Minister for Industrial Affairs v Civil Tech Pty Ltd No. Scciv-02-765

MINISTER FOR INDUSTRIAL AFFAIRS v CIVIL TECH PTY LTD
[2003] SASC 40
Civil

PERRY J. These proceedings were commenced in June 2002 by the issue of a summons in which the applicant, the Minister for Industrial Affairs (“the Minister”), sought leave to appeal pursuant to s 38 of the Commercial Arbitration Act 1986 (“the Act”) from an award described as a “final interim award” (“the award”) of an arbitrator delivered on or about 27 May 2002.
The arbitration arose out of a contract between the respondent, Civil Tech Pty Ltd (“Civil Tech”) and the Minister made on 18 September 1990. Pursuant to the contract, Civil Tech undertook the construction and installation of four flexible underwater pipes through which sea water was to be pumped to and from the Marine Research Laboratory at West Beach. The contract sum exceeded $3.6 million.
A number of disputes arose between the parties after Civil Tech claimed to have completed the contract works. Eventually, in 1994, Civil Tech gave notice requiring all claims in issue between the parties to be referred to arbitration.
The arbitrator formally entered on the reference to arbitration on 1 February 1995.
The arbitrator delivered interim awards on 26 November 1996 and 9 July 1999. The Minister sought leave to appeal from both of those interim awards. The applications for leave to appeal and appeals arising from those applications have been finally determined.[1]
[1] See actions numbered 2293 of 1996 and 882 of 1999 in this Court.
Subsequently, the hearing of the arbitration resumed on 12 March 2001, following which the award now in question was delivered.
Annexed to an affidavit filed in support of the Minister’s present application is a draft of a proposed notice of appeal. The proposed notice of appeal raises complaints as to five aspects of the award. The complaints may be summarised as follows:
1.     Compound interest
The Minister complains that the arbitrator erred in law in awarding to Civil Tech an amount for monthly compound interest from the date the claim was submitted to the date of the award, and further, that the award of compound interest was made without the arbitrator identifying the reasons or the basis for such an award.
2.     Credit due to the Minister
The Minister alleges that the arbitrator erred in law in failing to deduct from the amounts awarded to the contractor two ex gratia payments made by the Minister to the contractor in mid-1991 ($210,000) and in February 2002 ($343,400).
3.     Defects in pipeline
Broadly, the Minister complains that the arbitrator erred in law in finding that Civil Tech was not responsible for certain defects in the pipeline, and in rejecting the Minister’s counterclaim for rectification of the pipeline.
4.     Security
The Minister complains that the arbitrator erred in law in ordering that the Minister return the security under the contract.
5.     Liquidated damages
Under this heading, the Minister claims that the arbitrator erred in law in finding that the Minister had no further entitlement under the contract to recover damages for delay in completion.
On 30 July 2002, before the application for leave to appeal had been brought on for hearing, the Minister issued, within the proceedings, a further application (“the s 43 application”). In that application, he sought the following orders:
“1.That the matters the subject of page 5 paragraph 5 of the Final Interim Award of Arbitrator Barry Tozer dated 26 May 2002 and delivered on or about 27 May 2002 in the matter of Civil Tech Pty Ltd v The Minister for Industrial Affairs be remitted to him for the preparation of a schedule detailing the calculation of the damages awarded to Civil Tech Pty Ltd including any amounts credited to The Minister for Industrial Affairs as a result of ex gratia payments made by the Minister for Industrial Affairs totalling $553,400.
2.That the matters the subject of page 5 paragraph 7 of the Final Interim Award of Arbitrator Barry Tozer dated 26 May 2002 and delivered on or about 27 May 2002 in the matter of Civil Tech Pty Ltd v The Minister for Industrial Affairs be remitted to him for the preparation and delivery of reasons setting out:-
(1) the basis of Civil Tech Pty Ltd’s entitlement to compound interest and
(2) the basis of Civil Tech Pty Ltd’s entitlement to have such interest calculated in accordance with the interest rates and formulae provided in the submissions of Civil Tech Pty Ltd.”
The Minister seeks those orders pursuant to s 43 of the Act. He claims to be entitled to have his application for those orders determined before the application for leave to appeal is brought on for hearing.
It is the s 43 application which is now before me.
At this stage, it is convenient to refer to the relevant statutory provisions.
Section 38 of the Act creates a right of appeal from an award, but the exercise of the right is heavily circumscribed, viz:
“38.(1) Without prejudice to the right of appeal conferred by subsection (2), the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award.
(2)Subject to subsection (4), an appeal shall lie to the Supreme Court on any question of law arising out of an award.
(3)On the determination of an appeal under subsection (2) the Supreme Court may, by order-
(a)confirm, vary or set aside the award;
or
(b)remit the award, together with the Supreme Court’s opinion on the question of law which was the subject of the appeal, to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration,
and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make the award within three months after the date of the order.
