Minister for Industrial Affairs v Civil Tech P/L No. Scgrg-98-615 Judgment No. S22

MINISTER FOR INDUSTRIAL AFFAIRS V CIVIL TECH PTY LTD AND TOZER
[1999] SASC 22

Civil

DEBELLE J. This is an application to remove an arbitrator on the grounds of misconduct, incompetence and unsuitability. In the alternative, the plaintiff, the Minister for Industrial Affairs, seeks an order that the arbitrator is bound by the decision of the Full Court delivered in this matter on 26 February 1998.
On 18 September 1990 the Minister entered into a contract with the first defendant, Civil Tech Pty Ltd (“Civil Tech”), for the construction and installation of four underwater pipes at West Beach. The contract was called “the West Beach Marine Research Laboratory - Sea Water Intake - Contract”. The general conditions of contract were what is known as National Public Works Contract (NPWC), edition 3 (1981). Clause 45 of the contract contained an arbitration agreement.
Disputes arose between the Minister and Civil Tech relating to the entitlements of Civil Tech under the contract. The disputes were referred to arbitration. The arbitration commenced on 1 February 1995 when a preliminary conference was held. The hearing of the respective claims and counterclaims did not begin until 23 September 1996.
On 25 November 1996, the arbitrator delivered an interim award concerning the issue whether Civil Tech was bound by a document called “the letter of release” dated 14 February 1992. That letter had been executed by both parties in the course of the construction of the works. By that letter Civil Tech had agreed to accept a payment of $343,440 in full settlement of its claim for removal of certain obstructions which had been encountered in the work and for consequential delays and had released the Minister from its claims. The arbitrator decided that the letter of release was voidable on several grounds, namely, economic duress, unconscionability and absence of accord and satisfaction. In his reasons the arbitrator also found that the letter of release was voidable on the grounds of common mistake and misrepresentation, grounds which had not been pleaded by Civil Tech.
The Minister sought leave to appeal from the interim award. Leave to appeal was refused. The Minister then obtained from the Full Court leave to appeal from the decision refusing leave to appeal. Pursuant to that leave, the Minister then applied to the Full Court for leave to appeal against the interim award. On 26 February 1998, the Full Court allowed the appeal against the decision refusing leave to appeal and also allowed the appeal against the interim award. The Full Court comprised the Chief Justice, Lander and Bleby JJ. The Chief Justice and Lander J agreed with the reasons of Bleby J. I will refer to those reasons as the reasons of Bleby J. It is necessary to examine them in a little detail.
The Full Court examined the manner in which the issues before the arbitrator had been pleaded. The letter of release had been raised by the Minister in his defence. In its reply, Civil Tech raised a number of pleas against the letter of release including a challenge to the validity of the letter on several grounds including the absence of accord and satisfaction, duress, unconscionability, waiver and estoppel, grounds which were in large part upheld by the arbitrator. The Minister rejoined by alleging that Civil Tech was estopped on the ground that it had not challenged the validity of the letter before it had filed its reply, that the Minister had paid the amount referred to in the letter, and to that extent had acted to his detriment. The Full Court called this plea of estoppel “the affirmation plea”.
As the Full Court noted, the arbitrator had found that Civil Tech was not bound by the letter of release on several grounds. It held that, in the absence of the affirmation plea, any one of those grounds, if justified, would support the award. The Court then held that there was consideration for the letter of release and that the decision of the arbitrator to the contrary was a manifest error of law. The Court went on to examine the issue of unconscionability and held that the arbitrator had not erred in finding that Civil Tech was in a special situation of disadvantage so that the letter of release could be set aside as unconscionable. The Court then noted that the letter of release could be set aside on the ground of unconscionability or indeed any of the other grounds only if the affirmation plea failed, for, if it succeeded, it effectively eliminated any remedy that Civil Tech might have based on unconscionability or on any of the other grounds. As the arbitrator had not addressed that issue, the Court remitted the award to him for reconsideration in the light of any determination which he might make concerning the affirmation plea, which in the order of this court, is called “the claim of estoppel”. Thus, as the Full Court explained, the task for the arbitrator was to make the necessary findings of fact on the question raised by the claim of estoppel and then decide the question according to law. It is open to the arbitrator to uphold or dismiss the plea depending on the facts as found and the law to be applied.
