Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd - [2017] SASC 69

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
OTTOWAY ENGINEERING PTY LTD v ASC AWD SHIPBUILDER PTY LTD
[2017] SASC 69
Judgment of The Honourable Justice Blue
12 May 2017
ARBITRATION - THE AWARD - APPEAL OR JUDICIAL REVIEW - PROCEDURE - APPEALS AND LEAVE TO APPEAL - LEAVE TO APPEAL FROM DECISION OF ARBITRATOR - QUESTION OR ERROR OF LAW
ARBITRATION - THE AWARD - APPEAL OR JUDICIAL REVIEW - GROUNDS FOR REMITTING OR SETTING ASIDE - ERROR OF LAW
ARBITRATION - THE SUBMISSION AND REFERENCE - DISPUTE OR DIFFERENCE WITHIN THE MEANING OF AN ARBITRATION CLAUSE
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - RIGHT OF APPEAL - WHEN APPEAL LIES - ERROR OF LAW - PARTICULAR CASES INVOLVING ERROR OF LAW - FAILURE TO GIVE REASONS FOR DECISION - ADEQUACY OF REASONS
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - THE CONTRACT - CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS - IMPLIED TERMS
Application for leave to appeal against arbitration award.
In 2009 the parties entered into a contract for pipe fabrication and assembly. The contract included clause 25 providing for disputes to be referred to and finally resolved by arbitration in accordance with the IAMA Rules.
In 2016 the respondent served a notice of arbitration claiming $387,266 reimbursement of its capital contribution for the purchase of certain equipment. The appellant cross-claimed $1,045,469 for additional overhead expended in carrying out the works. The parties attended a preliminary conference with the arbitrator. It was agreed that there was no written agreement that any questions should not be determined in accordance with law.
The arbitrator ultimately made an award accepting the respondent’s claim and dismissing the appellant’s cross claim. The appellant seeks leave to appeal against the award on the ground that the arbitrator erred in law by not providing reasons or sufficient reasons for key findings.
When the parties entered into the contract in 2009, the Commercial Arbitration and Industrial Referral Agreements Act 1986 created a right of appeal against an award on an opt-out basis. When the Commercial Arbitration Act 2011 was enacted, it created a similar right of appeal but on an opt-in basis such that a right of appeal only existed if the parties agreed that an appeal may be made.
The respondent denies that the parties agreed that an appeal may be made. The appellant contends that the parties so agreed either at the preliminary conference in 2016 or as an implied term of their contract in 2009.
The appellant contends that the arbitrator’s decision is either obviously wrong or open to serious doubt and the question is one of general public importance.
Held:
1. The parties did not agree at the preliminary conference in April 2016 that an appeal may be made against an award (at [23]).
2. It was an implied term of the contract made in 2009 that an appeal may be made against an award (at [59]).
3. The arbitrator’s decision is not obviously wrong but it is open to serious doubt by reason of the alleged failure to give reasons for key findings (at [134]-[135]).
4. The question of law is a question of general public importance (at [136]).
5. The other criteria for grant of leave to appeal are satisfied and the discretion should be exercised to grant leave (at [139]-[141]).
6. Leave to appeal granted (at [142]).
Commercial Arbitration Act 1984 (NSW) s 29; Commercial Arbitration Act 1984 (Vic) s 29; Commercial Arbitration Act 2010 (NSW); Commercial Arbitration Act 2011 (SA) s 28, 31, 34A; Commercial Arbitration and Industrial Referral Agreements Act 1986 (SA) s 22, 38, 40; Insurance Act 1902 (NSW) s 18A; Misrepresentation Act 1972 (SA) s 7, referred to.
Ashjal Pty Ltd v Elders Toepfer Grain Pty Ltd [2012] NSWSC 545; Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2 [1981] 2 Lloyd’s Rep 130; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2008) 230 CLR 89; Gordian Runoff Limited v Westport Insurance Corporation (2010) 267 ALR 74; Heimann v The Commonwealth (1938) 38 SR(NSW) 691; Oil Basins Ltd v BHP Billiton Ltd (2007) 18 VR 346; Westport Insurance Corporation v Gordian Runoff Limited (2011) 244 CLR 239, discussed.
Ambassador at Redcliffe Pty Ltd v Barreau Peninsula Property Pty Ltd (2006) 202 FLR 459; Ceneavenue Pty Ltd v Martin (2008) 106 SASR 1; Collins v Djunaedi [2016] SASCFC 48; Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696; Hawkins v Clayton (1988) 164 CLR 539; Indigo Financial Money Pty Ltd v Moustrides (2010) 245 FLR 331; Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust (1994) 63 SASR 444; Mackay Sugar Ltd v Sugar Australia Pty Ltd [2013] QSC 233; Mericka v Rathbone (2016) 125 SASR 563; Morris v R (1987) 163 CLR 454; Natoli v Walker (1994) 217 ALR 201; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Pioneer Concrete (SA) Pty Ltd v Jennings Group Ltd (1991) 161 LSJS 332; Placer Development Ltd v The Commonwealth (1969) 121 CLR 353; Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203; Proude v Visic (No 4) (2013) 117 SASR 560; Ruzehaji v Commissioner of the Australian Federal Police (No 2) [2016] SASCFC 24; Thaler v Amzalak (No 2) [2013] NSWSC 632; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Trollope & Coles Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601; White v R (1962) 107 CLR 174, considered.

OTTOWAY ENGINEERING PTY LTD v ASC AWD SHIPBUILDER PTY LTD
[2017] SASC 69
Civil

BLUE J: This is an application for leave to appeal against an arbitration award under section 34A of the Commercial Arbitration Act 2011 (the Act).
On 4 September 2009 the defendant ASC AWD Shipbuilder Pty Ltd (ASC) and the plaintiff Ottoway Engineering Pty Ltd (Ottoway) entered into a pipe fabrication and assembly agreement (the contract). The contract recited that ASC was a shipbuilder which had entered into a contract with the Commonwealth to construct air warfare destroyers. It recited that Ottoway was capable of providing the services by way of pipe fabrication and assembly for which the contract provided. The contract was for an initial term of two years, with ASC having two rights to renew for two years each. The remuneration payable to Ottoway was based on fixed rates for fabrication and hourly rates for assembly, with total remuneration expected to be multiple millions of dollars.
Clause 25 of the contract provided that, if a dispute arising out of or in connection with the contract arose and was not resolved at a mandatory settlement conference, the dispute was to be referred to and finally resolved by arbitration in accordance with the rules of the Institute of Arbitrators & Mediators Australia for the Conduct of Commercial Arbitrations (the IAMA Rules).
When the parties entered into the contract, commercial arbitrations were governed by the Commercial Arbitration and Industrial Referral Agreements Act 1986 (the 1986 Act). Section 38 conferred on a party to an arbitration agreement a right of appeal to the Supreme Court on a question of law arising out of an award, subject to leave of the Court or the consent of all parties. Subsection 40(1) precluded the grant of leave if an agreement in writing between the parties excluded the right of appeal. This was an “opt out” regime whereby the parties could agree to opt out of the existence of rights of appeal against awards.
On 1 January 2012 the Act came into force and repealed the 1986 Act. Subsection 34A(1) conferred a right of appeal to the Supreme Court on a question of law arising out of an award, subject to leave of the Court. However, under section 34A(1)(a) and (6), a right of appeal only existed if the parties had agreed that an appeal may be made. This is an “opt in” regime whereby the parties can agree to opt in to the existence of rights of appeal against awards. Unless they so agree there is no right of appeal.
In March 2016 ASC gave to the Resolution Institute (the successor to the IAMA) a notice of arbitration under the contract and Colin Fullerton was nominated as the arbitrator. ASC claimed reimbursement of $387,266[1] being its capital contribution to the purchase of Required Capital Equipment used by Ottoway. Ottoway cross claimed for $1,045,469 being additional overhead it claimed it expended in carrying out the works.
[1] All dollar amounts mentioned herein are rounded down to the nearest whole dollar and exclude GST unless otherwise shown.
In April 2016 there was a preliminary conference before the arbitrator at which various matters were agreed, including that there was no written agreement that any question should not be determined according to law (question 2.7) and there was no written agreement that the arbitrator not include a statement of reasons for making the award (question 2.9).
In November 2016 the arbitrator made an award in favour of ASC of $387,266 plus interest and dismissed Ottoway’s cross claim.
Ottoway seeks leave to appeal against the award on the ground that the arbitrator erred in law by not providing reasons or sufficient reasons for key findings.
Ottoway contends that the parties agreed that an appeal may be made against an award either by agreement at the preliminary conference or by way of an implied term of the contract. ASC takes issue with both contentions.
Ottoway contends that the statutory criteria for the grant of leave are satisfied. In particular, Ottoway contends that the decision on the question is obviously wrong or alternatively that the question is one of general public importance and the decision is at least open to serious doubt. ASC denies that the decision is obviously wrong or open to serious doubt.
The application gives rise to the following principal issues:
1.Did the parties agree at the preliminary conference that an appeal may be made against an award?
2.If not, did the parties agree by way of an implied term of the contract that an appeal may be made against an award?
3.Is the arbitrator’s decision obviously wrong or open to serious doubt by reason of a failure to give reasons or sufficient reasons for key findings?
4.If the latter, is the question of general public importance?
5.Should leave to appeal be granted?
Agreement that appeal may be made
Subsection 34A(1) and (6) of the Act provide:
34A—Appeals against awards
(1)An appeal lies to the Court on a question of law arising out of an award if—
(a)the parties agree, before the end of the appeal period referred to in subsection (6), that an appeal may be made under this section; and
(b)the Court grants leave.
…
(6)An appeal may not be made under this section after 3 months have elapsed from the date on which the party making the appeal received the award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal (in this section referred to as the appeal period).
It is common ground that the requisite agreement by the parties referred to in section 34A(1)(a) may be contained in the arbitration agreement or may be an ad hoc agreement made at any time before the arbitration, during the arbitration or until three months after receipt of the arbitration award.
Agreement at preliminary conference
Ottoway contends that the requisite agreement that an appeal may be made against an award was made at the preliminary conference on 13 April 2016.
At the preliminary conference, various matters were discussed and agreed. Minutes were subsequently produced by the arbitrator and signed by all parties as correct. The minutes mainly took the form of questions and answers. Question 2.7 provided:
2.7Is there any written agreement between the parties that any question that arises for determination in the arbitration shall not be determined according to law?
[s. 28(1) Commercial Arbitration Act (SA)] No
Ottoway contends that this amounted to an agreement that the arbitration would be determined according to law, thereby implicitly being an agreement that either party could have recourse to an appeal subject to leave on questions of law.
Section 28 of the Act provides:
28—Rules applicable to substance of dispute
(1)The arbitral tribunal must decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute.
(2)Any designation of the law or legal system of a given State or Territory must be construed, unless otherwise expressed, as directly referring to the substantive law of that State or Territory and not to its conflict of laws rules.
(3)Failing any designation by the parties, the arbitral tribunal must apply the law determined by the conflict of laws rules which it considers applicable.
(4)The arbitral tribunal must decide the dispute, if the parties so agree, in accordance with such other considerations as are agreed to by the parties.