(4)An appeal under subsection (2) may be brought by any of the parties to an arbitration agreement-
(a)with the consent of all the other parties to the arbitration agreement;
or
(b)subject to section 40, with the leave of the Supreme Court.
(5)The Supreme Court shall not grant leave under subsection (4)(b) unless it considers that-
(a)having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement;
and
(b)there is-
(i)a manifest error of law on the face of the award;
or
(ii)strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.
(6)The Supreme Court may make any leave which it grants under subsection (4)(b) subject to the applicant complying with any conditions it considers appropriate.
(7)Where the award of an arbitrator or umpire is varied on an appeal under subsection (2), the award as varied shall have effect (except for the purposes of this section) as if it were the award of the arbitrator or umpire.”
As for s 38(4)(b), which refers in turn to s 40, the latter section is not relevant for present purposes.
Section 43 provides:
“43.Subject to section 38(1), the Court may remit any matter referred to arbitration by an arbitration agreement together with any directions it thinks proper to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration.”
The Act, including the provisions which I have just quoted, is replicated in all other Australian jurisdictions, with some minor differences which are immaterial for present purposes.[2]
[2] A uniform legislative code dealing with arbitrations was introduced in Australia in 1984.
The issue which is raised in this case is as to the inter-relationship between s 43 and s 38. More particularly, the question is whether the words which introduce s 43 “Subject to section 38(1)” mean that the power of remission under s 43 is in all respects subject to the same limitations as the exercise of the right of appeal under s 38.
The question has been addressed in a number of authorities in Australia since the uniform legislative code was introduced in 1984. It has been made clear in the authorities, a notable example of which is Imperial Leatherwear Co Pty Ltd v Macri & Marcellino Pty Ltd,[3] that the power to remit under s 43 may not be invoked as a back door method of circumventing the statutory restrictions relating to the court’s power of intervention in arbitration proceedings, more particularly, the restrictions which confine the right of appeal.
[3] [1991] 22 NSWLR 653.
In the Imperial Leatherwear case, Rogers CJ Comm D quoted with approval observations made by Giles J in Allgold Foods Pty Ltd v Conagra International (Australia) Pty Ltd:[4]
“His Honour [Giles J] was considering a summons for leave to appeal, to remit an award under s 43 to set aside an award pursuant to s 42 for misconduct by the arbitrator. After dismissing the application for leave to appeal his Honour referred to the decision of the English Court of Appeal in Moran v Lloyd’s[5] and said:
‘ “.... in order to make it clear to all who are concerned in and with arbitration that neither s 22 nor s 23 is available as a back door method of circumventing the restrictions of the court’s power to intervene in arbitral proceedings which have been created by the Act of 1979.’
Section 22 and s 23 correspond to s 43 and s 42 respectively in the Act, and the comment there made is entirely appropriate in the present case.
Where leave to appeal on a question or questions of law arising out of the award has been refused, and where the court has refused to set aside the award on the grounds of misconduct, the award should not be remitted pursuant to s 43 of the Act as a back door method of agitating the matters on which the plaintiff had unsuccessfully relied for those purposes.’
It is of the utmost importance that the principle stated by his Honour be given effect.”[6]
[4] Supreme Court of New South Wales, 11 July 1990 (unreported).
[5] [1983] QB 542.
[6] 22 NSWLR at 670.
Earlier in his reasons for judgment, Rogers CJ referred to a decision of the Court of Appeal (UK) in M F King (Holdings) Pty Ltd v Thomas McKenna Ltd.[7] That case concerned s 22 of the United Kingdom Act which in the relevant respects corresponds with s 43. With reference to that case, Rogers CJ observed:
“The court held that the jurisdiction under s 22 is wholly unlimited. Quoting from an earlier judgment of his own Lord Donaldson MR said:
‘Section 22 empowers the court to remit an award to an arbitrator for reconsideration. It provides the ultimate safety net whereby injustice can be prevented, but it is subject to the consideration that it cannot be used merely to enable the arbitrator to correct errors of judgment, whether on fact or law, or to have second thoughts, even if they would be better thoughts. (Emphasis added)”[8]
[7] 20 December 1990 (unreported).
[8] Ibid 668.
Rogers CJ came to the following conclusion:[9]
“Ultimately though the situation appears to me to be this. The Act relevantly provides three gateways for court participation, to use a neutral phrase, in arbitrations. The principal one, subject to exclusion by agreement of the parties, is the highly circumscribed provision for appeal on questions of law provided by s 38. The second is the opportunity to remit matters under s 43 where it is necessary to correct some injustice in the sense explained by Lord Donaldson in MF King. The third is the removal of an arbitrator for misconduct. What the Act does not permit is what the plaintiff seeks to do in the present case. Instead of confronting the heavy burden cast upon an applicant for leave to appeal on a question of law, it seeks to outflank that burden by resort to s 43. The court will not allow the finality called for by the Act to be infringed by this device: cf Bulk Oil (Zug) AG v Sun International Ltd.[10]”
[9] At 669.