Upon the matter being remitted to the arbitrator, a telephone conference was held on 25 March to appoint further dates for hearing. The conference was conducted by telephone because the arbitrator resides in Sydney. At that conference both parties expressed the view that they wished to make further submissions before the arbitrator reconsidered his interim award. In addition, Mr Floreani, counsel for Civil Tech, submitted that it was open to Civil Tech to argue that the letter of release was void on the ground of common mistake. The submission was opposed by Mr Meyer, counsel for the Minister.
Another telephone conference was held on 2 April 1998. At that conference Mr Meyer submitted that the Full Court had dealt with the issue of common mistake so that the arbitrator was bound by the decision insofar as the Full Court had held, he submitted, that the letter of release was voidable but not void on the ground of common mistake. Mr Floreani submitted that the Full Court’s remarks on this issue were obiter dicta and that the decision had not dealt with common mistake. During the conference there was also discussion as to the options available to the parties to determine this issue. Those options included an application to the Full Court for a clarification of its reasons or, alternatively, seeking a ruling from the arbitrator which might then be appealed. Mr Meyer sought an opportunity to seek instructions and the conference was adjourned to 7 April.
By a letter dated 6 April 1998 the Crown Solicitor, who was the solicitor for the Minister, wrote to the arbitrator seeking a ruling on the question whether he considered himself bound by the decision of the Full Court that the letter of release was voidable and not void. In that letter the Crown Solicitor said that the Full Court had specifically dealt with the issue of common mistake, had held that this ground would do no more than render the letter of release voidable, so that the letter was capable of being affirmed. A copy of the letter was sent to the solicitors for Civil Tech.
At the telephone conference on 7 April 1998 the arbitrator asked Mr Floreani for his view on the question whether the Full Court had decided whether the letter of release was void or voidable. Mr Floreani submitted that the Full Court’s remarks that the letter was voidable on the grounds of common mistake were obiter dicta. The arbitrator expressed the view that, although he was minded to adopt the same view, he was disinclined to rule on the issue. The question of making an application to the Full Court to seek its clarification was again discussed. However, Mr Meyer asked the arbitrator to rule on the question.
By a letter dated 8 April 1998 to the arbitrator the Crown Solicitor stated that, if an application were made to the Full Court, the Minister’s position was that the judgment and orders of the Full Court were not so unclear as to require any clarification and the arbitrator should rule on the question. A copy of the letter was sent to the solicitors for Civil Tech.
The arbitrator replied by a letter dated 9 April 1998. Given the nature of the Minister’s application, it is necessary to set out the whole of the arbitrator’s reply.
“Following the tele-conference with the parties on 2 April 1998, the Respondent sought a ruling from the Arbitrator “as to whether or not he considers himself bound by the Full Court’s decision in so far as the Full Court found that the letter of release is voidable only, as opposed to void”.
During a subsequent tele-conference on the 7 April 1998, the Arbitrator indicated that he was disinclined to make that ruling without hearing the submissions of the parties on the issue which had been remitted to him by the Full Court for reconsideration. It was suggested by Mr Floreani that to make the ruling prior to the submissions would be a “denial of natural justice”.
Further to that tele-conference, it has become apparent following the facsimile letter from the respondent dated 8 April 1998, that I should make a ruling on this matter.
I consider that I am bound by the Order (No. 2293 of 1996) of the Full Court. That order requires me to consider and make a determination on the claim of estoppel set out as issue No.5 in the Interim Award.
In considering the Appeal by the Respondent in these proceedings, the Full Court handed down a judgement which held that the Arbitrator was obliged to consider the “affirmation plea” and that the failure to do so constituted an error of law on the face of the award.
The Full Court has ordered that I be provided with a copy of that judgment in which it expressed its opinion on the various questions of law which were the subject of the Appeal.
I consider that I am not bound to follow the opinion of the Full Court as to whether ‘the letter of release is voidable only as opposed to void’ as expressed at page 15 in the judgement on the Appeal, but will carefully consider that opinion in complying with the Order of the Full Court.
To assist me in reconsidering the Interim Award, I have agreed to hear further submissions from the parties on the estoppel points raised by the Respondent and set out as issue No. 5 of the Interim Award. The points of law to be raised in those submissions is a matter for the parties. However, Counsel should be prepared to argue the relevance of any written submissions provided to me on this affirmation plea.
As tentatively agreed with the parties, the hearing will take place in Adelaide on Friday 1st May 1998. The hearing will be limited to one day and the oral submissions by each party should be limited to no more than two hours.
Please acknowledge your receipt of this letter and your agreement to these arrangements within 7 days.”

