Mond v Berger
[2004] VSC 150
•3 May 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 8881 of 2001
| DAVID MOND AND BARRY MOND | Plaintiffs |
| v | |
| DAYAN RABBI ISAAC DOV BERGER & Ors | Defendants |
---
JUDGE: | DODDS‑STREETON J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 5 April 2004 | |
DATE OF JUDGMENT: | 3 May 2004 | |
CASE MAY BE CITED AS: | Mond v Berger | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 150 | First Revision 18 May 2004 |
COSTS - Costs of the proceeding to set aside arbitral award pursuant to section 42 of Commercial Arbitration Act – Whether costs on an indemnity, solicitor and client or party and party basis – Whether delinquent antecedent conduct - Whether hopeless points argued – Whether conduct or applications by defendants which prolonged the trial – Whether reduction appropriate where plaintiffs abandoned issues at outset of trial, or failed on particular issues; Whether arbitrators liable for costs of the proceeding – Effect of section 51 of Commercial Arbitration Act – Whether arbitrators participated in proceeding actively and took adversarial role – Arbitrators important witnesses, but not protagonists in conduct and direction of defensive litigation - Whether defendants liable for costs of the failed arbitration under section 36 of Commercial Arbitration Act – Defendants who were not complicit in arbitrator’s misconduct not liable for costs of failed arbitration - Arbitrators not liable for costs of the failed arbitration - Arbitrators not experienced in secular law and sat as a zabla under Jewish law to determine issues including non-commercial and religious questions ‑Arbitrators to refund or forgo their fees for the arbitration pursuant to section 49 of Commercial Arbitration Act, - Commercial Arbitration Act 1984 (Vic); PCRZ Investments Pty Ltd v National Golf Holdings Ltd and Anor [2002] VSCA 24 (14 March 2002); Colgate Palmolive v Cussons Pty Ltd [1993] 118 ALR 248; Ugly Tribe Co. Pty Ltd v Sikola [2001] VSC 189 (14 June 2001); FountainTMSelected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; MNFM Property Pty Ltd and Ors v Citibank Ltd (2001) 109 FCR 77; Ali v Hartley Poynton Pty Ltd (No.3) [2002] VSC 292 (26 July 2002); Lendon v Keen (1918) KB 994; Du Toit v Vale [1993] WAR 138; Sinclair and Lindsay Sinclair Pty Ltd v Bayly and Earle, Unreported, Supreme Court of Victoria, Justice Nathan, 19 October 1994; Stannard v Sperway Constructions Pty Ltd [1990] VR 673; Najjar v Haines [1991] 25 NSWLR 224; Mond v Berger & Ors [2003] VSC 450; Traynor v Panan Constructions Pty Ltd (1988) 7 Aust. Construction LR 47; Giustiniano Nominees Pty Ltd v The Minister for Works BC 9502704.
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr Magee Q.C. Mr R. J. Harris | Weston & Weston |
| For the 1st-3rd Defendants | Herbert Geer & Rundle | |
| For the 4th Defendant | Mr M. Sifris S.C. | Corrs Chambers Westgarth |
| For the 5th - 17th and 19th -24th Defendants | Mr S. Anderson | Holding Redlich |
| For the 18th Defendant | Strongman & Crouch |
TABLE OF CONTENTS
INTRODUCTION.............................................................................................................................. 1
COSTS OF THE PROCEEDINGS – WHETHER TO FOLLOW THE EVENT; WHETHER ON A SOLICITOR‑CLIENT OR INDEMNITY BASIS; WHETHER REDUCTION OR APPORTIONMENT APPROPRIATE.................................................................................................................................. 3
LEGISLATION AND RELEVANT LEGAL PRINCIPLES......................................................... 5
Whether Hopeless Points Argued................................................................................................... 9
Issue Apportionment....................................................................................................................... 14
THE ARBITRATORS’ LIABILITY FOR COSTS OF THE PROCEEDING......................... 15
COSTS THROWN AWAY BY REASON OF APPLICATION TO RESTRAIN PLAINTIFFS' COUNSEL.............................................................................................................................................................. 22
COSTS OF THE ARBITRATION................................................................................................. 25
THE OFFICER DEFENDANTS’ LIABILITY FOR COSTS...................................................... 30
HER HONOUR:
INTRODUCTION
On 23 February 2004 I published reasons for judgment in this proceeding, in which the plaintiffs sought, inter alia, orders setting aside a Partial Award made on 2 November 2001 on grounds of misconduct by the arbitrators pursuant to section 42 of the Commercial Arbitration Act 1984 (Vic) (‘the Act’). The parties were afforded an opportunity to consider the reasons in order to make submissions on orders and costs. The parties by consent sought that the hearing of those matters be adjourned to 29 March 2004.
The matter was mentioned on 26 March 2004. The Court was informed that new counsel and solicitors had been retained by the fourth defendant and by the fifth to twenty‑fourth defendants. At trial those defendants had had common representation, but they were now separately represented by new counsel.
The fourth and fifth to twenty‑fourth defendants sought an adjournment in order to enable the newly-retained counsel to familiarise themselves with the matter. The hearing was adjourned to 5 April 2004 and directions were made for the filing and service of written submissions.
At the hearing of the matter on 5 April 2004:
(a)The first to third defendants ("the arbitrators") were represented by Mr May, their solicitor.
(b)The fourth defendant ("CHC") was represented by Mr Sifris S.C.
(c)The fifth to seventeenth and nineteenth to twenty‑fourth defendants ("the officer defendants") were represented by Mr Anderson of counsel.
(d)The eighteenth defendant (Mr Parasol) was represented by Mr Marasa.
Following the hearing on 5 April 2004 the following further written submissions were received:
(i) Plaintiff’s further submissions as to relief and orders dated 14 April 2004.
(ii) Fourth defendant’s reply dated 23 April 2004.
(iii) Eighteenth defendant's reply dated 23 April 2004.
The plaintiffs sought substantive orders, including the setting aside of the Partial Award and the removal of the arbitrators. They also sought that the defendants (including the arbitrators) pay:
(i)The plaintiffs’ costs of the proceeding (including reserved costs) on an indemnity basis.
(ii)The plaintiffs’ costs of the failed arbitration.
(iii)The plaintiffs’ costs thrown away as a result of the fourth to twenty‑fourth defendants’ application to restrain Mr Hayes Q.C. from appearing on behalf of the plaintiffs at trial.
The reserved costs of the proceeding include:
(a)The costs of and incidental to the consent orders made on 18 April 2002 by Master Evans.
(b)The costs of and incidental to the injunction application before Justice Balmford, consent orders being made on 27 August 2002 restraining the arbitrators from presiding over or participating in any further hearing relating to or stemming from the arbitration agreement.
(c)The costs of and incidental to the consent orders made on 26 November 2002 by Master Kings (no formal order reserving costs).
(d)The costs of and incidental to orders made on 5 May 2003 by Master Kings.
The substantive orders sought by the plaintiffs were unopposed. However, the separately represented defendants took a variety of positions in relation to the costs of the proceeding. No submissions were made in opposition to the plaintiffs’ claim for reserved costs.
