Mowby Pty Ltd v Moose Property Services Pty Ltd
[2007] VSC 111
•26 April 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7799 of 2006
| MOWBY PTY LTD | Plaintiff |
| v | |
| MOOSE PROPERTY SERVICES PTY LTD (subject to deed of company arrangement) (in liquidation) | Defendant |
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JUDGE: | HANSEN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 and 12 April 2007 | |
DATE OF JUDGMENT: | 26 April 2007 | |
CASE MAY BE CITED AS: | Mowby Pty Ltd v Moose Property Services Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 111 | |
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Arbitration – Construction contract – Disputes - Agreement to refer “certain disputes that have arisen” to arbitration – Whether such disputes included a claim for consequential loss – Ruling by arbitrator that such claim was a dispute referred - Application for leave to appeal – Commercial Arbitration Act 1984 (Vic) s 38(5)(a) and (b)(i) and (ii) – Whether substantial effect on rights – Whether manifest area of law – Whether error of law the determination of which may add substantially to the certainty of commercial law – Discretion to refuse leave – Leave refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M D G Heaton QC and Mr B Guzzo | Leem Lawyers |
| For the Defendant | Mr J A H Foxcroft SC and Mr E Riegler | Lovegrove & Lord |
HIS HONOUR:
By an originating motion filed on 31 July 2006 the plaintiff, Mowby Pty Ltd (“Mowby”), seeks leave to appeal against a ruling made by an arbitrator in an arbitration between Mowby and Moose Property Services Pty Ltd (“Moose”). The ruling was published on 17 July 2006. The aspect of the ruling which Mowby seeks leave to appeal against is the holding that a claim by Moose for consequential damages in paras 43 and 43A of its points of claim was a dispute referred for determination in the arbitration. Mowby submits that it was not so referred and, accordingly, that it is not justiciable in the arbitration.
The application is made pursuant to s 38 of the Commercial Arbitration Act 1984 (Vic) (“the Act”), sub-s (2) and (4) of which provide that a party to an arbitration agreement may, by leave of the Supreme Court, appeal to the Supreme Court on any question of law arising out of an award of an arbitrator. Section 38(5) provides that leave is not to be granted unless the Court 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.”
If these requirements are satisfied, the Court retains a discretion whether to grant leave to appeal or set aside the award[1].
[1]Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 at 207 per Mahoney JA and at 226 per Sheller JA, Meagher JA agreeing with Sheller JA.
On 5 September 2006, and on the written request of the parties, the judge in the Practice Court ordered that the application for leave to appeal and the appeal be heard together. The order was not expressed to be subject to any order of the trial judge. And, being made on the papers, the parties did not appear and explain why it was appropriate in the circumstances of the case that the application for leave to appeal and the appeal be heard at the same time. There are good reasons for not taking that course.
The appeal process prescribed by s 38 works at two stages. The first stage is the application for leave to appeal. The second stage kicks in if leave be granted; then the plaintiff files a notice of appeal and the appeal is heard in due course. The reason for keeping the two stages separate lies in the policy considerations which underlie the statutory restriction on appeals from arbitral awards. As to these considerations, reflected in s 38, it is sufficient to refer to the judgment of Sheller JA in Promenade[2], and to the judgment of Rogers CJ Comm D at first instance in that case[3] where his Honour refused the parties’ request to hear the application for leave to appeal and the appeal at the same time as being “entirely inimical” to the purposes of the Commercial Arbitration Act 1984 (NSW) the relevant provision of which was in the same terms as s 38. The legislation is, of course, common throughout Australia. It was inimical because a major objective of the legislation was to minimise judicial supervision and review of arbitrations. To hear substantive argument on the merits of the appeal before deciding whether or not to grant leave would lead to more awards being open for review, which would detract from the finality of awards.
[2]At 216-223 and 225-227.
[3]Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 184 at 186-189 and 192-196.
Although it might sometimes be appropriate to hear the application for leave to appeal and the appeal together, that should not ordinarily be so as there is the inherent danger of the statutory intention being subverted by hearing a merits argument as made on appeal, as distinct from the limited argument permitted on the question whether the application passes through the gateway of s 38(5). This makes evident the wisdom of the approach of Rogers CJ Comm D in Promenade.An application for leave is approached on the basis stated by Sheller JA in Promenade[4], referred to with approval by the Court of Appeal of this Court in Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd[5], which is wholly different from the approach to an appeal on an error of law. Under this regime, if leave is given it does not follow that the appeal will be allowed. On a consideration of the matter in light of argument of the nature that occurs on an appeal it may be apparent that the appeal should fail. Rogers CJ Comm D adverted to this possibility in Promenade[6]. Likewise, leave to appeal may properly be refused although if full argument had occurred as on the hearing of an appeal the appeal might be allowed. These are consequences of the policy embodied in s 38 of confining the judicial review of awards. The object is to protect, or promote, the finality of awards.
[4](1991) 26 NSWLR 203 at 225-227.
[5](2002) 5 VR 353 at 368.
[6](1991) 26 NSWLR 184 at 195.
