Quadwest Developments Pty Ltd v Thi
[2009] WASC 260
•16 SEPTEMBER 2009
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: QUADWEST DEVELOPMENTS PTY LTD -v- THI [2009] WASC 260
CORAM: MURPHY J
HEARD: 31 JULY 2009
DELIVERED : 16 SEPTEMBER 2009
FILE NO/S: GDA 13 of 2008
ARB 12 of 2009
BETWEEN: QUADWEST DEVELOPMENTS PTY LTD
Applicant
AND
HUYNH HUON THI
NGUYEN LOI VAN
TRAN TUYEN VAN
TRAN DAU THI
Respondents
Catchwords:
Arbitration - Application for leave to appeal - Alleged technical misconduct - 'Kelantan' principle
Legislation:
Commercial Arbitration Act 1985 (WA), s 38, s 42
Result:
Applications dismissed
Category: B
Representation:
Counsel:
Applicant: Mr M L Bennett
Respondents : Mr B P Wheatley
Solicitors:
Applicant: Lavan Legal
Respondents : Mossensons
Case(s) referred to in judgment(s):
AC Robertson Pty Ltd (in liq) v Costa Brava Investments Pty Ltd [1962] NSWR 768
Alvaro v Temple [2009] WASC 205
Burton v Palmer [1980] 2 NSWLR 878
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 83 ALJR 903
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1
Government of Kelantan v Duff Development Co Ltd [1923] AC 395
Manufacturers' Mutual Insurance Ltd v Queensland Government Railways (1968) 118 CLR 314
Masawa Australasia Pty Ltd v J Corp Pty Ltd [2000] WASC 5
New Generation Enterprises Pty Ltd v Western Australian Planning Commission [2007] WASCA 89
New South Wales Rutile Mining Co Pty Ltd v Hartford Fire Insurance Co (1972) 46 ALJR 391
Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255; (2007) 18 VR 346
Promenade Investments Pty Ltd v State of New South Wales (1996) 26 NSWLR 203
Shirley Sloan Pty Ltd v Merril Holdings Pty Ltd t/as Airen Constructions [2000] WASC 99
Villani v Delstrat Pty Ltd [2005] WASC 176
Vodafone Pty Ltd v Supercall Pty Ltd [2003] NSWSC 302
MURPHY J:
Introduction
I have before me two related matters. One is an application dated 6 November 2008 for leave to appeal, and to appeal if leave is granted, against an arbitral award dated 26 September 2008 and delivered by an arbitrator on 16 October 2008 (the award). The other is an application, by motion dated 31 July 2009, filed out of time by consent, to set aside the award for technical misconduct under s 42 of the Commercial Arbitration Act 1985 (WA) (the Act). The applicant in this matter (who I will refer to as the Developer) was the respondent to the arbitration proceedings and the respondents in this matter (who I will refer to as the Owners) were the claimants in the arbitration proceedings. The Owners owned a café and catering business in Adelaide Terrace, Perth.
The background to the dispute the subject of the arbitration appears at par 8 of the award:
In 2006 the [Developer] wanted to commence development of [an adjacent] area. The development was to be a substantial multi storey block of apartments and offices adjacent to the café and fronting Adelaide Terrace. The nature and scale of the development was such that during construction the building activities would effectively block access to the substantial and well populated business premises behind the development, GHD House, unless access through the [Owners'] café premises could be arranged, using the café's alfresco area as a walk-way. GHD House is also part of the strata title development. To provide access to GHD House during construction, the [Developer] needed the cooperation of the [Owners]. Through Mr Rafferty and to a lesser extent through the real estate agent who managed the strata title units, a Mr Crouch (who also did not give evidence), approaches were made to the [Owners]. Lawyers also became involved. Deacons acted for the [Developer] and Mossensons acted for the [Owners]. It was contemplated that a deed would be entered into spelling out the rights and obligations of the parties in the event that the [Owners] did agree to provide access through the café. Negotiations commenced to settle the terms of the deed.
The learned arbitrator found (award par 11) that on 23 February 2007 the Developer and the Owners executed a deed and that the deed constituted the complete agreement between the parties (the deed). The proper construction and application of the deed was disputed by the parties in the arbitration, particularly in relation to its provisions dealing with the compensation payable by the Developer to the Owners in respect of the Owners' claimed losses incurred during the construction period. The dispute included, importantly, the meaning of the term 'Average Monthly Income' in the deed, the figures for which were supplied under cover of a letter from the Owners' solicitors dated 22 February 2007.
The arbitrator construed those provisions adversely to the Developer, and the arbitrator's construction of the deed in that regard is sought to be impugned by the Developer in these proceedings.
The arbitrator found, in favour of the Developer, that there was an implied term of the deed (the implied term) that the Owners would continue to operate the café business in at least the same manner post‑construction as it had been operated pre‑construction, insofar as this could reasonably be done (award pars 37 ‑ 38). The arbitrator found a breach of the implied term and awarded nominal damages for the breach in the absence of proof by the Developer of substantial damages. The Developer alleges that on the proper construction of the deed, the implied term conditioned the Owners' entitlement to compensation under the deed, so that its breach would not sound simply in damages.
The arbitrator also found that the Developer had not succeeded in its pleaded case in respect of alleged misrepresentations (award pars 9, 10 and 37). The Developer in these proceedings also seeks to impugn those findings.
Overview of the grounds relied upon by the Developer
The precise grounds relied on by the Developer in these proceedings are set out with more specificity later. It is convenient at the outset, however, to record by way of overview, the nature of the grounds relied on.
In pars 1 and 2 of its amended grounds of appeal, the Developer contends, in effect, that the arbitrator erred in law in finding that the parties must be taken to have agreed that the 'Average Monthly Income' for the purposes of calculating compensation under the deed was constituted by the monthly figures set out in item 1 of the schedule to the deed (the first ground).
Paragraph 3 of the amended grounds of appeal was not pressed (ts 22).
Paragraph 4 of the amended grounds of appeal is to the effect that the arbitrator failed to find that the implied term conditioned the Owners' right to claim compensation under the deed, and accordingly failed to find that a breach of the implied term disentitled the Owners to claim compensation under the deed (the second ground).
In par 5 of the amended grounds of appeal, the Developer contends, in effect, that the arbitrator erred in law in finding that he was not persuaded that any of the representations pleaded by the Developer in the counterclaim were made or were otherwise actionable, having regard to certain specified matters. I will refer to this as the third ground.
Paragraph 6 of the amended grounds of appeal contends, in effect, that the arbitrator erred in law in finding that the Owners' witnesses denied making certain representations pleaded by the Developer (the fourth ground).
Paragraph 7 of the amended grounds of appeal contends, in effect, that the arbitrator erred in law in finding that the figures in relation to monthly income set out in item 1 of the deed were not matters in dispute, when they had been raised as an issue in the Developer's pleaded claim for misleading or deceptive conduct (the fifth ground).
Paragraph 8 of the amended grounds of appeal contends that the arbitrator erred in law in failing to find, in effect, that the Owners had made a representation to the Developer in the same terms and to the same effect as the implied term (the sixth ground).
