Sea Containers Ltd v ICT Pty Ltd

No judgment structure available for this case.

CITATION: SEA CONTAINERS LTD v ICT PTY LTD [2002] NSWCA 84

FILE NUMBER(S): CA 40123/02

HEARING DATE(S): 12 March 2002

JUDGMENT DATE:
18 April 2002

PARTIES :

Sea Containers Ltd - Appellant
ICT Pty Ltd - Respondent

JUDGMENT OF: Mason P at 1; Meagher JA at 2; Sheller JA at 11

LOWER COURT JURISDICTION : Equity Division (Constructions List)

LOWER COURT
FILE NUMBER(S) : 55007/02

LOWER COURT
JUDICIAL OFFICER : Gzell J

COUNSEL: A W Street SC/G J Nell - Appellant
PLeG Brereton SC/D R Stack - Respondent

SOLICITORS: Norton White - Appellant
Deacons - Respondent

CATCHWORDS: ARBITRATION - misconduct of arbitrators - cancellation/commitment fees - unilateral alteration of arbitration agreement - reasonable apprehension of bias - removal of arbitrators - Commercial Arbitration Act 1984 (NSW), s44 - appeal dismissed

LEGISLATION CITED: Commercial Arbitration Act 1984

CASES CITED:
K/S Norjarl A/S v Hyundai Heavy Industries Co Ltd [1992] QB 863
Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Limited [1981] AC 909
AMEC Construction Pty Limited v Coal and Allied Operations Pty Limited (Cole J, 29 April 1993, unreported),
Turner v Stevenage Borough Council [1998] Ch 28
Compagnie Europeene de Cereals SA v Tradax Export SA [1986] 2 Lloyd's Rep 301 at 306
Heyman v Darwins Limited [1942] AC 356
Williams v Wallis and Cox [1914] 2 KB 478
Johnson v Johnson (2000) 201 CLR 488

DECISION: Appeal dismissed with costs.

CA 40123/02
ED 55007/02 (Construction List)

MASON P
MEAGHER JA
SHELLER JA

SEA CONTAINERS LIMITED v ICT PTY LIMITED

This appeal involved a challenge to the validity of an order removing certain arbitrators after matters were referred to them under the terms of shipbuilding contracts between the parties. The respondent had applied for the order pursuant to s44 of the Commercial Arbitration Act 1984 (the Act) upon the grounds of apprehended bias on the part of the arbitrators and misconduct of the arbitrators in pressing the parties to agree to the payment of cancellation fees. At first instance, Gzell J found that the three arbitrators should be removed.

Before the trial Judge the respondent had contended that the arbitrators had misconducted themselves by repeated demands for cancellation fees and by pressuring the parties to agree to the payment of such; by declining to make orders unless the parties acknowledged an obligation to pay the fees; and by the fixing of a final hearing date without adequate notice to the parties and without hearing from the parties. This misconduct was such as to give rise to a reasonable apprehension of bias on the part of the arbitrators against the respondent.

The appellant challenged Gzell J's decision on the grounds that the arbitrators' conduct was not misconduct within the meaning of s44 of the Act. It was argued that his Honour erred in finding that the manner in which the arbitrators persisted with their demands for the cancellation fee amounted to misconduct. The appellant claimed that the arbitrators had only been negotiating for such a fee and did not apply undue pressure on the parties to comply. Finally, the evidence did not establish that a fair minded lay observer would reasonably apprehend that the arbitrators might not bring an impartial and unprejudiced mind to the resolution of the reference before them.

HELD (per Sheller JA, Mason P and Meagher JA concurring)

1. Section 44 of the Act enables the Court on the application of a party to the arbitration agreement to remove the arbitrator where the Court is satisfied, inter alia, that there has been misconduct on the part of the arbitrator or the arbitrator has misconducted the proceedings. The term 'misconduct' embraces situations disassociated from moral turpitude: Williams v Wallis and Cox [1914] 2 KB 478.

2. It was accepted that there is no impropriety as such in arbitrators' requesting cancellation or commitment fees: Johnson v Johnson (2000) 201 CLR 488. Impropriety has the potential to arise when arbitrators attempt unilaterally to vary arbitration agreements without the consent of all the parties. To insist upon a fee without the consent of all parties constitutes misconduct: K/S Norjarl A/S v Hyundai Heavy Industries Limited [1992] 1 QB 863.

3. When appointed, an arbitrator accepts a quasi judicial position governed by the law. Not only must an arbitrator be impartial, he or she must not give the appearance of bias. Attempts by an arbitrator to renegotiate their contract after appointment can easily undermine the confidence of one or more parties in the arbitrator's ability to perform their duties.

4. The process whereby the arbitrators set a final hearing date without consulting the parties amounted to misconduct. Arbitrators need the assistance of parties and their representatives. Unilateral action which has the result of disturbing or denying that assistance is for the benefit of no one.

5. The conduct of the arbitrators would give rise to a reasonable apprehension of bias in the mind of a fair minded lay observer who could reasonably apprehend that the arbitrators might not bring an impartial and unprejudiced mind to the resolution of the question they were required to decide.

6. The conclusions reached by Gzell J were justified on the facts. The misconduct of the arbitrators was such that there was no choice but to remove them. The appeal was dismissed.

Per Meagher JA:

7. Unless an arbitrator expressly stipulates for a cancellation fee when the arbitration is accepted, he or she is forever disentitled from seeking one. In this case the arbitrators insistence on a cancellation fee constituted misconduct.

Legislation cited

Commercial Arbitration Act 1984

Cases cited:

K/S Norjarl A/S v Hyundai Heavy Industries Co Ltd

[1992] QB 863

Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Limited

[1981] AC 909

AMEC Construction Pty Limited v Coal and Allied Operations Pty Limited

(Cole J, 29 April 1993, unreported),

Turner v Stevenage Borough Council

[1998] Ch 28

Compagnie Europeene de Cereals SA v Tradax Export SA

[1986] 2 Lloyd’s Rep 301 at 306

Heyman v Darwins Limited

[1942] AC 356

Williams v Wallis and Cox

[1914] 2 KB 478

Johnson v Johnson

(2000) 201 CLR 488

ORDERS

Appeal dismissed with costs.

**********

CA 40123/02
ED 55007/02 (Construction List)

MASON P
MEAGHER JA
SHELLER JA
Thursday, 18 April 2001

SEA CONTAINERS LIMITED v ICT PTY LIMITED

Reasons for Judgment

1 MASON P: I agree with Sheller JA.

2 MEAGHER JA: In this matter I have studied with care the judgment of Gzell J in the Court below, and also, in draft, the judgment of Sheller JA in this Court. I agree, if I may respectfully say so, with every word in each judgment.

3 The facts are set out in detail in both those judgments. In short, there are only two facts which matter. The first is that the parties to an arbitration never agreed to pay a cancellation fee to the arbitrators. The second is that the arbitrators kept badgering the parties to make such an agreement.

4 Anyone who has been at the Bar (as two of the arbitrators had been) would realise that unless a barrister expressly stipulates for a cancellation fee when he accepts a brief he is forever disentitled from seeking one. The same, mutatis mutandis, is true of arbitrators. As Legatt LJ said in K/S Norjarl A/S v Hyundai Heavy Industries Co Ltd [1992] QB 863 at 878:

“Any fee upon which (the arbitrators) wish to insist should be made known at the outset before acceptance of appointment”

5 It also makes ironical the remarks of Mr Carruthers at the directions hearing of 1 May 2001, when he talks of “the legal obligation which we perceive the parties to have [i.e. to agree to the cancellation fee]; there is a moral obligation here which the parties just seem to be absolutely refusing to acknowledge.” There was, of course, no legal obligation, no agreement to pay even having been reached; just how there could be a moral obligation to pay for work which might never be done, I quite fail to see. It is, in my opinion, that at this point the conduct of the arbitrators passed beyond the realms of unseemliness into misconduct – and misconduct of a very high order.

6 But, there is worse. During the May 1 2001 hearing, Mr Carruthers said, in response to a joint application from the parties for an order vacating an existing hearing date and an order staying the arbitration:

“The arbitrators are not minded to make any orders unless there is an acknowledgement by the parties that their obligation to provide a cancellation fee [is made].”

7 If one thinks about it, what Mr Carruthers was saying was that the arbitrators would refuse to do their job unless the parties agreed to acknowledge a liability, which did not exist.

