Pindan Pty Ltd v The Richardson Hotel Suites & Spa Pty Ltd - [2008] WASC 254

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: PINDAN PTY LTD -v- THE RICHARDSON HOTEL SUITES & SPA PTY LTD [2008] WASC 254

CORAM: BEECH J

HEARD: 28 OCTOBER 2008

DELIVERED : 28 OCTOBER 2008

PUBLISHED : 31 OCTOBER 2008

FILE NO/S: ARB 6 of 2008

BETWEEN: PINDAN PTY LTD
Applicant
AND
THE RICHARDSON HOTEL SUITES & SPA PTY LTD
First Respondent
ROGER DAVIS
Second Respondent

Catchwords:

Arbitration - Commercial Arbitration Act 1985 (WA) - Whether pending arbitration should be restrained until application for removal of arbitrator determined - Misconduct - When conduct in the course of proceedings may constitute technical misconduct - Turns on own facts

Legislation:

Commercial Arbitration Act 1985 (WA) s 44

Result:

Application dismissed

Category: B

Representation:

Counsel:

Applicant:     Mr C G Colvin SC & Mr A R MacPherson
First Respondent           :     Mr D S Ellis & Ms C Davies
Second Respondent       :     No appearance

Solicitors:

Applicant:     Hotchkin Hanly
First Respondent           :     Minter Ellison
Second Respondent       :     No appearance

Case(s) referred to in judgment(s):

Gebauer Nominees Pty Ltd v Cole [No 2] [2008] WASCA 41
Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110

BEECH J: (These reasons are an edited version of the reasons delivered extemporaneously on 28 October 2008.)

