. I do not know whether the action is even ready for trial at the present moment. I accept that the parties are using their best endeavours to prepare the action for trial but for present purposes the relevant delay will not commence until such time as the action is ready for trial. The parties cannot complain of delay in the determination of their dispute until such time as they are themselves ready for trial.
There is an issue as the likely length of the trial. The plaintiff asserts that the trial will take 14 days. Mr Walsh QC is able to conduct an arbitration in February 2009. The court can hear a 14 day trial starting on 6 April 2009.
In my opinion the benefit of a reduction in the delay of two months gained by starting an arbitration in February rather than a court hearing in April is not a sufficient reason to order an arbitration against the wishes of one of the parties. Even if the court could not have commenced the hearing until August I would not have regarded that as a sufficient reason to order an arbitration in lieu of a court hearing. The question of delay must be considered in the overall context of the building contract and the court proceedings.
One of the reasons why the action was taken out of the trial list for 7 October 2008 was the delay in the preparation of expert reports. It would appear that both parties had played a part in the reports not being ready.
So far as the additional costs are concerned they do in my opinion provide good reason for not referring the matter to arbitration. In round figures the plaintiff's claim is for $1 million and the defendant's counterclaim is for $800,000. The Master had proceeded on the basis that the additional costs of an arbitration over the cost of a court hearing might be in the order of $200,000 plus GST (paragraph 62). That was based on the arbitrator spending one week in preparation five weeks at the hearing and at least two weeks writing the award. In my opinion the possibility of additional costs of $200,000 plus GST did provide a compelling reason why the matter should not have been referred to arbitration against the wishes of one of the parties. Those costs are the additional costs of the arbitrator and the arbitration itself and do not include the costs of the parties.
In my opinion the fact that the result might be expedited by an arbitration did not warrant additional costs of that magnitude. As I have said the period by which the determination of the matter might be expedited by an arbitration must be considered in the light of the contract and the action overall.
Even if the additional costs of the arbitration above a court hearing were reduced to the vicinity of $80,000 - $90,000, as they now might be, I would regard additional costs of that magnitude as a reason for not referring the matter to arbitration.
For these reasons I would allow the appeal. However I should make observations as to some of the matters that were raised on the appeal.
The Master identified certain matters which he said would be relevant considerations. The first was the suitability of the issues for determination by an arbitrator and the second was the availability of a suitable arbitrator. In my opinion the satisfaction of those requirements did not mean that the matter should be referred to arbitration. They are important pre-requisites which must be satisfied before an arbitration can be considered but do not by themselves constitute a reason to order an arbitration.
I digress to mention a matter raised by the appeal but which was eventually not argued. The proposed arbitrator is a Queens Counsel and a very experienced arbitrator. There could be no doubt as to the suitability of the proposed arbitrator if the matter did proceed to arbitration.
The third consideration identified by the Master was the delay before the court could hear and determine the matter. That could be a relevant consideration, but I have already dealt with that.
The fourth consideration was how quickly a suitable arbitrator could hear and determine the matter. I have dealt with that.
The fifth consideration was the prejudice that the parties will suffer by any delay. Prejudice is a matter that must always be taken into account. However, as I have mentioned the relevant "delay" would not commence to run until the action is ready for trial. As I have said it is not appropriate to talk about a delay if the parties are not ready for trial. A court hearing can commence within about two months of the proposed date for the arbitration. I do not regard two months as a significant delay having regard to the time that this building contract and this court action have been on foot.
The sixth consideration was whether the reference would occasion additional costs or save costs. This is a relevant consideration which I have already discussed.
The seventh consideration identified by the Master related to the terms of reference. It is unnecessary for me to discuss this.
After identifying the contentions of the parties the Master then identified factors which he had considered in coming to his determination. Factors 1, 2 and 3 related to the suitability of the dispute for determination by an arbitrator, the suitability of the arbitrator and the proposed commencement date. As I have said those factors are pre-requisites to referring a dispute to arbitration, but by themselves do not provide any reason for ordering an arbitration against the wishes of a party.