Counsel informed me that it was not usual practice to hear the application for leave to appeal and the appeal together and that is how I have understood practice. In Panmal Constructions Pty Ltd v Warringah Formwork Pty Ltd[7] Einstein J expressed his understanding of practice in New South Wales as being that although it was not necessarily an invariable practice never to be departed from, the usual practice of that Court was to hear the question of leave in advance and not at the same time as the hearing of the substantive appeal. The wisdom of that approach, of keeping the two stages separate, is obvious.
[7][2004] NSWSC 204 at [8].
In the circumstances of it having been ordered that the application for leave to appeal and the appeal be heard together and the parties having prepared themselves accordingly, and the defendant consenting to this course for the purpose of avoiding further delays, after some discussion I proceeded to hear the application for leave and the appeal together. On that basis, if I determined that leave to appeal should be granted the appeal would be treated as heard instanter and final orders would be made. In so hearing the matter I have kept consideration of the application for leave to appeal separate from the appeal the consideration of which will only arise if I decide that leave should be granted.
The originating motion was supported by an affidavit of the solicitor for the plaintiff which referred to relevant events and documents including the subject ruling and a draft notice of appeal. He was not cross-examined. I was provided with some additional documents during argument but otherwise the defendant did not file an affidavit.
The arbitration originated in claims made by Moose arising out of works undertaken by it for the construction of a 90 bed aged care facility at Reservoir pursuant to a contract between itself as contractor and Mowby as owner for a price of $6,128,971.20 and dated 10 January 2002. The contract is the ABIC MW-1 2001 major works contract adapted for the project. It provided for Moose to take possession of the site on 14 January 2002, that the contract be administered by Graphos Architects Pty Ltd, and that practical completion be achieved on 29 December 2002. There was provision for security by the retention of five percent of the contract price, extensions of time, liquidated damages of $1,000 per day and a defects liability period of 12 months. It is not necessary to refer to the terms of the contract other than the following:
(a)In Section A – Overview, inter alia –
(i)the owner was obliged to pay the contract price as adjusted and comply with any other obligation under the contract (A 3.1),
(ii)the owner must appoint an architect to administer the contract (A 3.2),
(iii)the architect was the owner’s agent for giving instructions to the contractor. In acting as assessor, valuer or certifier, the architect acts independently and not as agent of the owner (A 5.2). The owner must ensure that the architect, in acting as assessor, valuer or certifier, complies with the contract and acts fairly and impartially, having regard to the interests of the owner and the contractor (A 5.3).
(b)In Section P – Dispute Resolution, inter alia –
(i)a scheme of a compulsory conference and mediation was provided in P 1 and 2 to operate in the event of a dispute or difference between the parties arising out of or in connection with the contract. In the event of a dispute or difference either party may serve a written notice of dispute or difference, which notice would trigger the steps provided for. If those steps did not resolve the dispute or difference, 10 working days after mediation the parties must refer the matter to expert determination or arbitration. If the parties were unable to agree to such reference or select the alternative (of expert determination or arbitration) within a further 10 working days, either party may begin a court proceeding. I interpolate that neither party commenced a court proceeding. P 3 then dealt with expert determination and P 4 with arbitration. P 3 is irrelevant as the parties proceeded to arbitration. As to that, P 4 provided that any arbitration be conducted before an arbitrator agreed or nominated by the chairperson of the Victorian Chapter of The Institute of Arbitrators and Mediators Australia (“IAMA”), and in accordance with and subject to the Rules for the Conduct of Commercial Arbitrations of IAMA.
(c)In Section Q – Termination of Engagement, inter alia – if the owner defaults in making a progress payment on time or fails to meet any other substantial obligation under the contract, the contractor may give a written notice requiring the owner to rectify the default within 10 working days (Q 11). The notice must state, inter alia, that if the default is not rectified the contractor will be entitled to proceed under Q 12 to suspend the works or under Q 13 to terminate the engagement.
Moose duly entered upon construction of the works. It is apparent that disputes or differences arose because by a letter dated 3 July 2003, Moose gave Mowby notice of dispute. The letter referred to previous correspondence and stated that “Certain disputes have arisen between the parties since 11 February 2003 which are recorded as follows”. Then followed a series of items concerning:
(a)The adjustment of time, as to which it was stated that the architect had issued a certificate which adjusted the date of practical completion to 6 May 2003, that a subsequent conditional adjustment by the architect whereby Mowby could retrospectively claim damages from 25 February 2003 if the contractor did not complete by 6 May 2003 was null and void and that the works were not completed by 6 May 2003 due to delays beyond Moose’s control.
(b)The date of practical completion which, by reason of the owner having taken occupation of the works, was deemed to be 21 June 2003. Therefore the contractor disputed the notice of practical completion dated 25 June 2003 issued by the architect.
(c)Uncompleted works, concerning which the contractor disputed the architect’s assessment dated 27 June 2003.
(d)Payment. This referred to the contractor’s final progress claim lodged on 19 June 2003 for $880,799.98 and a progress payment certificate issued for a lesser amount on 30 June 2003. It was stated that the contractor claimed entitlement to be paid the difference.
In concluding, the contractor reserved the right to claim, in addition to the initial claim, for additional costs caused or incurred after the date of the initial claim on 18 June 2003. As to this “initial claim” I note that such claim was not produced to me but it is reasonable to infer that it is the claim for an extension of the date for practical completion to 19 June 2003 referred to in para 16B of the further amended points of claim in the arbitration.