(5)In all cases, the arbitral tribunal must decide in accordance with the terms of the contract and must take into account the usages of the trade applicable to the transaction.
Section 28 proceeds on the premises that ordinarily the choice of substantive law will be made by the parties in their contract and that, under common law conflict of law principles, parties to a contract are entitled to make their own choice of the substantive law that applies to their rights and obligations under the contract. Section 28 also permits the parties to agree on the applicable substantive law after entering into their contract and before determination of the dispute by arbitration, but this may be expected to be rare.
The contract was entered into in South Australia and clause 26.13 provided that it was to be governed by the laws of South Australia. There was no doubt that it was the law of South Australia that comprised the substantive law governing the parties’ rights and liabilities under the contract and the parties never contemplated otherwise.
Question 2.7 was poorly drafted because subsection 28(1), to which it refers, addresses only choice of substantive law. However, the body of question 2.7 refers to determination “according to law”, which suggests that it is directed instead to subsection 28(4), which enables the parties to agree, for example, that an arbitration be determined in a procedural sense in accordance with equity, good conscience and the substantial merits of the case.[2] Indeed, question 2.7 appears to have been drafted by reference to subsection 22(1) of the 1986 Act and through inadvertence not amended following enactment of the Act.
[2] The inclusion of question 2.8 is some contra-indication of this as it asks whether there is any written agreement that the arbitrator decide the substance of the dispute according to general standards of fairness and justice only.
Whatever be the precise construction of question 2.7, its clear purpose and effect was to enquire whether the parties had previously agreed to the application of any rules of law (whether substantive, procedural or otherwise need not be determined) other than those which would otherwise apply. By answering question 2.7 “no”, the parties were merely negating that they had so agreed. The parties were not altering the position as it pertained under the contract and the general law.
Ottoway’s first contention must be rejected.
Implied term of contract
Ottoway contends that it was an implied term of the contract that each party was to have a right of appeal under the governing statute against an arbitration award.
Clause 25.2 of the contract provides that “if a dispute arises it is hereby submitted to arbitration in accordance with the requirements and procedures set out in this clause 25”. Clauses 25.3 to 25.5 provide mechanisms for service of a dispute notice, service of a reply notice, a mandatory settlement conference and an entitlement in the initiating party to proceed to arbitration if the matter cannot be resolved within ten business days after the settlement conference.
Clause 25.6 is the operative provision for arbitration and provides:
Any dispute is to be referred to and finally resolved by arbitration in accordance with the rules of the Institute of Arbitrators & Mediators Australia for the Conduct of Commercial Arbitration (Rules). The seat of the arbitration will be Adelaide, South Australia. The tribunal is to consist of 1 arbitrator appointed in accordance with the Rules. The language of the arbitration shall be English and any documentation to be relied upon by a party as part of the arbitration shall be in English.
The IAMA Rules as at 2009 referred to the various State and Territory Commercial Arbitration Acts[3] (such as the 1986 Act) as “the Statute Law”.[4] They defined “Court” to mean any court having jurisdiction under the Statute Law which governs arbitration in the place where the arbitration is held. They referred to powers of the Court under the Commercial Arbitration Acts including deciding questions of jurisdiction or law (rule 15(3)), determining whether there has been an irregularity affecting the arbitration (rule 16(1)) and determining a challenge to an arbitrator’s ruling (rule 16(2)). The IAMA Rules proceeded on the premise that the rights and liabilities of the parties in and under the arbitration were governed in part by the relevant Commercial Arbitration Act. One such right was the right of appeal conferred by section 38 of the 1986 Act and its equivalents in other jurisdictions.
[3] The following States and Territories had enacted the following uniform commercial arbitration legislation: Commercial Arbitration Act 1984 (NSW), Commercial Arbitration Act 1984 (Vic), Commercial Arbitration Act 1990 (Qld), Commercial Arbitration Act 1986 (SA), Commercial Arbitration Act 1985 (WA), Commercial Arbitration Act 1986 (Tas) and Commercial Arbitration Act 1986 (ACT).
[4] The term “Statute Law” was not defined in the definition rule, rule 2, but was used in the definition of "Court" in a manner that made it plain that it referred to the Commercial Arbitration Acts.
The contractual intention of the parties governs both the construction[5] and implication[6] of terms of their contract. However, that contractual intention is ascertained objectively by reference to the text, context and evident purpose of the contract and the relevant surrounding circumstances known to the parties. It is not ascertained by reference to the internal subjective intentions and beliefs of the individual parties.
[5] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35, (2004) 218 CLR 451 at [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52, (2004) 219 CLR 165 at [38], [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ.
[6] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 345-346, 353 per Mason J (with whom Stephen and Wilson JJ relevantly agreed) and 402 per Brennan J; Hawkins v Clayton (1988) 164 CLR 539 at 572-573 per Deane J.
In the case of an implied term, the term is implied on the basis that the parties did not turn their minds to the issue in question and the implied term represents that provision which a court can confidently determine the parties would have explicitly agreed to if they had turned their minds to the issue. It is simply not practicable for the parties to attempt to foresee and expressly provide for every possible future contingency in which a question of their rights and liabilities under the contract may arise, and hence there is a need to resort to presumed intention.

In Heimann v The Commonwealth,[7] Jordan CJ explained:
In order to justify the importation into a contract of an implied term which is not to be found in the express language of the contract when properly construed…, it is essential that the express terms of the contract should be such that it is clearly necessary to imply the term in order to make the contract operative according to the intention of the parties as indicated by the express terms. It is not sufficient that it would be reasonable to imply the term. It must be clearly necessary. And the test of whether it is clearly necessary is whether the express terms of the contract are such that both parties, treating them as reasonable men - and they cannot be heard to say that they are not - must clearly have intended the term, or, if they have not adverted to it, would certainly have included it, if the contingency involving the term had suggested itself to their minds.[8]
[7] (1938) 38 SR(NSW) 691.
[8] At 695. (Emphasis added; citations omitted). This passage was cited with approval by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 346 by Mason J (with whom Stephen and Wilson JJ relevantly agreed) subject to removal of the references to the implication being derived exclusively from the express terms as opposed to the surrounding circumstances and at 403 by Brennan J without such qualification.
In Codelfa Construction Pty Ltd v State Rail Authority of NSW[9] (Codelfa Construction), Mason J (with whom Stephen and Wilson JJ relevantly agreed) explained:
When we say that the implication of a term raises an issue as to the meaning and effect of the contract we do not intend by that statement to convey that the court is embarking upon an orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision. Nonetheless, the implication of a term is an exercise in interpretation, though not an orthodox instance.
…
The implication of a term is to be compared, and at the same time contrasted, with rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it - it is not a term that they have actually agreed upon. Thus, in the case of the implied term the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties' actual intention; the implication of a term is designed to give effect to the parties' presumed intention.
…
The importance of this evolution of the law as it affects the construction of contracts is that it centres upon the presumed, rather than the actual, intention of the parties. Once it is accepted that in the construction of the contract account is taken of the presumed intention of the parties it naturally follows that account should also be taken of their presumed intention when the court is called upon to decide whether a term is to be implied. The existence of the remedy of rectification and the purpose which it serves makes it obvious that the actual intention of the parties cannot constitute the basis of an implied term.[10]
Aickin J said:
The Arbitrator expressed the implied term in the terms of the very event which happened, i.e. the grant of an injunction restraining work on the night shift. That is, to concentrate on the particular event which happened rather than upon the nature of the term to be implied in advance in order to cover contingencies which had not occurred to either party. The question must however be considered as at the date of the contract and with reference to the significance of possible events.[11]
[9] (1982) 149 CLR 337.
[10] At 345, 346, 353.
[11] At 375.
In BP Refinery (Westernport) Pty Ltd v Hastings Shire Council[12] (BP Refinery (Westernport)), Viscount Dilhorne, Lord Simon of Glaisdale and Lord Keith of Kinkel in the Privy Council summarised the circumstances in which a term will be implied:
Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.[13]
[12] (1977) 180 CLR 266.
[13] At 282-283.
Their Lordships observed that these conditions may overlap. Each condition is a corollary of the requirement that a court can confidently determine that the parties would have explicitly agreed to the implied term had they turned their minds to the issue. The fifth condition is a negative condition: if the putative implied term would contradict an express term, ex hypothesis the parties would not have agreed to it had they turned their minds to the issue in question.
As to the fourth condition, if the putative implied term is not capable of clear expression, ex hypothesis the court cannot confidently determine that the parties would have agreed to it. In Codelfa Construction, Mason J referred to “the difficulty of identifying with any degree of certainty the term which the parties would have settled upon had they considered the question” as one of the obvious reasons why courts are slow to imply a term in a contract.[14]
[14] (1982) 149 CLR 337 at 346.
The first condition is rarely in issue, but if the putative implied term is not reasonable or equitable, ex hypothesis the parties would not have agreed to it. Thus, the first condition is often expressed as a prelude to the second condition, such as in the passage extracted above from the judgment of Jordan CJ in Heimann v The Commonwealth.[15]
[15] (1938) 38 SR(NSW) 691 at 695.
The second condition is often determinative. For example, if the explicit terms of the contract already relevantly reflect the parties’ contractual intention in respect of the contingency which has arisen, there is no cause or need to imply an additional term – in such circumstances implication of an additional term is not necessary to give business efficacy to the contract.
The third condition is also often determinative: if the implied term is not so obvious that it goes without saying, a court cannot confidently determine that the parties would have agreed to it had they turned their minds to the issue in question.
When the parties entered into the contract and included clause 25 providing for arbitration of disputes, such arbitrations were governed by the 1986 Act. The 1986 Act contained numerous provisions supplementing contractual provisions relating to the appointment of an arbitrator and conduct of an arbitration,[16] and conferring on this Court various powers to make orders supplementary to the conduct of the arbitration[17] and to enforce the arbitration award.[18] As the High Court observed in Westport Insurance Corporation v Gordian Runoff Limited,[19] commercial arbitrations involve a blend of private contract law and a public statutory regime, and a blend of private rights and public authority.
[16] For example, section 6 providing for appointment of a single arbitrator unless otherwise expressed; section 7 providing for joint appointment by the parties of the arbitrator unless otherwise expressed; section 8 providing for default in appointment of an arbitrator; section 14 providing for the conduct of the arbitration; section 15 providing for majority decision making; section 19 relating to the manner of giving evidence; section 20 relating to entitlement to legal representation; section 21 relating to the effect of appointment of a new arbitrator; section 22 relating to determination according to law; section 23 relating to the power to make interim awards; section 24 relating to the power to order specific performance; sections 25 and 26 relating to extension and consolidation of arbitrations; section 29 relating to the form of award and requirement to give reasons; section 30 relating to corrections to an award; sections 31, 32 and 34 relating to power to award interest and costs; and sections 37 and 46 relating to the duty of the parties to cooperate in respect of the arbitration.
