Sunnybrand Chickens Pty Ltd (ABN 41 001 334 354) v Brett Weller Virtue and Myra Carola Virtue & Ors
[2009] NSWSC 351
•29 April 2009
CITATION: Sunnybrand Chickens Pty Ltd (ABN 41 001 334 354) v Brett Weller Virtue and Myra Carola Virtue & Ors [2009] NSWSC 351 HEARING DATE(S): 29/4/09 JURISDICTION: Equity Division
Commercial ListJUDGMENT OF: Einstein J EX TEMPORE JUDGMENT DATE: 29 April 2009 DECISION: Candidate with accounting qualifications to be appointed. CATCHWORDS: Arbitration - Contest as to appropriate Arbitrator LEGISLATION CITED: Commercial Arbitration Act 1994 CATEGORY: Procedural and other rulings CASES CITED: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Commonwealth of Australia and Citra Constructions Ltd, Re (Supreme Court of Queensland, McPherson J, 2 August 1992, unreported)
National Distribution Services Ltd v IBM Australia Ltd (Supreme Court of New South Wales, Rogers J, 5 October 1990, unreported)
Taylor Woodrow International Ltd v Commonwealth of Australia (Supreme Court of Western Australia, Seaman J, 7 August 1995, unreported),
Thiess Contractors Pty Ltd v Holiday Villages (Australia) Pty Ltd (Supreme Court of New South Wales, 31 March 1995, unreported)PARTIES: Sunnybrand Chickens Pty Ltd (ABN 41 001 334 354) (Plaintiff)
Brett Weller Virtue and Myra Carola Virtue (First Defendant)
Greg Galea (Second Defendant)
John Allen Courtney and Jennifer Anne Courtney (Third Defendant)
Tatham Poultry Pty Limited as Trustee for the Partridge Family Trust (Fourth Defendant)
Stratheden Glen Pty Limited (Fifth Defendant)
Berong Poultry Farms Pty Limited (Sixth Defendant)
Lukanda Park Poultry Pty Limited (Seventh Defendant)
Ian McKinnon and Julie McKinnon (Eighth Defendant)
Edward Percival Ziegenfusz and Wendy Mae Ziegenfusz trading as EP & WM Ziegenfusz (Ninth Defendant)
Jason Gilmore and Julie Gilmore trading as J & J Gilmore (Tenth Defendant)
Michael and Angela Ditrich in their capacity as assignee of the Contract between the Plaintiffs and Kenneth Alan Wake and Leslie Margaret Wake (Eleventh Defendant)
FILE NUMBER(S): SC 50039/09 COUNSEL: Mr D Toomey (Plaintiff)
Mr A Spencer (Defendants)SOLICITORS: Hannigans (Plaintiff)
Holding Redlich (Defendants)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST
Einstein J
Wednesday 29 April 2009 ex tempore
Revised 4 May 2009
50039/09 Sunnybrand Chickens Pty Ltd (ABN 41 001 334 354) v Brett Weller Virtue and Myra Carola Virtue & Ors
JUDGMENT
The Proceedings
1 By summons dated 24 February 2009 and filed on 4 March 2009 the plaintiff (Sunnybrand) seeks the following relief:
(b) In the alternative an order that the President of the Law Society of New South Wales appoint an arbitrator to the dispute between the parties.
(a) an order pursuant to s 10 of the Commercial Arbitration Act 1994, that Mr Guy Humble be appointed as arbitrator to the dispute between the parties;
Background
2 Sunnybrand is a company incorporated in New South Wales, having its registered office at 107 Johnson Street, Byron Bay. Sunnybrand is a processor of chickens with its processing facilities located at Byron Bay.
3 Each of the defendants (the Growers) supplies chickens to Sunnybrand for processing pursuant to individual agreements entered into between each Grower and Sunnybrand. There are eleven defendants to these proceedings.
4 The subject agreements govern the rights and obligations of Sunnybrand and the relevant grower and are in a form approved by the Poultry Meat Industry Committee constituted under s 4 of the Poultry Meat Industry Act 1986 (the Committee).
5 Each of those agreements is in the form of the pro forma agreement (the Agreement).
6 Each of these agreements expires on 30 June 2009.
7 Payment by Sunnybrand to the growers is calculated in accordance with various formulae contained within the Agreement, all of which have as their starting point the applicable “base rate” (cl 9). “Base rate” is defined in cl 1 of the Agreement as having the meaning given to it by the Poultry Meat Industry Act (“the Act”).