8 And worse still. In July 2001 two of the arbitrators, Messrs Carruthers and de Fina, actually sent accounts to the parties (for $60,000 in one case, and $38,000 in the other) for the cancellation fee. They told the Institute of Arbitrators and Mediators that they intended to “take such steps as are necessary to enforce that entitlement”. Such steps, presumably, did not exclude litigation. They, apparently, brushed to one side any consideration that a litigant might feel more than a little uncomfortable if he went to Court knowing that the judge was plaintiff in an action against him arising out of the very matter the judge was supposed to adjudicate.

9 At this point the arbitrators’ behaviour became disgraceful.

10 I would dismiss the appeal with costs.

11 SHELLER JA

Introduction

Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Limited

12 By summons filed in the Equity Division Technology and Construction List on 11 February 2002, ICT Pty Limited (ICT) claimed an order for the removal of the Honourable Kenneth Carruthers QC, Mr Anthony de Fina and Mr Michael Thompson as arbitrators. The arbitrators had been appointed under the terms of shipbuilding contracts between ICT and the defendant, Sea Containers Limited (Sea Containers). ICT sought removal pursuant to s44 of the Commercial Arbitration Act 1984 (the Act) upon the grounds of apprehended bias on the part of the arbitrators and misconduct of the arbitrators in pressing the parties to agree to the payment of cancellation fees. ICT contended that the arbitrators had misconducted themselves with respect to:

(a) the repeated demanding of cancellation fees and pressuring of the parties to agree to the payment of such;

(b) declining on 1 May 2001 to make any orders, including an order for vacation of hearing dates sought by the joint application of both parties, unless the parties would acknowledge an obligation to pay the cancellation fees on certain terms; and

13 ICT further contended that the misconduct of the arbitrators was such as to give rise to a reasonable apprehension:

(a) of bias on the part of the arbitrators against ICT;

(b) that the arbitrators would be unable to adjudicate fairly and impartially upon both substantive and procedural matters arising in the reference and in particular any questions of adjournment or vacation of hearing dates. This inability arose by reason of conflict between the arbitrators’ own interest to secure payment for hearing dates set aside and their obligation to fix and/or vacate hearing dates in such a way as to ensure that the parties have a reasonable opportunity to be heard; and

14 The summons was heard by Gzell J on 13 February 2002. His Honour gave judgment on 22 February 2002 and ordered that the three arbitrators be removed as such in relation to the references and that Sea Containers pay ICT’s costs of the application; [2002] NSWSC 77.

15 On 22 February 2002 Sea Containers filed an application in this Court for leave to appeal and applied for expedition. On 25 February 2002 Heydon JA expedited the summons for leave to appeal and ordered that that summons be heard and determined concurrently with the appeal in so far as leave to appeal was granted. His Honour gave directions as a result of which the application for leave to appeal and the appeal were listed for hearing and heard on 12 March 2002. At the conclusion of the hearing the Court granted Sea Containers leave to appeal but dismissed the appeal with costs and said that reasons would be given later. These are my reasons for those orders.

The facts

16 The facts are not contested. They are found in the judgment of the trial Judge. I set out those I regard as necessary for the determination of this appeal though in more detail than his Honour found necessary. It is convenient after reading and hearing Sea Containers’ submissions that I indicate my views about this material as I go through it.

17 Sea Containers had claims for loss and damage as a consequence of alleged defects in the construction of four catamaran ferries each built by ICT under separate building contracts which were, mutatis mutandis, in the same terms. Clause 7 of the construction contracts provided that in the event of a dispute over the execution of the works under the contract or other disputes from or under the contract, a party thereto should serve on the other notice of dispute setting out the matters in dispute and appointing an arbitrator. The party receiving such notice of dispute should also appoint an arbitrator. The two arbitrators so appointed should appoint a third arbitrator. The clause provided:

“All expenses of the arbitrator shall be borne equally or as directed by the arbitrators.

Arbitration shall be in accordance with the NSW Arbitration Act.”

Commercial Arbitration Act

18 In accordance with this clause Mr de Fina and Mr Thompson had each been appointed by one of the parties. They in turn appointed Mr Carruthers. Mr de Fina and Mr Thompson had each made an arrangement with the party appointing him for the payment of a daily fee. On 21 February 2000 the arbitrators informed the parties that each would charge $3,000 per day. The parties agreed to this. The arbitration was listed for four weeks to begin on 9 October 2000. Nothing was agreed about the payment to the arbitrators of a cancellation fee.

19 On 17 April 2000 Norton White, the solicitors for Sea Containers, wrote to the Chairman of the panel of arbitrators, Mr Carruthers, as follows:

“At the last directions hearing it was agreed that each Arbitrator would be paid the sum of A$3,000.00 per day or part thereof for work undertaken in relation to this matter and that the terms on which this amount is to be paid are to be agreed.

We attach a copy of our proposed arrangements for payment of the agreed remuneration to the Arbitrators and look forward to receiving your comments. This version is set out in the form of a Minute but if the Tribunal is of the view that it should be in the form of an agreement between the parties and the Tribunal we will attend to the necessary amendment.

We have sent a copy of this document to Deacons Graham & James [Deacons] for their comments as well.”

20 Deacons were ICT’s solicitors. The annexure setting out the proposed arrangement took the following form:

“BY CONSENT

The Arbitrators fees shall be calculated in according to the following procedure:

1. A booking fee of A$750.00 per day of the period for which the Arbitration is set down is payable to each Arbitrator as a non-refundable part payment of the Arbitrators’ fees and expenses. This booking fee is due and payable to the Arbitrators by both parties in equal contributions in accordance with the following timetable:

a. 50% of the booking fee is payable six months prior to the commencement of the Arbitration;

b. 25% of the booking fee is payable three months prior to the commencement of the Arbitration; and

c. 25% of the booking fee is payable one month prior to the commencement of the Arbitration.

2. All additional work and related expenses, reasonably incurred by the Arbitrators in relation to the Arbitration including airfares, accommodation and incidental expenses, for work preparatory to the arbitration and in drafting any Award following a hearing is to be invoiced separately to the parties by the Arbitrators and payable in equal contribution following the making of the Award, or alternatively at the conclusion of the Arbitration, whichever is the later.

3, The balance of the hearing fees, being the sum of A$2,250.00 per day for each Arbitrator for each day of the Arbitration, are due to be paid at the conclusion of the Arbitration and are payable for the number of days sat.”

21 The effect of this document was that each arbitrator would be entitled to a non-refundable amount of $750 per day for the period set down for the hearing of the arbitration and in addition $2,250 per day for each of the days “sat”.

22 On 9 May 2000 Mr Carruthers responded:

Re: Sea Containers Limited v ICT Pty Limited

With reference to your letter dated 17 April 2000, the members of the Arbitral Tribunal have carefully considered the proposals contained therein.

I have been requested to convey to the parties the response of the Tribunal to those proposals. The Tribunal is of the view that the following directions should be made:

1. No booking fee as proposed or at all is required.

2. The Tribunal will not fund out of pocket expenses and requires such expenses as may be validly incurred to be met from time to time immediately upon demand.

3. The Tribunal, at its discretion, may direct immediate payment of the fees of the members or one or more of them for time spent at any stage of the proceedings.

4. The members of the Tribunal shall require immediate payment of any remaining fees, costs and expenses contemporaneously with the issue of the award or termination or abandonment of the arbitration.

5. The members of the Tribunal will require payment of the agreed per diem rates for all hearing time set aside and being from and including Monday 9 October through Friday 3 November 2000.

6. The Tribunal requires the lodgement by the parties of the total sum of $250,000 in an escrow account (preferably the Institute of Arbitrators & Mediators Security Trust Fund) as security for fees, costs and expenses as might be incurred by the Tribunal in this arbitration and reserves the right to order further security should circumstances at the prevailing time justify such order.”

23 A copy of this letter was sent to Deacons. The letter was couched in terms which involved a misapprehension of the arbitrators’ entitlement to fees and was likely to be of concern to the recipients. The Arbitral Tribunal (referred to in following correspondence and elsewhere simply as the Tribunal) was expressing the view that directions should be made. One of these was para 5 that the members “will require” payment of the agreed per diem rates for all hearing time set aside including the period already set down for hearing. Paragraph 6 stated the Tribunal’s requirement that a total sum of $250,000 be lodged in an escrow account and reserved the right to further security. The arbitrators were entitled to neither unless the parties agreed.

24 On 5 June 2000 Norton White responded that subject to one amendment, Sea Containers agreed to the terms proposed by the Tribunal. The amendment was that with reference to para 6 it would be “appropriate for the Order to specify that half of the full amount due, namely A$125,000 be paid” by Sea Containers and that the other half by ICT.

25 On 6 June 2000 Deacons responded to Mr Carruthers as follows:

”We refer to the letter from Norton White to you dated 5 June 2000 which was copied to us.