The applicant applies to restrain the recommencement tomorrow of an arbitration that is on foot between it and the first respondent. The urgent nature of the relief sought by the applicant means that a decision is required from me immediately. That means that there is not the usual opportunity for reflection, and it also affects the form in which I am able to state my reasons.
The arbitration is on foot between the applicant as builder and the first respondent as the owner in relation to a building contract made between those two parties. The second respondent is the arbitrator and has not taken any part in the hearing today.
The arbitration commenced yesterday, 27 October 2008, and is listed for 10 days. That hearing is to determine the builder's extension of time claims and the resultant date for practical completion. Separate hearings in relation to that issue and other issues in dispute between the parties were directed by the arbitrator by a letter of 17 October 2008. Further hearing dates have been allocated in December of this year for the remaining issues.
The hearing of the arbitration today was adjourned in the light of the builder's stated intention to make the application that is now before me.
In order to understand the builder's case it is necessary to refer to the pleadings in the arbitration. The arbitration has proceeded on pleadings.
An extension of time counterclaim was filed by the builder on or about 31 January 2008. It pleaded that by reason of variations and failures on the part of the owner to provide information in a timely way, extensions of time to the contractual date for practical completion should be allowed.
In its defence to counterclaim the owner denies that plea, saying that the builder was not entitled to have the date for practical completion extended. The owner also raises other matters, such as a time bar, which are irrelevant to the present application. The builder's submissions emphasise that in a number of places in the schedule to the defence to counterclaim, the owner states that 'the events identified by [the builder in its counterclaim] do not cause delay to the works under construction and therefore do not entitle [the builder] to claim an extension of time'. The builder contrasts statements in the owner's schedule to that effect with certain instances where a specific different cause of delay is stated. With the exception of those limited instances, the builder submits that the owner did not plead an affirmative case of any alternative causes of delay.
The builder has engaged James Clarke and Associates (JCA) to give expert evidence in support of the builder's extension of time claims. JCA was engaged to prepare what is sometimes termed critical path analysis. Such analysis involves identifying the effect, if any, of specific matters on the timing and overall progress of a project.
Mr MacPherson's affidavit, filed in support of the builder's application for an injunction, deposes to the fact that nothing in the contract superintendent's response to the extension of time claims suggested any allegation of concurrent builder delay as a ground to reject the extension of time claim. Taking that into account, and what the builder says arises from the pleadings, the builder's solicitors instructed JCA in preparing its expert report only to take into account the events giving rise to the builder's extension of time claim.
JCA's expert report, dated 12 September 2008, is said by Mr MacPherson to have taken many weeks to prepare.
Mr MacPherson says that on or about 12 September 2008 witness statements were received from the owner. Certain of them are annexed to Mr MacPherson's affidavit. Among those are extracts of Mr Jordan's witness statement, including paragraph 30. I was also referred without objection to the substance of the contents of paragraph 26 of that statement.
On the face of it, those paragraphs appear to have raised allegations of different causes of delay. At the time of receipt of the witness statement, no objection was taken by the builder to those aspects of the witness statements.
On 17 October 2008 responsive witness statements were exchanged. The builder points to a number of aspects of the responsive statements and to a detailed responsive expert report from Evans and Peck, a firm retained by the owners. It is not necessary to recite that evidence in detail. It is referred to in paragraph 15 of Mr Macpherson's affidavit.
Paragraphs 8.2.3 and 8.2.4 of the Evans and Peck report respond to and comment on the JCA report. In substance, in those paragraphs the analysis and methodology in the JCA report is criticised on the ground that it is said that JCA failed to take into account questions of whether it was possible for the builder to prevent or mitigate each claimed delay event. There is also reference to what is said to be 'contractor caused delays'.
In response to these matters, counsel for the builder prepared written submissions for the commencement of the arbitration on 27 October 2008.
In essence, the builder complained that various witness statements and the expert report served by the owner raised what should be seen as alternative causes of delay and yet were not pleaded. Further, it was said that the builder had its expert report prepared on the basis of the pleadings and so the report did not deal with the matters now the subject of the objected to evidence. It was also pointed out that the Evans and Peck report criticised the builder's expert evidence on this basis and in the circumstances just summarised.
The builder filed objections to the evidence in question on the grounds that it was irrelevant because it was not pleaded, and in some cases that it was too general.
It is the ruling made by the arbitrator at the hearing on 27 October 2008 that founds the builder's claim in this action.
On 27 October 2008 at the commencement of the arbitration, counsel for the builder sought a ruling striking out the material in question on the grounds that it was irrelevant. Counsel also sought an order that no cross examination be permitted in respect of those matters.
The builder's complaint to the arbitrator was put on two footings. Counsel submitted that the primary complaint was that the builder had been taken by surprise given what was, and was not, contained in the pleadings. Further, the builder complained of the vagueness and generality of various parts of the evidence objected to.