[17] For example, sections 8, 10 and 11 empowering the Court to set aside appointment of a replacement arbitrator or itself appoint a replacement arbitrator; sections 17 and 18 empowering the Court to issue a summons for examination and/or production of documents; section 35 empowering the Court to tax the arbitrator's fees; section 36 empowering the Court to make orders relating to the costs of abortive arbitrations; section 39 empowering the Court to determine a preliminary question of law; section 44 empowering the Court to remove an arbitrator; section 46 empowering the Court to terminate an arbitration; section 47 empowering the Court to make general interlocutory orders for the arbitration; and section 48 empowering the Court to extend time for steps in the arbitration.
[18] Section 33.
[19] [2011] HCA 37, (2011) 244 CLR 239 at [19]-[20] per French CJ, Gummow, Crennan and Bell JJ and [168] per Kiefel J.
It is clear from the nature and scale of the activities referred to in the contract that ASC and Ottoway are sophisticated commercial parties. Objectively assessed, parties in the position of ASC and Ottoway would not have agreed to the determination of disputes by arbitration under clause 25 without being aware of the provisions of the 1986 Act which critically governed and affected commercial arbitrations in very many respects and without which an agreement to arbitrate would have been problematic at best.
When the parties entered into the contract and included clause 25 providing for arbitration of disputes, the 1986 Act conferred (subject to limitations) a right of appeal against arbitration awards on an “opt out” basis. Sections 38 and 40 relevantly provided:
38—Judicial review of awards
(1)Without prejudice to the right of appeal conferred by subsection (2), the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award.
(2)Subject to subsection (4), an appeal shall lie to the Supreme Court on any question of law arising out of an award.
…
(4)An appeal under subsection (2) may be brought by any of the parties to an arbitration agreement—
(a)with the consent of all the other parties to the arbitration agreement; or
(b)subject to section 40, with the permission of the Supreme Court.
(5)The Supreme Court shall not grant permission under subsection (4)(b) unless it considers that—
(a)having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement; and
(b)there is—
(i)a manifest error of law on the face of the award; or
(ii)strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.
…
40—Exclusion agreements affecting rights under sections 38 and 39
(1) Subject to this section and section 41—
(a)the Supreme Court shall not, under section 38(4)(b), give permission to appeal with respect to a question of law arising out of an award; and
…
if there is in force an agreement in writing (in this section and section 41 referred to as an exclusion agreement) between the parties to the arbitration agreement which excludes the right of appeal under section 38(2) in relation to the award...
(2)An exclusion agreement may be expressed so as to relate to a particular award, to awards under a particular arbitration agreement or to any other description of awards, whether arising out of the same arbitration agreement or not.
(3)An agreement may be an exclusion agreement for the purposes of this section whether it is entered into before or after the commencement of this Act and whether or not it forms part of an arbitration agreement.
…
Objectively assessed, commercial parties in the position of ASC and Ottoway would have been aware that the 1986 Act conferred a right of appeal against an award on an “opt out” basis. The existence of a right of appeal against an award is such a critical factor in a decision to include an arbitration clause in a contract that it must have been considered by the parties in deciding to include the arbitration clause. Objectively assessed, the parties made a deliberate choice that there was to be a right of appeal against an award and that they would not opt out of a right of appeal. It would have been uncommercial and shown a complete want of diligence if the parties had been ignorant of the provisions of the 1986 Act in this regard and had failed to make a conscious choice whether or not there was to be a right of appeal against any award.
It follows that, objectively, it was the contractual intention of the parties that there was to be a right of appeal against any award. Under the existing provisions of the 1986 Act, which comprised an opt out regime, it was not necessary for the parties to include an explicit term to this effect. It is quite unlikely that the parties anticipated that the legislation would be amended to change the regime to an opt in regime. However, the term of the contract was between two and six years and there might be an arbitration and award at any time over that period or even after the expiry of the term of the contract on the final settling up of accounts and claims. It is inconceivable that, objectively considered, the parties intended that there was to be a right of appeal against any award that happened to be made during the currency of the existing opt out regime but no right of appeal against any award that happened to be made after any opt in regime should be introduced. In that event, the right of appeal would depend on the fortuitous and capricious timing of the amendment to the legislation compared to the timing of the award.
Suppose that an officious bystander had put to the parties on 1 September 2009, just before they signed the contract, a hypothetical situation in which the 1986 Act was amended to substitute an opt in regime for the existing opt out regime with effect from 1 July 2011 with the result that an arbitration award made on 30 June 2011 would be subject to appeal but an arbitration award made on 1 July 2011 would not. Suppose it were put that the 1986 Act were amended to substitute an opt in regime with effect from 1 January 2016 after expiry of the term of the contract, with the effect that an arbitration award made on 31 December 2015 in favour of one party would be subject to appeal but an arbitration on foot then but whose award in favour of the other party were not made until 1 January 2016 would not. The parties would have responded that “of course” they did not want their appeal rights to vary during the currency of the contract or after its expiry merely because the legislation might change from an opt out to an opt in regime, especially when the date of change would be capricious and arbitrary from the perspective of the parties (depending on the legislature and not the position of the parties in the performance of the contract). The parties would have included a provision in clause 25 that the parties were to have the statutory right of appeal against an arbitration award.
Each of the conditions identified in BP Refinery (Westernport) is satisfied in respect of an implied term that the parties were to have the statutory right of appeal against an arbitration award. It is reasonable and equitable to imply the term. It is necessary to give business efficacy to the contract because otherwise the contract would operate capriciously, unreasonably and inequitably. It goes without saying because the parties hypothetically and objectively assessed would have said “of course” that should be the position if the issue had been raised. It is capable of clear expression. It does not contradict the express terms of the contract. It is entirely consistent with the effect of the contract under the statutory opt out scheme prevailing at the time of the contract.
ASC contends that, considered holistically, the putative implied term should not be implied. ASC makes the following submissions in support of its holistic contention.
ASC contends that any agreement required a meeting of the minds of the parties when the contract was formed and there cannot have been a meeting of the minds of the parties on an issue that they did not foresee. However, in many if not most cases in which a term is implied, the term addresses an eventuality that the parties did not foresee (and this is often the very reason why the parties did not expressly address it) and, as explained by Mason J in the passage from his Honour’s judgment in Codelfa Construction extracted above, “the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it”.
ASC contends that, as was the case on the facts in Codelfa Construction, it is not possible to be satisfied that the term sought to be implied is one on which the parties would necessarily have agreed as an appropriate provision to cover the eventuality that has arisen. As the High Court pointed out in Codelfa Construction, the question whether a term is implied is considered as at the date of the contract prospectively by reference to future contingencies rather than retrospectively by reference to actual eventualities,[20] and as Aickin J pointed out in the passage extracted at [31] above, any implied term is not to be artificially tailored, with the wisdom of hindsight, to the specific contingency that happens to eventuate.[21] However, in the present case, for the reasons given above, there is no reason to doubt that the parties would necessarily have agreed on the putative implied term as the appropriate and inevitable provision to apply had they foreseen a change in the statutory regime.
[20] (1982) 149 CLR 337 at 405 per Brennan J and 375 per Aickin J.
[21] At 375 per Aickin J.
ASC relies on the principle that it is for the parties to formulate their bargain and the court does not rewrite contracts between parties merely to address eventualities they did not foresee.[22] However, this principle is not offended when a term is implied in accordance with the presumed intention of the parties in the manner explained by Mason J in Codelfa Construction.
[22] Citing Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 at 372 and Trollope & Coles Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 at 609. See also Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 407 per Brennan J.
ASC draws attention to the distinction between the operation of the doctrine of frustration and the implication of a term.[23] ASC contends that there is a division in the law between the doctrine of frustration, which deals with unpredicted future eventualities arising during the performance of a contract, and implication of terms involving matters which are so obvious that they go without saying and are necessary to the efficacious operation of a contract at the time when it is made. The fact that there is a distinction between frustration and implication of a term may be accepted, but the mere fact that an implied term addresses a future eventuality not predicted by the parties is not an objection to implication of the term and, as observed above, this is commonly the case in respect of implied terms.
[23] Citing Davis Contractors Ltd v Fareham Urban District Council[1956] AC 696 at 719-721 per Lord Reid.

ASC refers to the acceptance by Mason J in Codelfa Construction that it is appropriate to look to the circumstances surrounding the making of a contract on the issue of implication of a term.[24] ASC contends that an evidential basis is therefore required for concluding that the parties would have obviously agreed to approach a potential change in the statutory regime in a particular way and there is no such evidence in the present case. However, when considering the implication of a term (as in considering the construction of express terms), the mere fact that it is permissible to have regard to the surrounding circumstances does not render it mandatory that extrinsic evidence be adduced.
[24] (1982) 149 CLR 337 at 348-353 per Mason J. Contrast Brennan J at 400-404.
ASC refers to the fact that there is no clause in the contract regarding a change in legislation and submits that this is strong evidence that the parties did not turn their minds to that issue and that therefore there was no agreement. The major and minor premises of this argument may be accepted, but the conclusion does not follow precisely because terms are frequently implied when the parties have not turned their minds to the issue.
ASC contends that, leaving aside holistic matters, the five conditions identified by the Privy Council in BP Refinery (Westernport) are not satisfied in respect of the putative implied term.
ASC relies on the judgment of Hammerschlag J in Ashjal Pty Ltd v Elders Toepfer Grain Pty Ltd.[25] In July 2010, the parties in that case entered into two contracts, each of which included a term that all disputes relating to or in connection with the contract were to be resolved by arbitration in accordance with the Grain Trade Australia Trade Rules. It is not clear whether the arbitration clause contained other provisions or in general what were the terms of the GTA Trade Rules. When the parties entered into the contracts, commercial arbitration was governed by the Commercial Arbitration Act 1984 (NSW), being the New South Wales equivalent of the 1986 Act. In September 2010 that Act was repealed by the Commercial Arbitration Act 2010 (NSW), being the New South Wales equivalent of the Act.[26] Ashjal argued that it was an implied term of the contracts that either party may appeal on a question of law with leave of the Court. This was rejected by Hammerschlag J. His Honour set out the five conditions identified by the Privy Council in BP Refinery (Westernport) and said:
Those tests must be met at the time that the contract is entered into. The term contended for fails to satisfy at least three of the tests.
Firstly, as at the date of the contracts the old Act gave a right of appeal with leave or by agreement. The implied term contended for was thus not necessary to give the contract business efficacy at that time. The contracts operated and still operated without it.
Secondly, given the state of the legislation at the time, the term contended for was not obvious. Indeed, such a term was obviously not required.[27]
[25] [2012] NSWSC 545.
[26] The following States and Territories have enacted the following uniform commercial arbitration legislation: Commercial Arbitration Act 2010 (NSW), Commercial Arbitration Act 2011 (Vic), Commercial Arbitration Act 2013 (Qld), Commercial Arbitration Act 2011 (SA), Commercial Arbitration Act 2012 (WA), Commercial Arbitration Act 2011 (Tas), Commercial Arbitration Act 2017 (ACT) and Commercial Arbitration (National Uniform Legislation) Act 2011 (NT).
[27] At [17]-[19].
The third test which Hammerschlag J considered was not satisfied was inconsistency with an express term based on a specific provision of the GTA Trade Rules which has no counterpart in the IAMA Rules and need not be further considered.