8 At the time that each of the agreements was made the term base rate was defined in s 3 of the Act as “the rate determined under s 10 in relation to batch poultry of that class”. Section 10 of the Act required the committee to determine the base rates for batch poultry at least once every six months (s 10(2)) of the Act and to have regard to the following matters hereinafter referred to as the so-called eleven factors:
(a) any suggested base rate agreed to by processors and growers;
(b) growing costs;
(c) the species of poultry involved;
(d) the duration of any relevant rearing period;
(e) the annual throughput of poultry;
(f) poultry housing density;
(g) the needs of the industry;
(h) market forces affecting the industry;
(i) the public interest;
(k) such other matters as the Committee think relevant.(j) the reasonable minimum returns to growers whilst encouraging industry efficiency;
9 Per force of the Poultry Meat Industry Amendments Prevention of National Competition Policy Penalties Act 2005 (The Amending Act), the Act was amended with effect from 1 October 2005. Paragraph 4 of the Amending Act repealed sections 10-12A of the Act with the effect that s 6(c), which previously had required the Committee to determine, in accordance with s 10, Base Rates for batch poultry, was amended so as to require an entirely different function to be performed by the Committee. The effect of the amendments was that the Committee no longer had as one of its functions the determination of the Base Rate, having regard to the factors previously contained in s 10 or otherwise.
10 Clause 22 of the Agreement requires the following steps to be taken in the event of a dispute arising out of or relating to the Agreement:
(i) written notice to be served;
(ii) negotiation;
(iv) arbitration.(iii) informal dispute resolution;
11 On 24 August 2008 Mr Barber served notice on behalf of the Growers of a dispute in relation to the “non-resolution of the grower fee and notified of readiness to participate in a negotiation”.
12 On 29 August 2009 the parties participated in a meeting to negotiate the dispute but failed to resolve it.
13 On 28 August 2008 the parties attempted mediation of the dispute but failed to resolve it.
14 Thereafter Sunnybrand and the Growers agreed to refer the dispute to arbitration under cl 22 of the Agreement.
15 On 17 December 2008 the Growers nominated three proposed arbitrators, Mr Steven Sorbello, Mr Brett Plant and Mr Paul Green. Mr Green subsequently accepted a role as an expert for Sunnybrand and is no longer proposed.
16 On 9 February 2009 the solicitors for Sunnybrand responded with two alternatives, Mr Ross Walker a chartered accountant and Mr Guy Humble, a partner at the firm McCullough, Robertson Lawyers, heading their infrastructure and dispute resolution division and nominated that their preference was for Mr Walker to be appointed. Mr Walker also disclosed that he had through his firm carried out certain financial diligence inquiries on Sunnybrand Chickens so as to assist the current proprietor of Sunnybrand, Mr Finney, in respect of his acquisition of that company.
17 By letter dated 11 February 2009 the Growers expressed a preference for Mr Plant, based on his high level of experience in agricultural matters. On 12 February 2009 Sunnybrand rejected Mr Plant as the proposed arbitrator and asserted that Mr Humble should be the arbitrator.
18 The Growers now put forward Mr Finney, a chartered accountant, as their preferred arbitrator.
19 Both parties now ask the court to resolve the question of the identity of the arbitrator under s 10 of the Commercial Arbitration Act.
The dispute
20 The parties agree that the issue in dispute which the arbitrator will be required to determine may be defined as follows:”
“What is the amount of base rate that should be paid by Sunnybrand Chickens to the Growers Group for each chicken grown and delivered under the Growers agreements in respect to the six month period from 1 July 2008 to 31 December 2008 and the six month period from 1 January 2009 to 30 June 2009.”
21 Apparently the sole disagreement between the parties is as to the identity of the appropriate arbitrator. That is an argument largely turning on the question of whether the arbitrator should be a person with legal qualifications or a person with accounting qualifications.
22 Both Sunnybrand and the Growers agree that the agreement does not contain a written clause setting out the mechanism by which the base rate is to be determined and that the lack of such a clause is a consequence of the amendments to the Act made after the agreements were entered into.
Guidance available from the authorities
23 This is not the first occasion when similar issues have been before the courts. It suffices to mention the succinct summary put forward by Giles CJ Commercial Division in Thiess Contractors Pty Ltd v Holiday Villages (Australia) Pty Ltd (Supreme Court of New South Wales, 31 March 1995, unreported):
“The approach to an application such as the present was considered by McPherson J in Re Commonwealth of Australia and Citra Constructions Ltd (Supreme Court of Queensland, 2 August 1992, unreported). In that case it was said that the contest ultimately resolved itself into one of whether the proposed arbitrator should be an engineer or a man of law, and that the question was largely one of attempting to decide which of the two fields of expertise was "likely to occupy and dominate the time and attention of the arbitrator at the hearing". McPherson J was of the view that, notwithstanding that the construction of contractual provisions would arise, engineering knowledge and expertise was likely to prove vital, and the questions of fact for which technical skill and comprehension were critical were both logically and in a practical sense anterior to the construction of the contractual provisions. His Honour appointed the agreed engineer rather than the agreed lawyer.