At various points in the argument before the arbitrator, the unfairness to the builder was identified by counsel. For example, at page 27 of the transcript it was said that part of the unfairness lay in the prospect that the builder's expert report may be rejected on the basis that he had not taken into account matters which he had not been asked to take into account. Given the state of the pleadings, the submission continued, it was appropriate that the builder's expert had not taken those additional matters into account. Further, the builder submitted that its expert would not have an opportunity to take into account or adequately respond to those additional matters in the time available at the arbitration hearing.
The arbitrator ruled that the evidence objected to would not be struck out, and that it was relevant to the issue of whether the claim for an extension of time had an impact on the critical path of the project.
Following that ruling and in light of that ruling the builder did not apply to adjourn the arbitration to permit its expert to take into account the matters said to have been raised as causes of delay. In making that observation, I do not wish it to be thought that I lay great emphasis on it. Further I do not, in saying it, intend to suggest or anticipate any particular outcome of such an application. I do no more than note that such an application was not made.
The builder commenced these proceedings on 28 October 2008, claiming that the rulings made on 27 October 2008 constitute misconduct calling for the removal of the arbitrator under s 44 of the Commercial Arbitration Act 1985 (WA).
The builder seeks an interlocutory injunction restraining the arbitrator from recommencing the arbitration pending the determination of its application to remove the arbitrator.
The principles relevant to the grant of interlocutory injunctions are well known. For ease of reference I refer to the summary I gave in Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [7] ‑ [11]:
In Castlemaine Tooheys Ltd v The State of South Australia (1986) 161 CLR 148 at 153, Mason ACJ summarised the principles governing the grant or refusal of an interlocutory injunction as follows:
In order to secure such an injunction the plaintiff must show
(1)that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief;
(2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and
(3) that the balance of convenience favours the granting of an injunction.
That summary was adopted by Gleeson CJ in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 at 217. These principles have been routinely applied in this and other courts in Australia.
These principles were further explained by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57, [65]–[71] (Gleeson CJ and Crennan J agreeing). Their Honours stated that the relevant principles are those stated in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, where the two main inquiries were said to be whether the plaintiff had made out a prima facie case and whether the balance of convenience favours the grant of the injunction. The phrase 'prima facie case' does not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed. It is sufficient that the plaintiff show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial. How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders the plaintiff seeks: [65], [71].
The apparent statement by Lord Diplock in American Cyanamid Co v Ethicon Ltd [1975] AC 396 at 407 that, provided the court is satisfied that the plaintiff's claim is not frivolous or vexatious, there will be a serious question to be tried, is not to be followed. The governing consideration is that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory orders sought. These principles make it clear that the various considerations identified by Mason ACJ in Castlemaine Tooheys are to be considered together.
As the apparent strength of the applicant's case diminishes, the balance of convenience moves against the making of an order: Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49 at 54‑ 55; Todd v Novotny [2001] WASC 171. The grant of an injunction involves balancing the injustice which might be suffered by the defendant if the injunction is granted and the plaintiff later fails at trial, against the injustice which might be suffered by the plaintiff if the injunction is not granted and the plaintiff later succeeds at trial: Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670; Madaffari v Labenai Nominees Pty Ltd [2002] WASC 67 [14].
In this application, the interlocutory injunction is sought pending the determination of the application to remove the arbitrator. Thus by definition, the grant of that injunction will disrupt arbitration proceedings that are now on foot between the parties. It seems to me to be an appropriate starting point to recognise that the parties have chosen arbitration as the means for the resolution of their dispute, and that there are significant limits on the circumstances in which a court will interfere with or intervene in an arbitration.
Observations on what constitutes misconduct, and when conduct in the course of an arbitration will amount to misconduct, were recently made by the Court of Appeal in Gebauer Nominees Pty Ltd v Cole [No 2] [2008] WASCA 41 [60] ‑ [65] in the following terms:
There can be no doubt that the power to remove an arbitrator for misconduct is a drastic remedy and not one to be exercised lightly. The value of arbitration as a method of resolving disputes, and the willingness of disputants to commit the necessary time and money to the arbitration process, would be seriously undermined if the courts were too ready to intervene to remove an arbitrator.
It is, however, impossible to provide a comprehensive definition of what would constitute misconduct within the meaning of s 44 of the Act warranting the removal of an arbitrator. Given the infinite variety of circumstances that could arise, it would be unwise to attempt to do so.
But what is clear is that an error of law, even a serious error of law, does not of itself amount to misconduct: Moran v Lloyd's [1983] QB 542, Forsayth NL v Australasian Gold Mines NL (No 1) (1992) 7 WAR 549, 560 ‑ 561. In that connection, it is important to recognise that while parties to arbitration, like parties to litigation, are entitled to expect that the arbitration will be conducted without mishap or misunderstanding, and that the procedure adopted will be fair and appropriate, they are not entitled to expect of an arbitrator, any more than of a judge, that he or she will necessarily and in all circumstances arrive at the 'right' answer as a matter of fact or law: King v Thomas McKenna Ltd [1991] 2 QB 480, 491.