Paragraphs 9 and 10 of the amended grounds of appeal contend, in effect, that the arbitrator erred in law in failing to deal with a claim pleaded by the Developer to the effect that there was an implied term of the deed 'that the financial information provided by the [Owners] to the [Owners' Accountant] for the purposes of calculating the Compensation Sum would be accurate, truthful and complete' (the accuracy term). I will refer to this as the seventh ground.
Paragraph 11 of the amended grounds of appeal contends, in effect, that the arbitrator, having failed to find that the deed contained the accuracy term, also erred in failing to find that the accuracy term was breached (the eighth ground).
In the motion, the Developer contends, further or in the alternative, that there has been misconduct within the meaning of s 42 of the Act, on the basis of the third, fourth, fifth, seventh and eighth grounds referred to above.
The express terms of the deed
Express terms of the deed included the following:
RECITALS
…
E.The works to be carried out will adversely affect the business carried on by the Owners.
F.The parties have agreed that the Company shall compensate the Owners for their potential losses in the manner set out in this Deed.
OPERATIVE PART
1.TERM
(1)This Deed shall commence from the date of this Deed and continue until the Completion Date.
(2)The obligation to pay the monthly income shall continue on the Company so that the Company shall pay to the Owners the monthly income for the whole of the month in which the Completion Date is reached.
2.DEFINITIONS
…
(2)'Average Monthly Income' means the figure arrived at by the Owners' Accountant for each month of the year by the Owners' Accountant adding the Gross Receipts for the corresponding months in the calendar years of 2005 and 2006 and dividing the figure by 2.
…
(4)'Earned Monthly Income' means the Gross Receipts earned by the business for a month as certified by the Owners' Accountant.
…
(8)'Growth Percentage' means the percentage growth that the business has experienced over the calendar years 2005 and 2006 and is calculated by adding the percentage change in Gross Receipts for the year 2005 over the year 2004 together with the percentage change in gross receipts for the year 2006 over the year 2005, and then dividing the figure obtained by 2 and is the figure referred to in Item 2 of the Schedule.
(9)'Gross Receipts' means the aggregate of the prices excluding GST charged or chargeable and other remuneration received or receivable for all merchandise sold, or catering services provided from the Premises.
(10)'Owners' Accountant' means Gordon Du & Associates of 71 Mirrabooka Avenue, Westminster.
…
3.COMPENSATION
(1)LOSS OF INCOME
(a)The Company shall compensate the Owners for the Owners' loss of income in the manner contained in this Deed.
(b)At the conclusion of each month, the Owners' Accountant shall certify the Earned Monthly Income for that month.
(c)The Owners' Accountant shall compare the Average Monthly Income with the Earned Monthly Income.
(d)If the Earned Monthly Income is less than the Average Monthly Income for that month, then the Company shall pay the difference to the Owners ('the Compensation Sum').
(e)The Owners shall provide to the Company a tax invoice for the Compensation Sum, and the Company shall pay the Compensation Sum within seven (7) days of receipt of the tax invoice.
(f)If the Earned Monthly Income is greater than the Average Monthly Income then the Company shall pay no monies for that month to the Owners. The Owners shall not be liable to refund any monies to the Company.
(g)The calculations of the payment of the Earned Monthly Income shall be done on a month‑by‑month basis only.
(h)The Compensation Sum shall be paid to the Owners direct without any deduction of whatsoever nature.
(i)If requested by the Company the Owners' Accountant must provide all relevant supporting financial information upon which he has based his calculations pursuant to this clause.
(j)The Compensation Sum is to be calculated from 17 December 2006.
(2)ADJUSTMENT FOR INCREASE IN PRICE
(a)The Average Monthly Income shall be increased at the commencement of the second year of the term and the commencement of each successive year thereafter by 3% of the immediate preceding amount.
(b)At the commencement of each successive year of the term of this Deed the average monthly income shall be increased by a further amount by multiplying the average monthly income for each month of the year by the growth percentage.
(c)The calculation of the increase by growth shall be calculated subsequent to the increase in the average monthly income, as set out in paragraph 3(2)(a).
4.VALUATION OF BUSINESS
(1)The Owners' Accountant has determined the value of the business to be the sum as set out in Item 3 of the Schedule ('the Value Price'), which is made up of the business trading value, plant and equipment, and stock as set out in Item 3. In determining the Value Price the Owners' Accountant has applied standard business valuation principles.
(2)At the commencement of the second year of the term of this Deed and each successive year thereafter during the continuance of this Deed, the business trading value of the business shall be increased by:
(a)multiplying the value of the business trading value for the previous year by the percentage increase of the CPI for the previous year; and
(b)multiplying the business trading value as determined in the preceding subparagraph by the growth percentage.
(3)The Owners' Accountant shall then value the plant and equipment, having regard to any increase or decrease in plant and equipment and also do a valuation of the stock.
(4)The sum of the calculations as contained in this Clause shall be the value of the business for the year.
(5)If the Owners wish to sell the business they must first offer it to the Company on the terms and conditions acceptable to the Owners ('the Owners Offer'). The Company must notify the Owners within 20 Business Days of receipt of the Owners Offer whether it wishes to purchase the business in accordance with the Owners Offer.
(6)If the Company does not wish to accept the Owners' Offer the Owners may sell the business to a third party provided it does not do so on terms more favourable than the terms of the Owners' Offer.
(7)If the Owners sell the business for a price less than the Value Price, then the Company will pay to the Owners the difference between the sale price and the valued price.
(8)The Owners shall send to the Company a tax invoice for the difference in price.
(9)The Company shall pay the amount due at the time of settlement of the business.
(10)The Owners' Accountant shall carry out all calculations required of him in accordance with the same accounting methods and standards as have been used in the carrying out of the Owners' accounts up to the date of execution of this Deed.
…
15.ACCOUNTING PRINCIPLES
(1)The Owners' Accountant shall adopt all usual accounting standards and principles applicable to the type and nature of the business in carrying out any calculations required of him pursuant to the terms of the this Deed.
(2)The accountant shall, as far as possible according to the appropriate accounting standards, use the same standards, principles and methods in doing all ongoing calculations required to be done by him at the conclusion of each month or at the conclusion of each year as the case may be during the continuance of this Deed.
…
SCHEDULE
ITEM 1 – AVERAGE MONTHLY INCOME
January $61,139.00
February $63,886.00
March $66,337.00
April $67,510.00
May $69,703.00
June $69,390.00
July $71,004.00
August $71,468.00
September $72,813.00
October $73,435.00
November $73,561.00
December $72,688.00
ITEM 2 – GROWTH PERCENTAGE:
3.83%
ITEM 3 – VALUE OF BUSINESS: $600,000.00
Goodwill $520,000.00
Plant and equipment $80,000.00
Stock $20,000.00
The words 'being that amount specified in item 1 of the schedule' had appeared at the end of the sentence defining 'Average Monthly Income' in cl 2(2) in the penultimate draft of the deed, provided by the Developer to the Owners. This was at a time when the Owners were yet to provide the figures for insertion into the schedule, under the heading 'Item 1 - Average Monthly Income'. The arbitrator found that the words were omitted by mistake (award par 15).
