Neirin Pty Ltd v D&M Amonini Pty Ltd
[2014] WASC 401
•29 OCTOBER 2014
NEIRIN PTY LTD -v- D&M AMONINI PTY LTD [2014] WASC 401
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2014] WASC 401 | |
| 29/10/2014 | |||
| Case No: | ARB:3/2014 | 19 AUGUST 2014 | |
| Coram: | MARTIN CJ | 19/08/14 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Application for leave to appeal granted Appeal allowed Matter remitted to arbitrator for determination | ||
| B | |||
| PDF Version |
| Parties: | NEIRIN PTY LTD D&M AMONINI PTY LTD |
Catchwords: | Commercial arbitration Leave to appeal from arbitrator's decision Award of costs Whether arbitrator required to exercise discretion Turns on own facts |
Legislation: | Commercial Arbitration Act 1985 (WA), s 34, s 38 Commercial Arbitration Act 2012 (WA), s 43 |
Case References: | ASIC v Atlantic 3-Financial (Aust) Pty Ltd [2006] QCA 540; [2007] 2 Qd R 399 D & Z Constructions Pty Ltd v IHI Corporation [2013] WASC 265 Langley v Foster [1906] HCA 28; (1906) 4 CLR 167 Re the Small Claims Act 1974 and Re An Application of Leave to Appeal Eric K Schick v Vinko Mijoc and Sylvia Mijoc [1993] ACTSC 90 Walker v Clough Property Claremont Pty Ltd [2010] WASCA 232 (S) |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Applicant
AND
D&M AMONINI PTY LTD
Respondent
Catchwords:
Commercial arbitration - Leave to appeal from arbitrator's decision - Award of costs - Whether arbitrator required to exercise discretion - Turns on own facts
Legislation:
Commercial Arbitration Act 1985 (WA), s 34, s 38
Commercial Arbitration Act 2012 (WA), s 43
Result:
Application for leave to appeal granted
Appeal allowed
Matter remitted to arbitrator for determination
Category: B
Representation:
Counsel:
Applicant : Mr P J Hannan
Respondent : Mr P Lafferty
Solicitors:
Applicant : Young & Young
Respondent : Kings Park Corporate Lawyers
Case(s) referred to in judgment(s):
ASIC v Atlantic 3-Financial (Aust) Pty Ltd [2006] QCA 540; [2007] 2 Qd R 399
D & Z Constructions Pty Ltd v IHI Corporation [2013] WASC 265
Langley v Foster [1906] HCA 28; (1906) 4 CLR 167
Re the Small Claims Act 1974 and Re An Application of Leave to Appeal Eric K Schick v Vinko Mijoc and Sylvia Mijoc [1993] ACTSC 90
Walker v Clough Property Claremont Pty Ltd [2010] WASCA 232 (S)
- MARTIN CJ: (This judgment was delivered extemporaneously on 19 August 2014 and has been edited from the transcript.)
1 This is an application by Neirin Pty Ltd pursuant to s 38 of the Commercial Arbitration Act 1985 (WA) (the Act), seeking leave to an appeal against an award handed down by Dr John Hockley, the arbitrator, in an arbitration which was conducted between Neirin Pty Ltd (Neirin), Ms Sue Rigg, a director of Neirin, and D&M Amonini Pty Ltd (Amonini), which is the respondent to these proceedings.
2 The arbitration related to a parcel of land at premises known as 88 King Road, Bunbury, and a building which was constructed on those premises for use by Neirin. The premises were owned by Amonini, and the building was purpose-built for use by Neirin, and a building contract was entered into by Amonini for that purpose.
3 The arbitration was conducted between Amonini as applicant, by Neirin as respondent, and also by Ms Sue Rigg as second respondent. Ms Rigg was joined to the proceedings because she was a guarantor under the lease of the premises between Neirin and Amonini.
4 The arbitration was conducted pursuant to the provisions of the Act, and so it is common ground that, pursuant to the transitional provisions contained within the Commercial Arbitration Act 2012 (WA),1 the Act continues to govern the rights of the parties with respect to relief against the award, and, in particular, with respect to the grant of leave to appeal from that award.