If the position were otherwise it would make unrealistic demands of arbitrators and would be likely to discourage parties from undertaking arbitration as a means of dispute resolution. We respectfully agree with the view of the learned authors (Mustill & Boyd) of the Law & Practice of Commercial Arbitration in England (2^nded, 1989) where they say:
The fact that the court is given a wide power to remove the arbitrator in cases of misconduct does not mean that the power will be freely exercised. An arbitrator may commit errors ‑ even serious errors ‑ in the course of the reference, and yet remain perfectly able to carry the arbitration to a successful conclusion once his mistakes have been pointed out. Justice requires that in such a case the arbitrator should be left in office, rather than that the parties should suffer the delay and expense of beginning arbitration afresh (530).
As Miles CJ observed in Holland Stolte Pty Ltd v Murbay Pty Ltd (1991) 105 FLR 304:
To remove an arbitrator from office for [procedural errors or errors of law] which must inevitably occur from time to time would render the position of an arbitrator too precarious and deprive the arbitration system of the regularity and stability necessary to an efficacious dispute resolution system which might be a proper alternative to judicial resolution (309).
In our view, an arbitrator will be removed by reason of an error made in the course of an arbitration proceeding only where the error indicates some impropriety, partiality or general lack of capacity on the part of the arbitrator, so that 'a reasonable person would no longer have confidence in … the arbitrator's ability to come to a fair and balanced conclusion on the issues if remitted': see Lovell Partnerships (Northern) Ltd v AW Construction Plc (1996) 81 BLR 83.
It was not in doubt that I should proceed on the basis of those principles.
It seems to me that the test for what is misconduct, in particular as to when an error in the course of the proceedings can amount to misconduct (as explained in Gebauer [65]) can fairly be said to be stringent. Those tests must be borne squarely in mind in assessing the apparent strength of the builder's case for removal of the arbitrator.
At this stage (and without expressing any concluded view) there seems to me to be merit in the builder's contentions that, on analysis of the pleadings in the arbitration, (with immaterial exceptions):
(a)no alternative causes of delay were pleaded; and
(b)if any alternative causes of delay were to be relied upon, such causes should, as a matter of the rules of pleading, have been pleaded.
However, the assessment of the builder's prospects of establishing misconduct is not, to my mind, to be approached simply by reference to whether on a proper analysis of the pleadings alternative causes of delay should have been pleaded. In other words, I am not satisfied that it will be enough for the builder to demonstrate at trial that, on a proper analysis of the pleadings, alternative causes of delay should have been pleaded by the owner for the builder to successfully establish its claim of misconduct. That of itself would not meet the test in Gebauer[65].
I do not overlook that, as the builder's submissions emphasised, the question of cause of delay is at the centre of the issues in the arbitration.
Courts are cautious about intervening to disrupt a hearing that is underway, and will do so only in relatively unusual or even extreme circumstances. That caution is reinforced, in my opinion, in the context of arbitration proceedings. This is because there is no general right of appeal, only the limited rights of appeal and limited grounds for supervision by a court that are provided in the Commercial Arbitration Act.
In determining where the balance of the risk of injustice lies, it is I think, relevant that the builder seeks an order that interferes with ongoing arbitration proceedings. The grant of the injunction sought would result in a stay of proceedings for a significant period of time in circumstances where the arbitration has been on foot for a long time and is listed for this week, next week and in December of this year.
In weighing the risk of injustice to the builder in the event that an injunction is not granted, it is to be borne in mind that if the builder makes good its complaint that there has been misconduct on the part of the arbitrator, then it will be open to this court to set aside the award under s 42 of the Commercial Arbitration Act. In other words, the substantive injustice which might flow to the builder from the conduct characterised by it as being misconduct can essentially be remedied by an order under s 42.

The builder pointed to other matters which it submitted are relevant to the risk of injustice if the injunction is not granted. If the arbitration is subsequently set aside, that will result in substantial wasted legal costs. The power to award costs can provide a partial but, I accept, not complete remedy in relation to costs.
The setting aside of the award would mean that considerable time on the part of the parties would have been wasted. To my mind, that is a factor of significant weight and it has weighed heavily in my consideration of the balance of the risk of injustice.
The builder also suggested that there would or is likely to be prejudice arising from the cross examination of the builder's witnesses, in circumstances when there has not been adequate opportunity for them to prepare in the light of other material, or to consider new relevant material. I am not persuaded that prejudice of that kind to any substantial degree would endure after an arbitration award were set aside. (By definition, if the award is not set aside on the hearing of the builder's substantive application, the builder will have failed to establish that the conduct of the arbitration was so unfair as to amount to misconduct.)
In the end, I am not persuaded that the builder's prospects of establishing misconduct leading to an order for removal are sufficiently strong to justify the court to intervene in the arbitration proceedings by staying those proceedings until the determination of the builder's application to remove.
For those reasons, I would decline to grant the interlocutory orders sought by the builder.