Anaconda Operations Pty Ltd v Fluor Australia Pty Ltd [2003] VSC 275 - VSC 2003 case summary — Zoe

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Anaconda Operations Pty Ltd v Fluor Australia Pty Ltd [2003] VSC 275

[2003] VSC 275

Supreme Court of Victoria|2003-07-28|Before: DODDS-STREETON J.

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At a glance

Source facts

Court

Supreme Court of Victoria

Decision date

2003-07-28

Before

DODDS-STREETON J.

Source

Original judgment source is linked above.

Judgment (326 paragraphs)

[1]

[2003] VSC 275

[2]

ARBITRATION - Commercial Arbitration - Award - Application for leave to appeal against award of Arbitral Tribunal - Manifest error of law in relation to Arbitral Tribunal's rejection of claimed remedy for breach of contract to construct mining facility - Court's restricted jurisdiction to review arbitral awards - Error must be obvious without need for prolonged adversarial argument - Judge entitled to consider documents incorporated by reference in award - Relevance of technical, complex and ambiguous nature of award - Arbitral Tribunal failed to approach remedy for breach of warranty in accordance with established legal principles - Imposed on victim of breach the onus of establishing its claimed remedy the only one - Manifest error of law more than merely arguable and obvious on face of award - Determination of question of law could substantially affect the rights of one or more parties to the arbitration - Leave to appeal granted - Judge determined appeal instanter - Award and Reasons for Judgment remitted to Arbitral Tribunal - Allegation of technical misconduct on ground that remedy denied on basis of an issue not live or put to the parties not determined, as appropriate relief of remission granted on alternative ground - Allegation that awards of interest involved technical misconduct by reason of denial of natural justice not founded - Allegation that parties denied opportunity to adduce evidence or make submissions in relation to interest not founded - Natural justice or procedural fairness did not require publication of principal findings with opportunity for further submissions on interest.

[32]

"Judicial review of awards (1) Without prejudice to the right of appeal conferred by sub-section (2), the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award. (2) Subject to sub-section (4), an appeal shall lie to the Supreme Court on any question of law arising out of an award. (3) On the determination of an appeal under sub-section (2) the Supreme Court may by order-- (a) confirm, vary or set aside the award; or (b) remit the award, together with the Supreme Court's opinion on the question of law which was the subject of the appeal, to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration-- and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make the award within three months after the date of the order. S. 38(4) amended by No. 15/1993 s. 16(1). (4) An appeal under sub-section (2) may be brought by any of the parties to an arbitration agreement-- (a) with the consent of all the other parties to the arbitration agreement; or (b) subject to section 40, with the leave of the Supreme Court. S. 38(5) substituted by No. 15/1993 s. 16(2). (5) The Supreme Court shall not grant leave under sub-section (4)(b) unless it considers that-- (a) having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement; and (b) there is-- (i) a manifest error of law on the face of the award; or (ii) strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. S. 38(6) substituted by No. 15/1993 s. 16(2). (6) The Supreme Court may make any leave which it grants under sub-section (4)(b) subject to the applicant complying with any conditions it considers appropriate. S. 38(7) repealed by No. 15/1993 s. 16(2). * * * * * S. 38(8) re-numbered as s. 38(7) by No. 15/1993 s. 16(3). (7) Where the award of an arbitrator or umpire is varied on an appeal under sub-section (2), the award as varied shall have effect (except for the purposes of this section) as if it were the award of the arbitrator or umpire."

[36]