This decision was taken up by Master Seaman QC, as Seaman J then was, in Taylor Woodrow International Ltd v Commonwealth of Australia (Supreme Court of Western Australia, 7 August 1995, unreported), although there the Master thought that law and engineering would equally occupy the arbitrator's time and attention and opted for an engineer on what may have been a modification of the approach, namely that it was more appropriate that the arbitrator should be a person with knowledge of engineering standards and able to make his own evaluation of the facts rather than depend on and have to choose between experts called by the parties.
Given the suggested appointees, such a stark election was understandable. But each case must be decided on its own facts, and the choice will not always be presented as it was there presented. For example, a lawyer with substantial experience in construction disputes may be seen as more appropriate than a person with high technical qualifications in the construction industry but no experience in the conduct of arbitrations, or a person combining technical qualifications in the construction industry with legal training and experience in the conduct of arbitrations may be seen as appropriate rather than an eminent lawyer with minimal experience in construction disputes. That is why the description of the disagreement as earlier noted was an over-simplification. The approach of McPherson J is a starting point, but all circumstances relevant to the selection of an appropriate person must be considered. They may include, as was recognised before me, matters of anticipated management skills, availability, and cost, as well of course as any grounds on which it might be thought that a proposed arbitrator might be unable, or might be seen as unable, to bring an objective mind to the resolution of the dispute.”Both decisions were referred to by Rogers J in National Distribution Services Ltd v IBM Australia Ltd (5 October 1990, unreported). The arbitration would involve expertise in computer technology, and given the suggested appointees his Honour saw the question as whether the arbitrator should be a technically highly qualified person with no experience in conducting an arbitration or a lawyer with extensive experience and legal training but no extensive technical expertise. He saw in the two earlier decisions the guidance, "If the subject of the arbitration is substantially technical, take the technical man. If it is substantially a matter of law, take the lawyer."
The essence of the disputed positions taken by the parties
24 Both parties have indicated an intent to contend before the arbitrator that in the events which happened a term requires to be implied into the agreement. The critical question as I have understood it from both parties, will be how to characterise that term. The Growers wish to contend before the arbitrator that the agreement contains an implied term that an arbitrator appointed by the parties under s 22 of the agreement should determine the base rate having regard to those factors which form part of s 10 of the Act prior to 30 September 2005.
25 It seems clear that if that argument is successful the arbitrator will be required to have regard to the so-called eleven factors earlier referred to in these reasons.
26 If that argument is unsuccessful the arbitrator is nevertheless to determine an appropriate base rate upon which all calculations of remuneration to the Growers will turn. Nothing in the material filed on behalf of Sunnybrand appears to suggest how Sunnybrand proposes that the arbitrator should go about that exercise. The Growers contend that the primary considerations will be financial even in the absence of an applied obligation to take into account the factors referred to in s 10(2). No doubt each party will make submissions based on the respective economics of their businesses and focussing on appropriate rates of return.
27 The Growers have drawn attention to the following considerations:
Apropos Mr Humble
(1) That Mr Humble the solicitor proposed by Sunnybrand discloses that he has been practising as a solicitor in the Supreme Court of Queensland since 1980 and there is no doubt that he is a lawyer of much experience.
(2) He does not disclose to have ever acted as an arbitrator and his recent work has for the most part been “conducted in the resources and energy sectors on behalf of government-owned corporations, statutory bodies, public companies, banks and major lending institutions.
(3) While there is doubt that in that capacity he has had to deal in some way with the economic underpinnings of the businesses concerned, there is nothing other than inference to suggest that he has any particular skill in analysing the financial workings of a production process such as to be examined in this dispute.
(4) The disclosed experience of Mr Finney referred to below is therefore said by the Growers to fall directly into contention to be appropriate for the subject matter of this dispute.Apropos Mr Finney
28 The growers contend that:
(1) There is no evidence to suggest the complicated issues of law or case management fall to be issued by the arbitrator.
(3) In the circumstances, the court should be slow to appoint a lawyer with no specifically disclosed arbitration experience.(2) Notwithstanding the multiplicity of defendants, they are all represented by a consultant, Mr Barber, and the issues do not vary from one defendant to the next.