ASC contends that in the present case, when the contract was entered into, the 1986 Act gave a right of appeal and the implied term was therefore not necessary to give the contract business efficacy. However, I respectfully disagree with the reasoning of Hammerschlag J in this respect. For the reasons given above, the fact that it was not necessary for the parties under the existing statutory regime to opt in to a right of appeal explains why they did not include an express provision that there should be a right of appeal, but does not negate the necessity to imply a term to ensure that their contractual intention that there be a right of appeal was achieved in the event of future change to a statutory opt in regime.
Likewise, ASC contends that the putative implied term is not so obvious that it went without saying and it was obviously not required given the current statutory opt out scheme. This argument employs the same logic as the argument in respect of business efficacy and I respectfully disagree with the reasoning of Hammerschlag J for the same reasons.
ASC refers to the principle articulated by the High Court in Australian Securities Commission v Marlborough Gold Mines Ltd,[28] which was developed in Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[29] that a single judge (and indeed an intermediate appellate court) of a superior court in one jurisdiction should follow an earlier decision of an intermediate appellate court in another Australian jurisdiction on the common law and uniform national legislation unless persuaded that the decision is plainly wrong. ASC contends that the same principle applies to an earlier decision of a single judge of another superior court in Australia.[30] Leaving aside the question whether a decision of a single judge has the same level of persuasive authority as a decision of an intermediate appellate court,[31] insofar as the principle applies to the common law, it applies only to decisions about the content of the law and not to the application of settled principles of law to the facts. Here there is no dispute or doubt about the legal principles upon which terms are to be implied in a contract or otherwise concerning the content of the common law. The only question involves the application of those principles to the facts of the contract in this particular case. In these circumstances, the principle that another decision is to be followed unless plainly wrong has no application.
[28] (1993) 177 CLR 485 at 492 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ.
[29] [2007] HCA 22, (2007) 230 CLR 89 at [135] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ.
[30] Citing Ambassador at Redcliffe Pty Ltd v Barreau Peninsula Property Pty Ltd [2006] QSC 247, (2006) 202 FLR 459 at [17] per Douglas J and Indigo Financial Money Pty Ltd v Moustrides [2010] SASC 355, (2010) 245 FLR 331 at [31] per White J.
[31] Even in the same Court, while one Judge will not lightly depart from a decision of a fellow Judge on a question of law, the "plainly wrong" test does not apply.
ASC contends that the putative implied term would be inconsistent with the express term in clause 25.6 of the contract that “any Dispute is to be referred to and finally resolved by arbitration” (emphasis added). ASC contends that this evinces a contractual intention to exclude any right of appeal.[32] If ASC’s contention were good, plainly the putative implied term would be inconsistent with the express term and there would never have been a right of appeal against an arbitration award even under the 1986 Act. However, ASC’s contention must be rejected. The words “finally resolved by arbitration” were plainly used to ensure that the arbitration award would be final and binding on the parties and to avoid a party subsequently issuing a proceeding in a court contending that the award was not final and binding. The words merely reflected section 28 of the 1986 Act which provided that (unless the parties otherwise agreed) every arbitration award was, subject to the Act, to be “final and binding”. Clause 25.6 construed in the context of the contract as a whole does not manifest any intention to exclude an appeal.
[32] ASC also initially contended that clause 25.6 picked up the Resolution Institute Arbitration Rules 2016, including article 44 which provided that “Decisions made by Resolution Institute with respect to all matters relating to the arbitration shall be conclusive and binding upon the parties and the arbitral tribunal. Resolution Institute shall not be required to give any reasons. To the extent permitted by the law of the place of the arbitration, the parties shall be taken to have waived any right of appeal or review in respect of any such decisions made by Resolution Institute to any State court or other judicial authority.” ASC contended that article 44 excluded any right of appeal against an arbitration award. Leaving aside the fact that clause 25.6 picks up the IAMA Rules rather than rules made by the Resolution Institute in 2016, on its proper construction it is clear that article 44 addresses decisions by Resolution Institute and does not address awards by the arbitral tribunal.
I conclude that it was an implied term of the contract that there was to be a statutory right of appeal against an arbitration award.
Before leaving this issue, I observe that the parties adopted their respective positions on this issue for tactical reasons. If the result of the arbitration had been the reverse and the arbitrator had made an award in favour of Ottoway for $1,045,469 and dismissed ASC’s claim and ASC had been dissatisfied with his reasons and decision, I have no doubt that ASC would have contended for the existence of the putative implied term and Ottoway would have contended against it. This is merely an illustration of the necessity to consider the implication of an implied term prospectively as at the date of the contract rather than retrospectively by reference to eventualities which have occurred.
Obviously wrong or open to serious doubt & general public importance
Subsection 34A(3) of the Act provides:
(3)The Court must not grant leave unless it is satisfied—
(a)     that the determination of the question will substantially affect the rights of 1 or more of the parties; and
(b)     that the question is one which the arbitral tribunal was asked to determine; and
(c)     that, on the basis of the findings of fact in the award—
(i)the decision of the tribunal on the question is obviously wrong; or
(ii)the question is one of general public importance and the decision of the tribunal is at least open to serious doubt; and
(d)     that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the Court to determine the question.
The parties differ in relation to satisfaction of the third criterion the subject of paragraph (c).
The 1986 Act expressed the first limb in terms of a “manifest error of law on the face of the award”. This mirrored the long established criterion for certiorari for error of law on the face of the record.[33] The 2011 Act expresses the first limb in different terms of the “decision of the tribunal on the question [being] obviously wrong”.
[33] Westport Insurance Corporation v Gordian Runoff Limited (2011) 244 CLR 239 at [31]-[36] and [42] per French CJ, Gummow, Crennan and Bell JJ.
The 1986 Act expressed the first aspect of the second limb in terms of “strong evidence that the arbitrator … made an error of law”. The 2011 Act expresses this aspect in terms of the “decision of the tribunal [on the question] [being] at least open to serious doubt”.
The 1986 Act expressed the second aspect of the second limb in terms of “the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law”. The 2011 Act expresses this aspect in terms of “the question [being] one of general public importance”.
The obligation to state reasons on which award based
It is common ground that an arbitrator is required by subsection 31(3) to give reasons for the award stating “the reasons on which it is based” and that a failure to do so is an error of law.[34] Ottoway contends, and ASC denies, that the arbitrator failed to comply with subsection 31(3) by failing to give reasons or sufficient reasons for key findings. Ottoway contends, and ASC denies, that the asserted failure to give complying reasons is obvious and hence that the arbitrator’s decision on the question of law is obviously wrong. Ottoway contends in the alternative, and ASC denies, that the arbitrator’s compliance with subsection 31(3) is at least open to serious doubt and hence that the arbitrator’s decision on the question of law is at least open to serious doubt. Ottoway contends that the question whether the reasons comply with subsection 31(3) is a question of general public importance.
[34] Thus, in Westport Insurance Corporation v Gordian Runoff Limited (2011) 244 CLR 239, the High Court held that the reasons failed to comply with section 29 and this was an error of law under section 38 of the equivalent of the 1986 Act. In each of Mackay Sugar Ltd v Sugar Australia Pty Ltd [2013] QSC 233 and Thaler v Amzalak (No 2) [2013] NSWSC 632, it was held that the reasons failed to comply with section 29. In Mackay Sugar, it was held that this was an error of law under section 38 of the equivalent of the 1986 Act. (In Thaler, it was held that this was misconduct within the meaning of section 42). Although no decisions under sections 31 and 34A of the Act and its interstate equivalents were cited by the parties in the present case, the parties do not suggest that the test of adequacy of reasons is different under the current legislation or that a failure to give complying reasons does not amount to an error of law under the current legislation.
Subsection 31(3) of the Act provides:
31—Form and contents of award
…
(3)The award must state the reasons on which it is based, unless the parties have agreed that no reasons are to be given or the award is an award on agreed terms under section 30.
Section 29(1)(c) of the 1986 Act provided:
29—Form of award
(1)Unless otherwise agreed in writing by the parties to the arbitration agreement, the arbitrator or umpire shall—
…
(c)include in the award a statement of the reasons for making the award.
In Oil Basins Ltd v BHP Billiton Ltd,[35] the Victorian Court of Appeal considered the ambit of the obligation to give reasons for making an award under section 29(1)(c) of the Commercial Arbitration Act 1984 (Vic), which was identical to the provision in the 1986 Act. The arbitration related to a dispute whether royalties were payable on oil produced from the Blackback oil field in Bass Strait. As at 1960 BHP held Petroleum Exploration Permit No 38 (PEP38) covering a defined area of 4,450 square miles in Bass Strait (the Area), which included the area later known as the Blackback field. BHP and Oil Basins entered into a royalty agreement in 1960 under which BHP agreed to pay to Oil Basins an “overriding royalty” of 2.5 per cent of the gross value of all hydrocarbons produced and recovered by BHP, its successors and assigns within the Area. In 1979 BHP relinquished a permit which was a successor to part of PEP38 and covered the area of Blackback field. In 1987, a BHP subsidiary applied for and was granted a new Exploration Permit VIC/P24 encompassing the Blackback field. Later it and Esso in joint venture produced oil from the Blackback field. The royalty agreement contained a term that it was to be interpreted in accordance with the law of New York. BHP contended that under the law of New York “overriding royalty” had a technical meaning in the petroleum and gas industry under which the royalty was attached to the title held by the royalty payer to the oil produced. BHP contended that the subject matter of the royalty ceased to exist in 1987 when BHP relinquished the successor licence. Oil Basins contended that under the law of New York “overriding royalty” had its ordinary English meaning of a royalty over and above whatever royalty may be customarily due to the owner of the underlying mineral interest, and it therefore applied to any oil produced from the defined geographical area regardless of the source of BHP’s title to the oil. Oil Basins alternatively contended that any technical usage of the term was not absolute or universal but yielded to the specific language and context of the particular royalty agreement. The arbitrators, by a majority decision of two to one, upheld Oil Basins’ claim that it was entitled to royalties under the royalty agreement.
[35] [2007] VSCA 255, (2007) 18 VR 346.
Hargrave J at first instance and the Victorian Court of Appeal on appeal concluded that the majority arbitrators breached section 29(1)(c) and this breach amounted to an error of law on the face of the record. The Court of Appeal concluded that the majority arbitrators did not identify whether they upheld Oil Basins’ primary submission (ordinary English meaning) or its secondary submission (restricted technical usage).[36] The Court concluded that the majority arbitrators did not identify which expert evidence called by Oil Basins they preferred over that called by BHP from New York lawyers and judges or why. This was in the context in which the majority arbitrators said that there was limited conflict but they “generally” preferred the evidence of Oil Basins’ witnesses.[37] The Court concluded that, if the majority accepted Oil Basins’ secondary contention, the majority failed to provide any analysis of the competing evidence and reasons for rejecting BHP’s contention in favour of Oil Basins’ contentions.[38]
[36] At [34], [38]-[39], [48] per Buchanan, Nettle and Dodds-Streeton JJA.
[37] At [35]-[37], [48] per Buchanan, Nettle and Dodds-Streeton JJA.
[38] At [40], [48] per Buchanan, Nettle and Dodds-Streeton JJA.