Section 38 and s 42 of the Act - applicable principles
The Developer accepts that, in order to succeed on its application for leave to appeal in the present case, it must show that:
(a)there is a manifest error of law on the face of the award (s 38(5)(b)(i));
(b)having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement (s 38(5)(a)); and
(c)even if (a) and (b) are satisfied, it is appropriate to exercise the court's discretion to grant leave (Masawa Australasia Pty Ltdv J Corp Pty Ltd [2000] WASC 5 [8]).
In New Generation Enterprises Pty Ltdv Western Australian Planning Commission [2007] WASCA 89 Pullin JA (with whom Miller JA agreed) said:
Section 38 is concerned with finality in arbitration proceedings and is designed to limit the intervention of courts in arbitration. The philosophy of the section is that the election of parties is to have their disputes resolved by arbitration: and this should be respected in the sense that awards should not be scrutinised with an overcritical eye and the courts should exercise restraint in seising themselves of legal questions: Masawa Australasia Pty Ltd v J Corp Pty Ltd [2000] WASC 5. Section 38(5) was amended in 1997 to strengthen the restriction against the grant of leave to appeal (Ukrainian Association of Western Australia in Perth (Inc) v Squire Constructions Pty Ltd [2004] WASC 4). [44]
I have had occasion to refer to a number of the relevant principles and authorities recently in Alvaro v Temple [2009] WASC 205 [37] ‑ [51]. The following propositions are principally collected from that decision, and it is unnecessary to repeat in these reasons all the relevant authorities to which I had earlier referred. As between the parties, subject to the 'Kelantan principle' referred to below, there appeared to be no dispute as to the relevant principles.
An error of law will be 'manifest' when there are 'powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law': New Generation Enterprises Pty Ltd [4]. The error must be evident or obvious rather than merely arguable: New Generation Enterprises Pty Ltd [48]; Promenade Investments Pty Ltd v State of New South Wales (1996) 26 NSWLR 203 225. The underlying legislative intention is that leave to appeal should not readily be given, and that the intervention of the court should be strictly limited: Vodafone Pty Ltd v Supercall Pty Ltd [2003] NSWSC 302 [64]. Insofar as s 38(5)(b)(i) requires that the error be 'on the face of the award', the error is not to be discovered by looking behind the back of the award. However, materials referred to in the reasons of the award may be considered if they are incorporated into it, or referred to in the award insofar as, without reading them, it is not possible to understand what has been decided.
A finding of fact by an arbitrator which is perverse, or contrary to the overwhelming weight of the evidence, is not an error of law, provided there is some evidence upon which the arbitrator could so find.
A failure by an arbitrator to give a statement of proper or adequate reasons in the award has been treated as an error of law. Such errors of law may result in a court remitting the award to the arbitrator for the preparation of further reasons.
It is the duty of the arbitrator to consider and deal with all matters the subject of the reference. Where the arbitrator proceeds on the basis that some issues are to be resolved first and be dealt with by an interim award, the interim award must nevertheless deal with those issues fully.
A failure to deal with issues raised, or submissions seriously advanced, including where such a failure is to be inferred from a failure to give reasons in relation to those matters, has been treated as technical misconduct. A failure to give adequate or proper reasons which is not manifest on the face of the award cannot attract the operation of s 38(5)(b)(i). If, on proper analysis, the substance of the complaint is that the arbitrator failed to deal with the requisite issues, or submissions seriously advanced, including where such a failure is properly to be inferred from a failure to give reasons in that regard, the complaint is, in my view, more appropriately characterised as misconduct for the purposes of s 42, rather than an error of law capable of redress by s 38. There may be cases where the circumstances are such that fine distinctions may need to be drawn in the process of characterisation.
For the purposes of the Act, misconduct includes corruption, fraud, partiality, bias and a breach of the rules of natural justice: s 4. It may also include mistakes in procedure which have, or may have, unjustly prejudiced a party in a respect material to the outcome of the arbitration: Shirley Sloan Pty Ltd v Merril Holdings Pty Ltd t/as Airen Constructions [2000] WASC 99 [27] ‑ [28].
As 'misconduct' is used in this wide sense, the discretion to set aside for misconduct must be exercised on the basis of cogent evidence; the court will not assume that arbitrators have misconducted themselves or the proceedings. See AC Robertson Pty Ltd (in liq) v Costa Brava Investments Pty Ltd [1962] NSWR 768, 774.
Accordingly, where a party alleges that there has been misconduct by an arbitrator in determining a matter which did not properly fall within the issues for determination, the party must positively establish that the issue was not required to be dealt with by the arbitrator. Particularly where there is doubt as to the comprehensiveness of the pleadings, it may be necessary for the party so alleging to prove not only that the issue was not pleaded, but also that it was not in fact an issue which was in contest at the hearing of the arbitration: AC Robertson v Costa Brava (775, 778 ‑ 779). Similarly, in my view, it may well be insufficient in a s 42 application, in which it is alleged that an arbitrator failed to decide an issue, for a party to do no more than point to a pleading (particularly an ambiguous pleading) and contend that on one view of the pleading, it raised a particular issue, which the arbitrator failed to decide. It would be contrary to the purpose and intent of s 42 for a court to set aside an award on the basis that the arbitrator failed to deal with an issue which on one view was open on a pleading, if in truth the arbitration had been conducted on the basis that the pleading did not yield that issue for determination by the arbitrator.
Parties cannot use s 42 (or s 43) to bypass the obstacles placed in their way by s 38 of the Act. Similarly, a party cannot use s 42 to appeal against adverse determinations of fact by asserting those determinations were not dealt with in the reasons.
Counsel for the Owners in these proceedings contends that the decision in Government of Kelantan v Duff Development Co Ltd [1923] AC 395, 409 applies to preclude an appeal with respect to the question of law raised as to the proper construction of the deed. He also referred in that regard to Villani v Delstrat Pty Ltd [2005] WASC 176 [31] ‑ [33]. In this context there has been a distinction drawn between, on the one hand, cases where disputes are referred to an arbitrator, in the decision of which a question of law becomes material, and, on the other, cases where a specific question of law is referred to the arbitrator for decision. It was held that the former, but not the latter, were susceptible to interference by a court if the award on its face was legally erroneous: AC Robertson v Costa Brava (773). Questions of characterisation have arisen in this context as to whether the nature of the dispute referred to the arbitrator was for the determination of a specific question of law, or whether the nature of the dispute referred to the arbitrator merely involved, or included, questions of law for determination by the arbitrator. See Manufacturers' Mutual Insurance Ltd v Queensland Government Railways (1968) 118 CLR 314, 320; and New South Wales Rutile Mining Co Pty Ltd v Hartford Fire Insurance Co (1972) 46 ALJR 391, 392. In my view, as a matter of characterisation, the reference to arbitration in this case was not one on a specific question of law. There was, however, no real debate in this case on the potential applicability of the 'Kelantan principle' with reference to the proper construction of s 38 of the Act. It is not necessary to consider finally the potential application of the 'Kelantan principle' in this matter, given that, in my view, the arbitrator's construction has not been shown to be legally erroneous, for the reasons set out below.