5 The principles that govern the grant of leave to appeal pursuant to s 38 of the Act have been dealt with in a number of cases. I endeavoured to summarise those principles in my decision in D & Z Constructions Pty Ltd v IHI Corporation:2
There are a number of general principles which govern the grant of leave to appeal from the award of an arbitrator in an arbitration governed by the Act. The principles pertinent to this application for leave may be summarised as follows.
1. An appeal lies on a question of law 'arising out of an award' (Act, s 38(2)).
2. The subject matter of any appeal is confined to questions of law (Westport Insurance Corporation v Gordian Runoff Ltd [2011] HCA 37; (2011) 244 CLR 239 [27] (Westport Insurance)).
3. The scheme of the Act is to hold parties to their agreement to accept factual findings made by arbitrators (Westport Insurance [27]).
4. In the absence of the consent of all parties to the arbitration agreement, an appeal can only be brought with the leave of the court (Act, s 38(4)).
5. Leave cannot be granted unless the court considers that the determination of the question of law concerned could substantially affect the rights of at least one of the parties to the arbitration agreement, and either:
(a) there is a manifest error of law on the face of the award; or
(b) there is strong evidence that the arbitrator 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 (Act, s 38(5)).
6. The requirement that the error of law be manifest on the face of the award means that it must be apparent to that understanding by a reader of the award (Westport Insurance [42] (French CJ, Gummow, Crennan and Bell JJ), [163] (Kiefel J)).
7. The requirement that the error be manifest on the face of the award does not import a requirement that the error of law have a particular quality or character, so as to include only facile errors, and exclude complex errors (Westport Insurance [45] (French CJ, Gummow, Crennan and Bell JJ), [163] (Kiefel J)).
8. Even if the statutory requirements for the grant of leave are satisfied, the court retains a residual discretion to refuse leave (Westport Insurance [38] (French CJ, Gummow, Crennan and Bell JJ), [165] (Kiefel J)). That discretion will be exercised having regard to 'the rival merits of assured finality on the one hand and upon the other the resolution of doubts as to the accuracy of the legal reasoning followed by the arbitrator' (Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724, 739 (Lord Diplock), cited with approval in Westport Insurance [38]). Other matters to be taken into account when deciding whether leave should be granted (assuming the statutory requirements are satisfied) include the character or quality of the error of law (Westport Insurance [47]), whether the rights of the parties will be substantially affected by the determination of the question of law (Westport Insurance [165]), and all the circumstances of the case (Westport Insurance [29], [165]; Qantas Airways Ltd v Joseland and Gilling (1986) 6 NSWLR 327, 333 (McHugh JA)).
There are a number of cases decided prior to the decision of the High Court in Westport Insurance in which observations have been made to the effect that in order to obtain leave on the basis of manifest error of law 'the error of law must be evident and obvious, rather than merely arguable', (Anaconda Operations Pty Ltd v Fluor Australia Pty Ltd [2003] VSC 275 [88] (Dodds-Streeton J)), evident 'upon a mere perusal of the reasoned award itself without the benefit of adversarial argument' (The Nema 742 (Lord Diplock) or that '[t]here should … before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law' (Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203, 225 - 226 (Sheller JA)), or that the requirement that the error be manifest 'requires swift and easy persuasion and rapid recognition of the suggested error' (Natoli v Walker (1994) 217 ALR 201, 215 (Kirby P)). There must be considerable doubt as to whether those observations survive the decision of the High Court in Westport Insurance to the effect that the requirement that the relevant error be manifest does not import any particular quality of error, or exclude complex errors, and therefore, implicitly, errors which can only be demonstrated following complex argument. However, it is unnecessary to resolve this issue for the purposes of this case, as the argument advanced for and against the application for leave was relatively constrained.
6 In this case, the particular agreement that was the subject of the arbitration proceedings, and the issues that arose in the course of those proceedings, and the issues that have been ventilated in support of the application for leave to appeal, are entirely idiosyncratic and particular to these parties. There is no issue of law which could add substantially to the certainty of commercial law raised in any of the aspects of the grounds of appeal.
7 It follows that the only basis upon which I could grant leave to appeal is if there is manifest error of law on the face of the award, and, having regard to the circumstances, the determination of that question of law could substantially affect the rights of one or more parties to the arbitration agreement.