[10] [1984] 1 Lloyd’s Rep 431 at 533.
While I accept the observations of Rogers CJ in the Imperial Leatherwear case which I have quoted, I rather think, with respect to him, that to suggest that a remission under s 43 should be contemplated only when it is “necessary to correct some injustice in the sense explained by Lord Donaldson in MF King” may be pitching the matter a little high.
I would prefer to construe the power to remit under s 43 as a power at large which may be invoked whenever it seems desirable and appropriate to do so, provided that the power is not used so as to circumvent the restrictions on the right of appeal under s 38.[11] If, for example, there is an assertion of an error of law, this could not be pursued pursuant to a remittal under s 43. If it is to be pursued at all, it could only be dealt with under s 38.
[11] For an example of a case where it was held that an application under s 43 amounted to an impermissible attempt to “outflank” the arbitrator’s award, see Bovis Lend Lease Pty Ltd v WGE Pty Ltd, Supreme Court of New South Wales, Einstein J, BC200206407 (unreported).
To adopt that construction of s 43 is consistent with the approach of Rolfe J in Hashman v Downie.[12] In that case, after an arbitration was concluded, one of the parties to the arbitration sought to have the matter remitted pursuant to s 43, so that the arbitrator might consider fresh evidence. In the course of his judgment, Rolfe J observed:[13]
“The present claim for a remitter does not arise from any assertion of error. It seems to me that such an assertion is necessary to bring into play the opening words of s 43 because they deny jurisdiction to the Court to remit an award on the ground of error of fact or law on the face of the award, but without prejudice to the right of appeal conferred by subs (2). In the absence of any suggestion of error, but to avoid injustice, it seems to me that the Court may remit. As I have said the present is not a case where there is an allegation of error and, accordingly, there is a discretion, depending on whether there is fresh or new evidence, to remit.”
[12] [1996] 39 NSWLR 169.
[13] Ibid 181.
It has occasionally been suggested that once an appeal is on foot, the only power to remit the award is pursuant to s 38(3)(b). It is true that the power under s 38(3) to remit the award arises only after the appeal has been determined. But I see no reason to restrict the discretion under s 43 in that way.
There may well be circumstances which arise before an appeal has been determined, or even before an appeal has been brought, when it may be convenient or desirable to remit the matter which has been referred to arbitration, for reconsideration. Utilisation of s 43 in that way may, if the outcome of the reconsideration by the arbitrator clarifies certain issues, make it unnecessary for an appeal to be instituted, or if it has been instituted, pursued.
It is that situation which, so it seems to me, applies in this case.
Here, the applicant for leave to appeal complains, amongst other things, that it is unclear on the face of the award as to whether or not the arbitrator has correctly dealt with, and brought into account, the ex gratia payments. Furthermore, the applicant complains that the arbitrator has not indicated the basis upon which he saw fit to award compound interest or make the calculation of it which results in the award under that head.
If s 43 is invoked to give to the arbitrator an opportunity, on remission of the matter, to clarify those two aspects of his award, which in my view do need clarification, it may well be that the application for leave to appeal, at least as to those issues, will either be rendered unnecessary or will proceed on a clearer foundation.
The view which I have just expressed appears to me to be consistent with the decision of Giles J in Sabemo Pty Ltd v Malaysia Hotel (Australia) Pty Ltd.[14] In that case, Giles J was of the view that the terms of the award left obscure how the arbitrator had approached an allowance referable to alleged compensable delays. Giles J observed:
“Given that an arbitrator is required to include in an award a statement of the reasons for making the award (s 29 of the Act) it would hardly be satisfactory to leave on foot an award that the builder’s entitlement to reimbursement of loss or expense incurred as a result of delay is to be based on forty-three days compensable delay. The only person who can say what the arbitrator meant is the arbitrator, and it would seem to follow that the matter should be remitted to the arbitrator so that he can explain what is presently obscure.”[15]
[14] Supreme Court of New South Wales, Giles J, 4 June 1992 BC9201836.
[15] Ibid 4.
Giles J went on to say:
“But the proprietors submitted that there was nonetheless no power to remit the matter pursuant to s 43 of the Act. In its submission there could not be a remission pursuant to s 43 unless it was first found that there was an error of law arising out of the award, leave to appeal in respect of that error was granted under s 38 of the Act, and the appeal was upheld.