In light of the fact that the matters set out in the letter from Norton White to you had not been previously discussed with us, we request that this afternoon’s directions hearing be adjourned for 7 days to allow us time to consider the matters in Norton White’s letter and to take proper instructions from our client.

Further, given that the Claimant has failed to serve its Statements in Chief of witnesses of fact (which were required to be served by 31 March 2000) and is unable to indicate when such Statements will be served, we anticipate that at the next directions hearing we will be instructed to request that the hearing date (currently set down for 4 weeks commencing on 9 October 2000) be vacated.”

26 On 7 June 2000 Mr Carruthers sent a facsimile to Deacons and to Norton White as follows:

“The Arbitral Tribunal resolved last evening:

1. That the parties be informed that it was the intention of the Tribunal that the sum of $250,000 referred to in paragraph 6 of my letter dated 9 May 2000 be shared equally between the parties.

2. That the respondent be directed to respond by 2pm on Friday 9 June 2000 to the abovementioned letter dated 9 May 2000.”

27 On 9 June 2000 Deacons replied to the arbitrators as follows:

“We are instructed that our client:

(a) consents to the proposed directions set out in paragraphs 1 to 4 of Mr Carruthers’ letter being made; and

(b) objects to the proposed directions set out in paragraphs 5 and 6 of Mr Carruthers’ letter being made.

The proposed direction set out in paragraph 5 of Mr Carruthers’ letter, we submit, amounts to the imposition on the parties of a ‘commitment’ or ‘cancellation’ fee.

……

We submit further that:

1. such a payment has not previously been required of our client by any member of the Tribunal and our client has not previously agreed to make any such payment;

Commercial Arbitration Act

3. even if the Tribunal has power to make such a direction, which is not admitted, it would be unjust and unreasonable to require the parties to pay all (rather than just a proportion) of the Tribunal’s fees in the event that the hearing did not proceed.

In relation to the proposed direction set out in paragraph 6 of Mr Carruthers’ letter, our client objects to the direction that our client provide security for the Tribunal’s fees on the following grounds:

(i) security for the Tribunal’s fees has not previously been required of our client by the Tribunal and our client has not previously agreed to provide security for the Tribunal’s fees;

Commercial Arbitration Act (

(iii) even if the Tribunal has power to make such a direction, which is not admitted, we submit that there are no grounds on which it would be open for the Tribunal to require our client to provide security for the Tribunal’s fees as:

(a) our client is an Australian company with significant assets within the jurisdiction; and

(b) there is no evidence on which it could be suggested or inferred that our client is, or would be at any time in the future, unable to pay the Tribunal’s fees; and

(iv) in any event, we submit that the proposed direction contained in paragraph 4 of Mr Carruthers’ letter provides the Tribunal with adequate security for its fees.

We further submit that it would be inappropriate for the Tribunal to make any determination regarding the proposed directions set out in paragraphs 5 and 6 of Mr Carruthers’ letter until our client’s foreshadowed application to vacate the hearing date has been heard and determined. We anticipate that a formal application to vacate the hearing date will be filed and served within 14 days.”

28 The grounds advanced by Deacons for objecting to the proposed directions in paras 5 and 6 of Mr Carruthers’ letter were sound and justified in fact.

29 On 29 June 2000 the Tribunal vacated the hearing dates. The transcript of the hearing on that day reveals that, understandably, Mr Carruthers was concerned that the four weeks set aside had to be vacated. In the quotations from the transcript that follow in this and later paragraphs I have emphasised some of what I regard as the significant passages. Mr de Fina said this:

he challenged the Tribunal’s power and I noted also Mr Fagan you, whilst not making it categorical, suggested that the Tribunal may not have power to do various things.

that the respondent adopt the position ordinarily taken in curial proceedings in arguing against an order by the court for security of costs.

This is not the way it is going to proceed and both parties better understand that

30 Mr Carruthers said:

responsibility of

the parties

31 There followed debate between counsel and the arbitrators leading up to the following interchange:

“Mr Fagan Mr Chairman, it’s my submission that to the extent that it is, the arbitrators must be compensated for the time set aside and which is now cancelled, that should entirely be borne by the applicant, the claimant.

Mr Carruthers Yes thank you. … Do you want time to consider this Mr Nell? The difficulty you have to address is effectively an order that your client pay $180,000 being the fees for the arbitrators for those four weeks.

Mr Nell I think I would Mr Chairman also because it may be that there is some evidence that I wish to put on before the Tribunal relevant to … costs. At the moment I just don’t know if they’re going to have instructions on those matters given.”

32 Further debate followed and the transcript concluded with Mr Carruthers saying:

The Tribunal is also of the view that the appropriate order in relation to the arbitrators’ fees is that the claimant pay by the 1st of December 2000, which would be the termination date of the four weeks set aside, the sum of $60,000 to each of the arbitrators.

Commercial Arbitration Act

International Arbitration Act

33 In written submissions to the Tribunal signed by Mr Rayment QC and furnished with a letter dated 17 July 2000 opposing the order that it pay the sum of $60,000 to each of the arbitrators for the four weeks set aside for the hearing and not used, Sea Containers pointed out that there was no agreement between the parties and the members of the Tribunal for the payment of any sum in the nature of a cancellation fee and urged that the Tribunal had no power to make the order proposed in relation to its fees. K/S Norjarl A/s v Hyundai Heavy Industries Co Limited [1992] 1 QB 863 and AMEC Construction Pty Limited v Coal and Allied Operations Pty Limited (Cole J, 29 April 1993, unreported), Turner v Stevenage Borough Council [1998] Ch 28, to two of which cases I will return, were referred to. The submissions were lengthy, forceful and compelling. By letter dated 9 August 2000 signed by Mr Carruthers the Tribunal indicated that it had considered these submissions and resolved “that the determination of this matter should be deferred until the resolution of the substantive issues in the arbitration.” One matter so deferred was whether the arbitrators were entitled to a cancellation fee.

34 On 6 November 2000 Norton White wrote to the Tribunal attaching the directions that Sea Containers would seek at the directions hearing on 15 November 2000. Sea Containers reiterated the proposal that: (a) there be a booking fee of $750 per day for the period for which the hearing was set down to each arbitrator as a non-refundable part payment of the arbitrators’ fees; (b) expenses be paid by both parties in equal contributions in accordance with a timetable; and (c) the balance of the hearing fees, being in the sum of $2,250 per day for each arbitrator for each day of the hearing, would be paid within seven days of the conclusion of the hearing and were payable for the number of days sat.

35 At the directions hearing on 15 November 2000 the matter was listed for hearing for a period from 21 May 2001 to 16 June 2001. Having made this announcement, Mr Carruthers continued as follows:

on the 9th of May 2000 by letter

I am proposing to use that as a basis for indicating why [what] the arbitrators propose, and it is imperative I hasten to add this is a matter that be resolved.

arbitrators will have no alternative but to make calls

As I have indicated the members of the Tribunal will require payment of the agreed per diem claims for all of the time set aside…sorry, I withdraw that. I withdraw everything as from the members of the Tribunal require. The Tribunal proposes an order that the lodgement by the parties of a total sum of $250,000 be shared equally in an escrow account of the Institute of Arbitrators & Mediators Security Trust Fund as security for fees, costs and expenses as might be incurred by the Tribunal in the arbitration by the 2nd of February 2001, and reserves the right to order further security should circumstances at the prevailing time justify such order.

36 The letter of 9 May 2000 to be used as the basis “for indicating [what] the arbitrators propose” included para 5 which both parties had rejected. Both ICT on 9 June 2000 and Sea Containers on 17 July 2000 had submitted that the Tribunal had no power so to require. The Tribunal had announced that those questions would be deferred until after the substantive hearing.