The first ground - analysis
The first ground alleges an error of law on the face of the award as to the proper construction of the deed.
In my opinion, the Developer has not established a manifest error of law on the face of the award.
The arbitrator's reasoning, at pars 15 and 16, was as follows:
15.The accountant, Mr Dhu, made his calculations of 'Average Monthly Income' and gave them to Mr Mossenson who gave them to Deacons. The purpose was so that they would be put in the deed to complete the definition of 'Average Monthly Income' in the deed. The last draft of the deed immediately preceding the executed original was expressed in terms that indicate very clearly that the parties at that stage agreed that Mr Dhu's calculations should be the 'Average Monthly Income' for the purposes of the deed. The term expressly linking the definition of 'Average Monthly Income' to the figures in the Schedule entitled 'Average Monthly Income' was left out of the engrossment although the figures (Mr Dhu's calculations) were included in the Schedule. There was no explanation for this. It appears to have been simply a mistake. The Schedule is part of the deed and Mr Dhu's figures are in the Schedule. There was ample evidence that the parties delayed the execution of the deed until Mr Dhu's figures quantifying 'Average Monthly Income' were available for inclusion in the Schedule. The claimants plead that:
"2A It was an express or implied term of the Deed that the monthly compensation sum payable to the Claimant would be based upon the Average Monthly Income figures set out in item 1 of the Schedule to the Deed."
16.In my opinion, on a proper construction of the deed, the parties must be taken to have agreed that the 'Average Monthly Income' for the purposes of working out the compensation payable each month (if any) is the monthly figures in Item 1 of the Schedule. I reach this conclusion on a consideration of what reasonable business people in the position of the parties would understand by the terms of the deed as a whole including the Schedule, the surrounding circumstances, including the objective fact that execution of the deed was delayed until the figures could be put in, and the purpose and object of the transaction. Business people in the position of the parties would not execute a final compensation agreement in the terms of this deed without reaching agreement on 'Average Monthly Income', which was a critical benchmark; and would not have put the figures in the deed unless they intended to be bound by them.
The Developer argued that the arbitrator erred in his construction of the deed for three reasons. First, it would render nugatory other provisions of the deed, being cl 3(1)(i) and cl 15, which contemplated that the figures for Average Monthly Income arrived at by the Owners' Accountant may be the subject of examination and inquiry by the Developer. Secondly, the parties could not have objectively intended that, no matter how erroneous, the Developer would be bound by the figures in item 1 as supplied by the Owners' Accountant. Thirdly, the arbitrator's finding that the parties would not have put the figures in item 1 of the schedule to the deed unless they intended to be bound by them, is inconsistent with his finding of fact that the deed was executed the day after the Average Monthly Income figures were provided.
In my opinion, the Developer's first argument is not made out. The words 'calculations pursuant to this clause' in cl 3(1)(i) refer, in my opinion, to the 'calculations' in respect of 'Earned Monthly Income' referred to in cl 3(1)(g). The result of those 'calculations' is to be certified as the 'Earned Monthly Income for that month' in accordance with cl 3(1)(b). Clause 3 itself does not require 'calculations' to be made of the 'Average Monthly Income' and, accordingly, the figures for 'Average Monthly Income' are not in my opinion, 'calculations pursuant to' cl 3 within the meaning of cl 3(1)(i). Clause 3(1)(i) is not rendered nugatory on the arbitrator's construction, as it applied to 'Earned Monthly Income'. By cl 3, read as a whole, the parties have, in my view, accepted that 'Average Monthly Income' is fixed.
Further, the Owners' Accountant's task under cl 3 with respect to 'Average Monthly Income' is to compare that figure for each month, with the figure the subject of his 'calculations', and certification, in respect of 'Earned Monthly Income'. The process of comparison is simply mechanical and mathematical. Also, cl 15 clearly has application in relation to the 'calculations' in respect of 'Earned Monthly Income' in cl 3, and in relation to the revised valuations of plant, equipment and stock of the business under cl 4. Clause 15 is not rendered nugatory on the arbitrator's construction. The first argument does not reveal manifest error.
The Developer's second argument also does not point to manifest error. The argument is, in my view, question‑begging. The parties' objective intention is to be ascertained by reference to the words used in the deed, read as a whole, and in light of the purpose and object of the transaction and the mutually known surrounding circumstances. The arbitrator acted upon the basis of correct principle. It is not suggested otherwise. Moreover, the Developer's argument seems to assume that if the Developer failed to seek verification of the figures before it executed the deed, it could not be thought to have agreed to be bound by the figures. In my view, that argument is self‑evidently unpersuasive. Similarly, I would not accept the Developer's oral argument to the effect that the figures appearing in item 1 of the schedule under the heading 'Average Monthly Income', which occupy most of the page of the only schedule to the deed, are simply otiose. In a consideration of the contract as a whole, in my view, the arbitrator did not err in concluding that the parties intended that item 1 of the schedule should be given a meaning.
Nor do I accept the Developer's third argument. The fact, in itself, that the parties executed the deed the day after the figures were supplied and incorporated in the draft deed cannot, in my view, logically lead to the conclusion that the parties had no intention of being bound by them upon execution of the deed. Parties to a written contract are bound in contract by its terms upon execution whilst ever the contract remains on foot, irrespective of when the consensus as to the terms was reached. See Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 [33] ‑ [35].
Accordingly, this ground has not been established.
The second ground - analysis
The second ground raises, in effect, an issue as to whether, on its proper construction, the deed constituted an entire contract or, at least, whether cl 3 involved an entire obligation (or dependent obligations) such that the performance of the implied term was a condition precedent to the Developer's obligation to pay compensation. See generally GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1, 164 ‑ 165; Burton v Palmer [1980] 2 NSWLR 878, 895.
The second ground does not, in my view, raise any error of law 'on the face of the award'.
The implied term is addressed by the arbitrator in a part of the award dealing with the Developer's counterclaim:
37.Turning now to the respondent's counterclaim. The respondent has made a wide ranging counterclaim which is for the most part based on alleged representations/inducements made and unconscionable conduct occurring during negotiations antecedent to the execution of the deed. I have found that no cause of action is made out arising from these negotiations. However I do consider that the respondent has made out a case for the inclusion in the deed of an implied term concerning the conduct of the business and for breach of that term.
38.Because the respondent had agreed to pay the difference between pre‑construction turnover and post‑construction turnover, it is necessarily to be implied that the claimants would continue to operate the café business in at least the same manner post‑construction as it had been operated pre‑construction, so far as this could reasonably be done. There is evidence that in one respect they did not do this. Historically the café was open until 4 pm on each trading day. From a date in January 2007 which I do not think was actually identified, Huynh closed the café at 3 pm each trading day.