"Interest up to making of award S. 31(1) amended by No. 15/1993 s. 14(1)(c)(i)(ii). (1) Unless a contrary intention is expressed in the arbitration agreement, but subject to sub-section (4), where the arbitrator or umpire determines to make an award for the payment of money (whether on a claim for a liquidated or an unliquidated amount), the arbitrator or umpire shall have power to include in the sum for which the award is made interest at such rate as the arbitrator or umpire may direct (being a rate not exceeding the rate at which interest is payable on a judgment debt of the Supreme Court) on the whole or any part of the money for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. S. 31(2) inserted by No. 15/1993 s. 14(2). (2) Unless a contrary intention is expressed in the arbitration agreement, but subject to sub-section (4), where-- (a) arbitration proceedings have been commenced for the recovery of a debt or liquidated damages; and (b) payment of the whole or a part of the debt or damages is made during the currency of the proceedings and prior to or without an award being made in respect of the debt or damages-- the arbitrator or umpire may order that interest be paid at such rate as the arbitrator or umpire may direct (being a rate not exceeding the rate at which interest is payable on a judgment debt of the Supreme Court on the whole or any part of the money paid for the whole of any part of the period between the date when the cause of action arose and the date of the payment). S. 31(3) inserted by No. 15/1993 s. 14(2). (3) Without limiting sub-section (2), arbitration proceedings shall, for the purposes of that sub-section, be deemed to have commenced if-- (a) a dispute to which the relevant arbitration agreement applies has arisen; and (b) a party to the agreement-- (i) has served on another party to the agreement a notice requiring that other party to appoint an arbitrator or to join or concur in or approve of the appointment of an arbitrator in relation to the dispute; (ii) has served on another party to the agreement a notice requiring the other party to refer, or to concur in the reference of, the dispute to arbitration; or (iii) has taken any other step contemplated by the agreement or the law in force at the time the dispute arose, with a view to referring the dispute to arbitration or appointing, or securing the appointment of, an arbitrator in relation to the dispute. S. 31(2) re-numbered as s. 31(4) by No. 15/1993 s. 14(3). (4) Sub-section (1) does not-- (a) authorize the awarding of interest upon interest; (b) apply in relation to any amount upon which interest is payable as of right whether by virtue of an agreement or otherwise; or (c) affect the damages recoverable for the dishonour of a bill of exchange." S. 32 amended by No. 15/1993 s. 14(4)(a)(b).

[58]

"In applying s.38, as amended, a construction that would promote the purpose or object underlying the Act must be preferred to a construction that would not promote that purpose or object ... The expression `error of law on the face of the award' is one of a type well-known to courts. The award having been examined, the question is whether there is apparent (and such is the denotation of the word `manifest') an error of law. `Manifest error' is an expression sometimes used in reference to reasons given by judges or the approach taken by juries ... It is used to indicate something evident or obvious rather than arguable .... The matters referred to by Lord Diplock in The Nema remain important factors in determining whether leave should be given. However, I have difficulty in defining the significance of an error of law by reference to whether it is apparent to a judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument. I understand the views expressed that decisions on questions of law should be left to the arbitrator with minimal interference by the courts unless the arbitrator may be establishing an erroneous precedent on a matter of law which may affect other cases between other parties, as, for example, where the question concerns the construction of a contract in standard terms. But the paragraph requires a determination as to whether or not there is a manifest error on the face of the award and I do not see why a judge should be required to do that without adversarial argument. If the judge concludes after argument that there is not such an error of law an application based on this ground fails ... There is nothing, in my opinion, in the language of the sub-section or in any other material, to which consideration can appropriately be given pursuant to the terms of the Interpretation Act which would allow the judge to proceed to determine the application without hearing argument. However, as McHugh JA pointed out "manifest" in the context of the sub-section, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law which is more than arguable. There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law".[15]

[86]

"We are concerned with a case where the arbitrators appear mistakenly to have thought that the issue of the width of the turning place was one which had been raised before them and upon which they were entitled to decide the case, without drawing the point to the attention of the charterers. With great respect to the very experienced arbitrators who presided at the hearing, on this they were mistaken. I wish to stress that we in this Court have had the advantage of looking at the matter very clearly on a full transcript with the assistance of leading Counsel and having the benefit of full argument directed towards this very point, which has, no doubt, made it easier for us to assess the position; but the fact remains that the award was made on the basis of a point which was never raised as an issue or argued before the arbitrators. There is plain authority that for arbitrators so to decide a case, without giving a party any warning that the point is one which they have in mind and so giving the party no opportunity of dealing with it, amounts to technical misconduct and renders the award liable to be set aside or remitted... It truth, we are simply talking about fairness. It is not fair to decide a case against a party on an issue which has never been raised in the case without drawing the point to his attention so that he may have an opportunity of dealing with it, either by calling further evidence or by addressing argument on the facts or the law to the tribunal. In my judgment, the arbitrators in the present case failed to give that opportunity to the charterers in respect of an issue not raised in the arbitration that the turning space at the entrance to the dock was insufficiently wide. It follows that they committed technical misconduct of the kind I have described. I say this in no spirit of criticism of these three very experienced arbitrators. Expressions such as `misconduct' and `breach of the rules of natural justice' carry overtones whicih are frequently unjustified. Here, it appears that there may well have been some misunderstanding on the part of the artibtrators; but the fact remains that, in the result, there was unfairness to the charterers." [41]