The solicitors for Civil Tech were concerned that the arbitrator had not correctly understood one of its submissions. By a letter dated 16 April 1998 they wrote clarifying the submission made by Mr Floreani. It is again necessary to quote the letter.

“We refer to your letter dated 9 April 1998.
We agree to the proposed arrangements outlined in that letter.
We wish to clarify for the record, however, that paragraph 2 of your letter is not entirely correct insofar as it records a submission by Mr Floreani concerning a denial of natural justice.
It is our recollection that Mr Floreani submitted that a restriction on the jurisdiction of the arbitrator and a consequent restriction upon Civil Tech Pty Ltd from making submissions concerning whether the letter of release could be void on the grounds of common mistake would be a denial of natural justice.
Unfortunately, Mr Floreani is no longer available on 1 May 1998. Could the hearing be re-scheduled for the following week?”

The Minister’s response was to issue this application.

The Minister seeks the following orders -
1...... An order under s44 of the Commercial Arbitration Act (“the Act”) that the arbitrator be removed as arbitrator in this arbitration.
2. An order under s42 of the Act that the interim award be set aside.
3. An order under s36 of the Act for the costs of the arbitrator.
4...... In the alternative a declaration the arbitrator is bound by the decision of the Full Court.
4. Costs.

The protagonists in this application were the Minister and Civil Tech. The arbitrator indicated that he would abide the order of the court.

Central to the submissions of the Minister that the arbitrator should removed was the contention that the arbitrator was not willing to follow the opinion of the Full Court on the question whether the letter of release was voidable only as opposed to being void. The Minister fastens on the words which have been italicised in the arbitrator’s letter of 9 April 1998. At page 15 of its reasons the Full Court had said :
“All the other grounds, if valid, would merely render the agreement voidable at the option of the respondent. There may have been, at one time, a category of common mistake which would render a contract void, but that seems unlikely to have survived, at least in Australia: Taylor v Johnson (1983) 151 CLR 422. Thus, all the remaining grounds would rely on equitable principles for the avoidance or setting aside of the contract, and the grounds which would be liable to be defeated if the affirmation plea were successful.”

The Minister contends that the effect of the reasons of the Full Court is to exclude any possibility that common mistake would render the contract void. He says that is apparent from the reasons of the Full Court which then follow concerning the affirmation plea. At page 19 the Full Court said :

“Having held that the discharge agreement could be set aside on that ground, or indeed on any of the other grounds, the arbitrator was obliged to consider the affirmation plea, for, if it succeeded, that effectively eliminated any remedy that the respondent might have had based on unconscionability or on any of the other grounds. A proper consideration of that plea would have entailed making appropriate findings of fact in applying the relevant principles of law to them.
However, the arbitrator does not appear to have addressed the question at all.”

The Minister submits that the Court has held that common mistake does not render a contract void, that the arbitrator has said in his letter that he is not bound to follow the Full Court’s decision on that issue, and that the arbitrator’s attitude as communicated in the letter constitutes misconduct.