CHC submitted that the arbitrators were solely responsible for the misconduct leading to the failure of the arbitration and that in consequence, CHC should not be liable for any costs of the failed arbitration. CHC sought an order that the arbitrators refund the fees paid to them by CHC.
The officer defendants (including Mr Parasol) adopted CHC’s principal submissions but contended that they should not be personally liable for the costs of the proceeding or alternatively, that they should be indemnified for any such liability by CHC.
The first to third defendants (the arbitrators) contended that they had not participated in an adversarial way in the proceeding so as to attract a liability for its costs. Further, there was no finding that they were guilty of moral turpitude, lying under oath, or such other conduct as would justify an order that they pay the costs of the failed arbitration pursuant to section 36 of the Act.
COSTS OF THE PROCEEDINGS – WHETHER TO FOLLOW THE EVENT; WHETHER ON A SOLICITOR‑CLIENT OR INDEMNITY BASIS; WHETHER REDUCTION OR APPORTIONMENT APPROPRIATE
The plaintiffs seek the costs of the proceeding (including the reserved costs) against the arbitrators and the fourth to twenty‑fourth defendants on a solicitor and client or an indemnity basis. [The position of the arbitrators is discussed separately].
For the plaintiffs, Mr Magee Q.C. submitted that the plaintiffs were overwhelmingly successful in the proceeding and that costs should follow the event without any apportionment on particular issues or any reduction in relation to the issues abandoned by the plaintiffs at the commencement of trial.
The plaintiffs further submitted that the special circumstances of the case justified an award of costs against the fourth to twenty‑fourth defendants on an indemnity or solicitor and client basis. They contended that the following circumstances justified a departure from the usual party and party costs order:
(i)The fourth to twenty‑fourth defendants were guilty of delinquent conduct giving rise to the litigation.
(ii)The fourth to twenty‑fourth defendants were guilty of conduct in the course of the proceeding which caused loss of time to the Court and to the other parties. In particular, the fourth to twenty-fourth defendants prosecuted points which had no chance of success.
(iii)The fourth to twenty-fourth defendants’ conduct in relation to Professor Broyde’s evidence and in seeking adjournments in relation to the evidence of witnesses including Rabbi Berger and Rabbi Ulman unnecessarily prolonged the proceeding.
(iv)The fourth to twenty‑fourth defendants failed to accept the open offer of compromise made on behalf of the plaintiffs in the course of the arbitration hearing.
(v)The fourth to twenty‑fourth defendants’ delay in making their application to restrain Mr Hayes Q.C. from appearing for the plaintiffs resulted in costs thrown away.
Mr Sifris S.C., for the fourth defendant, CHC (whose submissions on this question were adopted by the officer defendants) submitted that the plaintiffs should be awarded only eighty percent of their costs of the proceeding on a party and party basis because:
(a) The plaintiffs’ inclusion of substantial issues and allegations which were abandoned on the first day of trial involved the fourth to twenty‑fourth defendants in considerable expense. Further, the plaintiffs had not succeeded on every issue at trial.
(b) There was no feature of the case which would justify an award of costs on a solicitor and client or an indemnity basis.
The officer defendants contended that they were parties to the arbitration agreement only at the insistence of the first plaintiff and were joined to the proceeding only in their representative capacity. They also submitted that they had an indemnity pursuant to the constitution of CHC. Therefore, they contended that no costs order should be made against them personally, or, if it were, it should be subject to an order that they be indemnified by CHC.
Mr Parasol, the separately represented officer defendant, additionally contended that he had resigned from the Board of CHC prior to the trial, had not been informed of the conduct or possible costs consequences of the litigation and had originally been appointed to the Board of CHC only in the capacity of a youth representative. He contended that his position was different from that of the other officer defendants.
LEGISLATION AND RELEVANT LEGAL PRINCIPLES
Section 24(1) of the Supreme Court Act 1986 provides:
" (1) Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid".
The Court has a wide discretion in relation to costs, which should not be constrained by inflexible rules or the rigid application of precedent. However, the discretion should be exercised judicially, by reference to relevant considerations and guidance derived from the decided cases.
Rule 63.31 of the Supreme Court Rules provides:
"Except as provided by these Rules or any order of the Court costs shall be taxed on a party and party basis".
The general rule is thus that costs follow the event and that the successful party will be awarded costs on a party and party basis. It is recognised that an award of costs on a party and party basis will be likely to leave the successful party out of pocket.
Rule 63.28 of the Supreme Court Rules provides:
"Subject to this Part, costs in a proceeding which are to be taxed shall be taxed on—
(a) a party and party basis;
(b) a solicitor and client basis; or
(c) an indemnity basis; or
(d) such other basis as the Court may direct".
Rule 63.30 of the Supreme Court Rules provides:
"On a taxation on a solicitor and client basis all costs reasonably incurred and of reasonable amount shall be allowed".
Rule 63.30.1 of the Supreme Court Rules provides:
"(1) Subject to paragraph (2), on a taxation on an indemnity basis all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred.
(2) Any doubt which the Taxing Master may have as to whether the costs were unreasonably incurred or were unreasonable in amount shall be resolved in favour of the party to whom the costs are payable".
In PCRZ Investments Pty Ltd v National Golf Holdings Ltd & Anor[1] Chernov J.A. (with whom Callaway and Buchanan J.J.A agreed) reiterated the policy reasons for maintaining party and party as the usual basis for an award of costs.
[1][2002] VSCA 24 (14 March 2002).
His Honour stressed that the appellant in that case, although unsuccessful, was clearly entitled to seek the aid of the Court in determining its claim. Although the appellant was unsuccessful, as “it has not been suggested that the appellant has engaged in misconduct in respect of the proceeding or brought it for an ulterior purpose or that the institution of it was patently unreasonable... to require the appellant to pay the costs on a higher level is tantamount to punishing it impermissibly for bringing such an action"[2].
[2][2002] VSCA 24 at [35].
Those observations on policy apply with equal force to the position of an unsuccessful defendant who defends a claim bona fide, reasonably and without misconduct in the proceeding.
Although recognising that “it may be in practice that the gap between [solicitor and client] costs and party and party costs is now too great” Callaway J.A. observed that the gap “should not lead judges into too readily opting for an extraordinary order"[3].
[3][2002] VSCA 24 at [2].
In Colgate Palmolive Company v Cussons Pty Ltd[4] Sheppard J. stated:
“The ordinary rule is that, where the Court orders the costs of one party to litigation to be paid by another party, the order is for payment of those costs on the party and party basis.
In consequence of the settled practice which exists, the court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the court in departing from the usual course….
Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud (both referred to by Woodward J in Fountain and also Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J‑Corp; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Kent ((SC(NSW)(CA), 27 Sept 1993, unreported) and an award of costs on an indemnity basis against a contemnor (eg Megarry V‑C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis[5].”
[4][1993] 118 ALR 248.
[5][1993] 118 ALR 248 at 253.
In Ugly Tribe Co Pty Ltd v Sikola[6] Harper J. stated :
[6][2001] VSC 189 (14 June 2001).
“ In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v Dowling. Special circumstances must be present to justify such a departure: Australian Electoral Commission v Towney (no. 2). These include:
(i)The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd. (1988) 81 A.L.R. 397.