[109]

(1) The Arbitral Tribunal did not find a contractual warranty of an extraction rate of 95% in the autoclaves. Rather, it found two discrete contractual warranties. First, a warranty that 3.75 million tonnes of ore could be processed per annum. Secondly, a warranty that 45,000 tonnes of nickel could be produced per annum. There was no finding of a single warranty that 45,000 tonnes of nickel could be produced from 3.75 million tonnes of ore and no more.

(2) The extraction rate of 95% referred to in the Interim Award was not found to be a contractual warranty. Rather, it was found to be a design criterion, a variable, which, like the ore quality (1.35% of nickel content) and the density (39%) and the 3.75 million tonnes of ore (as a minimum) and the retention times, could be varied or adjusted.

(3) The Arbitral Tribunal did not find that the discrete contractual warranties it recognised were breached. Rather, its reasoning in relation to throughput and production under separate heads indicated that Anaconda had not proved that:

(a) an annual throughput of 3.75 (and more) million tonnes of ore could not be achieved by various adjustments. The most significant requirement for achieving the minimum throughput was running the autoclaves in "catch up" mode for lengthy periods;

(b) 45,000 tonnes of nickel for sale per annum could not be produced.

(4) On the basis of that reasoning, the Arbitral Tribunal concluded that Anaconda had not discharged the onus of establishing that either the throughput warranty or the production warranty had been breached.

(5) Thus characterised, the Arbitral Tribunal's reasoning in relation to throughput and production was not speculation as to why Anaconda should not receive its claimed remedy for breach of the warranty asserted by Anaconda. Rather, it was justification for the finding that there was no breach of either of the warranties identified by Fluor.

(6) The "simple calculation" in paragraph 13.69 of the Interim Award referred to by the Arbitral Tribunal in relation to production is not incorrect, but treats the 3.75 million tonnes as a variable (upwards), the 39% density as a variable, and the extraction rate as a variable, which could be mutually adjusted in order to produce the 45,000 tonnes of nickel.

RELEVANCE OF COMPLEXITY OF THE INTERIM AWARD

[226]