The Court of Appeal rejected BHP’s contention that the requirement for reasons by arbitrators was different in nature and degree to, and far less demanding than, the requirement for judicial reasons. Buchanan, Nettle and Dodds-Streeton JJA said:
The appellant contends that so to criticise the majority arbitrators’ reasons portrays a misunderstanding of the arbitral function. Counsel for the appellant argued that it was unnecessary for the reasons to be anything like as rigorous or complete as those demanded by the judge. In their submission, the dual requirements that arbitrators provide a statement of their reasons for making the award and do so “as soon as reasonably practicable” fundamentally distinguished this arbitration from a curial proceeding, and implied that it was enough that the arbitrators set out the factors that supported the meaning of the expression which they preferred, had regard to contextual matters, contrasted the context of the private mineral holdings in the United States with the context of the royalty agreement, including the statutory regime prevailing at the time the agreement was entered into, and found on the evidence before them that “overriding royalty” does not and never has had one fixed meaning.
We do not accept those submissions either. … In order to enable the court to see whether there has been an error of law, s 29 provides that the award must be in writing and that the arbitrator must include a statement of reasons. And in order to be utile, the requirement is for reasons sufficient to indicate to the parties why the arbitrator has reached the conclusion to which he or she has come. To that extent, the requirement is no different to that which applies to a judge. Of course it is understood that arbitrators may not always be skilful in the expression of their reasons. Consequently, it is accepted that a court should not construe an arbitrator’s reasons in an overly critical way. But it is necessary that an arbitrator deal with issues raised and indicate the evidence upon which he or she has come to his or her conclusion. Accordingly, if a party has relied on evidence or material which the arbitrator has rejected, it is ordinarily necessary for the arbitrator to assign reasons for its rejection.
…The effect of the section, as Sir Harry Gibbs explained in an extra-curial lecture delivered in 1988, is that:
The arbitrator is required to explain in the reasons which form part of the award why he or she reached the decision which the award embodies. To do that it is necessary to state the relevant facts and to explain why each issue of fact was resolved in the way in which the arbitrator resolved it. It is further necessary to state what conclusion the arbitrator reached on each question of law or of mixed law and fact and how that conclusion was reached… [Emphasis added.]
… [The Court referred to] the following extra-curial pronouncement of Smart J:
It is important that comprehensive findings of fact be made. Full reasons simply set down the processes which the arbitrator adopted (or should have adopted) in coming to his conclusion. The need to give reasons and think carefully helps you to arrive at the correct conclusion.
Counsel for the appellant argued that, even if that were so, the judge in this case was in error in assimilating the duty imposed on the arbitrators to the duty which applies to judges to the extent of concluding that “the arbitrators were under a duty to give reasons of a standard which was equivalent to the reasons to be expected from a judge deciding a commercial case”. Counsel submitted that the judge also erred in concluding that subjective matters (such as the background and experience of the arbitrator and the parties’ respective counsel and solicitors) were determinative of the standard of the reasons required to be delivered in an arbitration, as reflected by his reference to the following circumstances:
(a)The arbitration was a large commercial arbitration involving many millions of dollars.
(b)It was attended with many of the formalities of a legal proceeding, including the exchange of points of claim and defence and of substantial witness statements.
(c)The hearing occupied 15 sitting days.
(d)In addition to oral argument, substantial submissions were made by the parties.
(e)The arbitrators were obviously chosen for their legal experience and were retired judges of superior courts.
(f)Both sides were represented by large commercial firms of solicitors and very experienced Queen’s Counsel.
In our view, the judge did not err as alleged. The arbitrators’ decision in the present case called for reasons of a judicial standard. As with reasons which a judge is required to give, the extent to which an arbitrator needs to go in explaining his or her decision depends on the nature of the decision.
The subjective matters to which the judge referred did not dictate the applicable standard, but rather, reflected the nature of the decision. To adopt and adapt McHugh JA’s analysis in Soulemezis v Dudley (Holdings) Pty Ltd, if the only issue before an arbitrator is whether a claimant has sustained injury and the issue turns solely on the credibility of the claimant’s testimony, a simple finding that he or she fell and sustained injury might be enough. But if, in addition to the claimant’s credibility, other matters are relied on as going to the probability or improbability of the claimant’s case, such a simple finding will not be enough. Plainly, a judge is bound to refer to relevant evidence and, where there is a conflict of a significant nature, to provide reasons for choosing one over side over the other. A judge is also bound to deal with central contentions, even if sometimes only briefly, and at least to the extent of explaining in general terms why he or she has rejected them. Accordingly, where evidence and contentions combine as they are prone to do in the form of expert evidence, and the dispute involves “something in the nature of an intellectual exchange with reasons and analysis advanced on either side”, it is plain that the judge is bound to enter into the issues canvassed before the court and to provide an intelligible explanation as to why the judge prefers one case over the other. In our view, an arbitrator is subject to similar obligations.
… There is no right of appeal on questions of fact from the decision of an arbitrator. But the judicial obligation to give reasons is not based solely on rights of appeal. Ultimately, it is grounded in the notion that justice should not only be done but be seen to be done. And in point of principle, there is not a great deal of difference between that idea and the imperative that those who make binding decisions affecting the rights and obligations of others should explain their reasons. Each derives from the fundamental conception of fairness that a party should not be bound by a determination without being apprised of the basis on which it is made. So, in arbitration, the requirement is that parties not be left in doubt as to the basis on which an award has been given. To that extent, the scope of an arbitrator’s obligation to give reasons is logically the same as that of a judge.
…
Contrary to the appellant’s submissions, however, that does not imply that the court is to approach the work of commercial arbitrators with a view to finding fault. The arbitration of commercial disputes is to be encouraged and hence arbitrators are free to a large extent to express their reasons as they choose. Nor does it follow that the court demands a higher standard of reasoning from retired judges and other legally trained arbitrators than from arbitrators who are not so trained. As Buchanan JA observed in the course of the hearing, it is the nature of a dispute which sets the standard for reasons, not the nature of the arbitrator.[39]
[39] At [49]-[56], [59]. (Citations omitted)

In Gordian Runoff Limited v Westport Insurance Corporation,[40] the New South Wales Court of Appeal considered the ambit of the obligation to give reasons for making an award under section 29(1)(c) of the Commercial Arbitration Act 1984 (NSW), which was also identical to the provision in the 1986 Act. Gordian issued to FAI Insurance Ltd a run-off directors and officers liability policy covering claims made and notified within seven years from 31 May 1999 in respect of wrongful acts occurring before 31 May 1999. Gordian held reinsurance policies issued by Westport and others which applied to run-off policies with a term not exceeding three years. The reinsurance policies therefore did not cover Gordian’s liability under the FAI policy. Gordian relied on section 18A of the Insurance Act 1902 (NSW). That section applied inter alia when the circumstances in which the insurer is to indemnify are so defined as to exclude or limit the liability of the insurer to indemnify on the existence of particular circumstances and this is so because the existence of the particular circumstances was considered by the insurer to be likely to increase the risk of loss occurring. When section 18A applied, it operated prima facie to abrogate the contractual disentitlement of the insured to indemnity if, on the balance of probability, the loss the subject of the claim was not caused or contributed to by the existence of the particular circumstances. This was subject to a proviso if “in all the circumstances it is not reasonable for the insurer to be bound to indemnify the insured”. Gordian referred to arbitration its disputed claim to indemnity under the reinsurance policies. The arbitrators upheld Gordian’s claim, concluding that section 18A applied and the proviso did not apply.
[40] [2010] NSWCA 57, (2010) 267 ALR 74.
On an application for leave to appeal, Einstein J granted the reinsurers permission to appeal and allowed the appeal[41] on the ground that the arbitrators erred in the construction of section 18A that it applied to the reinsurance policies, set aside the award and substituted a dismissal of Gordian’s claim at arbitration. The Court of Appeal allowed Gordian’s appeal against those orders. The Court of Appeal held that, because the issues of construction of section 18A were complex, it could not be said that there was a manifest error of law on the face of the record regardless of the ultimate proper construction of section 18A.[42] The Court of Appeal dealt with a notice of contention by the reinsurers that the arbitrators failed to give reasons in compliance with section 29(1)(c) for concluding that the proviso did not apply. The Court of Appeal rejected this contention and concluded that, if it be assumed that the obligation to give reasons was equivalent to the judicial obligation to give reasons, there was no failure to give adequate reasons given that application of the proviso involved an evaluative task.[43]
[41] On appeal, the Court of Appeal held that Einstein J erred by hearing the applicant for leave and appeal concurrently: (2010) 267 ALR 74 at [102]-[113] per Allsop P (with whom Spigelman CJ and Macfarlan JA agreed). On the further appeal, the High Court referred to this holding by the Court of Appeal without positive or negative comment: (2011) 244 CLR 239 at [40] per French CJ, Gummow, Crennan and Bell JJ.
[42] At [116] per Allsop P (with whom Spigelman CJ and Macfarlan JA agreed) following the approach in Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 at 225-226 per Sheller JA (with whom Meagher JA agreed) and Natoli v Walker (1994) 217 ALR 201 at 212-215 per Kirby P and 223 per Mahoney JA. This was overturned by the High Court on appeal: see below.
[43] At [197]-[198] per Allsop P (with whom Spigelman CJ and Macfarlan JA agreed).
The Court of Appeal went on to hold that, insofar as the Victorian Court of Appeal had held in Oil Basins Ltd v BHP Billiton Ltd that an arbitrator’s obligation to give reasons was equivalent to the judicial obligation to give reasons, the decision was “plainly wrong” (within the meaning of the principle articulated by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd[44]). Allsop P (with whom Spigelman CJ and Macfarlan JA agreed) said:
[44] (2007) 230 CLR 89 at [135] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ.
The Court in Oil Basins directed itself to the content of the (Victorian equivalent of the) CA Act, s 29(1)(c) and the UNCITRAL Model Law, Art 31(2) at 363-366 [49]-[54]. It concluded that, at least in circumstances of a large important arbitration, s 29(1)(c) required reasons that a judge would be obliged to give in Australia.
The Court at [51] rejected the observation made in Mustill and Boyd The Law and Practice of Commercial Arbitration in England that an arbitration award need not set out the evidence from which the arbitrator has deduced his findings of fact because there is no appeal on questions of fact. The rejection was founded on the perception of a fundamental difference between what was required under the Arbitration Act 1979 (Eng) (the ‘1979 Act’), s 1(5) and what was required under s 29(1)(c)…
…
With great respect, it is far from clear that the UNCITRAL Model Law required more stringent reasons than required under the 1979 Act and, if so, to what extent. The words of s 29(1)(c), which reflect the expression in the Model Law, Art 31(2), which was based on the UNCITRAL Arbitration Rules, Art 32(3) and which is now reflected in the Arbitration Act 1996 (Eng) (the “1996 Act “), s 52(4), should be viewed against the context of the compromise embodied in the Model Law and against the background of international commercial arbitration.
The compromise in the Model Law was not between those who thought arbitrators’ reasons should reach the standard of detail of a judge in the common law system and those who thought some lesser standard was called for. Rather, it was a compromise between national laws requiring reasons and those not requiring any reasons.