37 Mr de Fina said:

It is our belief that it would be reasonable to have a cancellation fee. The order of that being how it’s structured is a matter for discussion, but in principle we propose to you representing the parties that in commission for a hearing time a cancellation fee appropriately structured is something that we would require but we don’t make it mandatory

38 He went on to say that he did not think Sea Containers’ proposal for a booking fee was reasonable and continued:

its single position is that it should be paid for the time set aside at the agreed rates in the event that the matter does not proceed,

39 Some time later Mr Carruthers returned to the matter and said:

on this question of cancellation fee, the order will be that the parties forthwith confer in the attempt that they can if possible reach agreement as to a joint proposal in relation to a cancellation fee should the matter be settled prior to 21 May 2001, such cancellation fees to cover the period 21 May 2001 to 16 June 2001

40 On 27 November 2000 in a letter to Norton White, Deacons attached their client’s proposal about cancellation fees. ICT stated that it regretted that it was unable to accept the proposal put by Mr de Fina on 15 November 2000 that the arbitrators’ fees for the entire period for hearing be paid in the event of cancellation for any reason but proposed that the arbitrators should be paid their full agreed daily fee in respect of any reserved hearing day for which less than four weeks notice of cancellation was given. The cancellation fee was to be subject to credit in respect of any remunerative work which the arbitrators might have been able to obtain for any of the cancelled hearing days in respect of which less than four weeks notice was given. On 12 December 2000 Norton White responded that its instructions were to agree to a full cancellation fee now (as sought by the Tribunal) if ICT also agreed, each party to pay half, but failing that Sea Containers would agree to Deacons’ proposal. On 13 December 2000 Deacons’ proposal was sent to the Tribunal. On 20 December 2000 Norton White indicated its position to the Tribunal.

41 On 23 January 2001 at a mention for return of subpoenas before Mr Carruthers he again raised the matter in the following interchange:

this wretched cancellation fee

James I think we have since.

I don’t think you would find that that proposal by Deacons would be satisfactory to the tribunal for a number of reasons

(inaudible)

Fagan 22nd

Carruthers 25th of February.

inaudible)

(inaudible)

unless the parties can come up with some satisfactory formula, real problems are going to arise in relation to this arbitration.

To be raised again unless the parties can come up with some clear agreement as to a cancellation fee that is free of the complexities associated with the Deacons proposal.

42 In this interchange Mr Carruthers indicated that the proposal put forward by Deacons and agreed to by Sea Containers was not acceptable. He made plain that the arbitrators were pressing for agreement to pay what they regarded as an appropriate cancellation fee. No mention was made of the indication on 9 August 2000 that the matter of cancellation fees would be deferred until the resolution of the substantive issues in the arbitration.

43 A further directions hearing took place on 4 March 2001. During the course of that hearing the chairman said:

Mr Thompson raised the question which I have feel some extreme sense of concern about as the Chairman of this Tribunal, is this cancellation fee.

44 Mr Street SC, who by this time appeared for Sea Containers, said “We had made a decision earlier, not to oppose the course which is suggested by the Tribunal.”

45 By letter dated 8 March 2000, Deacons put forward a new proposal on behalf of ICT. They wrote:

“We are instructed that our client is prepared to agree to pay the members of the Tribunal a cancellation fee on the basis set out below:

1. The members of the Tribunal to be paid their full agreed daily rate in respect of any reserved hearing date if notice of cancellation of the hearing is given within 5 weeks of the hearing (if more than 5 weeks notice of cancellation of a hearing is given, no cancellation fee will be payable); and

2. The members of the Tribunal are to give credit in respect of any remunerative work which they are able to obtain for any of the cancelled hearing days in respect of which they would otherwise be entitled to a cancellation fee.”

46 On 13 March 2001 Mr Carruthers responded as follows:

“In the light of the history of this matter, the members of the Tribunal are agreeable to the proposals contained in the facsimile with the exception of paragraph 2. That carries with it the proposal that the arbitrators supply the number of days involved in other remunerative work over the relevant period.

The members of the Tribunal are, however, agreeable to a provision in the following terms:

If a member of the Tribunal does derive income over the relevant period, which has the effect of mitigating the liability of the parties with regard to the cancellation fee, then he may, at his discretion, reduce the parties’ liability in respect of the cancellation fee, as he deems appropriate.”

47 On 16 March 2001 Deacons wrote back to Mr Carruthers stating that their client was not prepared to accept the amendments to paragraph 2 as set out and repeating the offer set out in the letter dated 8 March 2001. Despite the Tribunal’s rejection of part of the offer it was renewed and remained open. On 9 April 2001 Norton White wrote to Mr Carruthers stating:

“We refer to the facsimile from Deacons of 16 March 2001 on the subject of cancellation fees.

For the avoidance of any doubt we should perhaps confirm that we do not yet have instructions from our client as to whether or not it agrees with the proposal which has been put forward on behalf of Incat.

As soon as we do receive instructions we will let you and Deacons know.”

48 On 18 April 2001 Mr Carruthers wrote to both Deacons and Norton White as follows:

“The Arbitral Tribunal has requested me to inform you that the Tribunal accepts the proposal regarding a cancellation fee contained in Deacons’ transmission of 8 March 2001 and repeated on 16 March 2001.”

49 On 19 April 2001 Norton White wrote to Mr Carruthers as follows:

“Thank you for our copy of your fax of 18 April.

As stated in our fax of 9 April, we do not yet have instructions from our client as to whether or not it agrees with the proposal which has been put forward on behalf of Incat. As we understand Incat’s position, their proposal requires our client’s agreement.

As soon as we do receive instructions we will let the Tribunal and Deacons know.”

50 On 24 April 2001 there was a further directions hearing. During that directions hearing the following occurred:

that’s my responsibility to protect so far as I can my co-arbitrators and that is it would be an absolutely intolerable situation, and I don’t make that statement lightly, if this matter were

resolved between the parties without there being a prior agreement on the question of cancellation fee.

a claimant that seems to be having difficulty about getting instructions upon a matter which is now really a very significant outstanding question.

Street The position is at the moment still like as identified in the letter from Norton White of the 19th of April, I do not have instructions to say today that that proposal has been agreed to. Now that position may change, I simply don’t have those instructions today.

Carruthers But why is there any difficulty about instructions being obtained in relation to that matter, I mean, that’s a simple enough issue I would have thought.

Street I’m not sure that it is in fact a case of significant difficulty. I have only seen this facsimile today so that I understand the force of what you’ve raised and I’m sure all parties have but I’m not in a position to convey that I have instructions today.

I mean I’ve already expressed in the strongest terms my anxiety about this matter and my concern for my responsibility to my co-arbitrators.

Street I certainly will do so. What I would like to do though is to at least have the opportunity to respond to it by after what I might describe as having the chance to get proper instructions so at the moment I’m just not in that position.

Thompson Well Mr Street you have your client present with you now, is that correct?

Street A representative of the client, yes

Thompson And is he in a position to give those, is he, does he have authority to give those instructions?

Street I haven’t even asked him.

Thompson Well, are you able to do so now?

Street Well not in the presence of all parties no, I’m not going to engage in asking my client for instructions whilst we’re in conference. I haven’t had a chance to speak to him about it. I will seek to do so and I’m indicating quite firmly that I will seek to raise what’s been raised, but I’m not going to ask my client in the course of the directions conference with the other parties present to start giving instructions without having spoken to him. I have seen this letter for the first time today. I hadn’t seen until shortly before this the communications that have taken place between the arbitrators and the legal representatives, this is my first time to see these, I’m simply not happy to take the stance that I can put my client in a position or the representative of my client into a position now where he’s asked to communicate to me in open conference a matter of instruction before I’ve had a chance to speak to him about it.”

51 By this time the Tribunal had been told there was some prospect that the matter might be settled. Mr Fagan SC, appearing for ICT, referred to the letter from Norton White to Mr Carruthers of 19 April 2001 and confirmed that it was a correct understanding that ICT’s proposal required Sea Containers’ agreement. Thus, there was no agreement between the parties to the trilateral arbitration agreement for the payment of a cancellation fee. See Compagnie Europeene de Cereals SA v Tradax Export SA [1986] 2 Lloyd’s Rep 301 at 306; Heyman v Darwins Limited [1942] AC 356 at 377 and Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Limited at 980.

52 On 30 April 2001 Deacons wrote to the arbitrators stating that they were instructed to withdraw the offer contained in their letter to Mr Carruthers dated 16 March 2001. ICT’s withdrawal of this office was the impetus for what followed and particularly for the hostile attitude the arbitrators adopted to ICT and its legal representatives. On the same date, Norton White wrote to the arbitrators:

“The parties have reached an agreement in principle which should lead in the very near future to the complete resolution of this arbitration.”

53 In a facsimile of 30 April 2001 Mr Carruthers wrote to the solicitors for the parties:

“The Tribunal acknowledges receipt of Deacon’s facsimile of 30 April 2001. The Tribunal has asked me to inform you that it must not be thought that the Tribunal accepts that the offer referred to in the facsimile message, which has already been accepted, can now be withdrawn.”