(ii)The making of an irrelevant allegation of fraud: Thors v Weekes (1989) 92 A.L.R. 131.
(iii)Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, French, J., 3 May 1991).
(iv)The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, Davies, J., 5 March 1993)
(v)Conduct which amounts to a contempt of court: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch.59.
(vi)The commencement or continuation of proceedings in wilful disregard of know facts or clearly established law: J‑Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA) Branch (No. 2) (1993) 46 I.R. 301.
(vii)The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided the trial: National Australia Bank v Petit Breuilh (No. 2) (unreported, [1990] VSC 395, 18 October 1999)[7].
The categories of special circumstances are not closed: Tetijo Holdings, supra. The cases must not, therefore, be read “in an endeavour to establish a set of inflexible guidelines which should thereafter be determinative of the manner in which the Court’s discretion is to be exercised [for this] would be to fetter the Court’s discretion”: National Australia Bank v Petit‑Breuilh, supra[8].”
[7][2001] VSC 189 (14 June 2001) at [7].
[8][2001] VSC 189 (14 June 2001) at [8].
In Fountain™ Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd[9] Woodward J. observed:
“It is appropriate to consider awarding “solicitor and client” or “indemnity” costs whenever it appears that an action has been commenced or continued in circumstances, where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law[10].”
[9](1988) 81 ALR 397.
[10](1988) 81 ALR 397 at 397.
Whether Hopeless Points Argued
It is recognised that the commencement or continuation of proceedings in wilful disregard of known facts or clearly established law, or the undue prolongation of the case by groundless contentions, may justify an award of costs on a solicitor and client or an indemnity basis. In the present case, the plaintiffs submit that the fourth to twenty‑fourth defendants’ contentions that certain practices and procedures (which would amount to a breach of the rules of natural justice under the Act) were permissible under Jewish law and arbitral procedure, were doomed to fail. Similarly, the plaintiffs contend that the fourth to twenty‑fourth defendants took the “hopeless points” that the Partial Award was not final and that the arbitrators had not delegated their function. The plaintiffs also contend that the fourth to twenty‑fourth defendants improperly requested that the arbitrators reconvene the hearing to effect the approval of the list of members prepared by Mr Paluch, although this proceeding was then on foot.
I am not satisfied that the fourth to twenty‑fourth defendants’ arguments were, for the most part, such that they should have recognised that they were clearly hopeless or doomed to fail. As Mr Sifris S.C. submitted, the case raised complex questions concerning the relationship of Jewish law and arbitral procedure to the Act. Although some of the fourth to twenty‑fourth defendants’ contentions and defences were, in my view, weak, they were arguable.
Applications or Conduct which Prolonged the Trial
However, while I do not consider that the fourth to twenty-fourth defendants advanced arguments which were clearly hopeless, in my view the plaintiffs’ claims for solicitor and client costs are made out for the time lost in relation to Professor Broyde’s evidence and the time lost in relation to the fourth to twenty-fourth defendants’ witnesses. Those claims are set out in detail in the plaintiffs’ written submissions dated 14 April 2004.
There was, in my view, force in the plaintiffs’ objections to Professor Broyde’s evidence, which the plaintiffs made known on 24 November 2003. Professor Broyde was scheduled to give evidence on 2 December 2003. The parties had not been directed to give advance notice of objections and I am satisfied that the plaintiffs gave notice as soon as they were in a position to do so.
The fourth to twenty-fourth defendants made the applications and sought the adjournment in relation to Professor Broyde's evidence as a matter of indulgence. The plaintiffs should be awarded the associated costs on a solicitor and client basis. Similarly, while the fourth to twenty-fourth defendants’ delays with witnesses were unavoidable, I consider it just in all the circumstances of the case that the plaintiffs recover the associated costs on a solicitor and client basis.
Whether delinquent conduct giving rise to and in the litigation
The plaintiffs further contended that the fourth to twenty‑fourth defendants were guilty of delinquent conduct giving rise to, and in, the litigation, which justifies an order for costs on an indemnity or solicitor and client basis.
First, the plaintiffs submit the fourth to twenty‑fourth defendants were to blame for the dispute over the CHC Register of Members in the lead‑up to the CHC scheduled Annual General Meeting for 2000. They contend that it is clear that “no proper Register of Members” existed and that CHC dealt high‑handedly with the plaintiffs, who
defended the constitutional rights of other CHC members. The plaintiffs submit that the fourth to twenty‑fourth defendants should have conceded CHC’s non-compliance with statutory requirements, thereby obviating the need for the Magistrates’ Court application, the arbitration and this proceeding. The plaintiffs further contend that the Court should infer that the corporate membership issues were not conceded in order to engineer the arbitration, which would provide the opportunity to remove Or Chadash and Rabbi Kransnjanski.
Secondly, the plaintiffs submit that the fourth to twenty‑fourth defendants were complicit in the misconduct found on the part of the arbitrators, in that they pressed for the inclusion of Or Chadash as an issue for determination, were involved in the improper delegation of the arbitrators’ function to Mr Paluch and knew and approved of Rabbi Berger’s statements and actions at the meeting on 31 October 2001. Thirdly, the fourth to twenty‑fourth defendants did not accept the open offer of settlement during the arbitration. Fourthly, they brought the application to restrain Mr Hayes Q.C. from appearing for the plaintiffs only on the first day of trial. (This is discussed separately below).
In MNFM Property Pty Ltd & Ors v Citibank Ltd[11] Lindgren J. stated:
“It seems to me that the presumption which prevails in favour of party and party costs requires the Court to accept the underlying or background facts of a case as ‘a given’ and to consider how the parties have conducted themselves as litigants, while taking into account their knowledge of past events which they carry into that role[12].”
[11](2001) 109 FCR 77.
[12](2001) 109 FCR 77 at 95.
In Ali v Hartley Poynton Pty Ltd (No. 3)[13] Smith J. recognised that the Court’s discretion on costs was not fettered and that:
“There are judicial statements to the effect that the conduct giving rise to the litigation cannot justify departure from the ordinary rule[14].
On any view, however, the wrongs done to the successful party will provide the context within which to judge the subsequent conduct leading up to and during any subsequent litigation. It may make the subsequent conduct more difficult to justify and appear more high‑handed[15].”
[13][2002] VSC 292 (26 July 2002).
[14][2002] VSC 292 (26 July 2002) at [9].
[15][2002] VSC 292 (26 July 2002) at [10].
Smith J. observed that in the case before him, the defendant’s conduct:
“Was that of a party attempting to make its powerful financial position relatively more powerful and to use it to defeat a claimant. It may fairly be said that despite the plaintiff’s attempts to avoid litigation, he was forced to sue by the defendant’s conduct. These matters are all relevant to a consideration of the conduct of the parties in the litigation itself[16].”
[16][2002] VSC 292 (26 July 2002) at [13].
He stated that the case:
“has been the most hard‑fought and hostile case that I have experienced”, and that “there is little doubt, having regard to the conduct of the dispute immediately prior to the issuing of proceedings, subsequently and before me, that the defendant adopted the tactic of fighting the case so as to apply maximum pressure to the plaintiff[17]” so that it “engaged in what counsel for the plaintiff has described as trench warfare” which “added significantly to the cost of the trial”[18].