There is no record in the discussions leading to the framing of the Model Law of a desire of any nation to raise the standard required of arbitrators to those of judges in the common law systems giving reasons, in particular, in circumstances where issues of fact and law were appellable by way of rehearing.
…
The nations which tended to require reasons and which brought that requirement to the Model Law negotiations were often civil law countries where, in some countries at least, the duty to give reasons was considered a rule of international public policy. Yet, that rule in operation was at times expressed by saying that the reasons can be confined to a summary justification, in fact and in law, of the tribunal on the issues to be determined so as to allow a party to understand the main reasons supporting the decision and to assess the possibilities of appeal, without necessarily addressing all the arguments advanced.
A perusal of the contemporary writings on commercial arbitration, in particular international commercial arbitration does not identify any express support for the standard of reasons in Art 31(2) to be that of a judge in a common law system.
…
The Privy Council … in 2001 in a Turks and Caicos Island appeal, Bay Hotel and Resort Ltd v Cavalier Construction Co Ltd, expressed the English position as to what is a reasoned award since the 1996 Act as governed by what Donaldson LJ had said in Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2) as follows:
“All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is. That is all that is meant by a ‘reasoned award’.”
The underlying difference between arbitration and court litigation should be borne in mind at all times. Though courts and arbitration panels both resolve disputes, they represent fundamentally different mechanisms of doing so. The court is an arm of the state; its judgment is an act of state authority, subject generally in a common law context to the right of appeal available to parties. The arbitration award is the result of a private consensual mechanism intended to be shorn of the costs, complexities and technicalities often cited (rightly or wrongly, it matters not) as the indicia and disadvantages of curial decision making.
That some difficult and complex arbitrations tend to mimic the procedures and complexities of court litigation may be a feature of some modern arbitration, but that can be seen perhaps more as a failing of procedure and approach rather than as reflecting any essential character of the arbitral process that would assist in a conclusion (erroneous in principle) that arbitrations should be equated with court process and so arbitrators should be held to the standard of reasons of judges.
Subject to agreement to the contrary, there is, however, a requirement for a reasoned award in arbitration. As expressed by the Model Law, Art 31(2) and the CA Act, s 29(1)(c), it is a statement of reasons for making the award, not a statement of reasons for not making a different award. The essential requirement mandated by s 29(1)(c) and Art 31(2) is a statement of reasons for making the award that was made. This will require a statement of factual findings and legal or other reasons which led the arbitrators to conclude as they did. These provisions do not in terms require the arbitrators to resolve other issues or deal with other matters not necessary to explain why they have come to the view that they have. What is required in any particular case may be a question open to debate. However, nothing in the terms of the Model Law or in the reported history of its negotiation or in any contemporary writings of jurists, practitioners or scholars from before agreement on the Model Law to the present day leads to the legitimacy of any conclusion that Art 31(2) (and so the CA Act, s 29(1)(c)) mandates in law a standard of reasons equivalent to those required of a judge at common law, in particular one subject to appellate review on questions of fact and law.
The Model Law, Art 31(2) and the CA Act, s 29(1)(c) do not say that the arbitrator must deal with every substantial argument put forward by the contending parties. Nor do they state that the arbitrator should state the evidence from which he or she draws his or her findings of fact and give reasons for preferring some evidence over other evidence.
…
To the extent that it is necessary for the reinsurers to rely on Oil Basins to make out an argument that the arbitrators were obliged to refer specifically to the arguments of the reinsurers in relation to reasonableness I am persuaded to the point of conviction that it is wrong to equate the obligations of judges and arbitrators to give reasons as part of the ascription of meaning to the CA Act, s 29(1)(c). This is because of my view that so to equate the responsibilities of arbitrators and judges is not in accordance with the content of either s 29(1)(c) or the Model Law (being relevantly its source and inspiration) or with international arbitration practice as reflected by the cases and writing to which I have referred. To the extent that the Court of Appeal in Oil Basins can be seen to have so decided in relation to s 29(1)(c), I am of the respectful view that such view is plainly or clearly wrong and should not be followed. …. This produces inconsistency in approach between intermediate appellate courts, which is regrettable; but, in my view, the issue is of such importance as to require exposure and the taking of a different course to that in the Victorian Court of Appeal.[45]
[45] At [204]-[205], [207]-[209], [212]-[213], [215]-[219], [224]. (Citations omitted)
Westport successfully appealed to the High Court. In Westport Insurance Corporation v Gordian Runoff Limited,[46] French CJ, Gummow, Crennan and Bell JJ (with whom Kiefel J relevantly agreed) held that the Court of Appeal erred in holding that, because the issues of construction of section 18A were complex, it could not be said that there was a manifest error of law on the face of the record. This aspect of the decision is considered below. French CJ, Gummow, Crennan and Bell JJ, and Kiefel J in separate reasons, held that the arbitrators failed to give reasons in compliance with section 29(1)(c) for concluding that the proviso did not apply and this comprised an error of law. French CJ, Gummow, Crennan and Bell JJ said:
Treating s 18B of the Insurance Act as a critical element in reaching their award, the arbitrators were obliged to explain succinctly why the various integers in that complex statutory provision were satisfied. Those integers included the proviso.
There is no indication of factual findings in the Reasons which supported the inapplicability of the proviso, nor, indeed, of those considerations tending to support its application. In particular, there was no apparent attention to the contention that Gordian could have sought a special acceptance with respect to the FAI policy but had not done so, and if Gordian had done so it was at best conjectural that the reinsurers would have accepted. Nor was there consideration of the reinsurers' rejoinder pleading concerning the adjustment in premium. Nor was there any apparent consideration that the proviso in s 18B(1) was designed to guard against a strained application of the sub‑section.[47]
[46] (2011) 244 CLR 239.
[47] At [55]-[56].
In the course of examining the obligation to give reasons, French CJ, Gummow, Crennan and Bell JJ summarised some of the provisions of the New South Wales Act providing for enforcement of awards in the Court and powers of the Court in relation to arbitrations and said:
These statutory provisions indicate that the making of an award in arbitration proceedings is more than the performance of private contractual arrangements between the parties which yields an outcome which rests purely in contract. They also suggest the importance which the provision of reasons by arbitrators has for the operation of the statutory regime. That statutory regime involves the exercise of public authority, whether by force of the statute itself or by enlistment of the jurisdiction of the Supreme Court. It also, as explained later in these reasons, displays a legislative concern that the jurisdiction of the courts to develop commercial law not be restricted by the complete insulation of private commercial arbitration.
No doubt it is true to say that the provision of an award under the Arbitration Act lacks distinctive hallmarks of the exercise of judicial power, namely the maintenance of public confidence in the manner of its exercise and in the cogency or rationality of its outcomes, and the operation of the appellate structure and of the case law system. However, it is going too far to conclude that performance of the arbitral function is purely a private matter of contract, in which the parties have given up their rights to engage judicial power, and is wholly divorced from the exercise of public authority.[48]
[48] At [19]-[20]. (Citations omitted). See also at [168] per Kiefel J.
In the course of examining the nature and extent of the obligation to give reasons, French CJ, Gummow, Crennan and Bell JJ at one extreme disapproved the approach of the Victorian Court of Appeal in Oil Basins insofar as it described the obligation of an arbitrator under section 29(1)(c) to give reasons as being to a judicial standard, although their Honours quoted other passages from Oil Basins without apparent disapproval. Their Honours at the other extreme did not approve the comprehensive approach of the New South Wales Court of Appeal in Gordian Runoff Limited and disagreed with that Court’s conclusion as to the adequacy of the reasons in the case at bar. The High Court left the nuances of the appropriate approach to be fleshed out in subsequent cases by observing that both parties in the case at bar were content to rest on the approach articulated by Donaldson LJ in Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2)[49]. French CJ, Gummow, Crennan and Bell JJ said:
[49] [1981] 2 Lloyd’s Rep 130.
The Court of Appeal rejected the submission by the reinsurers that there had been an error of law in the failure of the arbitrators to give adequate reasons for their conclusion respecting the application of the proviso in the concluding words of s 18B(1) of the Insurance Act. The reinsurers had submitted that the findings by the arbitrators had compelled the contrary conclusion, namely, that it was not reasonable for them to be bound to indemnify Gordian. The reinsurers had supported their submission as to the inadequacy of reasons by reference to what they saw as having been decided by the Court of Appeal of Victoria in Oil Basins.
The relevant proposition from Oil Basins upon which the reinsurers relied before the Court of Appeal was that the requirement for reasons specified in para (c) of s 29(1) of the Arbitration Act was a statutory importation of the same standard as applies in Australia to the giving of reasons by judges.
Allsop P considered that the applicable standard was that stated by Donaldson LJ when giving the judgment of the English Court of Appeal in Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2). As his Lordship had said:
"All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is. This is all that is meant by a 'reasoned award' [in s 1(6) of the 1979 UK Act]."
It may be noted that immediately following this passage Donaldson LJ had gone on to distinguish a reasoned award from reasons for judgment.
This Court granted special leave to appeal on the ground that the Court of Appeal had erred in not concluding that the arbitrators had failed to give reasons as required by para (c) of s 29(1) of the Arbitration Act for their conclusion that it was reasonable for the reinsurers to be required to indemnify Gordian within the meaning of the proviso to s 18B(1) of the Insurance Act …
The reference in Oil Basins to the giving by the arbitrators in that dispute of reasons to a "judicial standard" and cognate expressions placed an unfortunate gloss upon the terms of s 29(1)(c). More to the point were observations in Oil Basins to the effect that what is required to satisfy that provision will depend upon the nature of the dispute and the particular circumstances of the case. Their Honours illustrated the point by saying:
"If a dispute turns on a single short issue of fact, and it is apparent that the arbitrator has been chosen for his or her expertise in the trade or calling with which the dispute is concerned, a court might well not expect anything more than rudimentary identification of the issues, evidence and reasoning from the evidence to the facts and from the facts to the conclusion."
But in Oil Basins itself, the central issue in dispute in the hard‑fought and lengthy arbitration:
"was whether the expression 'overriding royalty' in the royalty agreement was used as a term of art, as the respondents contended (with the result that any right to royalty ceased upon surrender of the tenement to which it related (a 'title based' royalty)), or whether the expression meant simply an additional royalty, as the appellant argued (with the result that royalty was payable in respect of production derived by the respondents from within the area regardless of surrenders (an 'area based' royalty))."
The primary judge in Oil Basins had, as the Court of Appeal put it, properly:
"held that, in order to provide reasons of the standard required by s 29(1)(c), it was necessary for the arbitrators to decide and give reasons for deciding whether 'overriding royalty' was a technical term with a meaning usually understood by persons in the oil and gas industry and, if so, whether the context of the royalty agreement or the surrounding circumstances implied that the parties intended a different meaning from the technical meaning."
This the arbitrators in Oil Basins had failed to do.