54 Prima facie, Sea Containers’ non-agreement to the Deacons’ offer by 30 April 2001 permitted ICT to withdraw it.

55 On 1 May 2001 there was another directions hearing. The parties sought orders vacating the hearing dates fixed to begin on 21 May 2001 and staying the arbitration proceedings for sixty days from that date. The Tribunal was informed that the adjournment was for further negotiations. After Mr Street had stated in short form the reasons for the application, Mr Carruthers said:

the Arbitrators take the view that there is a prima facie commitment on the part of both parties to a cancellation fee in respect of the period of four weeks as from the 21st May. The Arbitrators are not minded to make any orders unless there is an acknowledgment by the parties that their obligation to provide a cancellation fee along the terms of the regime set out in what we all know to be Deacons facsimile.

de Fina Yes, that’s correct.

Carruthers Mr Thompson?

Thompson Yes.”

56 Mr Street pointed out that there was not a consensus between the parties because the offer had been withdrawn. Mr Carruthers said:

inaudible

there is a moral obligation here which the parties just seem to be absolutely refusing to acknowledge, and why should this Tribunal I ask, rhetorically make orders to suit the convenience of the parties when there’s a manifest refusal by the parties to accept the responsibility to the Arbitrators which they themselves appointed and in respect of which arbitration the Arbitrators have at all times acted in good faith.

Street Well, I’ll let Mr Fagan respond.

Fagan Before I do respond Mr Chairman, could I just ask you to reiterate what you said at the outset before, asking the other members of the Tribunal to confirm the position in response to the application the Tribunal is not willing to make the orders sought without what?

Without an acknowledgment by the parties that they are indebted, that they are obligated to the Arbitrators in respect of the four weeks set aside from the 21st May 2001 to pay a cancellation fee in the terms as set out in Deacons regime, which is in a facsimile which was accepted by the Arbitrators. It’s as simple as that. And not only is there an obligation, a legal obligation, but clearly there is a moral obligation to these Arbitrators who are likely and in one case certainly, suffer very serious financial consequences as a result of this.

Fagan Well.

if it has to be resolved legally, it will be resolved,

advised the Arbitrators

any orders or take any further steps unless that acknowledgment is made by the parties. It’s as simple as that.

Tribunal is not

attempting to hold over heads of the partes,

anything that they can’t otherwise do by themselves by agreement,

the issue whether they do or not, the issue of the cancellation fee remains alive. Now whether the orders are made absent finalisation of the cancellation fee or not is a matter for the Tribunal as a whole.

Thompson Thompson here. All I have to add is that as was indicated at the last directions hearing from the claimants that they would take instructions as to whether they would accede to a proposition as put in the Deacons proposition and we took that on board in good faith. As Mr Street now puts it as I understand it and they’re no longer taking instructions because the Deacons offer has been withdrawn but that was an offer which was accepted and I would like to know what the Claimant’s position is from its own initiative irrespective of what Deacons position is, we were given a clear indication that this matter would be taken up in good faith and I would like to know what has come of that?

Street It’s Sandy Street here on behalf of the Claimants and if the offer had not been withdrawn it would have been accepted.

Street But can I say this please Mr Thompson, Mr de Fina and Mr Carruthers, there is it seems to me, still another aspect. I obviously am constrained by my instructions and that’s the very aspect that I identified at the outset. However, I would have said that the nature of the application we’re making is classically an application that, subject to the nature of the terms I would have thought can be granted on terms. I think there’s a problem in relation to power on terms, depending upon the nature of it, but it is one where I understand the force of what the Tribunal is saying in relation to a letter of the 8th March 2001 letter and I, although without instructions, cannot see an argument that a term imposed reflecting that letter would be beyond power.

there’s a clear, and leaving aside the legal aspects of it and which I don’t have any great problems, there is a clear unqualified moral obligation that the parties have to the Arbitrators that they appointed in good faith and who accepted the appointment in good faith and that for the absolute life of me, apart from what is obviously perceived to be some tactical manoeuvring, the parties refuse apparently, to accept the moral obligation that they have to accept responsibility for the fact that for months this Tribunal has set aside this period to do with this arbitration and indeed, I wouldn’t have the slightest doubt in saying that this case would never have reached this stage unless this Tribunal had been instituted and the matter had been set down and ready to proceed on the 21st May.

interjection

at doesn’t impress me I’m afraid.

I don’t really think, just to stonewall this extremely sensitive and difficult and serious situation that has arisen by saying that you are bound by your instructions personally doesn’t impress me very much.

Fagan Well, it wasn’t intended to be stonewalling but it is my position. I’m instructed by my client to take the position that, to state to the Tribunal that the Respondent’s position is that it does not consider itself bound by anything that has been agreed in a legally effective way with respect to cancellation fees.

Claimant has taken and I want to say no more on that.

Fagan Well, my position is that the documents, the exchange of correspondence speaks for itself, but I have not been asked to advise upon the effect of them. I have not been asked to advise my client upon the law with respect to arbitrator’s claims for cancellation fees. I have been shown today for the first time, the submissions which Mr Rayment made to the Tribunal dated 17th July last year about the subject, but I haven’t conferred with my client about it or been involved in the subject at all. I mentioned at the outset of stating my client’s position that I’m bound by instructions to indicate that I don’t take any personal role in this at all. My position is that the only way in which this disagreement between the Tribunal and the parties can be resolved is by some form of proceeding other than what we are engaged in right at the moment.

I believe I speak for my colleagues to go on record as saying that this Tribunal is not minded to do other than protect its interests in this matter and I say no more than that.

Fagan The position as it appears to me members of the Tribunal, the position appears to have been reached that the parties have made a joint application for vacation of the dates. The Tribunal is as I understand it, inclined to refuse the application. My client. I do not have authority to make an acknowledgment to the effect that the Tribunal seeks as a term of granting the adjournment. I am not in a position to advance the matter any further on the instructions by which I am bound as Counsel.

Whether this Tribunal refuses to give the orders is a matter for the Tribunal

the Tribunal does not avoid maintaining its rights

Fagan I understand that and in so far as the Respondent is concerned I can state taking responsibility for the matter myself as Counsel that if the Tribunal should make the orders vacating the hearing date my client could not regard that as binding the Tribunal in any way with respect to the outstanding issue of this aspect of the Tribunal’s remuneration. It is my submission that the proper course would be to make the orders which are sought and to reserve that matter of the disagreement between the parties and the Tribunal with respect to this cancellation fee aspect of remuneration to be determined on another occasion.

de Fina While it may be determined on another occasion in another place Mr Fagan, but that’s for the future. I have nothing more to add, thank you Mr Carruthers.

Thompson Thompson here, could I ask Mr Street, if the position is, and I say if, that there is a binding agreement in so far as the Respondent is concerned from what you have said in response to my raising the matter earlier is the position of the Claimant that it is, it acknowledges that it, well it agrees to be so bound if in fact as a matter of law the Respondent is so bound?

inaudible

But anyhow it was a condition that one of the parties or both of the parties pay a cancellation fee but in accordance with the principles of natural justice we allowed the parties the opportunity to make submissions in that regard and we received submissions from the Claimant forcefully arguing that we didn’t have the power to make it.

Street I’m sorry, I did try to make it clear, sorry Mr Carruthers you’re quite right, what I sought to indicate that in the circumstances that have eventuated and it’s really in part acknowledging the force of what you have earlier said, it’s in the circumstances that have eventuated in the communications that have taken place from 8th of March that I say that in, it’s one where no submission that a term reflecting that 8th of March letter would be said to be beyond power.

Well why don’t you, why don’t you just accept an order in those terms as being valid.

Street I’m saying that I, there would be no submission from me that an order on that term would be invalid.

I understand your position and I’m perfectly comfortable with it.

Carruthers But then we still haven’t got a response, I must say I’m not as comfortable with it as Mr de Fina but anyhow we don’t have to resolve that at the moment. We haven’t got a similar response from Mr Fagan to that effect.

Fagan No Mr Chairman as I understand it, my instructions, they extend to the position that my client disputes that it would be obliged to pay the fees in the nature of a cancellation fee on any basis.

I’m at a loss to understand without hearing argument on it why it would not be, it was between the solicitors for the Respondent and it was between the Tribunal, the solicitor obviously acting with complete authority of its client, how it can be said that this is a matter of instructions and your, you and your instructing solicitors are saying even though we made that offer as the solicitors for the Respondent on our letterhead as prominent commercial solicitors, and even by, and even though it was accepted by the Tribunal in a communication directed to us still clothed with the authority of our client, we can’t do anything about accepting responsibility for that because our client says he won’t give us instructions to accept responsibility. The proposition that I must say both from a legal and ethical view I find it very difficult to accept and one which surprises me that commercial lawyers would advance,

inaudible

But you can’t be bound by instructions to break an agreement

inaudible

interjection

Carruthers But you know the law, you advise your client, your client doesn’t advise you of the law, you advise your client of the law.

interjection

But there’s such a thing as professional responsibility.

inaudible

raise this matter with their clients to indicate the Tribunal’s displeasure, to discuss the commercial, legal and moral obligations of the parties and to get back to us having held discussions of that type?