39.Huynh's explanation was that since construction work had commenced there was no worthwhile trade after the lunch trade - that all they sold after 3 pm 'was just a few lollies'. Still she did not go so far as to say that there were no sales at all after 3 pm. The burden of the obligation assumed by the respondent would obviously be lessened by each and every sale. In my opinion the earlier closing time, which was never agreed to by the respondent, was a breach of the implied term.
40.There is no evidence of what damages the respondent did actually suffer by the breach. The respondent did not try to make out a case for substantial damages. It is a case for nominal damages.
It is to be noted that, from the face of the award, the arbitrator was not considering whether the performance of the implied term conditioned performance by the Developer, so as to preclude a claim by the Owners against the Developer under cl 3 of the deed. Rather, the arbitrator was considering whether the Developer had made out its counterclaim for any breach of the implied term. A review of the arbitrator's reasons in this part of the award does not reveal any error of law on its face.
In my view, the Developer's real complaint, in substance, is not that the arbitrator erred in law in finding that the Developer's obligation to pay compensation was not a dependent obligation subject to performance of the implied term, but rather that the arbitrator treated it as sounding in damages, without considering the issue of whether the deed, properly construed, created such an entire obligation. The Developer, in its motion alleging misconduct, does not allege that an entire obligation issue in respect of the implied term was an issue which the arbitrator was required, but failed, to address.
Accordingly, this ground is not made out.
I would add that even if this ground were part of the motion, having regard to its onus of proof (see [30] above), the Developer would not have persuaded me that this was an issue in the arbitration requiring determination, for the following reasons. First, whilst the implied term was pleaded as part of a number of pleas '[I]n further answer to the statement of claim', as the Owners contend in their submissions, there was nothing in the pleading itself which alleged that the Developer's promise under cl 3 was a dependent obligation, conditional upon the Owners' performance of the implied term. Secondly, the Owners' Amended Reply and Defence to Counterclaim did not contain a plea of substantial performance, as one would ordinarily have expected, had the Owners understood that there was an entire obligation plea by the Developer, particularly as the Owners presumably knew of the limited extent of non‑performance of the implied term as ultimately found by the arbitrator. Thirdly, the pleading of the implied term was part of a suite of pleas referable to the counterclaim or a claim for an alleged set‑off of amounts allegedly due by the Owners to the Developer (pars 11 ‑ 23 of the Developer's pleading). Fourthly, the damages pleas for breach of the implied term (pars 11 and 12 of the pleading) were not pleaded as being an alternative to an entire obligation plea, which indicates that the purpose of the implied term plea was to ground the claim for damages. Fifthly, the arbitrator expressly dealt with an entire obligation submission made with respect to the accuracy term (award pars 24 ‑ 25). It is unlikely, particularly having regard to the arbitrator's experience, that he would have expressly considered an entire obligation point with respect to one term, but not another, had it been raised before him in submissions. Further, and in any event, as a matter relevant to discretion, the Developer has not shown that the reasoning that the arbitrator brought to bear in relation to the accuracy term would not apply equally to cl 3.
The third ground - analysis
The third ground alleges error in relation to findings in connection with alleged pre‑contractual representations. Specifically, it is alleged in effect that the arbitrator erred in law in finding that he was not persuaded that any of the representations alleged in the counterclaim were made, or that any of the conduct of the Owners or its solicitors was otherwise actionable, having regard to the following circumstances:
(a)the representations alleged in the counterclaim to have been made by the Respondent [Owners] included a representation (pleaded at paragraph 8(1)) that the Average Monthly Income (within the meaning of that term in the Deed) were the amounts which had been set out in schedule 1 of the Deed;
(b)the representations alleged in the counterclaim to have been made by the Respondent [Owners] also included a representation (pleaded at paragraph 8(2)) that the calculation of the Average Monthly Income figures contained in schedule 1 of the Deed was based upon reasonable and accurate financial information, based upon accurate historical data and calculated in accordance with usual accounting standards and principles;
(c)the Learned Arbitrator found as a matter of fact that the Average Monthly Income figures inserted in schedule 1 of the Deed were derived from takings books kept by the First Named Respondent [Owners], and that the Respondents' [Owners'] accountant made his calculations of these figures and gave them to the Respondents' [Owners'] solicitors who gave them to the Appellant's [Developer's] solicitors for the purpose that they be put in the Deed;
(d)the Learned Arbitrator also found as a matter of fact that at the time the figures for inclusion in schedule 1 were provided by the Respondents' [Owners'] accountants, the last draft of the Deed had been prepared and agreed between the parties in terms that indicated very clearly that the parties agreed Mr Dhu's [the Owners' Accountant] calculations should be the Average Monthly Income for the purposes of the Deed;
(e)the same agreed last draft also provided that the 'Average Monthly Income' means the figure arrived at by the Owners Accountant for each month of the year by the Owners' Accountant adding the Gross Receipts for the corresponding months in the calendar years of 2005 and 2006 and dividing the figure by 2, required the Owners' Accountant to adopt all usual accounting standards and principles applicable to the type and nature of the business and carrying out any calculations required of him pursuant to the terms of the Deed;
(f)the Learned Arbitrator found that the Average Monthly Income figure arrived at by the Respondent's [Owners'] accountant for the month of December was explored in cross‑examination of the Respondents' accountant, and that in the end the Respondents' [Owners'] accountant was not really able to explain how he obtained the figure of $72,688.00;
(g)the Learned Arbitrator found that if the issue were open for investigation, he would have some difficulty in finding that the figure of $72,688.00 was correct.
The arbitrator found, in effect, that the Owners had not made any misrepresentations to the Developer in the negotiations which preceded the execution of the deed. In pars 9, 10 and part of par 37 of the award the arbitrator said:
9.A good deal of evidence was given about these negotiations. The respondent [Developer] relied on this evidence to make out a case of misrepresentation, mutual mistake, unconscionable conduct, misleading and deceptive conduct and unfair trading. In its counterclaim the respondent [Developer] also makes a claim for rectification based on the antecedent negotiations. No witness evidence was called for the respondent [Developer] to prove these allegations or to prove what was alleged to have been said by or on behalf of the claimants [Owners]. Instead the respondent [Developer] sought to make out this part of its case from the correspondence which passed between the solicitors and by cross examining Mr Ian Mossenson [solicitor for the Owners] and Huynh [a representative of the Owners]. They both stoutly denied making the representations pleaded against them. On any fair reading of it, the correspondence does not assist the respondent [Developer] at all.
10.I am not persuaded that any of the alleged representations were made or that any conduct of the claimants [Owners] or their solicitors was unfair, unconscionable, misleading and deceptive or otherwise provides the respondent [Developer] with a cause of action.
…
37.Turning now to the respondent's [Developer's] counterclaim. The respondent [Developer] has made a wide ranging counterclaim which is for the most part based on alleged representations/inducements made and unconscionable conduct occurring during negotiations antecedent to the execution of the deed. I have found that no cause of action is made out arising from these negotiations.