In the present case, the reinsurers correctly submit that no wholly satisfactory formula can be found to flesh out the requirement in s 29(1)(c). Both Gordian and the reinsurers are content in this Court to rest, like Allsop P, upon what was set out above from the reasons of Donaldson LJ in Bremer. But the parties differ respecting the outcome of applying Bremer to the Reasons. The submissions of the reinsurers on this point should be accepted.[50]
[50] At [49]-[54]. (Citations omitted)

The arbitrator’s reasons for rejecting Ottoway’s cross claim were contained in paragraphs 4.7.73 to 4.7.100 and included the following:
4.7.73I find that the Respondent is not entitled to the Cross Claim for Unrecovered Overheads.
My findings and reasons are as follows:
…
4.7.78I considered all evidence submitted by the witnesses. This includes the witness statements and the reply witness statements. Following are my comments and my findings in relation to the evidence relevant to the issues in dispute. I have underlined particular portions of the witness statements that I consider as being important/relevant evidence in relation to the issues in dispute.
[The arbitrator set out various extracts from the witness statements of the various witnesses. That included statements by David Dyer and Imogen Hume that they did not make and were not aware of any other ASC person making the alleged representation]
4.7.79(g) The letter of 4 December 2012 including the following content.
…
I find that it is clear that this proposal from Ottoway demonstrated that the parties should have had a mutual understanding that the spool price was based on a ‘targeted’ weekly production rate of 180 spools, and did not represent that there was a ‘guarantee’ that the rate would be 180 spools per week.
…
4.7.88I find that during the negotiations prior to executing the January 2013 Deed of Amendment, Layne Holberton forwarded a proposal dated 4 December 2012 to ASC which included a calculation for a proposed revised spool rate of $649.17. This spool rate was based on 180 spools per week. The 4 December 2012 letter was provided to me and included a section under a heading ‘Conditions’. The ‘conditions’ contained a sentence “The above spool rate is calculated based on a targeted weekly production rate of 180 spools”. I find that the ‘conditions’ did not include a condition that would address a situation where the production rate varied from 180 spools per week. I find that, Ottoway had an opportunity to negotiate provisions for inclusion in the Deeds, to mitigate its risks if production rates dropped below 180 spools per week, but Ottoway did not actively seek to include conditions in the Deeds to mitigate its risks.…
…
4.7.90I find from the evidence that ASC did not express any objections to the content of the 4 December proposal from Layne Holberton and that ASC would have understood that the spool rate calculated by Ottoway, and accepted by ASC, was based on the production of 180 spools per week. This rate of $649.17 was then incorporated in both Deeds.
…
4.7.92I have not been provided with any convincing evidence that Ottoway was provided with any representations from ASC, that ASC would provide all the necessary materials, design and purchase orders to maintain a production rate of 180 spools per week.
…
4.7.97I did not find any convincing evidence to support the Respondent’s contention that a collateral agreement existed. Layne Holberton in an email to David Dyer dated 18 January 2013, which was immediately after the 17 January 2013 Deed of Amendment was signed, indicated that Ottoway would run out of work around 25 January 2013 due to material delivery, and “should ASC choose not to compensate Ottoway for this additional cost and loss of overhead recovery, I will have no choice but to reallocate all ASC labour (including staff positions) and wait until ASC have delivered over 80% of all material for B709 S3 before commencing any further work on any open ASC work orders”.
4.7.98 In response to Layne Holberton’s email of 18 January 2013, David Dyer stated in his email of 22 January 2013: “ASC accepts that you do not currently have sufficient materials to produce 180 spools per week, However, the claim for “additional costs” in your email below has no contractual basis and therefore ASC has no authority to pay this and your claim for additional costs must be rejected by ASC.”
…
4.7.100 The Respondent expressed in the ‘amended response to the claim and cross claim’ a legal basis for its Claimed Amount. The Respondent contended that it was entitled to the Claimed Amount based on the alternative legal arguments which included damages or compensation for the following, which I address in turn:
Breach of a Collateral Agreement
(1)I find that the Respondent did not provided convincing evidence that there was a Collateral agreement entered into by Ottoway and ASC following the execution of the Contract – which required ASC to provide sufficient Work Orders to enable Ottoway to recover its overheads and in the event that it did not provide sufficient Work Orders, it would compensate Ottoway for the unrecovered overheads.
I was not provided with any document or convincing evidence of statements made that would support an argument that a collateral agreement was established by the parties.
Breach of the Contract as amended by clause 8.3 (a) of the Deed
(2)I find that the evidence provided to me did not prove that there was a breach of the Contract as amended by clause 8.3 (a) of the Deed of Amendment dated 17 January 2013. I consider that Clause 8.3 (a) is clear in respect to its meaning that ASC was only required to issue purchase orders that did “not require the Contractor to fabricate more than an average of 180 Pipe Spools per week, where such average is calculated over any 3 month period.”
I accept ASC’s evidence (Dyer and Hume) that ASC could not, would not, and did not, guarantee a pipe spool rate.
Breach of an Implied Term
(3)I find that there was no convincing evidence that there was a breach of a term implied by operation of fact that ASC was required to provide sufficient Work Orders to enable Ottoway to recover its overhead costs, and in the event that ASC did not provided sufficient Work Orders to enable Ottoway to recover its overheads costs, ASC would compensate Ottoway for its unrecovered overheads. I accept the Claimant’s argument that “it is contrary to law to imply into a Contract which is inconsistent with express terms recorded”, and I find that the ‘implied term’ argument proposed by Ottoway would be inconsistent with Clause 8.3(a) and the Contract. The Contract operates effectively without such an implied term. I find from the evidence that the 5 requirements set out in the ‘Codelfa’ and ‘BP Refinery Cases’ have not been satisfied in order to imply the term.
Equitable Compensation
(4)I find that Ottoway is not entitled to equitable compensation on the basis that ASC is estopped from denying that it represented to Ottoway that it would provide it with sufficient Work Orders to enable Ottoway to recover its overheads, and in the event that it did not provided sufficient Work Orders, it would compensate Ottoway for its unrecovered overheads. Ottoway did not provide the necessary written or oral evidence to prove that the representation occurred. After considering all the evidence, I did not find that ASC provided a guarantee that it would provide sufficient Work Orders to enable Ottoway to recover its overheads.
Damages pursuant to Australian Consumer Law
(5)I find that Ottoway has not provided sufficient grounds to support a claim for damages pursuant to the Australian Consumer Law. I have not been provided with any convincing evidence that ASC engaged in conduct which was misleading or deceptive or likely to mislead or deceive. Both parties demonstrated that they were in agreement with the change to using a pipe spool rate pricing arrangement for determining the amount to which Ottoway was entitled to be reimbursed for undertaking the work under the Contract. The evidence did not disclose that ASC made a representation to Ottoway that it would provide Ottoway with sufficient Work Orders to enable Ottoway to recover its overheads, and in the event that it did not provide sufficient Work Orders, it would compensate Ottoway for its unrecovered overheads.
Damages pursuant to section 7 of the Misrepresentation Act 1972
(6)I find that the Respondent has not proved its case for damages pursuant to section 7 of the Misrepresentation Act 1972, as Ottoway has not proved that it was induced by a misrepresentation to enter into the agreement to use the spool rate basis for determining the amount to which Ottoway was entitled to be reimbursed for undertaking the work under the Contract. The witness statements did not provide convincing evidence to support Ottoway’s position that ASC made a representation to Ottoway that ASC would provide sufficient Work Orders to enable Ottoway to recover its overheads and in the event that it did not provide sufficient Work Orders, ASC would compensate Ottoway for its unrecovered overheads.
Meaning of “obviously wrong” and “open to serious doubt”
The criteria expressed in section 34A(3)(c)(i) and the second limb of section 34A(3)(c)(ii) are that the decision of the Tribunal is “obviously wrong” or “at least open to serious doubt” respectively.
In contrast to the dichotomy contained in section 38(5)(b) of the 1986 Act, the dichotomy in section 34A(3)(c) of the Act is between a decision which on preliminary analysis can be confidently characterised as wrong on the one hand, and a decision which on preliminary analysis is open to serious doubt but whose correctness can only be determined after a full hearing on the other hand. This is very loosely analogous to the dichotomy between the criteria for judgment on a summary judgment application and after a full trial,[53] and the dichotomy between the criteria for leave to appeal against a civil judgment and for allowing the appeal.[54] In each case, the extent of the analysis required to be undertaken at the preliminary stage can vary depending on the nature of the issues in question.[55]
[53] Ceneavenue Pty Ltd v Martin [2008] SASC 158, (2008) 106 SASR 1 at [82] per Debelle J (with whom Duggan and Anderson JJ agreed); Proude v Visic (No 4) [2013] SASC 154, (2013) 117 SASR 560 at [106]-[109] and [131] per Blue J.
[54] The concept of being obviously wrong is also analogous to the concept of manifest error articulated in the context of the former Commercial Arbitration Act 1984 (NSW) by the New South Wales Court of Appeal in Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 at 225-226 per Sheller JA (with whom Meagher JA agreed), Natoli v Walker (1994) 217 ALR 201 at 215-217 per Kirby P and 223 per Mahoney JA and Gordian Runoff Limited v Westport Insurance Corporation(2010) 267 ALR 74 at [116] per Allsop P (with whom Spigelman CJ and Macfarlan JA agreed) which was disapproved by the High Court in Westport Insurance Corporation v Gordian Runoff Limited(2011) 244 CLR 239 at [45]-[47] per French CJ, Gummow, Crennan and Bell JJ.
[55] See, for example, Proude v Visic (No 4) (2013) 117 SASR 560 at [19] per Blue J and Collins v Djunaedi [2016] SASCFC 48 at [15] per Kourakis CJ (with whom Stanley and Parker JJ agreed).
The dichotomy under the Act is quite different to the dichotomy contained in section 38(5)(b) of the 1986 Act. The reference in section 38(5)(b)(i) to a “manifest error of law on the face of the award” imported the certiorari concept such that the High Court held in Westport Insurance Corporation v Gordian Runoff Limited that the breadth and depth of analysis required as to whether there was such an error of law was not limited to a preliminary assessment but was limited only to the face of the award including the reasons for the award. By comparison, the analysis required as to whether there was “strong evidence that the arbitrator … made an error of law” under section 38(5)(b)(ii) ex hypothesis did not require a firm or final conclusion whether the arbitrator did make an error of law and, it would seem, was not limited to the face of the record.
In determining whether there is serious doubt that there is an error of law under section 34A(3)(c), there is no limitation to consideration only on the face of the award and no reason not to have regard also to the pleadings, evidence and argument at arbitration.
Meaning of “question of general public importance”
The criterion expressed in the first limb of section 34A(3)(c)(ii) is well familiar to courts. It is loosely analogous to the criterion commonly applied to the grant of permission to appeal against a costs judgment[56] or the criterion commonly applied by the High Court to the grant of special leave to appeal.[57] It directs attention not to the interests of the parties but to the public interest in clarifying questions of law which will have a general application.
[56] Mericka v Rathbone [2016] SASCFC 95, (2016) 125 SASR 563 at [11] per Blue J and [174]-[177] per Doyle J (with each of whom Bampton J agreed); Ruzehaji v Commissioner of the Australian Federal Police (No 2) [2016] SASCFC 24 at [10]-[13] per Gray J (with whom Peek and Nicholson JJ agreed).