[17][2002] VSC 292 (26 July 2002) at [22].
[18][2002] VSC 292 (26 July 2002) at [29].
His Honour concluded, however, that it did not follow "that the defendant had acted unreasonably in not admitting negligence and the various breaches alleged". Further, "time and costs were expended on issues on which the plaintiff was unsuccessful"[19].
[19][2002] VSC 292 (26 July 2002) at [30].
In Ali v Hartley Poynton[20], Smith J. made serious findings against the defendant (including gross negligence, prolonged deception and manipulation and a contempt for the rights of the plaintiff). He also noted that it was an exceptionally hard‑fought case (in which the more powerful defendant adopted the tactic of fighting it so as to apply maximum pressure to the plaintiff). However, Smith J. concluded that a departure from the ordinary rule that the plaintiff’s costs be taxed on a party and party basis was not warranted, in relation to the period prior to the date of receipt of a Calderbank letter. His Honour concluded that “to receive indemnity costs on the basis of the antecedent and litigious conduct would over-compensate the plaintiff”[21]
[20][2002] VSC 292 (26 July 2002).
[21][2002] VSC 292 (26 July 2002) at [34].
In the present case, the disputed matters leading to the arbitration were merely background, giving context to the claim to set aside the Partial Award. In contrast to the Ali v Hartley Poynton[22] case, I have made no finding of fact or law adverse to the fourth to twenty‑fourth defendants in relation to those background disputes, including the existence and validity of any Register of Members, the status of Or Chadash and the propriety of certain actions pursuant to Jewish law. Those matters were before me only as matters in dispute which led to the arbitration. They remain subject to determination, upon evidence, before another court or tribunal.
[22][2002] VSC 292 (26 July 2002).
The available evidence does not justify the conclusion that the fourth to twenty‑fourth defendants maintained the dispute over the Register of Members only in order to engineer an arbitration which would operate as a vehicle to remove Or Chadash, that they had any ulterior motive for the arbitration, or were complicit in any misconduct by the arbitrators.
The fourth to twenty‑fourth defendants pressed for the inclusion of the Or Chadash issue (which was found to constitute “misconduct of the proceedings” or want of jurisdiction) and may have welcomed the arbitrators’ delegation to Mr Paluch (which was found to constitute misconduct of the proceedings). However, a party to an arbitration is ordinarily entitled to make submissions to the arbitral tribunal and to act upon its rulings or directions. I do not consider that the fourth to twenty-fourth defendants were complicit in the arbitrators' misconduct.
There is no basis on which to conclude that the fourth to twenty‑fourth defendants should be penalised for their failure to accept the Monds’ offer of compromise, which related to the arbitration (not to this proceeding) and was, in any event, subject to a number of significant conditions.
Further, I am unable to conclude or infer that the fourth to twenty‑fourth defendants knew or approved of the conduct of Rabbi Berger at the meeting on 31 October 2001, which gave rise to a reasonable apprehension of bias.
It follows that I am not satisfied that any antecedent conduct or conduct in the litigation justifies an award of costs on an indemnity or solicitor and client basis.
Issue Apportionment
CHC and the officer defendants, for their part, contended that issues set out in paragraph 4 of CHC’s written submissions dated 2 April 2004 (which were abandoned by the plaintiffs on the first day of trial) resulted in costly preparation and in the fourth to twenty‑fourth defendants’ production of a seven volume court book, which was reduced to one volume at trial. Further, CHC submitted that the plaintiffs had not succeeded on every issue.
The plaintiffs submitted that there were no orders for a court book. They relied on the caveat in the letter of the plaintiff’s solicitors to the fourth to twenty-fourth defendants’ solicitors, dated 8 October 2003, which stated:
"No orders or directions for the preparation and filing of Court Books has been made…if you desire Court Books then the preparation of them is a matter entirely for you. However, they are unnecessary and the expense unjustifiable in the circumstances".
While Rule 63.04(1) of the Supreme Court Rules confers a discretion to make an order for costs in relation to a particular question or a particular part of a proceeding, issue apportionment should be sparingly exercised.[23] The plaintiffs were overwhelmingly, if not entirely, successful in the litigation and it was not unreasonable for them to argue the points on which they did not succeed. It is regrettable that the reduction of issues occurred only at the outset of trial and that their maintenance until that point occasioned preparation and expense. However, I do not consider that the plaintiffs’ reduction of issues should attract an adverse costs consequence. The plaintiffs’ action greatly reduced the time and expense of the trial. It is possible that the plaintiffs would have been successful on the issues which they abandoned.
[23]Cretazzo v Lombardi (1975) 13 SASR 4.
Conclusion on Costs of Proceeding
The plaintiffs should be awarded the entire costs of the proceeding, including reserved costs, without any reduction for particular issues which were abandoned or on which they were unsuccessful. The costs of and incidental to the evidence of Professor Broyde and the fourth to twenty-fourth defendants' failure to have witnesses available (estimated as seven (7) days of trial) should be awarded on a solicitor and client basis. The balance of the costs of the proceeding should be awarded on a party and party basis.
THE ARBITRATORS’ LIABILITY FOR COSTS OF THE PROCEEDING
The plaintiffs seek an order that the first and third defendants, Rabbi Berger and Rabbi Ulman, pay the costs of the proceeding jointly and severally with all other defendants save for Rabbi Katz. While the plaintiffs initially submitted that the second defendant, Rabbi Katz, should also be liable for the costs of the proceeding, ultimately they did not press that claim against Rabbi Katz.
The plaintiffs submitted that Rabbi Berger and Rabbi Ulman actively participated in an adversarial way in the proceeding and should be liable for its costs. They further submitted that costs should be ordered against Rabbi Berger and Rabbi Ulman on an indemnity or solicitor and client basis, because they included the Or Chadash issue in the Partial Award, delegated their function to Mr Paluch, conducted themselves in a manner which gave rise to a reasonable apprehension of bias, and included the ruling on Rabbi Abraham in the Partial Award. The plaintiffs also pointed out that the evidence of Rabbi Berger and Rabbi Ulman was not accepted. Rabbi Ulman’s recollection was found to be very poor and Rabbi Berger gave “new” evidence.
Mr May, solicitor for the first to third defendants, submitted that Rabbi Berger and Rabbi Ulman did not actively participate in the proceeding in the adversarial sense relevant in this context. They did not seek to defend or support the award, but simply filled in lacunae in the evidence. They expressed an intention to have minimal involvement, and were represented only by a solicitor who, with the Court’s leave, appeared only intermittently. They gave their evidence under subpoena and their oral evidence was relatively short.
In Lendon v Keen[24] it was recognised that, given the quasi‑judicial position of an arbitrator, an award of costs against an arbitrator in proceedings to set aside the award for misconduct will ordinarily be inappropriate, unless:
“The arbitrator on being served with notice of motion to set aside his award appears and takes part in the litigation. By so doing he makes himself one of the active parties of the case and costs can be given against him. Again, if the arbitrator has been guilty of such collusion as would entitle one of the parties to bring an action against him, and his award is set aside as the ground of misconduct of the sort, we think that costs can and ought to be given against him, whether he appears in the County Court or not. We expressly leave open other cases of dishonesty on the part of the arbitrator.”[25]
[24](1918) KB 994.