29 Sunnybrand has contended as follows:
(1) Whilst it is noted that the defendants contend that there should be implied into their contract with the plaintiff a term that the arbitrator should determine the base rate having regard to those factors listed in s 10 of the Act. the plaintiff does not concede that each of the factors listed in s 10 ought necessarily be considered.
(2) The question of what term or terms will need to be implied in order to give the contract business efficacy is a question which by its very nature involves the application of legal principles. That factor alone would favour the appointment of a lawyer as arbitrator.
(3) Moreover, while it is undoubtedly correct to say, as the defendants do, that whatever term may be implied into the contract for the determination of the base rate will require the arbitrator in the making of that determination to take account of its effect upon the financial viability of the businesses of the respective parties to the agreement, it is another thing to say that that necessarily favours the appointment of an accountant as arbitrator to the extent that accounting expertise may be required to resolve the dispute as to an appropriate base rate, that expertise will undoubtedly come in the form of reports prepared by accountants retained for that purpose by each party. While it is said by the defendants that there is no evidence to suggest that complicated issues of law or case management will fall to be determined by the arbitrator there is, equally no evidence to establish that the accounting issues in the case will be of such complexity as to justify the appointment of an expert accountant as arbitrator over a lawyer who by his training in inherently qualified to receive and analyse the accounting evidence and to resolve any conflicting in that regard.
(4) In the circumstances where there will be involved in the dispute resolution process not only expert accountants retained to provide reports for the consideration of the arbitrator, but also an accountant adviser Mr Barber on the defendants’ side, the appointment of an accountant as arbitrator runs the risk of rendering the process top heavy with accountants.
(5) In any event, of those matters listed in the so-called eleven factors located in the defendants’ submissions (assuming that they are the matters ultimately to be considered), it is submitted it could only truly be said that B, Growing Costs, fall squarely within the realm of accountancy. Factor J, Reasonable Minimum Returns to Growers, does not call for any accountancy expertise, but for a value judgment as to what is reasonable. Similarly factor H, Market Forces, requires the application of little or no accounting expertise. The other factors listed could be said at best to be neutral. On the other hand, the question of what term is to be implied into the contract to set the parameters within which the determination as to the base rate is to be made is one which falls peculiarly within the expertise of a lawyer.
(6) Mr Humble has a bachelor of laws and a bachelor of commerce from the University of Queensland. He was admitted to practise as a solicitor in 1980 and is an accredited mediator with the Queensland Law Society. To the extent that some expertise may be said to be required in the arbitrator in matters of “the economic underpinnings of the business concerned” the submission is that it may be comfortably inferred contrary to the defendants’ submissions, that Mr Humble’s qualifications in commerce endow him with the necessary expertise, in the plaintiff’s submission Mr Humble’s dual qualifications in law and commerce make him an ideal person to arbitrate the present dispute.
(8) A consideration of all of the circumstances in the present case favours so the plaintiff submits the appointment of Mr Humble.(7) Mr Finney is not a lawyer.
Decision
30 The respective communications between the parties and the materials in evidence suggest to me that the primary issue in dispute is as to whether or not the arbitrator to be appointed should be a lawyer or an accountant.
31 As I have said, both parties will apparently contend for an implied term. The Growers will be apparently contending that there must be an implied term of the Growers agreements to the following effect:
“The arbitrator appointed by the parties under s 22 of the Growers agreement (or any alternative under sch 1 reg 17 of the PMI Regulations) to determine the base rate for any period is to have regard to the matters set out in s 10(4) of the PMIA as it existed before 30 September 2005 (that is, before the amendments commencing 1 October 05) in determining the base rate. These issues will require that attention be given to the principles of law in forming the question of whether or not an implied term is to be found and, if so, what term.”
32 The principles governing the implication of implied terms are reasonably well known and it is likely to, for example, be necessary for the arbitrator to consider the authorities, including BP Refinery v Western Port (1977) 280 CLR 266: One possible question being whether such a term is necessary to give business efficacy to the growers agreements as a whole and in particular to the process of full arbitration of disputes as to the base rate to be paid under the growers agreements.
33 Depending upon the decision as to the implied term and at least if an implied term is found, it is at least possible that in determining the subject dispute the arbitrator may have to consider matters such as follows:
(a) any suggested base rate agreed to by Sunnybrand and the growers;
(b) growing costs;
(c) the species of poultry involved;
(d) the duration of any relevant rearing period;
(e) the annual throughput of poultry;
(f) poultry housing density;
(g) the needs of the industry;
(h) market forces affecting the industry;
(i) the public interest;
(j) the reasonable minimum returns to growers whilst encouraging industry efficiency;
(k) such other matters as the arbitrator thinks fit.