I am unable to agree. A successful appeal may be the occasion for remission, but it is not the only occasion. Remission may follow the setting aside of an award for misconduct pursuant to s 42 of the Act or it may be ordered in other circumstances as what has been described as the ultimate safety net. .... There must be a power to remit where the reasons are inadequate in order that the Act operate, otherwise the requirement that an arbitrator give reasons has no real effect. In my view s 43 is in terms sufficient for that end. The ‘matter’ to be reconsidered is the statement of reasons, not the result. Where the circumstances so warrant there can be a remission for reconsideration by way of provision of the statement of reasons which is absent. Hence in my opinion s 43 is available and should be used in the present case to obtain from the arbitrator clarification of what is presently obscure in the award. Without such clarification there would be an injustice, because it cannot be seen whether the days of compensable delay have been understated.”[16]
[16] Ibid 5.
In my opinion, the same approach ought to be adopted in this case.
In coming to that conclusion, I must necessarily reject, with respect, the submission of Mr Floreani, who appeared for the respondent, that “save for the granting of leave to appeal and then by appeal a court has no jurisdiction under any other provision of the Commercial Arbitration Act to set aside or remit an award other than for misconduct under s 42”. (Written submissions, para 9.)
It is true that there is some authority which might be thought to lend support for that proposition, [17] but I prefer the approach which I have adopted.
[17] See, for example, Commonwealth of Australia v Cockatoo Dockyard Pty Ltd [1994] 35 NSWLR 704, Rolfe J at 712 and 714, paras (e) and (f) and reaffirmed in Commonwealth of Australia v Cockatoo Dockyard Pty Ltd [1975] NSWLR 662 at 672: cf Byrne J in State of Victoria v Seal Rock Victoria (Australia) Pty Ltd [2001] VSC 76 at para 15.
In my opinion, the applicant is entitled to invoke s 43 for the purpose set out in the application now before me.
Furthermore, an order should be made in the terms sought, with a small change in wording as suggested by Mr O’Sullivan, who appeared for the applicant, during the course of argument.
Accordingly, I order:
1.That the matters the subject of page 5, paragraphs 3 to 5 of the Final Interim Award of Arbitrator Barry Tozer dated 26 May 2002 and delivered on or about 27 May 2002 in the matter of Civil Tech Pty Ltd v The Minister for Industrial Affairs be remitted to him for the preparation of a schedule detailing the calculation of the damages awarded to Civil Tech Pty Ltd, including any amounts credited to the Minister for Industrial Affairs as a result of ex gratia payments made by the Minister for Industrial Affairs, totalling $553,400.
2.That the matters the subject of page 5, paragraph 7 of the Final Interim Award of Arbitrator Barry Tozer dated 26 May 2002 and delivered on or about 27 May 2002 in the matter of Civil Tech Pty Ltd v The Minister for Industrial Affairs be remitted to him for the preparation and delivery of reasons setting out:
(1)the basis of Civil Tech Pty Ltd’s entitlement to compound interest; and
(2)the basis of Civil Tech Pty Ltd’s entitlement to have such interest calculated in accordance with the interest rates and formulae provided in the submissions of Civil Tech Pty Ltd.

I will hear the parties as to costs.
JUDGMENT CITATIONS
LISTED IN ORDER OF APPEARANCE IN JUDGMENT
1.    See actions numbered 2293 of 1996 and 882 of 1999 in this Court.
2.    A uniform legislative code dealing with arbitrations was introduced in Australia in 1984.
3. [1991] 22 NSWLR 653.
4.   Supreme Court of New South Wales, 11 July 1990 (unreported).
5. [1983] QB 542.
6. 22 NSWLR at 670.
7.    20 December 1990 (unreported).
8. Ibid 668.
9.    At 669.
10. [1984] 1 Lloyd’s Rep 431 at 533.
11. For an example of a case where it was held that an application under s 43 amounted to an impermissible attempt to “outflank” the arbitrator’s award, see Bovis Lend Lease Pty Ltd v WGE Pty Ltd, Supreme Court of New South Wales, Einstein J, BC200206407 (unreported).
12. [1996] 39 NSWLR 169.
13. Ibid 181.
14.    Supreme Court of New South Wales, Giles J, 4 June 1992 BC9201836.
15. Ibid 4.
16. Ibid 5.
17.    See, for example, Commonwealth of Australia v Cockatoo Dockyard Pty Ltd [1994] 35 NSWLR 704, Rolfe J at 712 and 714, paras (e) and (f) and reaffirmed in Commonwealth of Australia v Cockatoo Dockyard Pty Ltd [1975] NSWLR 662 at 672: cf Byrne J in State of Victoria v Seal Rock Victoria (Australia) Pty Ltd [2001] VSC 76 at para 15.

[2003] SASC 40

14 February 2003