Fagan Of course we’re in a position to do that, that is, having regard to the terms of the exchange this afternoon, of course I would expect that my solicitors would communicate to the client.

this puts the Tribunal in a position of great embarrassment

Carruthers It seems to me that what we should do is stand this directions over to another date to allow the parties to consider what has passed between us today and I don’t know that we could advance the matter any further at the moment. How do you feel about that Mr de Fina and Mr Thompson?

Thompson I agree with that I would like to hear what each of the parties have to say as to this.

Fagan My application would, it’s Fagan speaking again, I would ask that the Tribunal make the order which has been sought with respect to vacating the hearing date and as well as if the Tribunal is so minded, standing the matter over to some later date to enable in the meantime further instructions to be taken and your views communicated regarding this subject.

I wouldn’t agree to any of the orders at this stage as I indicated at the outset, the parties have just got to accept their responsibilities about this matter

de Fina Yes it does.

Carruthers Mr Thompson?

Thompson Yes.

Carruthers Well may I have the agreement of the Tribunal that there be a further telephone hook up with the same telephone numbers at 4.30 on Thursday?

Thompson Yes.

de Fina Yes.

Carruthers Well we’ve heard what you’ve said about that Mr Fagan. Do you wish to say anything Mr Street?

interjection

why don’t the parties sign, why don’t the parties just draw up some terms and sign them and submit them to the Tribunal for its approval which would include an order as to a cancellation fee.

Street The only difficulty that I foreshadow given what has occurred and I think it’s plainly the case that some recognition must have taken place beforehand as to the embarrassment and difficulty this places the Tribunal in, is that it may not be the subject of consensus by, or I’ll put it obliquely, by both parties, and if that’s the case one does have as I’ve sought to convey, a stronger position, it seems to me, I don’t think I can say more than that, I understand what’s proposed. I’d ask that the application be stood over to that date in so far as it’s not granted.

Carruthers Yes well very well, well the only order which the Tribunal makes this afternoon is that the matter be stood over further to a phone hook up at 4.30 pm on the 3rd of May.

Fagan Mr Chairman, Fagan speaking, it’s a matter for the Tribunal the date that is fixed, I cannot be sure of being available at that time, I’ll be in transit back from Melbourne, I would be on Friday at the same time.

Thompson Mr Chairman, I have a difficulty with Friday, Mr Fagan has a junior, I would have thought it should be no problem.

Fagan It’s a matter for the Tribunal.

Carruthers Yes very well, the matter is stood over to 4.30 pm on Thursday, 3rd May 2001 and we’ll all hang up.”

57 It was necessary to set out this passage in the transcript at length. There is no doubt of its import. The members of the arbitral Tribunal were bringing pressure to bear on counsel for ICT to agree to pay the members of the Tribunal a cancellation fee. The parties wished to have the hearing dates vacated and the proceedings stayed so that they could negotiate a settlement. Ominously, in this context Mr de Fina, speaking for his colleagues, went on record as saying that the Tribunal was not minded to do other than protect its interests in the matter. They indicated that they proposed to frustrate the parties’ wish by refusing to make the order unless the parties, and particularly ICT, agreed to pay a cancellation fee. To put it in the mildest language, the arbitrators were not justified in doing this. One arbitrator said he was comfortable with Sea Containers’ position. Obviously, the problem was ICT’s withdrawal of its offer. ICT’s counsel was accused of stonewalling by saying that he was bound by his instructions. The Chairman said bluntly that the attitude of ICT and its solicitors was not legal, was unethical and in breach of the solicitor’s professional responsibility. They were told to indicate to ICT the Tribunal’s displeasure. The arbitrators had taken up an adversarial position on the matter of their personal pecuniary interests by insisting upon a payment not contemplated by the arbitration agreement that they had made. Their insistence upon the payment of a cancellation fee when one party did not agree to it had led to this.

58 On 3 May 2001 there was a further directions hearing. There are notes but apparently no transcript of what occurred. Mr Fagan referred to the impasse about the cancellation fee and suggested it was not appropriate for the arbitral Tribunal to refuse an order by reference to that impasse. Mr Carruthers asked how there was an issue between the arbitrators and the client. Mr Fagan indicated that ICT took the position that the offer of 8 March 2001 was only capable of acceptance if the other party accepted it. Mr Street said that the arbitrators had power to impose a term. The Tribunal reserved its decision. On 11 May 2001 the arbitrators vacated the hearing date. The reasons for that decision, if published, are not before us. What, if anything, the arbitrators said about cancellation fees is unknown.

59 In July 2001 Mr de Fina and Mr Carruthers each sent an account or memorandum of fees which included, in the case of Mr de Fina, an amount of $60,000 described as follows:

87 Paragraph 23 of the reasons for judgment was as follows:

“In his affidavit Mr Clifford swore that he presently apprehended that in dealing with any adjournment application or the fixing of further dates for hearing the arbitrators would be motivated by a desire to force the parties to hearing in order to secure payment of fees without proper regard to the parties’ preparation and their ability to conduct the hearing; that the arbitrators were unwilling to accept the risk of cancellation and, in the absence of agreement about payment of cancellation fees, would force the case on for their benefit in terms of claiming fees; and given that the arbitrators or, at least, Mr Carruthers QC and Mr de Fina, were in open conflict with [ICT] over cancellation fees, the arbitrators would not give [ICT] a fair hearing on any interlocutory application or in the hearing on the substantive issues between the parties and in their adjudication on an award.”

88 Justice Gzell next came to review the law. What his Honour said about it has not been challenged. Section 44 enables the Court on the application of a party to the arbitration agreement to remove the arbitrator where the Court is satisfied, inter alia, that there has been misconduct on the part of the arbitrator or the arbitrator has misconducted the proceedings. His Honour pointed out that in this context “misconduct” embraces situations disassociated from moral turpitude. In Williams v Wallis and Cox [1914] 2 KB 478 at 485 Atkin J (as his Lordship then was) said of the meaning of misconduct:

“That expression does not necessarily involve personal turpitude on the part of the arbitrator, and any such suggestion has been expressly disclaimed in this case. The term does not really amount to much more than such a mishandling of the arbitration as is likely to amount to some substantial miscarriage of justice….”

89 It is unnecessary to elaborate on this straightforward statement by so eminent an authority. There was no argument about the meaning of the expression. It is certainly wide enough to cover what ICT here complains about. Of the claim that the arbitrators had behaved in a way which gave rise to a reasonable apprehension of bias, his Honour referred to Johnson v Johnson (2000) 201 CLR 488 at 492 where it is said in the joint judgment of five members of the High Court that the test to be applied in Australia

“in determining whether a judge is disqualified by reason of the appearance of bias ….. is whether a fair minded lay observer might reasonably apprehend that the judge might not bring an impartial and unprejudiced mind to the resolution of the question the judge is required to decide.”

90 His Honour went on:

“28 Since an arbitrator’s fee is primarily a matter for tripartite contract between the arbitrator and the parties, there can be no impropriety in an arbitrator requesting a commitment fee or a cancellation fee. The issue in this case is as to the manner in which the arbitrators persisted in their request after rejection by one of the parties.”

91 To distil the approach that should be taken in determining that issue, it is useful to refer again to two of the cases mentioned earlier. In K/S Norjarl A/S v Hyundai Heavy Industries Limited, Leggatt LJ at 877 stated the following principle:

“once an arbitrator has accepted an appointment, no term can be implied that entitles him to a commitment fee, and the arbitration agreement cannot be varied in that way without the consent of all parties. To insist on such a fee in those circumstances would therefore constitute misconduct, making the arbitrator liable to removal.”

92 At 878 Leggatt LJ said:

Mustill & Boyd, Commercial Arbitration,

AMEC Construction Pty Limited v Coal and Allied Operations Pty Limited

93 At the beginning of his judgment at 884 Browne Wilkinson V-C observed:

“There is a problem latent in every arbitration. An arbitrator, par excellence, is in a quasi-judicial position. He must avoid both the reality and the appearance of bias. The receipt by a judge of money or other benefits is the classic example of conduct which is unacceptable since, at its lowest, it raises the possibility of bias. Yet an arbitrator is paid by the parties. How is this conflict resolved? To date moderation and common sense have provided the answer. Those virtues being singularly absent from the present case, we have to give a legal answer. Such answer should, if possible, continue to permit sensible arrangements to be made between arbitrators and the parties where cupidity and obstinacy are absent.”