34 In my view the field of expertise that is likely to occupy and dominate the arbitrator’s time and attention at the hearing will be accountancy and business valuation matters. They are likely to include:
ii. The reasonable rate of return on investment which is likely to include consideration of matters such as business valuations.
i. The costs of growing chickens including the appropriate accounting treatment of the various costs and
35 This view appears to be supported by the following matters:
ii. At least the plaintiff has apparently acknowledged that accountancy related issues such as growing costs and returns on investment will be important issues in dispute in respect of the base rate.
i. Both parties have engaged accountants to provide expert opinions on behalf of the parties for the arbitration;
36 Mr Finney’s career summary and experience is as follows:
“Mr Finney was the partner responsible for the PKF’s litigation support division from 2001 to 2008. He has practised as a Chartered Accountant for over 40 years commencing as a partner in Deloitte Touche Tohmatsu and an antecedent firm (1970 to 1994) and continuing as a principal in his own practice (1994 to 1998) and a partner in Lord and Brown (1998 to 2001), where he also headed that firm’s litigation support practice. He continues to practice in providing litigation support, forensic services and mediation services.
Whilst a partner in Deloitte Touche Tohmatsu and its antecedent firm, Mr Finney was an Official Liquidator and had extensive experience including being receiver/manager for significant operating businesses, the audit partner on a number of major audits, and the provision of financial advice to numerous companies across many industries.
His professional experience and current practice includes litigation support comprising conducting investigations, preparing expert reports, providing mediation and arbitration services and acting as an expert witness. This frequently has entailed the valuation of businesses and companies operating in a range of different industries, mainly for the purpose of commercial litigation, quantification of losses, assessment of damages, loss of profit assessments, and other disputes.
As a result of such work he has appeared as an expert witness in numerous commercial matters in the Supreme Court of New South Wales, the Federal Court of Australia and the New South Wales District Court. He is also a mediator accredited by the Institute of Arbitrators & Mediators Australia and LEADR.
Mr Finney is a joint author of the book, published by CCH, “the Accountant as an Expert Witness: A Basic Guide for Forensic Accounting”.
He has also provided expert determinations in a number of disputes conducted outside the authority of the Courts and has acted as an arbitrator in a number of matters as well as providing mediation services. Mr Finney is also on the Panel of Mediators under the Franchising Code of Conduct.
Mr Finney has also had an extensive involvement with the Institute of Chartered Accountants in Australia being on both the national and state councils and numerous committees and working parties, often as chairman. He was Chairman of the New South Wales State Council in 1986-1987. For some years he acted as an advocate for the Institute in presenting cases to its Professional Conduct and Appeal Tribunals dealing with a range of matters including professional negligence.
Other Government related activities have included being a member of the Nursing Homes Fees Review Committee of inquiry for the States of New South Wales, Queensland and Western Australia and the Australian Capital Territory, having been appointed by the Minister for Health and Family Services. He ahs also acted as an assessor to the Residential Tribunal of New South Wales.”His audit expertise has led to being included as a member of the Audit Committee of the University of Technology, Sydney and a consultant, for a short period, to the NSW Audit Office.
37 Ultimately, on applications such as the present and in circumstances such as the present, there clearly is no bright line test. However, the submissions put by the defendant generally to the effect that in essence, although including a number of other areas, the arbitrator will be called to determine an economic dispute seem to me to be of substance.
38 The submission was that there is a tension between:
(2) what is a reasonable return to each.
(1) the cost to each party of its part in the production and the capital investment by each; and
39 There is substance in the proposition that accountants by and large are in a better position than lawyers to resolve, through critical analysis, competing positions of other expert accountants.
40 The fact that Mr Finney is not a lawyer has been taken into account but ultimately the legal issues represent only one parameter of what will undoubtedly be heavily weighted, as it seems to me on the present evidence, in favour of accountancy and business valuation matters.
41 For those reasons the court makes the following orders:
Pursuant to s 10 of the Commercial Arbitration Act 1984 the Court orders that Mr Warwick Richard Finney, FCA be appointed as arbitrator to the dispute between the parties.
Costs
42 The defendants seek costs of the proceedings. The plaintiff has contended that a fair approach to this type of litigation and to the manner in which the parties have both very sensibly been diligent in putting the matters before the Court [by reason of the fact that there is really no bright line test], the Court should simply order that each party pay their own costs.
43 In my view the principled exercise of the court’s discretion is to recognise that the defendants have succeeded but not to give them the whole of their relevant costs. The principled approach to the costs circumstance is to order that the plaintiff pay two-thirds of the defendants’ costs of the proceedings and I so order.
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