8 It was for that reason that I did not admit any evidence, other than the evidence of Ms Rigg, which explained the context in which the arbitration was conducted, and the amount in general terms of the legal costs which Neirin incurred by participating in the arbitration, and the award itself, which includes the arbitrator's reasons for the award. The question before me is whether there is manifest error on the face of that award.
9 The grounds of appeal relate to two issues only, and for that reason it is unnecessary to go into detail with respect to the dispute or the issues that were ventilated before the arbitrator, or the general reasons which he gave in relation to those issues.
10 The first issue which is raised by grounds 1 and 2 of the appeal concerns the arbitrator's award with respect to costs.
11 The arbitrator commenced his reasons, which are incorporated in the award, by referring to cl 28.2(a) of the lease, which contained the arbitration agreement. That clause is in the following terms, and I quote:
Except as otherwise provided, any dispute arising out of this Lease is to be determined by a single arbitrator under the provisions of the Commercial Arbitration Act 1985, and the Lessor and Lessee may each be represented at their own cost and expense by a legal practitioner of their choice[.]
12 After providing reasons for his substantial determination and finding that an amount of $94,502.75 should be paid by Amonini to Neirin, the arbitrator concluded at [239] of the reasons of his award that:
In accordance with clause 28.2(a), each party is to pay its own costs of the arbitration.
13 That is the entire content of the reasons of the arbitrator relating to his award of costs. It is necessary to put those reasons in the context of s 34 of the Act. Section 34(1) provides that:
Unless a contrary intention is expressed in the arbitration agreement, the costs of the arbitration (including the fees and expenses of the arbitrator or umpire) shall be in the discretion of the arbitrator or umpire, who may -
(a) direct to and by whom, and in what manner the whole or any part of those costs shall be paid;
(b) tax or settle the amount of costs to be so paid or any part of those costs; and
(c) award costs to be taxed or settled as between party and party or as between solicitor and client.
14 Section 34(3) of that section also provides:
A provision in an arbitration agreement (being an arbitration agreement that provides for the reference of future disputes to arbitration) is void if -
(a) it is to the effect that a particular party or the parties to the agreement shall in any event pay their own costs of the arbitration or any part of those costs; or
(b) except in so far as it relates to a right of indemnity or a right of subrogation - it is to the effect that a particular party to the agreement shall in any event pay the costs of any other party or any part of those costs.
15 There is a tension apparent on the face of those two provisions of s 34. The tension arises because of the prefatory words to subsection (1), which stipulates, 'Unless a contrary intention is expressed', connoting that it is possible for the parties to contract out of the discretion with respect to costs. That notion is, on its face, inconsistent with subsection (3). But if subsection (3) is read as relating only to arbitration agreements that provide for the reference of future disputes, that tension disappears. Accordingly, this tension is to be resolved by construing subsection (3) of that paragraph as providing only for the case in which an arbitration agreement provides for the reference of future disputes to arbitration, and as not extending to the case in which there is a present dispute and an arbitration agreement is entered into in respect of that present dispute.
16 This was the view expressed by Higgins J in the Supreme Court of the Australian Capital Territory in Re the Small Claims Act 1974 and Re An Application of Leave to Appeal Eric K Schick v Vinko Mijoc and Sylvia Mijoc,3 and I respectfully agree with that view.
17 The applicant for leave submits that there is manifest error on the face of the award, because the arbitrator has construed s 28.2(a) of the arbitration agreement as excluding any discretion with respect to costs. The appellant submits that, consistently with conventional principles of contractual construction, the provision in the agreement should be construed so as to give it some effect,4 and in this case, that means construing it in such a way as to not invoke the operation of s 34(3), which would render it void if it did exclude the discretion with respect to costs, because this is an arbitration agreement in which future disputes were to be referred to arbitration.
18 Consistently with that approach to contractual construction, the applicant says the proper construction of cl 28.2 is that, insofar as it refers to the payment of legal costs, it refers to the obligation to pay those costs in the first instance, and has nothing to say with respect to the awarded amount as between party and party, which reflects the costs which they actually incurred. The applicant submits that construction is also supported by the natural and ordinary meaning of the provision itself, because it refers to the payment to be made by the parties to their legal representatives, whereas, of course, an award of costs by an arbitrator following the arbitration is an award of an amount to be paid by one party to the other.