"17 INTEREST 17.01 Both Parties claim interest on sums to be awarded in respect of wasted past expenditures. Anaconda claims simple interest on past rectification costs at a uniform rate of 10%, which it contends is reasonable in light of the interest rate provided by the EPC Contract for overdue payments. Anaconda's approach is consistent with the variable but generally higher rates claimed by Fluor, which alternatively claims comparable rates of simple interest in accordance with the Commercial Arbitration Act 1984 (Vic) s.31 and the Penalty Interest Rates Act 1983 (Vic). 17.02 The Arbitral Tribunal has determined in Section 16 that a single award should be issued covering claims by each Party. Anaconda, as the net creditor, is entitled to set-off. The adoption of Anaconda's simpler uniform interest rate on the net sums due to Anaconda operates, over-all, to Fluor's advantage. The Arbitral Tribunal therefore accepts and adopts Anaconda's claim for interest at 10%, which will be applied to sums awarded to both Anaconda and Fluor. The effect of set-off is that interest is applied to the net sum standing to Anaconda's credit up to 1 September 2002. 17.03 Anaconda has provided a Schedule (Closing Schedule 1) of rectification expenditure, with interest calculated from the end of the month following the date on which it was incurred. The Arbitral Tribunal accepts it as accurate. To the extent that Fluor's liability for those expenditures is established, the Arbitral Tribunal accepts Anaconda's contentions as to the dates from which interest should run on sums found to be due. 17.04 The Parties subsequently agreed quantum of some items (see Paragraph 11.14). No agreement was made on interest, but the Arbitral Tribunal considers that interest on the sums agreed can be properly assessed pro rata. 17.05 The Arbitral Tribunal appreciates that the interest component of amounts awarded could in theory be refined by reviewing all the excluded elements of the relevant claim and establishing separate dies a quo in each case. But even this exercise would be inexact (for example, invoice dates are not payment dates) and no greater accuracy would be obtained. Accordingly interest has been calculated by maintaining the proportion of interest computed on the principal amounts claimed as against that computed on the principal amounts awarded. ... 17.07 In consequence, interest on past costs recovered by Anaconda is awarded in a total amount of A$13,729,663 broken down as follows: Anaconda Contention D.2.5.6 A$4,126 Anaconda Contentions D.3.5.6 and D.3.5.6.1 A$10,980,504 ... Anaconda Contention D.3.5.1.3 A$90,296 Anaconda Contention D.3.5.1.4 A$49,591 Anaconda Contention D.3.5.2.1 A$243,502 Anaconda Contention D.3.5.2.3 A$79,736 Anaconda Contention D.3.5.5.6 A$156,713 Anaconda Contention D.3.5.2.4 A$852,508 Anaconda Contention D.3.5.5.7 A$44,212 Anaconda Contention D.3.5.5.4 A$373,261. 17.08 Interest on sums due to Anaconda as liquidated damages, as determined in Section 14, is awarded in the amount of A$6,475,949, assessed by the Arbitral Tribunal as follows: (1) On A$5,000,000 from 1 March 1999 amounting to A$1,750,000; (2) On A$5,760,000 from 1 May 1999 amounting to A$1,920,000; (3) On A$19,806,700 from 1 April 2001 amounting to A$2,805,949. 17.09 Interest with respect to Anaconda's partially successful TPA claim (see Paragraph 15.83) is awarded in the amount of A$2,083,000. (Lacking a sensible basis for making further refinements, the Arbitral Tribunal has proceeded on the footing, favourable to Fluor, that the entirety of the loss occurred in June 1998). 17.10 Interest on Fluor's claims is computed by adopting the starting date proposed by Fluor (13 January 2000), leading in the Arbitral Tribunal's determination to an amount of A$22,412,858."

[256]

"The power to award interest which is invested in the courts ... and arbitrators is an adjectival one which enables the tribunal, be it court or arbitrator, to do more complete justice between the parties than would otherwise have been possible. It is not designed to compensate the party for loss arising out of a cause of action but to provide compensation for the circumstance that money has been outstanding to a party for a period of time. It is, of course, trite that the power should be exercised in a manner that achieves substantial justice between the parties. Save for observing that under s.31 of the Act there is no power to award interest upon interest, there would not seem to me to be any specific procedure which should be followed by an arbitrator when a claimant succeeds in its claim and its opponent succeeds in a counterclaim. In cases in which that occurs (and where there is no contractual entitlement to interest) it would be open to an arbitrator, as it seems to me, to award each party interest on the amount it successfully claimed and then balance one figure against the other. Alternatively, the arbitrator may deduct the amount allowed to one party from the amount allowed to the other and award interest on the balance. The adoption of one approach rather than the other would not, in my view, involve error of law. Is it different where one party is entitled to interest upon part of the amount awarded pursuant to the contract between the parties? I think not. It would, in my view, have been open to the arbitrator to allow the respondent interest under s.31 of the Commercial Arbitration Act 1984 in respect of part of the amount the respondent was held entitled to and interest under the contract in respect of the progress payment. Likewise interest could have been awarded to the appellants under the Act on the amounts to which they were found to be entitled,. In those circumstances the ultimate amount awarded would reflect the balance between the two claims. Such an approach would not, in my opinion, have involved error of law."[76]