I think the Minister reads too much into the letter of the arbitrator. The arbitrator had been pressed by Mr Floreani to consider the issue of common mistake. Mr Floreani contended that the Full Court had not decided that issue. The effect of the arbitrator’s letter is to accede to his submission. Unfortunately, the arbitrator has not expressed his conclusion in the most felicitous terms. Instead of stating that the Full Court’s comments on the issue were obiter dicta, he has said that he is not bound to follow the Court’s opinion on that issue. The arbitrator has erred in reaching that conclusion, but an error of law does not constitute misconduct: Friend and Brooker Pty Ltd v Eurobodalla Shire Council (unreported, NSW Supreme Court, 30 June 1991, Brownie J), Forsayth NL v Australasian Gold Mines NL (No.1) (1992) 7 WAR 549; Consolidated Construction Pty Ltd v Saipem Australia Pty Ltd (unreported, 3 October, 1997, Supreme Court of WA - Wheeler J).
Further, there is nothing which suggests that the arbitrator does not consider himself generally bound by the Full Court’s decision. Immediately after he has expressed his conclusion that the Court’s remarks concerning the effect of common mistake were obiter dicta, he adds that he will carefully consider the Court’s opinion on that issue. In addition, the arbitrator had at an earlier point in his letter expressed the view that he was bound by the Full Court’s decision.
The arbitrator might also have been troubled by the manner in which the Full Court expressed itself. With respect, the use of the expression “seems unlikely to have survived” is capable of creating in the mind of the lay reader the impression that the matter is not beyond argument. It would have been preferable if the Full Court had said quite unequivocally that common mistake does not render a contract void, but merely voidable. The area of mistake in contract is a difficult one and a layman would have been assisted by the Full Court speaking in clear terms. In addition, I respectfully note that the decision in Taylor v Johnson concerned a contract where there was a unilateral mistake, not a common mistake. The effect of common mistake has been considered in McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 and other cases. At common law that common mistake, even if it goes to the existence of the subject matter of the contract, does not operate to make the contract void ab inito by destroying consent: see the discussion in Professor Shatwell’s article, The Supposed Doctrine of Mistake in Contract, 33 Canadian Bar Review 164 at 184-5, and Meagher, Gummow and Lehane, Equity - Doctrines and Remedies, (3rd edition) par.1412-1426.
A contract might be set aside in equity for common mistake in cases of innocent misrepresentation or equitable fraud: Solle v Butcher [1950] 1 KB 671 at 692-694 but rescission may not be ordered in certain circumstances including affirmation of the contract after discovery of the mistake : see Chesire and Fifoot, Law of Contract, (5th Australian edition) paras 624 and 632. For these reasons, I find that the arbitrator may have concluded that the manner in which the Full Court expressed itself left it open for him to examine whether the letter was void for common mistake. Such an error does not constitute misconduct.
I turn to examine the powers on which the Minister seeks removal of the arbitrator. The Minister also alleges several grounds of misconduct and, in addition, alleges that the arbitrator is incompetent and unsuitable to deal with this particular dispute: see s44 of the Act. The conduct of which the Minister complains is that
(a).... the arbitrator has failed to have any regard to the Minister’s plea of affirmation which was a ground of its defence;
(b)that the arbitrator has found against the Minister on grounds which had not been pleaded by Civil Tech and which had not been raised by the arbitrator during the arbitration;
(c).... that the arbitrator was prepared to allow Civil Tech to argue that the letter of release is void; and
(d)that the arbitrator was prepared to allow Civil Tech to argue that the letter of release is void on the ground of common mistake.

It is alleged that each is a breach of the rules of natural justice, that each is evidence of bias in that fair-minded people might reasonably apprehend or suspect that the arbitrator has pre-judged or might pre-judge the case, and that each is evidence that the arbitrator is incompetent or unsuitable to deal with this particular dispute. It is also submitted that, viewed as a whole, this conduct gives rise to a reasonable apprehension of bias.

Misconduct is defined in s4 of the Act to include corruption, fraud, partiality, bias and a breach of the rules of natural justice. But “misconduct” is a word of wide import and the definition is not exhaustive. The fact that the arbitrator has made an error of law, even a serious one, does not necessarily constitute misconduct: Forsayth NL v Australasian Gold Mines NL (1992) 7 WAR 549 at 559-560. As Brooking noted in Stannard v Sperway Constructions Pty Ltd [1990] VR 673 at 678:
“Misconduct, when used in relation to arbitrators is a term of art and one which, as the inclusive definition in s4 accepts, cannot be succinctly defined. It is rather like the elephant - we know it when we see it. If we are in doubt we may gain assistance from the books, where we will however find no rigid definition of the species but instead statements of principle and multifarious examples of their application”.

