Clarke Energy (Australia) Pty Ltd v Power Generation Corporation

• [1] On 31 March 2025 I made an order dismissing the originating application filed 20 October 2023. My reasons for that order are contained in Clarke Energy (Australia) Pty Ltd v Power Generation Corporation (Trading as Territory Generation) [2025] QSC 64 (the "primary reasons"). These present reasons concern the costs of the proceeding. In these reasons I will use the defined terms contained in the primary reasons.
• [2] Clarke sought to set aside the award under s 34 of the Act. The sole ground relied on was that contained in s 34(2)(b)(ii) of the Act which involved the contention that the award conflicted with the public policy of the State of Queensland. Clarke contended that the requisite conflict arose because of a denial of natural justice. Relevantly, Clarke contended that the content of natural justice in the arbitrations required compliance with what was referred to as the hearing rule. The asserted non-compliance involved the arbitrator failing to consider or address an issue which was said by Clarke to have been put before him "from the notice[s] of arbitration forward".[1] At paragraphs 10 to 14 of the primary reasons, I referenced authorities which recognise that an award should not be set aside on this ground absent demonstrated real unfairness or real practical injustice in how the arbitration was conducted or resolved by reference to established principles of natural justice or procedural fairness. In that regard, during the hearing, it was uncontroversial that the ground in s 34(2)(b)(ii) of the Act is "not concerned with mere procedural imperfections but with a negation of rights which our legal system recognises as being fundamental and therefore matters of public policy".[2]
• [3] Clarke accepts that it is liable to pay TG's costs of and incidental to the proceeding to be assessed on the standard basis. TG has sought a special costs order, namely an order that Clarke pay TG's costs of and incidental to the proceeding to be assessed on the indemnity basis.
• [4] In a proceeding under the Act, as in other civil proceedings, costs will ordinarily be awarded against the unsuccessful party on a party and party basis unless the successful party can establish special circumstances.[3] The phrase "special circumstances" is not a prescriptive proviso but rather "a convenient label to describe any and all relevant circumstances that might justify an indemnity costs order, recognising that the Court's discretion is at large".[4] The usual position is that party and party or standard costs are ordered except where circumstances otherwise warrant. In Sino Dragon Trading Ltd v Noble Resources International Pte Ltd (No 2),[5] Beech J observed that "[t]he justice of the case might require departure from the usual position, or some special or unusual feature may be present that justifies such a departure". I accept that in a proceeding under the Act to set aside an award under s 34(2)(b)(ii), there is a relevant context in which the usual principles about costs fall to be applied.[6] The context includes the paramount object of the Act as contained within s 1AC, the limited ground for challenge under s 34(2)(b)(ii) and the recognition in the authorities that the ground under s 34(2)(b)(ii) requires the demonstration of real unfairness or real practical injustice in how the arbitration was conducted or resolved by reference to established principles of natural justice or procedural fairness.
• [5] That context is reflected in the reasoning of the costs judgment in Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd.[7] That case concerned an application for costs where a plaintiff had failed to set aside an arbitral award under the public policy exception in s 34(2)(b)(ii) of the Commercial Arbitration Act 2010 (Cth). Hammerschlag J relevantly observed:

"The high threshold that the public policy exception demands brings with it the enhanced risk of an indemnity costs award because a failed challenge will be more easily identified as one which should not have been brought because it was throughout destined to fail. This enhanced risk is sufficient disincentive for the making of challenges lacking true substance, without the necessity for a presumption.

In my view it ought to have been obvious to Joss that its challenge would not meet the threshold required and that it had no realistic prospect of success. None of its complaints came close to reaching that threshold. On no fair view could what the Arbitrator did have been characterised as being contrary to the public policy of this State. Added to this, Joss abandoned a number of manifestly insupportable contentions."

• [6] During the hearing of the proceeding, Clarke identified its essential proposition as being that the arbitrator "did not consider the pleaded and litigated contractual obligation under sub-clause 38.4 to assess an out of time EOT fairly and reasonably".[8] By the time of the hearing of the proceeding, Clarke was content to distil the real issues in dispute to the following three issues:

"Issue one - whether the Fairly and Reasonably Requirement Issue arose for determination before [the arbitrator] ...

Issue two - if the issue did arise for determination, did the [arbitrator] determine the issue ...

Issue three - if the [arbitrator] failed to determine the issue, whether that resulted in Clarke suffering practical injustice such that the [award] should be set aside".

• [7] Each of these issues rested upon the contention that the Fairly and Reasonably Requirement Issue arose for determination in the arbitration.
• [8] The Fairly and Reasonably Requirement Issue was variously described by Clarke's submissions to this Court as "an important issue", "one of the central issues raised by [Clarke]" and as a "crucial issue".[9] As the primary reasons observed, the use of that kind of language, "at some level, though not precisely, provide[d] an insight into the burden of persuasion undertaken by Clarke in seeking to set aside the award on the basis that the arbitrator failed to consider the issue".[10] The primary reasons reveal that these submissions had no basis. Relevantly, the following matters may be discerned from the primary reasons:

(a) The Fairly and Reasonably Requirement and the Fairly and Reasonably Requirement Issue were not "at large" on the pleadings in the arbitrations, they were never raised by those pleadings.[11]