[25](1918) KB 994 at 1000 per Atkin and Sankey JJ.
In Du Toit v Vale[26] an award was challenged on the bases of uncertainty and misconduct due to an apprehension of bias on the part of the arbitrator. Scott J. held that the arbitrator's conduct gave rise to a reasonable apprehension of bias and set aside the award. His Honour ordered that the arbitrator should pay half of the plaintiff's costs of the proceeding.
[26][1993] WAR 138.
While recognising that such an order was “an exceptional step”, he observed that “the arbitrator has taken an active and adversarial role in the proceedings”[27]. Scott .J further observed that “In my view, when an arbitrator takes that course, thereby contributing to the costs of the proceedings, liability for costs may arise in the event that the arbitrator is not successful”[28]. In contrast, the cases in which the arbitrator had not been found liable for costs were mainly cases in which the arbitrator was not represented. His Honour observed:
“In a case where the arbitrator is not represented and the award is challenged on the basis of technical misconduct, a decision that the arbitrator pay the costs of the proceeding may well be exceptional.”[29]
[27][1993] WAR 138 at 149.
[28][1993] WAR 138 at 149.
[29][1993] WAR 138 at 148‑149.
Scott J. did not refer to section 51 of the Act which provides:
"An arbitrator or umpire is not liable for negligence in respect of anything done or omitted to be done by the arbitrator or umpire in the capacity of arbitrator or umpire but is liable for fraud in respect of anything done or omitted to be done in that capacity".
Although it was not the subject of argument before me, the question arises whether, or to what extent, section 51 of the Act renders an arbitrator immune from an order that he or she pay the costs of the proceeding or pay the costs of the arbitration.
In Sinclair & Lindsay Sinclair Pty Ltd v Bayly & Earle[30] an arbitrator whose award was set aside (due to reliance on material not properly before him) resisted an application that he be joined to the proceeding and ordered to pay the costs. The arbitrator contended that arbitrators were immune from liability for costs pursuant to section 51 of the Act and at common law.
[30]Sinclair & Lindsay Sinclair Pty Ltd v Bayly & Earle (unreported, Supreme Court of Victoria, Nathan J, 19/10/94).
Nathan J. considered that section 51 rendered the arbitrator immune from a costs order, because his reference to material not properly in evidence could be characterised as negligence. “It was merely a slip in procedure which persons untrained in the law… could be expected to make”[31]. His Honour took the view that although section 51 would have no operation when an arbitrator acted without good faith, the instances of lack of good faith were “infinitely variable”. His Honour stated that:
“Where the lapse cannot be said to be negligent but nevertheless leads to an award being aborted, and at the other end where the lapse is so gross that a lack of good faith might be inferred, then an arbitrator could be personally liable for costs”[32]
[31]Sinclair & Lindsay Sinclair Pty Ltd v Bayly & Earle (unreported, Supreme Court of Victoria, Nathan J, 19/10/94) at 2.
[32]Sinclair & Lindsay Sinclair Pty Ltd v Bayly & Earle (unreported, Supreme Court of Victoria, Nathan J, 19/10/94) at 7-8.
On the basis of Nathan J.’s analysis in Sinclair v Bayly[33] section 51 would not apply to conduct giving rise to an apprehension of bias which occurred in the present case, because it is not aptly described as negligence. Further, section 51 would probably not confer protection for the arbitrators' delegation to Mr Paluch nor the determination of issues not referred to the arbitrators. Such conduct is not, in my view, a “slip in procedure which persons untrained in the law could be expected to make”[34].
[33]Sinclair & Lindsay Sinclair Pty Ltd v Bayly & Earle (unreported, Supreme Court of Victoria, Nathan J, 19/10/94).
[34]Sinclair & Lindsay Sinclair Pty Ltd v Bayly & Earle (unreported, Supreme Court of Victoria, Nathan J, 19/10/94) at 2.
Although Sinclair v Bayly[35] suggests that if an arbitrator's conduct constitutes "negligence" within terms of section 51, the arbitrator may be immune from an order that he or she pay the costs for the proceeding, I am not persuaded that the immunity from liability for negligence conferred by section 51 would also render an arbitrator immune from an order to pay the costs of the proceeding or an order to pay the costs of the arbitration under section 36 of the Act.
[35]Sinclair & Lindsay Sinclair Pty Ltd v Bayly & Earle (unreported, Supreme Court of Victoria, Nathan J, 19/10/94).
In the present case, it is unnecessary for me to decide whether the arbitrators' conduct attracted the immunity conferred by section 51 and, if it did, whether such immunity would preclude an order that they pay the costs of the proceeding. I am of the view that even if there is jurisdiction to make such an order, it is not warranted in the circumstances of this case.
In Stannard v Sperway Constructions Pty Ltd[36] Brooking J. approved the view of Donaldson J. in Port Sudan Cotton Co v Chettiar and Sons[37] that an arbitrator should be served with notice of an application alleging misconduct. His Honour recognised two reasons for the desirability of that practice:
“First, that fairness demands it and secondly that the Court may be assisted by hearing from the arbitrator.”[38]
[36][1990] VR 673.
[37][1971] Lloyds Rep. 166 at 178.
[38][1990] VR 673 at 681.
Brooking J. considered that:
“Whenever an arbitrator is sought to be removed, he should either be made a party to the application or be served with the originating motion and the affidavit in support’[39]
and that:
“… the preferable course is that all documents in support of or in opposition to the application be served on the arbitrator, without his being made a party in the first place.”[40]
[39][1990] VR 673 at 682.
[40][1990] VR 673 at 682.
In Najjar v Haines[41] the New South Wales Court of Appeal analysed in detail the policy issues relevant to the immunity from action of a court-appointed referee. In the course of that discussion, Clarke J.A. appeared to accept the contention that Brooking J.’s decision in Stannard[42], “supported the view that if an arbitrator participated in the hearing of an application to remove him for misconduct a costs order could be made against him”[43]. His Honour expressed “reservations about the notion that an arbitrator should be encouraged to participate in the Court proceedings at trial level” but concluded “If, however, the arbitrator does appear then it is clear that the intervention carries the normal costs consequences in the proceedings in which he or she appears.”[44]
[41][1991] 25 NSWLR 224.
[42][1990] VR 673.
[43][1991] 25 NSWLR 224 at 248.
[44][1991] 25 NSWLR 224 at 248.
Beyond recognising that an arbitrator who actively and adversially participates in a proceeding may be liable for its costs, the authorities provided no detailed or comprehensive guidance on:
(a)The conduct which will attract the immunity conferred by section 51 of the Act;
(b)The relationship of that immunity to the power to award costs of the proceeding under section 24(1) of the Supreme Court Act and costs of the arbitration under section 36 of the Act.
In the present case, Rabbi Berger and Rabbi Ulman filed notices of appearance. In affidavits affirmed on 7 May 2003 and 25 November 2003, respectively they stated:
"I have been advised by my Solicitor Anthony Henry May and verily believe that it is ordinarily inappropriate for arbitrators to take an active part in proceedings which seek to challenge an award or in which allegations of misconduct on the part of the arbitrators are made. This is particularly the case in circumstances where the arbitrators have only completed their reference in part and further issues remain to be determined, which is the present position. However, reluctantly and because of the serious nature of the allegations of misconduct and bias made against the arbitrators, I have been advised by my Solicitor to make this affidavit but to confine my comments to factual matters not appearing in the transcript and generally to exclude references to Jewish law as well as any explanation of the award or its reasoning".