Then, by letter dated 16 September 2003 Moose gave Mowby notice pursuant to Q 11 that Mowby had failed to discharge substantial obligations under the contract, as follows:
(a)It had not released 50 percent of the security within five working days after the architect’s notice of practical completion of 21 June 2003;
(b)It had not ensured that the architect, in acting as assessor, valuer or certifier, complied with the contract and acted fairly and impartially having regard to the interest of the owner and contractor;
(c)It had failed to pay the contract price pursuant to the progress claim of 19 June 2003.
The notice concluded with the statement that the contractor invoked Q 11, gave notice of default for Mowby failing to meet substantial obligations under the contract and stated that if the obligations were not met within 10 working days the contractor would be entitled to suspend the works or terminate the contract.
In fact Mowby did not remedy the alleged default and, as I was told, Moose did not purport to suspend the works or terminate the contract. Rather, the parties took the step of referring the disputes to arbitration.
For the purpose of the reference the parties by their solicitors executed an agreement to arbitrate dated 29 October 2003. It is important to note the terms of the agreement. After stating, in cl 1, that Moose and Mowby entered into the construction contract on 10 January 2002, the agreement provided as follows:
“2.Certain disputes have arisen under the Contract (‘Dispute’) and the parties now AGREE to refer the Dispute to arbitration on the following terms and conditions:
2.1the Dispute shall be referred to arbitration in the event that the parties do not reach a resolution on all the issues in dispute at the Conference on 7 November 2003;
2.2the Arbitration is to be governed by the Institute of Arbitrators and Mediators Australia (‘IAMA’) Rules for the Conduct of Commercial Arbitration (‘the Rules’);
2.3the Builder is not required to serve a Notice of Dispute to the Owner as required under Rule 2(2) of the Rules;
2.4the parties jointly call for the nomination of an Arbitrator by the IAMA in accordance with Rule 4 of the Rules;
2.5the parties agree to jointly pay the prescribed Nomination Fee of $990.00 (including GST) for the nomination of an arbitrator to the IAMA in accordance with Rule 3 of the Rules by 17 November 2003.
2.7the parties will provide the IAMA with the relevant information set out in Rule 4(1) and (2) of the Rules by 17 November 2003 to enable the IAMA to appoint an appropriate arbitrator within 10 days after receipt of the relevant information being submitted.”
The matter not having resolved, on 26 November 2003 Moose’s solicitors wrote to IAMA requesting the nomination of an arbitrator. Among other things, the letter advised that:
“3.Certain disputes have arisen under the Contract (‘the dispute’). The parties confirmed by written agreement dated 29 October 2003 (‘the Agreement to Arbitrate’) that the dispute be referred to arbitration no later than 17 November 2003 in the event that the parties fail to resolve the dispute at a conference.
4.The parties failed to resolve the dispute at the conference on 11 November 2003. Pursuant to the Agreement to Arbitrate, we now submit the dispute to arbitration.
[Then, after requesting the nomination of an arbitrator, providing details of the parties and their lawyers, enclosing Section P of the contract, the agreement to arbitrate and the nomination fee, the letter continued -]
THE NATURE OF THE DISPUTE
10.As noted in paragraph 3 herein, certain disputes have arisen between the parties under the Contract. In summary, the disputes relate to issue [sic] regarding, inter alia
10.1non-payment for certain works;
10.2incomplete works;
10.3variations
10.4liquidated damages;
10.5extension of time claims; and
10.6progress payment certificates; and
10.7Consequential damages claim.”
An arbitrator having been nominated, a preliminary hearing was held on 17 December 2003 at which the arbitrator formally entered upon the reference. In a written summary of the hearing prepared by the arbitrator it is stated that the parties confirmed that the arbitration agreement dated 29 October 2003 constituted the arbitration agreement. It was further noted that:
“5. NATURE OF DISPUTE
a)Clause 2.3 of the Agreement to Arbitrate provides that the Claimant is not required to serve a Notice of Dispute;
b)Mr Lovegrove advised that the Claimant’s position is that the issues in dispute totalling approximately $1,600,000 are broadly the issues identified in Lovegrove’s letter dated 26 November 2003 to IAMA under Section 10 headed ‘The Nature of the Dispute’;
c)Mr Magee advised that the Respondent has a counterclaim, the value and quantum of which is yet to be established.”
Mr Lovegrove and Mr Magee were the solicitors for Moose (the claimant) and Mowby (the respondent) respectively. Finally, the arbitrator directed points of claim, points of defence and counterclaim, points of reply and defence to counterclaim, provision of a timetable for the further conduct of the arbitration and fixed 20 April 2004 for the reconvening of the preliminary conference.
As directed Moose provided its points of claim in February 2004. In the absence of contrary evidence I would infer that they were provided on or by 16 February 2004 in accordance with the arbitrator’s direction. The only thing to note about the points of claim concerns the loss and damage alleged to have been suffered. It was alleged:
(a)In para 41 that by reason of the matters alleged Moose had lost the benefit of the contract and the revenue it would have otherwise received under it, being $886,155.55 made up as to $726,284 as set out in a worksheet dated 16 February 2004 and as to $159,871.55 as retention monies payable due to Mowby’s repudiation of the contract.