(b) On no fair reading of the notices of arbitration and the statements of claim in the arbitrations could it be understood that Clarke was propounding the Fairly and Reasonably Requirement and the Fairly and Reasonably Requirement Issue in relation to the determination of its claims for extensions of time.[12]

(c) There was no fair indication in Clarke's pleadings that the operation of a suite of contractual clauses was to be "delimited" or that unparticularised knowledge actually or constructively held by TG was germane to the affected operation of those clauses.[13]

(d) The notices of arbitration and Clarke's pleadings in the arbitrations did not place into issue the Fairly and Reasonably Requirement or the Fairly and Reasonably Requirement Issue.[14]

(e) During the arbitrations, Clarke made no application to amend its pleadings.[15]

(f) There was no merit in the premise advanced by Clarke that without any application to amend its pleadings, Clarke, by reference to the conduct of the arbitrations, was entitled to expect and was able to insist upon a substantial issue which was beyond jurisdiction being decided by the arbitrator.[16]

(g) if Clarke wished to have the Fairly and Reasonably Requirement Issue litigated it should have applied to the arbitrator to amend its pleadings to bring the issue within jurisdiction.[17]

(h) Nothing in the conduct of the arbitrations had altered that basic requirement.[18]

• [9] Given my determination of the first real issue, it was not strictly necessary for me to decide the second real issue. However, the primary reasons found that the arbitrator did, in any case, consider the construction issue sought to be advanced by Clarke. Relevantly, the following matters may be discerned from the primary reasons:

(a) The arbitrator in fact considered and decided against Clarke a threshold question of law as to whether TG was contractually obliged in the exercise of its determinative function regarding claims for an extension of time to act in accordance with the Fairly and Reasonably Requirement;[19]

(b) Clarke's submissions to the effect that the arbitrator had failed to consider the construction question were rejected;[20]

(c) It was tolerably clear from a suite of paragraphs in the award that the arbitrator had considered Clarke's construction argument to the effect that clause 38.4 might operate to excuse compliance with the conditions precedent in clauses 38.1 to 38.3;[21]

(d) The construction ultimately preferred by the arbitrator was apparent from the award;[22]

(e) Having decided that question of construction, the award also made it tolerably clear that the arbitrator did not regard the determination of a fact sensitive case based upon Clarke's rejected construction of the contracts as being within his jurisdiction to determine;[23]

(f) There was no failure by the arbitrator to determine any essential issue in the arbitrations.[24]

• [10] There is a further matter that may be noted. I found that the award was a detailed reasoned award of very considerable length. Clarke styled its allegation of breach of natural justice as involving a "wholly atypical", "unusually stark" example of a breach of the hearing rule involving a failure to consider.[25] In advancing that submission, Clarke focused upon one paragraph of a 3000 paragraph award and submitted that the "actual language" in paragraph 188 was decisive and could not be "explained away or diluted by pointing to passages elsewhere in the award."[26] That is, Clarke, as I found, placed resolute focus upon one paragraph of the award.[27] The primary reasons found that, properly construed, the approach in paragraph 188 of the award was an approach informed by the arbitrator's consideration and determination of the proper construction of the contract.[28] The approach adopted by the arbitrator in paragraph 188 was one which the arbitrator considered gave effect to the overriding object of the ACICA Rules in the context of his determination of the proper construction of the contract.[29] Clarke's arguments did not involve reading the award in a reasonable and commercial way, distorted the meaning of paragraph 188 of the award and ignored substantial parts of the award which placed paragraph 188 into its proper context.
• [11] My findings and determination in relation to the first and second real issues made it strictly unnecessary to consider the third real issue. However, in the context of that issue, I found that Clarke had failed to prove delay and that the failure to prove delay provided an independent reason for considering that, even if there had been a breach of natural justice, Clarke had suffered no practical injustice warranting the setting aside of the award.[30] It may be observed that on this discrete issue, Clarke had been put on clear notice of the contention that it had failed to prove delay. The primary reasons note that Clarke did not provide any persuasive response or submissions on this important matter. [31]
• [12] In paragraphs 9 and 14 of its written submissions in relation to costs, Clarke called in aid the approach in the primary reasons to the resolution of the issues in dispute as weighing against TG's submission that Clarke's case was hopeless. Relevantly, Clarke referenced paragraph 39 of the primary reasons which reasoned that it was "necessary to look at the award and other documents that throw light on what happened in the arbitral proceedings to determine whether the allegations made by Clarke in relation to [the] denial of natural justice have substance". Clarke also referred to paragraph 71 of the primary reasons as containing reasoning which, according to Clarke, illustrated an assessment of the case as weak but arguable, "capable of investigation" but ultimately failing.

• [15] The applicant is to pay the first respondent's costs of and incidental to the originating application filed 20 October 2023, to be assessed on the indemnity basis.

[2] Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd [2015] NSWSC 735 at [46]; Primary reasons [14].

[3] IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; (2011) 38 VR 303 at [336]; refer to rr 681 and 703 Uniform Civil Procedure Rules 1999 (Qld).

[4] Sino Dragon Trading Ltd v Noble Resources International Pte Ltd (No 2) [2016] FCA 1169 at [4].

[6] Sino Dragon Trading Ltd v Noble Resources International Pte Ltd (No 2) [2015] FCA 1046; (2015) 246 FCR 498 at 502 [14].

[7] [2015] NSWSC 829 at [11] and [12].

[32] Holman v Campbell [No 2] [2024] QCA 259 at [6].