Shortly after the outset of the trial, on 12 November 2003, Mr May indicated to the Court that the arbitrators wished to take the least possible role in the proceedings. With leave of the Court, Mr May thereafter attended only intermittently as circumstances required. At the hearing on 5 April 2004, Mr May informed the Court that he had acted for the arbitrators on a pro bono basis.
Rabbi Berger and Rabbi Ulman each filed and served affidavits in the proceeding. The fourth to twenty‑fourth defendants prepared subpoenas pursuant to which Rabbi Berger and Rabbi Ulman were called, and their affidavits were tendered. They were cross‑examined. Both Rabbi Berger and Rabbi Ulman cooperated and accepted service of the subpoenas through their solicitor, rather than insisting on personal service outside the jurisdiction.
Mr May submitted that there was no finding of actual bias on the part of the arbitrators. Further, although the conflicting evidence of other parties was preferred, there was no finding that either Rabbi had colluded with any other party, had acted dishonestly or had lied under oath.
The fact that there has been misconduct which justifies the setting aside of the award does not, in itself, justify a costs order against the arbitrators. Such an order remains exceptional. The decided cases, however, provide little detailed guidance on what is meant by an active adversarial role. Mr May contended that only adversarial conduct “designed to defend or support an award” would justify a costs order.
Despite their stated aim of maintaining a minimal role, both Rabbi Berger and Rabbi Ulman could be described as protagonists in the proceeding in the sense that they were important witnesses, whose affidavits set out a contested version of events which went to the heart of the plaintiffs’ claim of apprehended bias. Rabbi Berger also sought, in the course of cross-examination at trial, to explain and to justify the terms of the Partial Award in relation to the appointment and role of Mr Paluch and the treatment of Rabbi Abraham's departure.
A distinction may be drawn between, on the one hand, an arbitrator who furnishes an important contested version of events as a witness and, on the other hand, an arbitrator who assumes an active litigious role in defence of the award. While Rabbi Berger and Rabbi Ulman were protagonists as witnesses at trial, they were not protagonists in the maintenance, conduct and direction of the litigation in defence of the award.
As a matter of policy, in my view, a court should be hesitant to subject arbitrators to a costs order where their role is confined to giving evidence disputing alleged events said to amount to misconduct, in the absence of any other witness able to contradict the allegations. If arbitrators were routinely exposed to the risk of a costs order in such circumstances, they may be deterred from giving the only evidence on which the party seeking to uphold the award could rely in order to refute a claim of misconduct.
In the present case Rabbi Ulman and Rabbi Berger played a prominent role as witnesses at trial. However, I do not consider that they were so closely identified with the fourth to twenty-fourth defendants in the direction and conduct of the defensive litigation that they should share liability for the costs of the proceeding. I take into account the fact that I have determined that the arbitrators should refund or forgo their fees. (This is discussed in detail below).
Rabbi Katz filed a notice of appearance and was also represented by Mr May. However, he filed no affidavit and took no part in the proceedings. The plaintiffs’ claim against Rabbi Katz is not pressed. In my view, he should not be held liable for any costs of the proceeding.
COSTS THROWN AWAY BY REASON OF APPLICATION TO RESTRAIN PLAINTIFFS' COUNSEL
The plaintiffs seek an order that the fourth to twenty‑fourth defendants pay the plaintiffs' costs thrown away by reason of the application to restrain Mr Hayes Q.C., from appearing for the plaintiffs due to the lateness of the application.
The fourth to twenty‑fourth defendants' intention to apply to restrain Mr Hayes Q.C. from appearing for the plaintiffs was made known to Mr Hayes Q.C. only at 9.00am on the first day of trial (5 November 2003). The application was initially made orally before me at 2.15pm that day. The stated basis for the application was that on 11 November 2002, Mr Romer (the solicitor for the fourth to twenty‑fourth defendants) had had a conference with Mr Hayes Q.C. concerning the proceeding. Mr Hayes Q.C. was unable to recall the conference and refused to withdraw. The fourth to twenty‑fourth defendants declined to disclose to Mr Hayes Q.C. the file note of Mr Romer referring to the conference, on the ground of legal professional privilege. On 6 November 2003, the fourth to twenty-fourth defendants filed and served a summons returnable before me at 2.15pm on 7 November 2003. The application to restrain Mr Hayes Q.C. from appearing was referred to Byrne J. for hearing on 10 November 2003.
The background to the application was set out in the reasons for judgment of Byrne J[45]., dated 14 November 2003, particularly at paragraphs 12 to 26. His Honour reached the following conclusions:
"I make the following observations. First, Mr Hayes stated, properly in my view, that he would withdraw notwithstanding the proximity of the trial if details were provided of confidential communications made to him. This he did after the Brott affidavit was released. Second, Mr Hayes’ decision to withdraw was a proper one given the matters disclosed in the Brott affidavit. Third, no satisfactory reason was offered on behalf of the CHC defendants for their withholding of the Brott affidavit until late on Friday 7 November. Fourth, I am content to proceed on the basis that Mr Hayes had no recollection of his communications with Mr Romer or Mr Brott, at least until the Brott affidavit was disclosed. Prior to this, he believed, as he told the Court on the morning of 5 November, that he strongly suspected that the application was but a tactical manoeuvre, not by Mr Hammond, but "by someone on his behalf". Fifth, he was entitled to hold that suspicion in the circumstances as they then appeared. It would not have been proper for him, at that late stage, to withdraw unless he was satisfied that there was some genuine basis for him to do so"[46].
[45]Mond v Berger & Ors [2003] VSC 450 (14 November 2003).
[46]Mond v Berger & Ors [2003] VSC 450 (14 November 2003) at [27].
Byrne J. also concluded that the plaintiffs had not acted in any way improperly. Further, he observed that the defendants:
(a)Had not raised the matter of the involvement of Mr Brott (who deposed that he too had had confidential communications with Mr Hayes Q.C. about the proceeding on behalf of the fourth to twenty-fourth defendants in September or October 2002) with the plaintiffs until 6 November 2003.
(b)Had not provided Mr Brott’s affidavit sworn 6 November 2003 until the afternoon of 7 November 2003. Byrne J. concluded that the fourth to twenty‑fourth defendants were entitled to act on the advice of their original senior counsel, which they received on 29 October 2003. His Honour observed:
“This is unaffected by the fact that [their senior counsel] Mr Hammond took a different view of the material on 4 November. I accept too, that it was proper for them to exercise caution in bringing the matter to the attention of Mr Hayes and his clients until they were satisfied that there were grounds for so doing. They must, however, accept responsibility for the failure of their witness, Mr Brott, to provide grounds until the afternoon of 5 November, and, for their failure for two days to bring forward their information so obtained[47].”
[47]Mond v Berger & Ors [2003] VSC 450 (14 November 2003) at [29].