(b)In para 42, in the alternative, Moose’s entitlement was based on a quantum meruit.
(c)In para 43 it was alleged further that Moose had suffered consequential loss arising out of Mowby’s failure to pay Moose the amounts due and owing under the contract. These were particularised as legal costs incurred to defend Moose’s failure to pay sub-contractors, the effect on two unrelated contracts by reason of Moose’s inability to pay sub-contractors, the financial cost of loans obtained due to Mowby’s non-payment, and loss of goodwill, of all of which particulars would be provided prior to the hearing.
The relief claimed was damages, interest pursuant to cl N 15, Hungerford v Walker interest and costs.
Following closely on these points of claim, on 25 February 2004 it was ordered by this Court that Moose be wound up in insolvency and a liquidator was appointed. Doubtless the winding up status of Moose brought the arbitration to a standstill for that is what happened. Ultimately, a deed of company arrangement was entered into by the liquidator and another person as administrator of the deed on 4 October 2004, following meetings of creditors in August and September. The deed provided that management and control of Moose should revert to the directors if they (for Moose) procured indemnities from creditors of at least $100,000 for the proceeding against Mowby and $15,000 to secure payment of the outstanding remuneration and expenses of the liquidator. The deed provided for the distribution of any amount received by Moose in the proceeding. It is evident that the directors procured indemnities to at least the extent stipulated, thus enabling Moose to activate the arbitration. In the meantime Moose remains in liquidation and subject to the deed of company arrangement. At the request of counsel that I do so I said that I would grant leave to Mowby nunc pro tunc to commence and proceed with its counterclaim against Moose. I will grant leave to do so until a final award in the arbitration and thereafter as may be ordered.
On 22 March 2005 Moose filed amended points of claim. Paragraph 42 was amended and para 43A was introduced.
Mowby responded with a challenge to the arbitrator’s jurisdiction to deal with certain claims, as to which challenge the arbitrator published a ruling on 5 August 2005.
Following further directions for the conduct of the arbitration, on 16 December 2005 Mowby filed points of defence and counterclaim. It seems however that Mowby was still raising matters of jurisdiction so the arbitrator directed amended pleadings to clarify the position. The following activity then ensued.
On 17 March 2006 Moose filed further amended points of claim, a 34 page document in which the only additional relief sought was the return of the retention monies. A number of amendments were made but I note only those that alleged loss and damage. The former para 41 was amended to claim $716,804.20 as the adjusted contract price. The former para 42 was deleted. The former para 43 was amended by deleting the claim there made, and in lieu alleging that by reason of the matters in paras 28, 33A, 33, 34 and 36A–36C – which concern breaches of the contract by Mowby including failure to pay monies due – Moose was placed in liquidation. In particulars this was said to result from Mowby not ensuring that the architect act fairly and reasonably in arriving at a reasonable value for work done together with Mowby’s failure to make payment in accordance with cl N 8. Paragraph 43A was amended to allege that in the further result Moose suffered “consequential loss amounting to $1,800,739.90”. Amended particulars stated that the loss was suffered in respect of the two unrelated contracts referred to in the earlier points of claim, each of which contracts, due to Moose being placed in liquidation, were terminated by the proprietor causing Moose to lose the profit it would have earned on the job. The consequential loss is the lost profit. The prior claim for financial costs and loss of goodwill was deleted.
On 31 March 2006 Mowby filed an amended defence and counterclaim. This document, with a schedule, ran to some 48 pages. Among other things, it was alleged (in para 51) that the claims in a number of paragraphs in the further amended points of claim including paragraphs 43 and 43A were not justiciable. The counterclaim sought damages and various declarations even including that the contract itself was null and void.
On 7 April 2006 Moose filed amended points of defence to counterclaim which, among other things, asserted that paras 43 and 43A were justiciable before the arbitrator.
On 12 April 2006 Mowby advised its objections to jurisdiction and the arbitrator directed written submissions.
Pursuant to the directions, on 4 May 2006 Mowby provided a 17 page written submission on its objections to jurisdiction together with a copy of the notice of dispute and notice of default referred to above. The submission referred to numerous cases and authorities.
That was followed, on 19 May 2006, by a 14 page submission from Moose.
Not to be outdone, but without having leave to do so, on 6 July 2006 Mowby responded with a reply running to 19 pages. This was provided to the arbitrator together with copies of cases relied upon by the parties.
On 7 July 2006 the arbitrator wrote to the parties. He gave Moose leave to provide a short response to Mowby’s reply and then raised certain matters on which he gave the parties the opportunity to make submissions by 10 July 2003. Those matters were these:
(a)Neither party had provided any sworn evidence to establish the objective intention of the parties as to the dispute referred to arbitration.
(b)In their submissions neither party had referred to the letter from Moose’s solicitor dated 26 November 2003 or the arbitrator’s written summary of the preliminary conference held on 17 December 2003. Of relevance in the former was the reference in para 10.7 to a consequential damages claim. Of relevance in the latter was the reference to the advice of Moose’s solicitor that the issues were broadly those referred to in his letter. The arbitrator noted that Mowby’s solicitor had not taken issue with that reference to the nature of the dispute referred to arbitration.
Each party provided a further written submission on 10 July 2003.