The arbitrator also found, as the third ground recognises (at subparagraph (c)), that the figures for inclusion in item 1 of the schedule to the deed were derived from 'takings books' kept by the Owners for the business for 2005 and up to and including the first two weeks of December 2006 (see also award pars 15, 17, 21, 22, 34 and 43). I will refer to these takings books as 'the takings books for the historical period'. The arbitrator further found, relevantly, in effect, (award pars 17, 18, 19, 29, 34, 35 and 43) that for 2005 and up to and including the first two weeks of December 2006:
(a)the takings books for the historical period recorded, contemporaneously, all the takings of the Owners' business and were the only complete record of its turnover;
(b)the Owners had not falsified or fabricated the figures in its takings books for the historical period (or any other period), and the takings books for the historical period contained the true figures for sales in the sense that they were materially or reasonably accurate, notwithstanding the possibility that some errors may have occurred from time to time in the recording of the takings having regard to the high volume of small denominations of notes and currency to be counted; and
(c)in the course of the arbitration the Developer had examined the takings books for the historical period (and for the later period), but had not pleaded that they were fraudulently fabricated.
In regard to the foregoing, I am conscious that the arbitrator found (award par 43) a $3,000 error in the taking books in December 2006, but that was in respect of a date in December after the first two weeks of December 2006.
The third ground, as formulated, and the arguments presented, assumed that the Developer's pleading was a document to which regard could be had when considering whether an error of law was disclosed on the face of the award. No objection was taken by the Owners in that regard. The Developer's pleading could, in any event, be looked at for the purposes of the s 42 application.
Paragraph 8 of the Developer's pleading reads:
During the course of negotiating the terms of the Confidentiality Agreement and the Deed, during the period commencing October 2006 and ending February 2007, the Claimants [Owners] represented to the Respondent [Developer] that:
(1)the Claimants' [Owners'] Average Monthly Income (Asserted Income) from the Café business was as follows:
January $61,139.00
February $63,886.00
March $66,337.00
April $67,510.00
May $69,703.00
June $69,390.00
July $71,004.00
August $71,468.00
September $72,813.00
October $73,435.00
November $73,561.00
December $72,688.00
(2)the calculation of the Asserted Income was:
(a)based upon reasonable and accurate financial information;
(b)based upon accurate historical data; and
(c)calculated in accordance with usual accounting standards and principles;
(3)when calculating the Compensation Sum, the Claimants' [Owners'] accountant would review the financial information on which his calculations are to be based and verify its truth and accuracy; and
(4)the Claimants [Owners] would continue to operate the Café business in the same manner as the Café business had been operated before the Claimants [Owners] agreed to allow Access, and that all key personnel of the Café business would remain with the Café business over the construction period, trading hours would not to be [sic] varied and that there would be no changes to the operational or financial structure of the business that would have an adverse effect on the trading figures.
(collectively referred to as the Representations)
Particulars
The representations were made by, or in the alternative are to be implied from, the following oral and written communications between the parties:
(a)the oral statements made by the first and second named Claimant [Owners] and their solicitor at the meeting attended by them, Dean Rafferty and Darryl Crouch held on 25 October 2007 (Meeting);
(b)the oral statements made by Dean Rafferty and Darryl Crouch at the Meeting, and the response of the Claimant [Owners] to those oral statements;
(c)the letter from the Respondent [Developer] to the Claimant's [Owners'] solicitors dated 27 October 200[6];
(d)the letter from the Claimants' [Owners'] solicitors to the Respondent [Developer]16 November 2007;
(e)the letter from the Claimants' [Owners'] solicitors to the Respondent [Developer] 22 December 2007; and
(f)the letter from the Claimants' [Owners'] solicitors to the Respondent's [Developer's] solicitors 22 February 2007.
The pleading in par 8 concerned pre‑contractual negotiations. As a statement of the Developer's case, it appears to be not without its difficulties. Particulars (a), (b), (d) and (e) refer to dates or events purportedly occurring after the execution of the deed. Presumably those particulars are intending to refer to events in 2006 rather than 2007. Also, it is difficult to see how a letter from the Developer (particular (c)), could in itself have constituted a representation made orally or in writing by the Owners.
Moreover, the meaning of the pleading in pars 8(1) and 8(2) of the Developer's pleading is not particularly clear. Paragraph 8(1) does not in its terms define the phrase 'Average Monthly Income', nor does it link that phrase to the defined term in the deed as later executed, or to any draft of the deed as it existed at any of the times the representations were allegedly made. It takes the undefined phrase 'Average Monthly Income', redefines it as something else, ie 'Asserted Income', and uses that redefinition as the basis for the subsequent pleas. I infer from the Developer's submissions in this application that its intent was that the Owners, in negotiations, represented that the figures supplied for the purposes of inclusion in item 1 of the schedule to the deed had been calculated by the Owners' Accountant in accordance with the definition of 'Average Monthly Income' as found in the draft of the deed then in circulation, and that the representation was a continuing one. If that were the intendment of the plea, it had within it an unarticulated assumption as to the proper construction of the phrase 'Average Monthly Income' within the meaning of the deed, or a draft of it, which accordingly encompassed the meaning of 'charged or chargeable' and 'received or receivable' in the definition of 'Gross Receipts', which term is picked up in the definition of 'Average Monthly Income'. Paragraph 8(2)(c) seems to implicitly assume a construction of cl 3 and cl 15 of the deed insofar as it seems to plead that a representation had been made in terms of cl 15, which applied to the figures supplied for the purposes of 'Average Monthly Income'. That implicit construction seems to reflect the first argument of the Developer in this application referred to in [36] above, which I have rejected in [37] ‑ [38] above. Also, it is not clear what nuances in meaning were intended to be conveyed in the different representations pleaded in pars 8(2)(a) and 8(2)(b). Both seem to refer, in effect, to accurate historical data, but the former added the criterion that the data was 'reasonable'. Perhaps this was intended to mean that it was represented that the historical data would be reasonably accurate.
Also, insofar as the pleas sought to allege a representation that the figures supplied under cover of the email of 22 February 2007 conformed with the definition in cl 2(2), it is difficult to see how it could have been established with respect to the December figure, in light of the arbitrator's findings (award pars 21 and 22) that in December 2006 a process of extrapolation occurred which, to the Developer's knowledge and agreement, was not strictly in accordance with cl 2(2) of the definition of the draft of the deed then in existence, or as subsequently executed. Further, the plea does not on its face appear to allege that the Owners had represented that, for the December figure, the Owners' Accountant had accurately extrapolated and calculated the earnings figures supplied by the Owners, in accordance with the process outlined in the Owners' solicitor's email of 22 February 2007.
Further, the particulars of the communications in (a) to (e) of par 8 of the pleading, assuming they refer to events in 2006, would not likely in themselves have constituted the pleaded representations, in light of the arbitrator's finding that the figures were not supplied until the final draft of the deed was circulated on 22 February 2007. I accept, of course, that the earlier communications could arguably have formed, together with the oral communications particularised and any other relevant evidence, part of the matrix of facts providing context to, and thereby potentially influencing the meaning of, the Owners' solicitor's communication on 22 February 2007. Such matters, if and to the extent that they were debated before the arbitrator, were not, however, addressed by the Developer in this application.