19 Alternatively, the applicant submits that if the proper construction of cl 28.2(a) is to deprive the arbitrator of the discretion to which reference is made in s 34(1) of the Act, it is rendered void by the operation of s 34(3). On either view, the applicant says the arbitrator had a discretion which he failed to exercise.
20 The respondent's answer to that contention does not contest the legal propositions which lead to the conclusion that the arbitrator had a discretion which he was bound to exercise. The respondent's only answer to that contention is to submit that it should be inferred from the reasons that the arbitrator did in fact exercise his discretion, and decided that, having regard to all the circumstances, this was an appropriate case in which each party should bear their own costs.
21 I cannot accept that submission. The arbitrator is an experienced legal practitioner. He had made an award substantially in favour of the current applicant, Neirin. He would no doubt have been aware of the general principle to the effect that costs follow the event.5 Had he decided to depart from that general principle in the exercise of his discretion, it is, I think, inevitable that he would have given reasons for departing from that general principle.
22 He gave no such reasons, but instead justified his decision that each party pay its own costs of the arbitration exclusively by reference to cl 28.2(a). In those circumstances, it must be concluded that he thought that the effect of that clause was to deprive him of a discretion with respect to costs. The parties are agreed that, in that respect, he was mistaken, and that on any view of the legal provisions, he did have a discretion which he was obliged to exercise.
23 For those reasons I conclude that there is manifest error on the face of the award with respect to the arbitrator's decision to make no award with respect to the costs of the arbitration. Ms Rigg deposes to the fact that she spent more than $250,000 on legal expenses in relation to the arbitration, and it is submitted that given the normal rule with respect to costs following the event it could be anticipated that she would receive some substantial part of those costs if an award was made in her favour.
24 Of course, I have no way of knowing whether that will be the case when the arbitrator does exercise his discretion, or what the costs will tax out at if those costs do go to taxation. For present purposes, however, it is only necessary for me to be satisfied that the determination of the question of law could substantially affect the rights of a party. It is not necessary for me to determine that the determination of the question of law will necessarily substantially affect the rights of one of the parties. Given the amount of legal costs that Ms Rigg has paid and the general rule it seems to me that this is a question of law which if resolved could substantially affect the rights of Neirin.
25 Finally, I must consider whether there is any discretionary reason why I should not exercise the power to grant leave to appeal. I am unaware of any reason which would activate that discretion. There does seem to have been a manifest error and it could substantially affect the rights of one of the parties.
26 The issue is a relatively short and the discrete one, and the matter can be sent back to the arbitrator on the basis that the part of his award dealing with the costs of the arbitration be set aside and with a direction that he exercise his discretion with respect to costs. That will not require of the parties, one would imagine, any substantial further expense. For that reason I do propose to grant leave to appeal in respect of ground 1 of the proposed grounds of appeal. Counsel for the respondent Amonini fairly concedes that if leave to appeal is granted there is nothing he could usefully add in opposition to the appeal, and in those circumstances it is appropriate to go on and deal with the appeal.
27 For the same reasons I have just given, I will not only grant leave to appeal but I will grant the appeal, and set aside that part of the arbitrator's award in which he determined no order as to costs should be made and remit the matter to him for further consideration with the direction that he exercise his discretion with respect to costs.
28 Ground 2 falls away after ground 1 is allowed, because ground 2 then becomes irrelevant. Ground 2 is concerned with an alleged departure from the principles of procedural fairness with respect to costs. Accordingly, it is unnecessary to determine that ground once the decision with respect to costs is set aside and the matter is remitted to the arbitrator.
29 Further, ground 5 was abandoned. Therefore it is only necessary to determine grounds 3 and 4, which relate to another quite separate issue in the case.
30 It is not pellucidly clear from the arbitrator's reasons precisely how the issue arose, but it seems, doing the best one can from the terms of the award, that the arbitrator concluded that Amonini was fraudulent in its dealings with Neirin, and in particular fraudulently represented that the building that was to be constructed was constructed at a cost of $700,000 when the actual cost of construction was significantly less.