It was in these circumstances that on 17 July 2006 the arbitrator provided the ruling which Mowby seeks to appeal against. The ruling runs to 30 pages and reflects a considerable effort by the arbitrator to deal with the parties’ submissions. The arbitrator concluded that he had jurisdiction to deal with all of the matters objected to by Mowby. As to the impugned paras 43 and 43A the arbitrator, noting that the consequential damage or loss was claimed to flow as damages from alleged breaches of contract by Mowby, held that the impugned claims were within the arbitration agreement as they “arise under the contract”. It is not necessary to refer to the arbitrator’s conclusion as to any other of the impugned paragraphs in Moose’s points of claim as Mowby no longer presses those objections.
The draft notice of appeal states that two questions of law arise, first as to the proper construction of the arbitration agreement dated 29 October 2003, and, secondly, as to what evidence the arbitrator should have taken into account in construing the agreement. The grounds relied upon are in four categories:
(a)Grounds 6 and 7 – in construing the agreement as to what disputes had been referred to arbitration, the arbitrator took irrelevant matters into account namely, the solicitor’s letter dated 26 November 2003, the arbitrator’s summary of the preliminary hearing and the IAMA Rules of Conduct. These were inadmissible on the objective ascertainment of the parties’ intention when they entered into the agreement.
(b)Grounds 4 and 5 – in concluding as to that intention of the parties the arbitrator erred in giving little or no weight to the notice of dispute and notice of default.
(c)Grounds 1, 2, 3 and 8 – the arbitrator erred in concluding that the consequential loss claim was a dispute that had arisen under the contract within the meaning of the arbitration agreement.
(d)Ground 9 – whereas the disputes that had arisen were all claims within the first limb of Hadley v Baxendale[8], a claim under the second limb was different and no such claim had been made at the time of the arbitration agreement. Hence no such claim had been referred. Further, the arbitrator failed to refer to the difference between the two limbs of Hadley v Baxendale.
[8](1854) 9 Exch 341 at 354.
While in essence Mowby’s contention was that the claim for consequential loss in paras 43 and 43A of the further amended points of claim was not before the arbitrator as it was not a dispute that had arisen at the time of entry into the arbitration agreement, it is necessary to note how Mowby put its argument to the arbitrator. I do so as summarily as possible.
The arbitrator’s jurisdiction arises from the arbitration agreement, cl 2 of which defined the dispute referred to arbitration as “Certain disputes [which] have arisen under the Contract”. The question, therefore, was what were those disputes, and that was to be determined regarding the matter at the date of entry into the agreement. Mowby submitted that the disputes were those set out in the notice of dispute and notice of default. As the claim for consequential damage or loss in paras 43 and 43A was not included in those notices it was not a dispute referred to arbitration and accordingly was not justiciable by the arbitrator.
This submission is clear enough, but the following was added. It was said that the claims in paras 43 and 43A were not within “the contemplation” of the parties when they entered into the agreement, perhaps hinting at the inadmissible subjective. It was said that consequential damages are not claimable in an arbitration unless within the arbitration clause, which they were not in this case. It was further said that as Moose drafted the arbitration agreement it should be construed narrowly against it.
Moose, on the other hand, submitted that the consequential loss claim was properly before the arbitrator. It was not a cause of action in itself, but damages that flowed from the alleged breaches of contract. It was submitted that arbitration clauses are to be construed liberally, as to which the arbitrator was referred to a number of cases. Emphasis was also placed on the expression “under the Contract” in cl 2 of the arbitration agreement, it being submitted that the claim for consequential loss arose under the contract and was, accordingly, a dispute referred to arbitration.
This is a sufficient reference to the submissions.
In his reasons the arbitrator, after reviewing cases, accepted Mowby’s position that in construing arbitration agreements there was no presumption for or against arbitration. Then he considered cases as to the difference in meaning of the expressions “arising under” and “arising from” in an arbitration clause, being led to this by counsel’s submissions. He noted that Mowby conceded that “arising under” was not narrower than “arising from”, this consideration evidently resulting from the submissions and case references with which the arbitrator had been provided. He reviewed cases and a text and concluded that it was not necessary to conclude that a “liberal” interpretation of the arbitration agreement was required as submitted by Moose. That was because a narrow interpretation of the agreement did not lead to the conclusion that the express terms prevented Moose from seeking consequential damages for breach of contract. I note that insofar as that conclusion was founded on the proposition that as the claim for consequential loss was comprehended by a claim for damages for the alleged breach of contract, the conclusion was open. But otherwise the arbitrator’s reasoning in paras 64 to 68 of his ruling was not apt as it was based on the consideration in other cases of differently worded arbitration clauses that rendered the reference irrelevant and the reliance erroneous.
The arbitrator then proceeded to consider Mowby’s submission that the objective intention of the parties as to the “dispute” referred was to be ascertained from the notice of dispute and notice of default. He concluded that the key question was whether the words “under the Contract” were “sufficiently elastic” to encompass the claim for consequential damages pleaded in paras 43 and 43A. Accepting Moose’s submission that the claim flowed from the alleged breaches of contract he concluded that the claim concerned “the rights and obligations created by the contract” and therefore was a claim “under the Contract”. (I interpolate that the expression “the rights and obligations created by the contract” would appear to have been derived by the arbitrator from a case referred to earlier in the ruling but which, the reference would indicate, was not apposite to the present arbitration clause.) On this analysis the arbitrator said that he was not persuaded by Mowby’s submission that the claims in paras 43 and 43A were not within the scope of the arbitration agreement.