In this application, the Developer put particular store on the passage in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 83 ALJR 903 (per French CJ):
The term 'conduct which is misleading or deceptive or likely to mislead or deceive' is apt to cover a large variety of possible circumstances in which the conduct of one has a tendency to lead another into error. … Whether the proffering of a contractual document containing a false statement amounts to a misrepresentation or to misleading or deceptive conduct, is a matter of fact to be determined by reference to all the circumstances [35].
Two points may, I think, be made with respect to that passage. First, the Chief Justice was referring to a representation by conduct, and par 8 of the Developer's pleading did not explicitly aver representation by conduct and it has not been shown, in this application, that it was understood in that way in the arbitration. The plea in par 8 seemed to allege representations expressly or impliedly conveyed by the terms of the oral and written communications particularised, rather than by the conduct of proffering a contractual document. Secondly, and more importantly for present purposes, the observations of the Chief Justice indicate, in my view, that questions concerning whether representations were made, and if so whether they were misrepresentations, are questions of fact. A party does not bring itself within the provisions of s 38, or s 42, by merely alleging errors of fact by the arbitrator.
In its written outline of submissions the Developer expressed its arguments in this way:
42.[The arbitrator's] finding that none of the alleged representations (including the figures provided by the respondent through their accountant, Mr Dhu, of the Average Monthly Income figures included in the Deed) were made is an obvious and fundamental mistake. It was common ground at the arbitration, and [the arbitrator] found as a matter of fact (see paragraphs 15, 22 and 23 of his award and reasons), that the Average Monthly Income figures for inclusion in the Deed were provided by the respondents' accountant the day before the Deed was executed. It was therefore not open to [the arbitrator] to find that the representation pleaded in paragraph 8(1) of the Amended Defence, Set‑Off and Counterclaim had not been made.
43.On a reading of [the arbitrator's] award and reasons as a whole, it must be assumed that [the arbitrator] did not intend to find that the representation pleaded in paragraph 8(1) of the Amended Defence, Set‑Off and Counterclaim had not been made, but rather overlooked and therefore failed to consider this issue in handing down his award and reasons.
In my view, it is an erroneous criticism of the arbitrator to say that, simply because he found that the figures were supplied by the Owners' Accountant, he was precluded from making a finding of fact to the effect that the par 8(1) representation was not made. It depends upon the meaning of the par 8(1) representation as properly understood in the arbitration and the arguments presented to the arbitrator.
Accordingly, in my opinion, the third ground does not disclose an error of law manifest on the face of the award insofar as it simply alleges, by reference to a cryptic and ambiguous pleading, that the arbitrator made wrong findings of fact.
Even if I assume, for the purposes of this part of the Developer's argument, that the pleas in pars 8(1) and/or 8(2) sought to allege that the Owners had represented that the figures supplied for 'Average Monthly Income' were not fabricated, and were based on reasonably accurate records of historical takings of the business, and if I assume that the arbitrator erred in fact in not finding that such representations were made, and that such an error of fact constituted an error of law, I would still refuse relief on this ground. That is because such representations, on the arbitrator's findings (see [51] above), were not misleading or false. (The significance of this is discussed more fully below.)
Counsel for the Developer also submitted that par 23 of the award reveals that the arbitrator failed to determine, as an issue in the arbitration, the misrepresentation case based on pars 8(1) and 8(2) of the counterclaim.
In pars 22 and 23 of the award, the arbitrator said:
22.In an email to Deacons of 22 February 2007, Mr Mossenson explained that an exercise in projections had been done by Mr Dhu [the Owners' Accountant] to get the figure for December in the Schedule. Mr Mossenson explained that the accountant had taken the earnings in the first two weeks of December 2006 and projected these for a full month and that the result was added to the earnings for December 2005 and the aggregate divided by two. See trial bundle at page 356. This was how the 'Average Monthly Income' of $72,688 for the month of December is said to have been arrived at for inclusion in the Schedule. No positive reply was received from Deacons or the respondent [Developer] to this advice, but the deed was executed the next day. I infer that the method of arriving at the figure was accepted by the respondent [Developer]. The respondent [Developer] would not otherwise have executed the deed.
23.The figure arrived at by Mr Dhu was explored in cross examination of Mr Dhu and in the end he was not really able to explain how he obtained $72,688. If the issue was open for investigation I would have some difficulty in finding that it is correct. However I find that it was an agreed figure and that it is too late for the respondent [Developer] now to say against the claimants [Owners] that it is not bound by the deed in this respect. What other recourse may be open to the respondent [Developer] if the figure is indeed overstated (or if any figures in the Schedule are overstated) is not for me to say.
The Developer contends that par 23, and particularly the last two sentences, are to be construed as a statement by the arbitrator that he was not required to deal with a pre‑contractual misrepresentation case. This construction propounded by the Developer is not compelling when regard is had to the fact that the arbitrator's reasons expressly referred to, and dealt with, a pre‑contractual misrepresentation case.
Another construction of the award is that the first and second sentences of par 23, in light of par 22, are to the effect that the Owners' Accountant could not satisfactorily explain how his extrapolations for December 2006, and his process of then adding and dividing by two for that month, led to the average figure of $72,688 for the month of December. The words 'If the issue was open for investigation' in the second sentence, and the third sentence, at least arguably indicate that there was no pleaded issue as to whether the figure for December was the subject of accurate extrapolation and mathematical computation by the Owners' Accountant. As indicated in [57] above, I would see no error there.
The last sentence of par 23 of the award is more difficult to understand. On one view, the arbitrator was arguably commenting that to the extent that the figures supplied were overstated on grounds falling outside of the Developer's pleaded misrepresentation case, as articulated in the arbitration, he was not required to deal with that matter. At this distance from the arbitration, I find that I am not sure what the arbitrator was intending to convey by the last sentence of par 23 of the award, however I am not persuaded by the Developer that it signifies that the arbitrator has failed to deal with the misrepresentation case based on par 8(1) and (2).
Moreover, it is clear, I think, what the arbitrator was not intending by par 23. By his observations in par 23, he was not intending to convey a finding, and his observations do not, in my view, constitute a finding, to the effect that the takings books for the historical period were not reasonably accurate, or were misleading, or that the figures supplied for 'Average Monthly Income' were fabricated, or were not based on the takings books.
This leads to the next point raised in oral submissions by the arbitrator. It was alleged that as the meaning of par 23, and in particular the last sentence, is unclear, there is an error of law on the face of the award in that the arbitrator has failed to provide proper or adequate reasons for his decision.
The argument has some superficial merit and I agree that there is an ambiguity inherent in par 23 arising, in particular, from the last sentence. On balance, however, I doubt that the ambiguity sufficiently affects the adequacy of the arbitrator's reasons such that there is an error of law on the face of the award.