The fourth factor taken into account by the Master was the delay. I have already said that in my opinion the likely additional delay of about two months between the likely commencement of an arbitration and the commencement of a trial did not give rise to exceptional circumstances such as to order an arbitration against the opposition of one of the parties.
The fifth factor was the prejudice the plaintiff will suffer if the matter is delayed. That prejudice will be minimised if the delay is the delay of about two months which I have assumed. In any event the prejudice claimed by the plaintiff is the same prejudice suffered by any plaintiff who is kept out of its money whilst awaiting trial. The sixth factor identified by the Master was that the delay would also affect the defendant. Similar considerations apply. An award of interest in favour of the successful party should reduce the prejudice.
The seventh factor referred to by the Master was that although the reference to arbitration would occasion additional costs, he was not satisfied that they would be significant in the context of the issues in dispute. In my opinion the Master fell into error in reaching that conclusion. I have already stated my reasons for that opinion.
The eighth factor related to difficulties which may arise if the trial "runs over" time. In my opinion there was no basis for the Master to assume that the trial judge would, at the expiration of the estimated time, be already rostered to undertake other work. The general practice of the court is to continue and complete part heard cases if possible. There is a possibility that an arbitration might "run over" in the same way that a court hearing might. Often it is not the availability of the trial judge to complete a matter which causes a trial to be adjourned off part heard, but the availability of counsel or witnesses or some other reason. In any event I do not regard the possibility that the trial may "run over" as a reason for ordering an arbitration in preference to a court hearing against the wishes of a party.
In his ninth factor the Master took into account the observations of Smart J in Park Rail Developments. The Master noted that despite the best will of the courts in organising and trying to streamline hearings, in cases of complexity, and particularly construction cases, the hearings can be lengthy. The Master commented that many contractors, sub contractors and contractors have limited financial resources and need the money claimed to survive financially or carry on or develop their businesses in the normal way. The Master said he had regard to the observation of Smart J that arbitrations and references usually take place promptly so the parties are not encumbered with the cost of proceedings extending over time awaiting hearing. Those observations are a generalisation. It is more important to have regard to the particular circumstances of the present case. In my opinion the Master fell into error in taking those general observations into account.

The tenth factor taken into account by the Master was the observation of Smart J that although a hearing before an arbitrator may be more expensive and there will likely be increased transcript costs and room hire costs, in the overall context of legal fees and expert consultants, often these extra expenses are not significant. Again that statement is a generalisation. I have already found that the extra expenses involved in an arbitration would be significant in this case and did provide a reason for not ordering an arbitration against the wishes of Kyren Pty Ltd.
The eleventh factor taken into account by the Master was that witnesses involved in the construction industry often move around in other jobs and become unavailable. If correct that would be the case whether the dispute was determined by arbitration or a court hearing. In my opinion the Master erred in taking that factor into account.
The twelfth factor that the Master took into account was "that as time passes by the work undertaken by witnesses on various jobs tends to merge and memories become less distinct and reliable". The same consideration applies equally to arbitrations and court hearings. Hopefully competent solicitors will proof witnesses which may be a part answer to the fading memory problem. The Master concluded his discussion of this factor with the observation that it was particularly important that the case be heard as soon as possible. One cannot quarrel with that observation, but fading with his memories in the context of a further delay of about two months in an overall period of almost three years since the contract was performed was not in my opinion sufficient reason to order an arbitration against the wishes of one of the parties.
Finally the Master took into account that one of the reasons for the delay which led to the adjournment of the trial was the fact that the defendants experts had not completed their reports. If the Master ordered an arbitration against the wishes of the defendant as punishment for the defendant's tardiness in obtaining expert reports he fell into error. Also, it was argued before me that the defendants reports were late because of the late delivery of the plaintiff's expert reports. For present purposes it is unnecessary for me to determine the rights and wrongs of that debate. The delay in the provision of the experts reports was not a reason for ordering an arbitration against the wishes of Kyren Pty Ltd.
In my opinion there were no exceptional circumstances which justified a departure from the general rule that an arbitration should not be ordered against the wishes of one of the parties. Also, I think that the additional costs that will be involved in an arbitration provided a reason for not making an order.
The appeal will be allowed.
I order that the trial of the action be fixed for 6 April 2009.