It is to be noted that in arriving at this conclusion the arbitrator had not considered the meaning and effect of the expression “Certain disputes” in the context of the overall expression in cl 2 of the arbitration agreement and then found, as a fact, what those disputes were. Nevertheless, having reached the above conclusion he proceeded to consider further matters.
The arbitrator first considered the IAMA Rules incorporated by the arbitration agreement. He rejected Mowby’s argument that cl 2.3 of the arbitration agreement was consistent with the dispute referred to arbitration being that referred to in the notice of dispute and notice of default. The arbitrator considered that cl 2.3 read with Rules 4.1 and 4.2 – referred to at paras 82 and 83 of the ruling – suggested it was left open to a party to identify the dispute at the time of referral to arbitration. Clauses 2.2 and 2.7 of the arbitration agreement further supported this suggestion.
The arbitrator secondly considered the letter dated 26 November 2003 which, he said, appeared to be the document providing the relevant information to IAMA as contemplated by cl 2.7. Neither party had provided evidence to the contrary. Moose submitted that the letter was relevant and ought to be taken into account; Mowby submitted the contrary. The arbitrator proceeded on the basis that it was appropriate to take the letter into account. The letter, in particular para 10.7, was relevant evidence of the intention of the parties as to matters in dispute “at around the time the parties entered into the arbitration”. The words “inter alia” in para 10 disclosed an intention to summarise the issues in dispute rather than provide an exhaustive list of them. Further, Mowby’s solicitors had received the letter but apparently did not take issue with the contents. In these circumstances the letter “is extrinsic material that should be taken into account to establish the objective intention of the parties as to the composition of the dispute”.
The arbitrator then referred to a submission of Mowby that when the parties entered into the arbitration agreement the contract was still on foot and there was no “dispute” between them involving a claim for consequential damages. The arbitrator rejected the submission as incorrect on the basis that the inclusion of a consequential damages claim in the letter of 26 November 2003, which was not challenged at the preliminary conference, supported Moose’s position that:
(a)there was in fact a dispute between the parties involving consequential damages “at around the time” of the arbitration agreement, and
(b)it was irrelevant that the contract was on foot. The letter was “relatively” contemporaneous with the arbitration agreement and sent prior to the arbitrator entering upon the reference.
The arbitrator concluded that the letter supported, but did not determine, Moose’s position that the consequential damages claim was in “contemplation of the parties at the time” when they entered into the arbitration agreement. But what of the notice of dispute and notice of default, how did the arbitrator treat them? He concluded, accepting a submission of Moose, that they “should not be given the high degree of importance that Mowby contends”. He gave as the reasons for this conclusion that the notice of dispute pre-dated the arbitration agreement by several months and the provision in cl 2.3 that Moose was not required to serve a notice of dispute. He considered that the 26 November letter was the most reliable evidence of the parties’ intentions as to the matters in dispute.
The arbitrator thirdly considered the relevance of the preliminary conference. The parties approached the relevance of this as they had the 26 November letter. The arbitrator concluded that what was said at the conference supported but did not determine Moose’s claim that the claim for consequential damages pleaded in paras 43 and 43A was “in contemplation” of the parties when they entered into the arbitration agreement.
The arbitrator fourthly considered specifically paras 43 and 43A. In the course of this he accepted Mowby’s submission that when determining what dispute was referred to arbitration, one must “look ultimately” at the arbitration agreement. He also noted, correctly, that the parties had adopted a more restrictive arbitration clause than that in cl P 1 of the contract. Then, noting Mowby’s reliance on the notice of dispute and notice of default as evidencing the disputes which had arisen, the arbitrator concluded as to them that:
(a)For reasons already given, the notice of dispute was of little if any relevance on the issue.
(b)As the notice of default was clear evidence that Moose considered that Mowby had committed substantial breaches of contract, the notice was of no particular assistance to “Mowby’s position that a claim for damages for breach of contract was not in contemplation of the parties” when they entered into the arbitration agreement. The notice of default made the prospect of such a claim more probable.
The arbitrator ultimately summarised his findings on paras 43 and 43A as follows. The consequential damage or loss was claimed to flow as damages from Mowby’s alleged breach of contract. Thus they were claims that “arise under the Contract”. Implicit in this conclusion was that the claim was not an independent cause of action.
I turn to consider Mowby’s submissions as to why leave to appeal should be granted. Mowby must satisfy s 38(5)(a) and either para (i) or (ii) of sub-s (5)(b) to enliven the discretion to grant leave. Counsel primarily relied on para (i), that there was a manifest error of law on the face of the ruling.
The first question is whether s 38(5)(a) is satisfied. Mowby submitted that it was because the ruling exposed it to a claim for $1.8M which would require effort and expenditure to meet. Further, the claim was outside the arbitration agreement. Thus Mowby’s rights “could” be substantially affected. Noting the difference between “could” and “would” counsel referred to Vodafone Pty Ltd v Supercall Pty Ltd[9] where Nicholas J[10] observed that the Court is not required to consider whether the determination would, as a matter of fact, substantially affect the rights of a party, and that the ordinary meaning of the words did not suggest that the Court’s consideration should be narrowly confined.