In my view, there is an error of law on the face of the award if the reasons are so inadequate that the parties are 'left in doubt as to the basis on which [the] award has been given': Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255; (2007) 18 VR 346 [56].
It seems to me that, in this case, as a matter of substance, the Developer is not really left in any doubt about the basis upon which the award was given. Insofar as there was an issue in the arbitration that the Owners had represented that the figures for 'Average Monthly Income' were not overstated, any alleged 'overstatement' would relevantly arise if the figures for 'Average Monthly Income' were fabricated, or were not based on reasonably accurate records of historical takings, or were the product of mathematical error in adding and dividing by two.
As to the first two matters, the arbitrator found, as I have said, that the figures were not fabricated, and that they were based on reasonably accurate historical takings records. As to the third matter, the only suggestion of mathematical error appears in relation to the process of extrapolation and consequent computation of the December figure. That particular matter was not, as I read par 8(1), pleaded.
Further, even if the reasons are sufficiently infected by ambiguity such that an error of law is manifest on the face of the award, in light of the matters to which I have referred above, the absence of clearer reasons does not denote an error that, in all the circumstances, 'could substantially' affect the rights of the Developer for the purpose of s 38(5)(a).
Even if the error 'could' substantially affect the Developer's rights, I am not persuaded in the circumstances of this case that setting aside and remitter would achieve any practical purpose, again having regard to the arbitrator's findings to the effect that the 'Average Monthly Income' figures were not fabricated and were based on reasonably accurate historical takings figures, cf Vodafone v Supercall at [64] ‑ [67].
Accordingly, the third ground is not made out, but even if there were an error of law with regard to the adequacy of the arbitrator's reasons, I would not set aside and remit the award on that account, for the purpose of requiring the arbitrator to provide further reasons.
The fourth ground - analysis
The fourth ground alleges in terms that:
6.The Learned Arbitrator erred in law in finding that the First Named Respondent and Mr Ian Mossenson both stoutly denied making (inter alia) a representation that the Average Monthly Income were the amounts that which [sic] had been set out in schedule one of the Deed and that those calculations were based on reasonable and accurate financial information, based upon his accurate historical data and calculated in accordance with usual accounting standards and principles, when such finding was against all of the evidence, and in circumstances where the Respondents' pleaded case was that the Claimants and the Respondent assumed that the figures set out in item 1 of the schedule to the Deed represented the Average Monthly Income as defined in the Deed and conducted their relationship on the basis of the above assumption to the knowledge of each other (as pleaded at paragraph 5A of the Amended Reply and Defence to Counterclaim).
Insofar as the fourth ground relies on par 5A of the Amended Reply and Defence to Counterclaim it cannot be sustained, as the statement of agreed facts in these proceedings indicates that the par 5A plea was disallowed by the arbitrator.
Further, this ground seems to be, in substance, a repetition of the contention in the third ground, that the arbitrator had made an error of fact, but with particular emphasis on whether the arbitrator could have accepted the evidence of the Owners and their solicitor in denying the making of the representations in the oral communications particularised.
In my view, this ground does not raise any error of law or any alleged misconduct. The arbitrator was, in my view, entitled to accept the evidence of the Owners' witnesses that representations were not made by them as alleged. It is a question of fact whether the Owners' witnesses made the representations alleged by the Developer. If, as the arbitrator found, those witnesses denied making those representations, the arbitrator was entitled to act upon that evidence.
This ground is not established.
The fifth ground - analysis
The fifth ground is in these terms:
7.The Learned Arbitrator erred in law in finding that:
(a)the issue of the correctness of the Average Monthly Income figures set out in schedule 1 of the Deed was not open for investigation;
(b)as the figure for December was agreed, it was too late for the Appellant [Developer] to say against the Respondents [Owners] that the Appellant [Developer] was not bound by the Deed in that respect;
(c)what other recourse may be open to the Appellant [Developer] if the figure was indeed overstated (or if any figures in the schedule are overstated) was not for him to say;
when the issue of the accuracy of the figures represented by the Respondent [Owners] to be the Average Monthly Income of the Respondent [Owners] (and included in the Deed on that basis) was a matter in issue between the parties to be determined by the Learned Arbitrator, by reason of the Appellant's [Developer's] plea of misleading and deceptive conduct.
This ground raises, in substance, the same points raised by the Developer in the third ground in relation to par 23 of the award. Indeed, in the Developer's submissions, this ground was not argued separately from the third ground.
In my opinion, for the reasons given in relation to the third ground, the Developer has not demonstrated to my satisfaction that the arbitrator failed to consider and deal with the Developer's misrepresentation or misleading and deceptive conduct case based on the pleas in par 8 of the counterclaim. In relation to the ambiguity in par 23 of the award, for the reasons previously given I would not set aside and remit the award on that basis.
The sixth ground - analysis
The sixth ground alleges, in effect, that once the arbitrator had found that the deed contained the implied term, he should also have found that a representation had been made in the same terms and to the same effect.
The implied term was promissory in nature, derived by necessary implication from the language of the deed on its proper construction. The implication of the term depended upon a consideration of the mutual promises contained in the binding agreement constituted by the deed. Whether or not, prior to a binding agreement containing those mutual promises, anything said or done by the Owners constituted a representation, was a question of fact, to be determined in the context of all the relevant pre‑contractual negotiations. The finding of the implied term once a binding agreement had been reached does not, in my opinion, necessarily and inexorably lead to the conclusion that, as a matter of law, there was a pre‑contractual representation in the same terms and to the same effect as the implied term.
In my view, no error of law, and certainly no error of law on the face of the award, is revealed by this ground. This ground does not appear in the motion alleging misconduct.
The seventh ground - analysis
By its seventh ground, the Developer alleges that the arbitrator failed to decide an issue in the proceedings, namely, whether the deed contained, by implication, the accuracy term. This, in my view, is in substance, an allegation of misconduct, rather than a complaint of an error of law.
The asserted 'accuracy term' is itself rather cumbersomely expressed and its meaning is opaque. It is presumably intended to be different from the 'Omitted Terms' in par 8A of the Developer's pleading by which the representation pleaded in par 8(2) is also pleaded as an implied term. Accordingly, it presumably related to the establishment of 'Earned Monthly Income'. The arbitrator apparently understood the term that way, as he considered the substantive operation of the accuracy term, or some term to that effect, in relation to pars 24, 25, 26, 30 and 41 of the award.
In my opinion, the Developer has not demonstrated that the arbitrator failed to deal with this issue. In my view, this ground is not made out.
I would add that even if the accuracy term were intended to relate to the 'Average Monthly Income' figures, for the reasons given previously, it would not be appropriate to grant relief to the Developer having regard to the arbitrator's findings referred to in [51] above.
The eighth ground - analysis
If the seventh ground cannot be established, neither can the eighth. Accordingly, this ground is not made out.
Conclusion
For the above reasons, I would dismiss the application for leave to appeal. The motion to set aside the award for misconduct is also dismissed.
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