[57] White v R (1962) 107 CLR 174 at 176 per Dixon CJ, McTiernan, Kitto, Windeyer and Owen JJ; Morris v R (1987) 163 CLR 454 at 475 per Dawson J.
Compliance of reasons with subsection 31(3)
The decision of the High Court in Westport Insurance Corporation v Gordian Runoff Limited[58] conclusively establishes that it is an error of law within the meaning of section 38(5)(b) of the 1986 Act for an arbitrator not to provide reasons in accordance with the obligation imposed by section 29(1)(c). ASC does not contend that the position is materially different under the Act. It is common ground on the application for leave to appeal that it is a question of law within the meaning of section 34A of the Act whether the reasons of an arbitrator comply with the obligation imposed by subsection 31(3) and that on appeal (if leave is granted) an award is liable to be set aside (in the discretion of the Court) if the reasons do not so comply.
[58] (2011) 244 CLR 239.
Ottoway contends that the arbitrator’s reasons for upholding ASC’s claim, for rejecting Ottoway’s cross claim and for finding that in any event Ottoway failed to prove the quantum of its cross claim, did not comply with subsection 31(3).
In respect of the arbitrator’s rejection of the cross claim, Ottoway submits that the arbitrator did not refer to much of the evidence given by the witnesses, did not refer to any oral evidence, did not accept or reject the evidence of any witness and did not give reasons for preferring the evidence of any witness over any other witness. Ottoway submits that the arbitrator did not give reasons for his conclusions at paragraphs 4.7.73 and 4.7.97 extracted above. In respect of the arbitrator’s upholding of ASC’s claim, Ottoway submits that the arbitrator did not give reasons for his conclusions at paragraph 4.7.72 (a), (f), (g), (i), (j) and (m) extracted above.
ASC denies that the arbitrator’s reasons failed to comply with subsection 31(3) of the Act but ASC does not make any substantive submissions in response to Ottoway’s submissions about the adequacy of the reasons. ASC draws attention to decisions of this Court that the role of the Court in considering whether leave should be granted is a screening function rather than anticipating the Court’s final decision on the relevant question of law.[59]
[59] Citing Pioneer Concrete (SA) Pty Ltd v Jennings Group Ltd (1991) 161 LSJS 332 at 335 per Cox J and Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust (1994) 63 SASR 444 at 449 per Debelle J.
As observed above, the assessment of the arbitrator’s reasons at this stage is based only on the face of those reasons in the context of the contract which was tendered in evidence on the application for leave to appeal. It may well be that there would be a different assessment of the arbitrator’s reasons if the materials before the arbitrator were tendered on the hearing of any appeal were leave to appeal to be granted.
For reasons I will explain, recognising that the standard expected of reasons by a judicial officer is not applicable as such to reasons by an arbitrator, I nevertheless first consider on the face of the arbitrator’s reasons whether they meet the standard expected of reasons by a judicial officer.
Ottoway’s three non-contract causes of action relied on the alleged representation by ASC that it would provide sufficient work orders to enable Ottoway to recover its overheads and otherwise would compensate Ottoway for its unrecovered overheads. The arbitrator expressed the bare conclusion that the evidence did not disclose that ASC made the alleged representation. The arbitrator did not explain in his reasons whether he rejected evidence by Ottoway’s witnesses of communications between ASC and Ottoway which, if accepted, would have established the making of the alleged representation; whether he accepted evidence by Ottoway’s witnesses but considered that the communications to which they deposed did not establish the making of the alleged representation; or whether he preferred evidence by ASC’s witnesses denying the communications over evidence by Ottoway’s witnesses of the existence of the communications.
If the evidence by Ottoway’s witnesses of communications between ASC and Ottoway was rejected, a judicial officer would have been required to say this, give some description of the evidence and give some explanation of the reason or reasons for the rejection. If the evidence were accepted or taken at its highest and it were concluded that it did not in any event establish the making of the alleged representation, a judicial officer would have been required to say this, give some description of the evidence and give some explanation why it did not establish the making of the alleged representation. If the evidence by ASC’s witnesses denying the communications were preferred over evidence by Ottoway’s witnesses of the existence of the communications, a judicial officer would have been required to say this, give some description of the evidence and give some explanation of the reason for the preference.
Ottoway’s collateral contract cause of action relied on communications between the parties giving rise to a collateral contract containing the alleged term. The arbitrator expressed the bare conclusion that Ottoway did not provide convincing evidence of statements made that would support an argument that a collateral agreement was established by the parties. The arbitrator did not explain in his reasons whether he rejected evidence by Ottoway’s witnesses of communications between ASC and Ottoway which, if accepted, would have established the making of a collateral contract; whether he accepted evidence by Ottoway’s witnesses but considered that the communications to which they deposed did not establish the making of a collateral contract; or whether he preferred evidence by ASC’s witnesses denying the communications over evidence by Ottoway’s witnesses of the existence of the communications. Again, a judicial officer would have been required to give reasons addressing the equivalent matters to those summarised at [129] to [130] above.
In respect of ASC’s claim, the position is different because it appears that the major issue was simply whether as a matter of construction or implication the first amendment abolished the clawback regime. The arbitrator concluded that, when the parties changed the Pricing Schedule, particularly taking into account that no change was made to clause 3 or Attachment A Capital Equipment Schedule, no change was made to the obligation on Ottoway to pay ASC the capital equipment contribution clawback. This was in essence a negative conclusion and there was a limit to the reasons that could be given for such a conclusion. However, under the contract as performed by the parties up to September 2011, the Man Hours for the purpose of the reimbursement calculation were to be ascertained from the invoices issued by Ottoway in accordance with the purchase orders which in turn were to be in accordance with the Pricing Schedule. ASC calculated the total Man Hours based on the total number of spools produced (24,108 or 25,013) over the entire life of the contract from September 2009 to the completion of the term in 2014 using 7.2 Man Hours per spool. Assuming that the contract was varied with effect from September 2011 to substitute a different method of calculating Man Hours, it might be expected that, for the purpose of the capital equipment contribution clawback calculation, the number of Man Hours invoiced up to September 2011 would still be based on historical invoices issued to that date rather than the new method to be used after that date. The arbitrator did not explain how the contract came to be varied to substitute a different method of calculating Man Hours retrospectively from the beginning of the contract for the purpose of the clawback calculation. (It may be that only changing the method prospectively would have had a similar result, but this cannot be discerned from the arbitrator’s reasons).[60] It is seriously arguable that a judicial officer would have been required to give reasons addressing and explaining his or her findings concerning the variation to the clawback calculation being retrospective on ASC’s case which the arbitrator accepted.
[60] It may also be that the parties agreed that the adjustment was to be retrospective but, if so, this also cannot be discerned from the arbitrator's reasons.

As observed above, it appears that the arbitrator decided ASC’s claim by construction of the first amendment. However, the arbitrator added that he accepted ASC’s argument that it extended the term of the contract on the understanding that Ottoway would reimburse ASC for its capital contribution. It is not clear whether the arbitrator intended this to be an alternative reason for upholding ASC’s claim because the arbitrator said nothing about the relevance or consequences of this finding. For example, the arbitrator did not refer to estoppel. The arbitrator did not refer to or make findings with respect to the evidence by ASC or Ottoway witnesses about clawback or by ASC about reliance on Ottoway’s agreement to reimburse when extending the term. A judicial officer would have been required to do so if this formed an additional or alternative reason for upholding ASC’s claim.
On the one hand, I am unable to conclude at this preliminary stage that it is “obvious” that the arbitrator’s reasons do not comply with subsection 31(3) of the Act. It is clear that the standard of reasons required of a judicial officer should not be automatically transposed to the standard of reasons required of an arbitrator. Before it could be determined whether the arbitrator’s reasons do not comply with subsection 31(3) of the Act, it would be necessary to hear argument from the parties as to the standard of reasons required of an arbitrator and I have heard no such argument on the application for leave to appeal. In addition, it would be necessary to have regard to the pleadings, evidence and arguments at arbitration to provide the context in which the reasons should be understood.
On the other hand, it is at least open to serious doubt that the arbitrator’s reasons do not comply with subsection 31(3) of the Act because they do not address the matters summarised above.
The question of the standard required of an arbitrator’s reasons under subsection 31(3) of the Act is a question of general public importance. The wording of the requirement that the arbitrator “state the reasons on which [the award] is based” is not so different from the former requirement that the arbitrator give a “statement of the reasons for making the award” as to suggest that the requirement is materially different from that under the 1986 Act. In Oil Basins Ltd v BHP Billiton Ltd,[61] the Victorian Court of Appeal had given detailed guidance as to the nature and extent of the reasons required to be given by an arbitrator and in Gordian Runoff Limited v Westport Insurance Corporation,[62] the New South Wales Court of Appeal had given similarly detailed but conflicting specific guidance. For the reasons given at [78] above, in light of the High Court’s decision in Westport Insurance Corporation v Gordian Runoff Limited,[63] there is now a need to determine afresh the nature and extent of the reasons required to be given by an arbitrator. This case calls for such a determination.
[61] (2007) 18 VR 346.
[62] (2010) 267 ALR 74.
[63] (2011) 244 CLR 239.
I am satisfied that, on the basis of the findings of fact in the award, the question of law raised by the appeal is one of general public importance and the decision of the arbitrator is at least open to serious doubt. The criterion in section 34A(3)(c) for leave to appeal is satisfied.
Other criteria and residual discretion
There are three other criteria contained in subsection 34A(3) of which I must be satisfied before my discretion to grant leave to appeal is enlivened. ASC does not contend that these three criteria are not satisfied but nevertheless I am required to be satisfied of them before proceeding further.
The first criterion is satisfied because determination of the question in favour of Ottoway would substantially affect the rights of both parties. The second criterion is satisfied because the arbitrator was asked, and indeed required, to state the reasons on which the award was based (under subsection 31(3) and question 2.9 answered at the preliminary conference).
The third criterion is that it is just and proper in all the circumstances for the Court to determine the question despite the agreement of the parties to resolve the matter by arbitration. Both parties proceeded to arbitration on the premise that the arbitrator would provide a statement of the reasons on which the award was based as required by subsection 31(3). The mere fact that the parties agreed to resolve the matter by arbitration is not a reason not to grant leave to appeal. Taking into account all the circumstances, it is just and proper for the Court to determine the question of compliance of the reasons with subsection 31(3).
Under the 1986 Act, it was clearly established that the Court had a residual discretion whether to grant leave if the mandatory criteria were established.[64] The inclusion of the criterion in section 34A(3)(d) probably covers the matters that would formerly have been taken into account in the exercise of the residual discretion. However, assuming that there remains a residual discretion, it is appropriate in the circumstances that that discretion be exercised so as to grant leave to appeal.
[64] Westport Insurance Corporation v Gordian Runoff Limited (2011) 244 CLR 239 at [29] and [38] per French CJ, Gummow, Crennan and Bell JJ and [165] per Kiefel J.
Conclusion
I grant leave to Ottoway to appeal against the arbitrator’s award on the ground that the arbitrator’s reasons do not comply with subsection 31(3) of the Act.
I will hear the parties as to consequential matters and directions for the hearing and determination of the appeal.