[9][2003] NSWSC 302.
[10]At [57].
What counsel said was correct but the position needs to be examined further. All that has happened so far is that the arbitrator has ruled that the consequential damages claim is before him as part of the disputes referred. If the arbitration proceeds the arbitrator will in due course make an award which deals with the claim. Doubtless extra costs will be occasioned in meeting the claim but there will be a determination on the merits. Thus regarded, Mowby’s disadvantage is represented by the cost and effort that will be involved in meeting the claim. That is what Mowby relies on to establish that its rights could be substantially affected, but is that sufficient?
It was common ground between counsel that if the arbitrator’s ruling is set aside with the result that he does not have power to determine the consequential damages claim in paras 43 and 43A, Moose could raise the claim in another arbitration initiated pursuant to the contract or in a proceeding in court. There is no reason to suppose that Moose would not take steps to do so. In that event the likelihood is that it would choose arbitration and with the present or another appropriate person being nominated to arbitrate the dispute. If the present arbitrator did not arbitrate the dispute the parties would have the cost and expense of a separate arbitral (or curial) proceeding with the attendant effort and cost. The ultimate result would be a determination of the claim which will happen in the present arbitration if the ruling stands.
Whether the rights of a party could be substantially affected is a question of fact in the particular circumstances. What Mowby seeks to achieve is not so much the protection of a right as a tactical advantage. Doubtless the hope is that Moose will not have the resources to initiate a further arbitration or court proceeding if the ruling is set aside. In that event Mowby will be saved the risk and cost of the consequential damages claim. But on no basis has it lost a “right”. Its right to oppose the claim remains unaffected, substantially or otherwise, if the ruling is or is not set aside.
In these circumstances I am not satisfied that the determination of the question of law could substantially affect Mowby’s rights. Having failed to satisfy s 38(5)(a) the application for leave must fail. In view however of the arguments, and because it may be helpful, I will say something about the case under s 38(5)(b).
It can be said at once that sub-s (5)(b)(ii) is not satisfied for the reason alone that the determination of the question of law would not add, or be likely to add, substantially to the certainty of commercial law. The case concerns the construction of a one-off arbitration clause and its application in light of the relevant facts and circumstances. Insofar as any principles of law are concerned in the determination of the question, the relevant law is well-established and not in doubt and could not be affected by the decision on an appeal in this case. Indeed, counsel for Mowby put it only that the determination of the question would confirm the application of existing law to an arbitration agreement. That is not sufficient to satisfy sub-s (5)(b)(ii). It is not necessary to consider the other requirement of para (ii).
That leaves the requirement in sub-s (5)(b)(i) of a manifest error of law on the face of the ruling.
I have already referred to the questions of law and the grounds stated in the draft notice of appeal. Mowby’s submissions to me ran along the following lines.
First, in construing the arbitration agreement in order to determine what disputes had been referred, it is necessary to consider the entire expression “Certain disputes have arisen under the Contract” in light of the relevant facts and circumstances, and not to regard alone or with undue emphasis the words “under the Contract”. The narrow language chosen by the parties confined the reference to particular aspects of disputes, with the result that other aspects of the disputes were excluded from the arbitration. Further, even if it could be said that the consequential damages claim arose under the contract because it flowed from non-payment in breach of the contract, it was not a dispute that had arisen within the meaning of the arbitration agreement, and it could not have been, because the entry into liquidation – being the event relied on to found the claim in paras 43 and 43A – occurred subsequent to entry into the agreement. For these reasons the arbitrator had misconstrued and misapplied the arbitration agreement.
Secondly, in deciding what disputes were referred to arbitration by the arbitration agreement, the arbitrator should have confined himself to the conduct of the parties leading to the entry into the agreement. In not doing so the arbitrator proceeded contrary to the principle that post-contractual conduct is not admissible on the question of what the contract means. See FAI Traders Insurance Company Ltd v Savoy Plaza Pty Ltd[11]; Ryan v Textile Clothing & Footwear Union of Australia[12]; Brambles Holdings Ltd v Bathurst City Council[13]. Wrongly, in construing the arbitration agreement the arbitrator took into account the letter of 26 November 2003, statements at the preliminary conference and the IAMA Rules.
[11](1993) 2 VR 343.
[12][1996] 2 VR 235.
[13](2001) 53 NSWLR 153.
Further, on the matter of deciding what disputes had been referred to arbitration, the arbitrator erred in placing little or no weight on the notice of dispute and notice of default. The following matters pointed to their relevance on this matter: the consistency of language in the notice of dispute and the arbitration agreement and that the notice of default related to matters in the notice of dispute, which indicated that those notices identified the subject dispute. It was thus not surprising that the arbitration agreement excluded the requirement of a notice of dispute.
As to these submissions and the reasoning of the arbitrator, I make the following observations.
The arbitrator first had to consider the proper construction of the clause in the arbitration agreement that referred the disputes to arbitration. Having done so he then had to decide what disputes were referred by that clause.