31 Whether or not fraud was pleaded, or whether or not fraud was an issue between the parties is not as issue that is relevant to the matters that I need to determine. It seems that the arbitrator was proceeding to assess damages that he would award for deceit and in that context attempted to evaluate the true cost of the construction of the building. In that context, at [211] of his award he records his finding that Mr David Amonini, a shareholder of the respondent, was to undertake part of the construction work himself to the knowledge of Ms Rigg, who as I have indicated was the principal of Neirin in relation to this transaction.
32 A third party had quoted an amount of $116,000 for the performance of those works undertaken by Mr Amonini. The arbitrator then went on to attempt to value the real cost of those works as performed by Mr Amonini, or perhaps the real value of those works in the context of his earlier finding that Amonini had fraudulently deceived Neirin with respect to the cost of construction. At [212] - [216] he set out his reasons for concluding that the true value of those works was $40,000, rather than $116,000.
33 He brought that conclusion to account when assessing the true value or true cost of construction of the works which then, if applied to the agreement which the parties had made with respect of the calculation of the rent payable under the lease, would have reduced that rent. Ground 3 as amended asserts that there was no evidence to sustain the arbitrator's finding that the true value of those works, or true cost of those works, was $40,000.
34 That question must be determined solely on the face of the award because there is no question of law, the resolution of which would add substantially to the certainty of commercial law arising from these propositions. However, on the face of the award the arbitrator has referred to evidence upon which he has relied for his conclusion that the proper cost to allow for the value of those works performed by Amonini is $40,000. There is only a question of law which can be the subject of ground of leave to appeal if there is no evidence capable of sustaining a finding by an arbitrator.
35 Where there is some evidence capable of sustaining that finding no question of law is involved, rather the question is one of fact. It is clear from the face of the award that there was some evidence upon which the arbitrator relied to arrive at his conclusion that the true value or cost of those works was $40,000, from which it follows that there is no question of law and therefore nothing which could enliven the jurisdiction of this court to grant leave to appeal.
36 Ground 4 asserts another error on the part of arbitrator and that is an alleged confusion by the arbitrator between cost and value. In other words, the proposition is that the arbitrator should have approached the question of the value of the works done by Mr Amonini by reference to their cost, that is amounts paid by Amonini, rather than by reference to their value, that is, the value of the works performed by Mr Amonini. The difficulty with that submission is that it has to be placed in the context of what the arbitrator was doing. He was assessing damages for deceit. In that context he found that Ms Rigg, and therefore Neirin, was aware that some part of the works were to be performed by Mr Amonini.
37 It is also implicit from his reasons that it was not the contemplation of the parties that no value or cost would be attributed to those works. In other words, he found that so far as the tenant was concerned, it was not contemplated that they would effectively get those works for free. What the arbitrator was doing was finding what the true cost or value of those works was in a context in which he found that Neirin was aware that some of the work would be performed by Amonini, and that the true cost or value of those works would be brought to account in the assessment of the rental.
38 For that reason there is no error of law manifest on the face of the award of the kind proposed by ground 4. It follows that for those reasons leave to appeal should be refused in respect of grounds 2 - 5.
39 The question then arises as to what should be done with respect to the costs of this application, which has partly succeeded and partly failed. It seems to me that the proper exercise of the discretion with respect to the costs of this application must await the remission of the matter to the arbitrator and his determination of just how he should exercise his discretion with respect to costs.
40 That is because if it transpires that in fact the resolution of the question of law has not substantially affected the rights of one or other of the parties, that could significantly influence the proper exercise of the discretion with respect to the costs of these proceedings. It seems to me that the proper course is to grant leave to appeal in respect of ground 1 and to allow the appeal on that ground, to set aside that part of the arbitrator's award in respect of which he made no order as to costs, to remit the matter to the arbitrator for further consideration of the exercise of his discretion, and to adjourn the question of the costs of these proceedings sine die.
1 s 41.
2 [2013] WASC 265 [2] - [3] (Martin CJ).
3 [1993] ACTSC 90 [34] - [36].
4Langley v Foster [1906] HCA 28; (1906) 4 CLR 167, 180 - 181 (Griffith CJ); ASIC v Atlantic 3-Financial (Aust) Pty Ltd [2006] QCA 540; [2007] 2 Qd R 399 [66] (McMurdo J).
5Walker v Clough Property Claremont Pty Ltd [2010] WASCA 232 (S) [3].
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