Mr Hayes Q.C. withdrew from the case shortly after Mr Brott’s affidavit was provided to the plaintiffs. The application before Byrne J. therefore dealt only with costs. His Honour declined to make any orders on the costs of the application and referred the question of the costs thrown away to me.
I adopt the findings and conclusions of Byrne J.
The fourth to twenty‑fourth defendants contended that, in the circumstances, it is not appropriate that any order be made in relation to the costs thrown away. They were faced with the difficulty of a public holiday on 4 November 2003 and their delay was not excessive. Mr Magee Q.C., for the plaintiffs, contended that the fourth to twenty‑fourth defendants should have informed Mr Hayes Q.C. promptly, if not immediately, of their knowledge of his prior involvement and of the likelihood of an application to restrain him from appearing.
No authority directly relevant to the determination of this question was identified. Ultimately, as Mr Magee Q.C. submitted, it may be a matter of impression and degree. Clearly, some delay in order to seek counsel’s advice and to obtain and assess Mr Brott’s information was justifiable. The plaintiffs knew nothing of the matter and had no control over the situation. In circumstances where the trial was fast approaching, the fourth to twenty‑fourth defendants were the only parties in a position to avert or to minimise the loss, by taking action as promptly as possible. The matter was complicated by Mr Brott’s involvement, his delay in furnishing his information, the change of senior counsel, their differing views on the significance of Mr Hayes Q.C.'s previous involvement, and the intervening public holiday on 4 November 2004.
The time frame was tight and neither the fourth to twenty-fourth defendants nor the plaintiffs were responsible for the fact that the plaintiffs’ senior counsel had forgotten his previous involvement, to which the fourth to twenty‑fourth defendants might take objection.
However, given that the fourth to twenty‑fourth defendants had a significant degree of control over the situation and the plaintiffs had none, it appears just that the fourth to twenty‑fourth defendants should bear the costs consequences of any excessive delay in alerting the plaintiffs to the relevant circumstances.
In my opinion, having requested Mr Brott to provide his information by Friday 31 October 2003, the fourth to twenty‑fourth defendants should have alerted the plaintiffs to the circumstances by Monday, 3 November 2003.
In the circumstances, having made allowances for their difficulties, I consider it just that the fourth to twenty‑fourth defendants pay the plaintiffs’ costs thrown away by reason of the application to restrain Mr Hayes Q.C. from and including Tuesday 4 November 2003. Such costs should be taxed on a party and party basis.
COSTS OF THE ARBITRATION
The plaintiffs seek that the fourth to twenty-fourth defendants pay the costs of the failed arbitration pursuant to section 36 of the Act on the grounds of:
(a)The fourth to twenty-fourth defendants’ involvement in pressing the Or Chadash issue for determination and their role in relation to the delegation of Mr Paluch.
(b)The fact that the Messrs Mond were seeking to vindicate or protect the rights of all members to compliance with corporate statutory regulation and membership rights.
The plaintiffs also seek that the arbitrators share the costs of the failed arbitration.
CHC contended that the fourth to twenty-fourth defendants were not party to, or complicit in, any misconduct of the arbitrators.
It submitted that the parties to the arbitration should bear their own costs of the arbitration. Alternatively, it submitted that any costs should be awarded only against the arbitrators, as all other parties to the arbitration were equally disadvantaged by the failure of the arbitration.
CHC also submitted that it has paid Rabbi Berger $25,000 in fees, its share of Rabbi Katz’s fees and the outstanding balance of the first plaintiff’s share of Rabbi Katz’s fees (being $5,525). CHC seeks that the first plaintiff reimburse the amount paid by CHC for which the first plaintiff was liable under their agreement. Alternatively, it seeks that the CHC recover the fees it paid to the arbitrators. CHC has also paid over $45,000 in relation to the Din Torah transcripts. It seeks that the plaintiffs be ordered to pay half of that fee. CHC also points out that the plaintiff has not paid Rabbi Ulman’s fee of $30,000.
The officer defendants (including Mr Parasol) made no submissions on the costs of the arbitration, save that no order for such costs should be made against them.
Mr May, on behalf of the arbitrators, submitted that they should not be liable for the costs of the arbitration in circumstances where there was no finding of fraud or actual bias.
Section 36 of the Act provides:
" (1) Unless otherwise agreed in writing by the parties to the arbitration agreement, where an arbitration is commenced but for any reason the arbitration fails, the Court may, on the application of a party to the arbitration agreement or the arbitrator or umpire, make such orders in relation to the costs of the arbitration as it thinks just.
(2) For the purposes of this section where—
(a) a final award is not made by the arbitrator or umpire before the arbitration terminates; or
(b) an award made is wholly set aside by the Court— an arbitration shall be deemed to have failed".
There appear to be few decided cases on section 36 of the Act. Only one case has been identified in which an arbitrator was ordered to pay the costs of the arbitration.
In Traynor v Panan Constructions Pty Ltd[48], Hunt J. ordered that an arbitrator (found guilty of deliberate and disgraceful misconduct, including bias or an appearance of bias) should refund the fees paid by the parties.
[48](1988) 7 Aust. Construction LR 47.
Hunt J. refused to order pursuant to section 36 of the Act that the defendant (the other party to the arbitration) pay the plaintiff’s costs of the failed arbitration. He considered that the defendant had played only a very minor part in the misconduct of the arbitrator, though that minor part was deserving of censure. In Traynor[49], in contrast to the present case, the plaintiff did not seek an order that the arbitrator (who was not a party to the proceeding) pay the costs of the failed arbitration.
[49](1988) 7 Aust. Construction LR 47.
In Giustiniano Nominees Pty Ltd v The Minister for Works[50] the arbitrator was a party to the proceeding pursuant to which an award was set aside. The plaintiff, however, did not seek that the arbitrator pay the costs of the failed arbitration. Rather, it sought that one of the parties to the arbitration pay those costs.
[50]Giustiniano Nominees Pty Ltd v The Minister for Works (unreported, Supreme Court of Western Australia, FullCourt, Kennedy ACJ, Rowland and Ipp JJ, 1/12/95, BC 9502704).
The Full Court of the Supreme Court of Western Australia noted that ordinarily, where a retrial is ordered, the costs of the original trial should be costs in the cause in the retrial. However, there was a discretion; and if the initial hearing proved abortive due to the fault of one of the parties, then that party should be ordered to pay the costs of the first hearing. The Full Court rejected the contention that the other party to the arbitration had had full knowledge of the circumstances leading to the removal of the arbitrator. Further, it was not a case of actual bias. Their Honours observed:
“If there was a fault, that fault was essentially that of the arbitrator.”[51]
[51]Giustiniano Nominees Pty Ltd v The Minister for Works (unreported, Supreme Court of Western Australia, FullCourt, Kennedy ACJ, Rowland and Ipp JJ, 1/12/95, BC 9502704) at [5].
In the circumstances, they concluded that the costs of the arbitration to date should abide the final result. Moreover, they doubted that the costs of the arbitration would be entirely thrown away.
In Najjar v Haines[52] the Court of Appeal considered that the court-appointed referee had judicial immunity. Although there was no detailed analysis of an arbitrator’s potential liability for the costs of the arbitration, Clarke J.A. observed:
“But even if the arbitrator appears in an application for his or her removal for misconduct, I find it difficult to see on what basis the Court would have power to require that arbitrator to pay the costs of the arbitration.[53]
[52][1991] 25 NSWLR 224.