As to the first issue, it is axiomatic in law that the question of construction was to be resolved as at the time when the agreement was entered into, and not by reference to subsequent matters. It was not suggested that the arbitration agreement was subsequently varied by agreement of the parties. The terms and tense of the expression “Certain disputes have arisen under the Contract” referred as clearly as may be to disputes that had arisen to the date of the agreement and not to future disputes that may thereafter arise. The clause then stated as clearly as may be that those presently arisen disputes were referred to arbitration. At least insofar as the claim in paras 43 and 43A were concerned the words “under the Contract” added nothing and the submissions and reasoning in that regard were beside the point.
Thus construed the question was, what were the “Certain disputes” which were referred to arbitration. This was a question of fact, and was to be determined on an objective consideration of the relevant facts. As I have said, there was no suggestion that the parties subsequently agreed to add further disputes to the reference. What, then, did the arbitrator have as evidence of what the parties, objectively considered, intended by their reference to “Certain disputes”.
The parties did not assist the arbitrator with evidence on the issue. I was told, and accept, that all the arbitrator had by way of pre-agreement advice of a dispute was the notice of dispute and notice of default. Those documents were provided to him and he considered them. On their terms, and read with the arbitration agreement, the two notices bespoke notification of disputes which had arisen within the comprehension of the arbitration agreement. They were, self-evidently, objective evidence of that which the parties intended by their agreement to refer to arbitration. Plainly, it was the best evidence the arbitrator had. Putting it at the least, I cannot understand how the arbitrator could have considered that the notices ought be given little if any weight. There was, with respect, no rational basis for that view. It is sufficient to say of the letter of 26 November and the arbitrator’s summary of what occurred at the preliminary hearing that they were not admissible on the construction of the arbitration agreement and were post-agreement statements by one party which, even if not disputed, could not affect the decision as to what disputes had arisen prior to entering into the arbitration agreement and which by that agreement were referred to arbitration. Furthermore, the language in para 10.7 and the arbitrator’s summary of the preliminary hearing was significantly non-specific when compared to the claim now made in paras 43 and 43A, and in the circumstances could not have referred to that claim. In all of this it was not a question of what was in the “contemplation” of one or both parties “at around the time” of entering into the arbitration agreement. The questions were, objectively considered at the time of entry into the arbitration agreement, what did the parties agree to refer, which turned on the proper construction of the reference clause, and what were the disputes advised to that date.
Considered overall it is apparent that at several points the arbitrator fell into error in his reasoning, including on the proper approach in law to construing the arbitration agreement and in taking account of irrelevant matters in determining what disputes had arisen. Nevertheless, the ultimate question as to what disputes were referred was a question of fact, not law. As such, any error of the arbitrator in that regard is not appealable under s 38(5).
Let it be assumed, however, that on the question as to what disputes were referred there is a manifest error of law on the face of the ruling. Even on those assumptions, and assuming s 38(5) was satisfied, I would not grant leave to appeal. That is because, in my view, it was open, indeed correct, for the arbitrator to conclude that the claim for consequential damages was within the reference as being damages flowing from the alleged breach of contract. The analysis is this. By the arbitration agreement the parties referred certain disputes to arbitration. At that time the disputes were not identified as in the manner of points of claim. The areas of dispute were known but not in the detail that would find expression in terms of liability and relief in points of claim. What was clear though was that Moose’s claim lay in contract the remedy for breach of which would lie in specific relief pursuant to a clause or clauses in the contract and/or damages. Subject to any special provision in the contract, and none is suggested, damages could be awarded under the principles in Hadley v Baxendale as expounded and explained in the cases. There are two limbs to the principles stated in Hadley v Baxendale, the second relating to what may be called consequential damages or loss which would include the consequential damages claimed by Moose. Whether the damages be sought under the first or second limb of Hadley v Baxendale, the claim for damages is not a cause of action in itself but relief claimed in respect of the alleged breach. For these reasons, it was open to Moose to claim damages as part of its relief in respect of the breaches of contract alleged in its points of claim when they were provided. It is not suggested by Mowby that the breaches alleged in the points of claim are outside the disputes referred to arbitration. Nor does it matter that Moose went into liquidation subsequent to the arbitration agreement. That is for the above reasons and the further reason that damage is not an essential element of the cause of action in contract. Thus the actual damage now claimed was not required to have been suffered at the time of entry into the arbitration agreement. Indeed, it is in the nature of things that in terms of damages the full impact of a breach may not become apparent for some time.
It is for these reasons that in my view it was open to the arbitrator to rule that he had jurisdiction to decide the claim for consequential damages. Indeed, in my view that was the correct decision. In these circumstances, even if it be assumed that there was a relevant manifest error of law (as distinct from fact) on the face of the ruling, it would not be appropriate, in the exercise of discretion, to grant leave to appeal. In any event, of course, any question of granting leave is precluded by the non-satisfaction of s 38(5)(a).
The result of these reasons is that the application for leave to appeal must be refused.
Subject to anything that counsel may say I will order that the plaintiff have leave nunc pro tunc to commence and proceed with a counterclaim in the arbitration between the parties up to and including a final award but not thereafter to enforce the award if in its favour without further leave, that the proceeding be dismissed, and that the plaintiff pay the defendant’s costs of the proceeding including reserved costs.
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