94 His Lordship observed, at 885, that:

Compagnie Europeene de Cereals SA v Tradax Export SA

So far as the parties are concerned, their obligations under the trilateral contract include the liability to pay remuneration for the services of the arbitrator.”

95 His Lordship went on to point out that in the United Kingdom the amount of such remuneration and the person liable to pay it can be fixed either by agreement, or by the arbitrator under s18(1) of the Arbitration Act 1950 or by taxation under s19 of the Act. His Lordship could see no impropriety in the arbitrator’s requesting a commitment fee or raising the question of their fees with both parties with a view to obtaining their joint agreement. He observed, at 885-6:

“The letter of 1 March 1990 is unhappily expressed, suggesting as it does the dictation of fees to be paid rather than an invitation to agree reasonable fees.”

“Although a commitment fee would not have been payable in default of agreement, I can see nothing improper in the arbitrators proposing the payment of a commitment fee so long as that proposal is made to both parties and all negotiations relating to it are conducted with both parties. Could it really be suggested that, if both Norjarl and Hyundai had agreed to the payment of a commitment fee, it was improper for the arbitrators to suggest that one should be paid?

However, in my judgment the arbitrators in this case went far beyond simply suggesting a negotiation with both parties for the payment of agreed fees including a commitment fee. It immediately became clear that Norjarl and Hyundai were not of one mind in their response to the arbitrators’ approach. I do not find it necessary to reach a final decision whether or not what happened thereafter amounted to misconduct. But at the lowest, it came very close to the line. The arbitrators (although at all times stopping short of concluding an agreement with Norjarl without the consent of Hyundai) entered into separate negotiations with one party, Norjarl, as a result of which Norjarl were willing to agree to far more beneficial terms than Hyundai. Not surprisingly, Mr Steel’s letter of 10 August is much more flattering about the approach of Norjarl’s solicitors than that of Hyundai’s. This illustrates clearly the risk involved when arbitrators enter into negotiations as to their fees with one of the parties in the absence of the other. The risk is of the appearance of bias arising from the disparate responses of the parties and the not unnatural suspicion that the arbitrators will be more favourably inclined towards those more responsive to their approach than to those who have been less responsive.”

96 With due respect the Vice Chancellor pointed out the very problem that emerged in this case. After their remuneration had been agreed the arbitrators sought the parties’ agreement to a cancellation fee. This was quite proper. By the end of December 2000 the parties had agreed to a cancellation fee as proposed by ICT on 13 December 2000. This was a perfectly reasonably proposal. However the arbitrators were not prepared at that time to accept it. From that moment there was a real risk of conflict encouraged by Sea Containers indicating, when they agreed to ICT’s proposal, that they also agreed to the proposal put by the arbitrators in May. This was followed by insistence from the arbitrators that a better offer be put forward. This was done on 8 May and “reluctantly” accepted by the arbitrators. However, Sea Containers, for reasons unknown, were not prepared to accept the renewed and better offer from ICT. It was abundantly clear that the matter was getting out of hand. This was demonstrated when, absent agreement by Sea Containers, ICT withdrew its offer. That was followed by what I can only describe as extravagant language from the arbitrators about the obligations of the parties and ultimately a threat made publicly that two of them would take all steps necessary to recover $60,000 each for cancellation fees. In my opinion, the arbitrators had stepped well beyond requesting that a cancellation fee should be paid and well into the area of demanding that it should be paid. This demand was never withdrawn.

97 In AMEC Construction Pty Limited v Coal and Allied Operations Pty Limited at 6-7 Cole J said:

Mustill and Boyd

‘These are all cases in which the arbitrator seeks to be paid for work done before the reference came to an end. It is, however, possible that the arbitrator will look for more than this. He may argue that but for the premature termination of the reference he would have been entitled to earn additional fees, and that the loss of fees is something for which he should be compensated. Such an argument may in isolated cases reflect a genuine hardship. The arbitrator may have been asked to set aside several weeks for the hearing. If the dispute is settled immediately beforehand, the arbitrator may not be able to fill the space with sufficiently remunerative work. The Court would no doubt feel sympathy in such a case, but it is unlikely to provide redress. A claim in damages would be hopeless, for even if the relationship could properly be explained in terms of contract, it would be absurd to contend that the parties committed a breach by failing to continue with the reference of a dispute which for practical purposes had ceased to exist: for example, because it was settled or because in the exercise of a statutory or common law jurisdiction the court had prevented it from being pursued. Nor is the proposition more attractive if the relationship is one of status, rather than contract. Public policy demands that the arbitrator should be paid for what he has done, but not that he should be paid for what he has not done. Indeed, considerations of policy point the other way, for the Court would not wish to confer on the arbitrator a right to compensation, the existence of which might inhibit the freedom of the parties to settle the dispute as they think best, or to invoke the supervisory jurisdiction of the Court when circumstances so required. Much the better view, we suggest, is to treat the risk of a settlement as an occupational risk of arbitrating. If a dispute is so large and the potential hardship to the arbitrator so great the risk appears unacceptable, there is nothing to prevent the arbitrator from stipulating as a condition for agreeing to accept the appointment that he shall be recompensed for keeping his time available.”

98 Gzell J referred to ss34 and 35 of the Commercial Arbitration Act and concluded that no relief was available to Sea Containers under those provisions. That conclusion has not been challenged. His Honour stated his conclusions as follows:

“37 Counsel for [Sea Containers] submitted that the arbitrators were doing no more than negotiating for a cancellation or commitment fee. In my view, however, the arbitrators went further than mere negotiation and sought to apply pressure to parties already committed to assigned hearing dates who, in consequence, were at a disadvantage. This case demonstrates the wisdom of an arbitrator reaching agreement with the parties as to his or her remuneration upon appointment. Here the arbitrators had not done so and their concern to have agreement upon a cancellation or commitment fee ultimately assumed such importance in their minds that they allowed themselves to be swayed by this concern to the detriment of their duty to maintain the appearance of acting in the interests of bringing down a just award.

38 The arbitrators comprised a retired judge and a member of the bar. They must be presumed to have known that if they resigned or if the arbitration was settled, they were entitled to seek an order from the court in relation to the costs of the arbitration. S36 of the Act provides such power where, for any reason, an arbitration fails. Instead of taking this course when [ICT] refused to agree to the payment regime twice proposed by [Sea Containers], the arbitrators increased their pressure upon the parties and, in particular, [ICT], to agree. The arbitrators had been referred to the three cases on cancellation or commitment fees referred to above. AMEC suggested that the court might be unlikely to include such fees in its determination of what constituted the costs of the arbitration. K/S Norjarl A/S raised the prospect that to persist in seeking agreement from the parties might constitute misconduct. The lawyer members of the tribunal must have understood that caution was called for: and yet they persisted in applying pressure.

39 The demand for payment of the per diem rates for time set aside made on 9 May 2000 came at a time well after the setting of the hearing dates for 4 weeks from 9 October 2000 at the preliminary conference on 21 February 2000. By that stage I may infer that the parties were committed to preparation for hearing with consequent cost implications if the matter did not proceed. The cancellation of the 29 May 2000 directions hearing because the ‘take it or leave it’ arbitrators’ fee arrangement had not been accepted, put more pressure on the parties. The order made on 15 November 2000 that the parties forthwith confer in an attempt to reach agreement with respect to the cancellation fees was made well into the preparation period leading up to the then hearing dates of 4 weeks commencing on 21 May 2001. The rejection on 13 March 2001 of the element in [ICT’s] suggested regime that credit be given for other remuneration evidenced a determination to maintain the arbitrators’ demands at all costs. The 24 April 2001 directions hearing saw unrelenting pressure put on the parties. The refusal at the directions hearing of 1 May 2001 to make orders consented to by the parties unless an agreement to pay cancellation fees was acknowledged and the assertion that a legal obligation existed with respect to them constituted, in my opinion, the pitting of the power of the arbitrators against the parties. As Mr de Fina so aptly put it on that occasion: the tribunal was not minded to do other than protect its interests in the matter. The sending of the fee notes in July 2001 and the assertion that they would be enforced on 17 August 2001 constituted the furtherance of an adversarial contest between the arbitrators or, at least two of them, and the parties. The setting down of a complex matter acknowledged to require 4 weeks of hearing for 2 weeks without regard to the convenience of parties, witnesses and counsel, placed yet more pressure on the parties.