[53][1991] 25 NSWLR 224 at 248.
Rogers A.J.A. noted that a significant difference between a court-appointed referee and a judge was that the referee was paid by the parties. He stated:
”Extending to a referee the immunity of a Judge does not carry the necessary consequence that the referee may not be called upon to return the fees paid by the parties. However, that question was not argued and does not arise for consideration in the present case”[54]
[54][1991] 25 NSWLR 224 at 276.
In Du Toit v Vale[55], Scott J. ordered that the arbitrator (who was represented and who took a strong and adversarial role in the proceedings)[56] should pay the arbitration costs of one party to the failed arbitration, but not those of the plaintiff. At the commencement of the arbitration, the arbitrator had recognised the plaintiff as a builder on whose deregistration he had adjudicated. He had failed to disclose that prior involvement. The plaintiff's suspicions about the arbitrator’s identity had been aroused, but he had not pursued the issue until after the publication of the award. The arbitrator's prior involvement was held to give rise to an apprehension of bias, justifying the setting aside of the award. Scott J. concluded that the arbitrator bore the primary responsibility for the failure of the arbitration, due to his failure to disclose his previous involvement. The plaintiff also bore some responsibility for the abortive arbitration. In contrast, the other party to the arbitration had done nothing to contribute to its failure. Scott J.’s reasoning suggests that he took the view that responsibility for the failure of the arbitration was the primary criterion for liability to pay its costs.
[55][1993] WAR 138.
[56][1993] WAR 138 at 141.
In the present case, the evidence does not establish that the fourth to twenty-fourth defendants were complicit in the misconduct of the arbitrators or in the misconduct of the proceedings. The misconduct was that of the arbitrators. The fourth to twenty-fourth defendants should not be liable to pay the plaintiffs’ costs of the arbitration.
Two species of misconduct were found on the part of the arbitrators. First, conduct by two arbitrators giving rise to an apprehension of bias, in the presence of the third arbitrator. Secondly, misconduct of the proceeding by delegation of the arbitral function to Mr Paluch and by the arbitrators’ determination of an issue not referred to them, in which misconduct all three arbitrators jointly participated.
In deciding whether the arbitrators should be ordered to pay the costs of the arbitration, it is unnecessary that I determine the relationship between sections 36 and 51 of the Act or determine whether some or all of the misconduct in the present case is such that the arbitrators could obtain protection under section 51. In all the circumstances, including the unusual nature of the tribunal, the arbitration agreement and the subject-matter of the arbitration, I do not consider that the arbitrators should pay the plaintiffs’ costs of the arbitration.
While conduct giving rise to an apprehension of bias is undoubtedly serious, there was no finding of fraud. The arbitrators were dayanim, whose experience and expertise was in Jewish law. They were not qualified or experienced in secular law. By the agreement of the parties, the arbitrators sat as a zabla pursuant to Jewish arbitral procedure, to determine disputed issues, including religious and non-commercial questions. The relationship of such a tribunal and procedure to the Act had not previously been tested.
However, I consider it just that the arbitrators refund or forgo their fees for the arbitration. Section 49 of the Act provides that, subject to the Act, the Court may make an order, direction or decision on such terms and conditions (including terms and conditions as to costs) as it thinks fit. Kennedy A.C.J. and Rowland and Ipp J.J. observed that it was arguable whether section 49 of the Commercial Arbitration Act (WA) 1985 empowered the Court to order a refund of the arbitrators’ fees, because an arbitrator's remuneration was ordinarily fixed by contract and may not be comprehended by the terms “costs”, as the term was used in that section. The question had not been the subject of argument and the Court expressed no view on it. The reference to “costs” in section 49 is inclusive, rather than prescriptive. The power to make orders pursuant to section 49 in relation to the arbitrators’ fees does not depend on the conclusion that they are “costs”. Alternatively, on the view that the arbitrators' fees constitute "costs of the arbitration"[57] in the present case section 36 would support an order that the arbitrators refund the fees.
[57]See: section 34(1) and (2) of the Act.
In circumstances where the arbitration failed due to several distinct instances of misconduct on the part of arbitrators, I consider it just that the arbitrators in this case should refund or forgo their fees. In this context, I note Mr May's submissions in relation to an indemnity in favour of Rabbi Katz. The existence and effect of the indemnity were not conceded by the other parties. Those matters should be determined, if necessary, in another forum.
THE OFFICER DEFENDANTS’ LIABILITY FOR COSTS
At trial, the fourth to twenty‑fourth defendants were represented by the same counsel and solicitor. However, in relation to the costs argument, CHC was represented by Mr Sifris S.C., the fifth to seventeenth and the nineteenth to twenty‑fourth defendants were represented by Mr Anderson of counsel and the eighteenth defendant (Mr Parasol) was represented by Mr Marasa.
Mr Anderson contended that the officer defendants were entitled to an indemnity pursuant to clause 48 of CHC’s constitution, for costs and expenses incurred in "a proceeding at law or in equity, arising from the execution and discharge of their respective offices, [in] which they or any of them shall or may be plaintiffs or defendants, provided that [they]… have acted by direction of or with approval of the Board for the time being...".
He submitted that the officer defendants were signatories to the arbitration agreement only on the insistence of Mr David Mond. Further, the officer defendants were joined to the proceeding only in their capacity as officers of CHC and were thus covered by the indemnity. It was contended that, in such circumstances, there should be no orders as to costs against the officer defendants. Alternatively, Mr Anderson contended that any order as to costs should be subject to an indemnity from CHC.
Those submissions were adopted by counsel for Mr Parasol, who additionally submitted that Mr Parasol had resigned prior to the trial and not been kept informed of, or participated in, decisions concerning the litigation.
An order for costs imposes joint and several liability on the defendants[58]. The plaintiffs seek orders against all defendants in order to obtain the security and advantages of such joint and several liability. They submitted, correctly in my view, that there is no evidence of the alleged basis on which the officer defendants became signatories to the arbitration agreement, and that its terms contemplated disputes between all named defendants, as well as CHC. They submitted that any claim to indemnity or relief between the defendants inter se is irrelevant to a costs order in a proceeding to which they were all parties.
[58]Thiess Watkins White Construction Ltd (in liq) v Witan Nominees (1985) Pty Ltd [1992] 2 Qd R 452.
In my opinion, the apparent availability of an indemnity from CHC should not deter the Court from making a costs order against all officer defendants. The plaintiffs are entitled to the security and comfort that an order in such terms will afford. While it appears likely that an indemnity from CHC may be available to the officer defendants pursuant to CHC's constitution, it would be inappropriate for the Court in the context of this application to assume the validity and availability of that indemnity, which are not conceded by CHC. In relation to Mr Parasol, it is likewise appropriate that the consequences of any special circumstances be determined in another forum.
It follows that the officer defendants (including Mr Parasol) should be jointly and severally liable with CHC for the plaintiffs’ costs. The effect of, or any challenges to, any indemnities between the defendants inter se should be determined, if necessary, in another forum.
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