There are several reasons why the submission should be rejected. First the allegation in paragraphs (a) and (b) are matters which could and should have been raised at the same time as the application for leave to appeal. It was implicit in the absence of any application to remove the arbitrator on the ground of misconduct, incompetence or unsuitability, that no such application was to be made. In addition, the view that no application would be made to remove the arbitrator was reinforced by the fact that, in the course of argument before the Full Court, counsel for the Minister expressly referred on more than one occasion to the arbitrator’s conclusions on mistake and did not suggest that the arbitrator had been guilty of misconduct. The issue of removal should have been raised at the same time as the application for leave to appeal. It could have been heard with the leave application. It is entirely inappropriate for the Minister to wait until the Full Court has determined the application for leave to appeal and then apply an order that the arbitrator be removed. The case falls within the principles of Henderson v Henderson (1843) 3 Hare 100 at 115, 67 E.R. at 319 as explained in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 598. The Minister was obliged to bring forward his whole case when criticizing the conduct of the arbitrator. He should not in this piecemeal manner seek to challenge the award. The conclusion is reinforced by the well established principle that applications to set aside an award for misconduct should not become a back door means of appeal: Mabanaft GmbH v Consentino Shipping Co. SA (1984) 2 Lloyds Rep 119, 112; Forsayth NL v Australasian Gold Mines NL (supra) at 560. The effect of the application is to strike down the award for reasons which could have been adduced on the application for leave to appeal. But I do not rest my decision solely on this ground.
Secondly, the fact that the arbitrator failed to deal with the affirmation plea was, in my view, an error of law. It is not as if the arbitrator deliberately refrained from or refused to deal with the point. He was aware of the issue. He identified it in his award in paragraph 5 under the heading “Issue for Determination”. When framing the ultimate issue for determination he has obviously misunderstood the effect of the Minister’s plea and that no doubt caused him to fail to address the issue. His error therefore is an error of law which does not, in the circumstances, constitute misconduct.
Thirdly, while the allegations in paragraphs (a) and (b) disclose error on the part of the arbitrator, they do not disclose breaches of the rules of natural justice. The errors have been corrected by the Full Court and as the arbitrator clearly states in his letter he is aware that he is bound by the decision of the Full Court. In addition, although Civil Tech had not raised the issue of mistake in its pleading, the question arose in the course of evidence and so it was not improper for the arbitrator to deal with it.
Fourthly, the allegations in paragraph (c) and (d) raise the same issue. There is no basis for concluding that the arbitrator intends to embark on a range of issues as to whether the letter of release is void. Instead, the only issue he had been asked to determine was whether the letter was void for common law mistake. For the reasons already given, the arbitrator has erred in believing that the issue was open but he is not guilty of misconduct on that ground.
Fifthly, none of the allegations of paragraphs (a) to (d), whether considered singly or as a whole, give rise to a reasonable apprehension of pre-judgment on the part of the arbitrator in the sense explained in Webb v The Queen (1994) 181 CLR 41 at 47. Again, it is a case where the arbitrator has erred, and he has been corrected. Furthermore, he has expressed his understanding that he is bound by the Full Court decision.
I have considered whether each of the above grounds constitutes removing the arbitrator on grounds of incompetence or unsuitability. The relationship between misconduct, incompetence and unsuitability in the Commercial Arbitration Act is examined by Brooking J in Stannard v Spurway Constructions Pty Ltd (supra) and in Korin v McInnes [1990] VR 723. I respectfully adopt his analysis. I agree that incompetence or unsuitability is not some lesser form of misconduct. It is intended to go to other issues. The questions whether circumstances are such that an unsatisfactory arbitration cannot be had: Korin v McInnes at 726. For the reasons already expressed I do not believe that the arbitrator is incompetent or unsuitable to proceed to hear and determine the issues in this arbitration.
For all of these reasons, I am not satisfied that the arbitrator should be removed.
As an alternative ground of relief, the Minister seeks a declaration that the arbitrator is bound by the judgment of the Full Court. The arbitrator is aware that he is bound by the decision of the Full Court. He said so in his letter dated 9 April 1998. It is apparent from these reasons that it is not open to the arbitrator to hold that the letter of release is void for common mistake. He has already held that it is voidable on that ground. He must, therefore, proceed in accordance with the reasons of the Full Court and decide whether the affirmation plea defeated the ground of unconscionability.
I do not think, therefore, that it is necessary or appropriate to order a declaration.
For all of these reasons the Minister’s application is dismissed.

[1999] SASC 22

22 January 1999