40 It was submitted that the lack of response by [ICT’s] solicitors to correspondence from the arbitrators in December 2001 meant that it was perfectly reasonable for the arbitrators to bring matters to a head by nominating the 2 week period. [ICT] could, it was said, apply to have the dates vacated. What was contemplated by the arbitrators in December 2001 was a directions hearing. [ICT’s] solicitors’ failures could easily have been cured by setting the February date as a directions hearing. From the history of the matter I regard the setting of the two week hearing in February 2002 as a deliberate step on the arbitrators’ part to put more pressure on the parties.

41 Mr Thompson did not send a fee note. He was, however, party to the discussions at directions hearings and he participated in those discussions and he did not demur to the statements made by Mr Carruthers QC or Mr de Fina.

42 On the evidence before me, I am satisfied that each of the arbitrators misused his position in applying pressure to the parties to agree to a cancellation or commitment fee and that constituted misconduct in terms of s44(a) of the Act.

43 Mr Clifford explained the basis for his apprehension of bias. [Sea Containers] has consistently agreed in the proposals of the arbitrators for payment of cancellation or commitment fees. [ICT] had not agreed and had ultimately withdrawn its counter proposal. In addition, the transcript of the hearing on 1 May 2001 makes plain the manner in which the arbitrators reacted to counsel for [ICT’s] stance that he was bound by his instructions.

Grounds of appeal

99 In the draft grounds of appeal filed with the application for leave, Sea Containers challenged Gzell J’s decision in essence on the grounds that this conduct by the arbitrators within the meaning of s44 of the Commercial Arbitration Act had not been made out nor had any appearance of bias. In particular, it was said that Gzell J erred in finding that the arbitrators went further than negotiation and sought to apply pressure to the parties, in holding that the arbitrators allowed themselves to be swayed by a cancellation or commitment fee to the detriment of their duty and in holding that the setting down of the matter for commencement of hearing for two weeks placed illegitimate pressure on the parties in relation to cancellation or commitment fees. As to the last of these matters, I do not think that his Honour linked the setting down of the matter for hearing in February 2002 with the arbitrators’ concern about a cancellation fee. As will appear, I would not agree that there was any such link. Sea Containers further argued that Gzell J erred in holding that a fair minded lay observer would reasonably apprehend that the arbitrators might not bring an impartial and unprejudiced mind to the resolution of the reference before them.

100 Mr Street put the argument of Sea Containers vigorously. The oral arguments were supported by written submissions. The substantial part of the argument was that the arbitrators never went further than seek to negotiate with the parties their agreement to the payment of a cancellation fee. Counsel submitted that there was nothing to support the conclusion that the conduct of the arbitrators in communicating with ICT and setting the matter down for hearing in February 2002 was the result of their displeasure in withdrawing their offer and refusing to agree thereafter to the payment of a cancellation fee. This was not a case of bias against ICT but one in which the arbitrators expressed displeasure to both parties at their failure to reach agreement on the terms of a cancellation fee.

Conclusion

101 The arbitrators had the benefit of Deacons’ submissions of 9 June 2000 and fuller submissions of 17 July 2000 from Sea Containers’ then senior counsel that they had no right to require the payment of a cancellation fee. They rejected a reasonable proposal to which both parties agreed and quite clearly insisted on something more generous. However, although ICT’s further offer was accepted by the arbitrators, it was withdrawn before the other party to the tripartite agreement had accepted it. The arbitrators saw fit to suggest that no orders would be made unless agreement on cancellation fees was reached. Their next step was for two of them to claim payment of the cancellation fees under threat of litigation.

102 It is enough if I say that in my opinion the conclusions Gzell J reached on this conduct were justified by the facts. The situation had reached a point and the misconduct of the arbitrators was such that there was no choice but to remove them.

103 The conduct of the arbitrators in December 2001 leading up to the fixing of dates for hearing in February 2002 I also regard as misconduct. So far as the material goes there is no suggestion nor is there any in what Mr Carruthers wrote that either party was calling for an urgent hearing. Arbitration is largely a consensual process. There is nothing to suggest that ICT had at any stage been dilatory. Failure to respond to two letters could not be said to give rise to a clear inference that ICT had abandoned the arbitration process. In any event it was known to the arbitrators before the end of December that that was not the case. For the arbitrators having issued a document that there would be some preliminary hearing on seven days notice to go ahead without warning to the parties and arrange for the hearing to take place on three weeks notice, I regard as misconduct. The arbitrators said that this action was justified by an anxiety to meet their responsibilities to the parties and to the administration of law. In the result, had ICT not taken steps to bring the matter before the Supreme Court they would have been effectively forced on at short notice without the benefit of their senior counsel. How this can be said to assist in the proper resolution of the matters before the arbitrators which was their principal responsibility to the parties, I fail to understand. For my own part, I am not prepared to conclude that the arbitrators’ conduct was motivated by the failure of ICT to agree to pay a cancellation fee. However, whatever the motivation or intention, having fixed the matter on dates without notice to ICT and then, despite ICT’s objection, to have sought to proceed with the matter is no proper way to conduct an arbitration. Furthermore, as this case demonstrated, it was a wasteful and expensive way of doing it. Arbitrators need the assistance of parties and their representatives, particularly in long and complicated cases like the present. Unilateral action which has the result of disturbing or denying that assistance is for the benefit of no one.

104 It was for the reasons so given that in my opinion it was appropriate to dismiss the appeal with costs. I was of the view that leave to appeal should be granted not because I regard the appeal as having merit but because it seemed to me that it might be useful to re-state the principles about how arbitrators should conduct themselves if they wish to vary a fee arrangement with the parties or if they wish to set matters down for hearing at short notice. I should say finally that the conduct of the arbitrators in this case, particularly at the directions hearing of 1 May 2001, would give rise to a reasonable apprehension of bias in the mind of a fair minded lay observer who could reasonably apprehend that the arbitrators might not bring an impartial and unprejudiced mind to the resolution of the question they were required to decide. Mr Clifford’s evidence was not determinative of this but was relevant to the issue. Had he not had such concerns there would have been grounds for refusing relief on this basis.

**********

Key Legal Topics

Areas of Law

Commercial Law
Civil Procedure

Legal Concepts

Appeal
Costs

Actions

Download as PDF Download as Word Document

Citations

Sea Containers Ltd v ICT Pty Ltd [2002] NSWCA 84

Most Recent Citation

Wynona v Friend [2011] FamCAFC 6

Cases Citing This Decision

1

Wynona v Friend [2011] FamCAFC 6

Cases Cited

2

Statutory Material Cited

1

Johnson v Johnson [2000] HCA 48

ICT Pty Ltd v Sea Containers Ltd [2002] NSWSC 77

CITATION:	SEA CONTAINERS LTD v ICT PTY LTD [2002] NSWCA 84
FILE NUMBER(S):	CA 40123/02
HEARING DATE(S):	12 March 2002
JUDGMENT DATE:	18 April 2002
PARTIES :	Sea Containers Ltd - Appellant ICT Pty Ltd - Respondent
JUDGMENT OF:	Mason P at 1; Meagher JA at 2; Sheller JA at 11

LOWER COURT JURISDICTION :	Equity Division (Constructions List)
LOWER COURT FILE NUMBER(S) :	55007/02
LOWER COURT JUDICIAL OFFICER :	Gzell J

COUNSEL:	A W Street SC/G J Nell - Appellant PLeG Brereton SC/D R Stack - Respondent
SOLICITORS:	Norton White - Appellant Deacons - Respondent
CATCHWORDS:	ARBITRATION - misconduct of arbitrators - cancellation/commitment fees - unilateral alteration of arbitration agreement - reasonable apprehension of bias - removal of arbitrators - Commercial Arbitration Act 1984 (NSW), s44 - appeal dismissed
LEGISLATION CITED:	Commercial Arbitration Act 1984
CASES CITED:	K/S Norjarl A/S v Hyundai Heavy Industries Co Ltd [1992] QB 863 Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Limited [1981] AC 909 AMEC Construction Pty Limited v Coal and Allied Operations Pty Limited (Cole J, 29 April 1993, unreported), Turner v Stevenage Borough Council [1998] Ch 28 Compagnie Europeene de Cereals SA v Tradax Export SA [1986] 2 Lloyd's Rep 301 at 306 Heyman v Darwins Limited [1942] AC 356 Williams v Wallis and Cox [1914] 2 KB 478 Johnson v Johnson (2000) 201 CLR 488
DECISION:	Appeal dismissed with costs.

[2002] NSWCA 84

18 April 2002

Key Legal Topics

Areas of Law

Commercial Law

Civil Procedure

Legal Concepts

Appeal

Costs