Supreme Court of WA|2000-12-21|Before: Mr J

Devaugh Pty Ltd v Lamac Developments Pty Ltd [2000] WASC 314 (21 December 2000)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : DEVAUGH PTY LTD -v- LAMAC DEVELOPMENTS PTY LTD [2000] WASC 314

Commercial Arbitration Act - Enforcement of arbitration award - Whether refusal to enforce award appropriate

Bennedetti v Sasvary [1967] 2 NSWR 792

Commissioner of Taxation (Cth) v Myer Emporium (No 1) [1986] HCA 13; (1986) 160 CLR 220

Greenco Pty Ltd v Wilden Pty Ltd, unreported; FCt SCt of WA; Library No 970606; 24 October 1997

Middlemiss & Gould & Hartlepool Corp [1972] 1 WLR 1643

1 MASTER SANDERSON: This is the return of the applicant's originating summons seeking to enforce an arbitrator's award and the return of the respondent's chamber summons seeking a stay of execution of that same award. In the event, argument proceeded on the basis of the applicant's originating summons. It was agreed between the parties that if I declined to permit the arbitrator's award to be enforced as a judgment, the effect would be a stay of execution of the award. On the other hand, if I was prepared to allow enforcement of the judgment, then the respondent had not satisfied the requirements so as to justify a stay of execution: See Hamersley Iron Pty Ltd v Lovell (No 2) (1998) 20 WAR 79.

2 The application is brought under s 33 of the Commercial Arbitration Act. That section is in the following terms:

"An award made under an arbitration agreement may, by leave of the Court, be enforced in the same manner as a judgment or order of the Court to the same effect, and where leave is so given, judgment may be entered in terms of the award."

3 The procedure for seeking leave to enforce an arbitration award is dealt with by O 81D r 11 of the Rules of the Supreme Court 1971. It is common ground between the parties that the applicant had complied with the requirements of O 82D r 11(2). It was the respondent's submission that in the circumstances of this particular case I ought decline to exercise the discretion conferred by s 33 of the Commercial Arbitration Act pending a determination of an application for leave to appeal against the arbitrator's award lodged by the respondent. I will deal with the circumstances in which it is appropriate to refuse to allow enforcement of an award below. However, it is first necessary to recount the rather unusual history of this case to establish the background of the present dispute.

4 It will be convenient if throughout these reasons I refer to the applicant as "Devaugh" and the respondent as "Lamac". Devaugh and Lamac entered into a subcontract agreement on or about 26 November 1996. Devaugh had previously entered into a contract to construct a hospital and associated facilities to be known as the South West Health Campus Bunbury. The contract was a lump sum contract in respect of plumbing and hydraulic works for which the agreed price was $3,698,414.

5 On 10 March 1999 Lamac issued proceedings against Devaugh in this Court seeking payment of amounts Lamac says was due to it from Devaugh by way of interim payments pursuant to the terms of the subcontract agreement. The amount claimed by Lamac was $675,147.14, together with interest of $62,609.99. Lamac applied for summary judgment on its claim. On 25 June 1999 a Master of this Court entered summary judgment for the amount claimed. From that decision Devaugh appealed. The appeal was unanimously dismissed by the Full Court: See Devaugh Pty Ltd v Lamac Developments Pty Ltd [1999] WASCA 280. After the entry of summary judgment Devaugh had obtained a stay of execution pending an appeal. After delivery of the reasons of the Full Court Devaugh paid the amount of the judgment and a further amount for interest consequent upon the judgment sum remaining outstanding pending the appeal. For the purposes of this application it is necessary to look at the reasons why the learned Master granted summary judgment and why the appeal was dismissed.

6 The subcontract agreement between Devaugh and Lamac embodied the Australian Standards Subcontract conditions AS2545-1993. Clause 42.1 of those conditions deals with "Payment Claims, Certificates, Calculations and Time for Payment". That clause reads in part as follows:

"Subject to the provisions of the Subcontract, within 35 days after receipt by the Main Contractor's Representative of a claim for payment or within 14 days of issue by the Main Contractor's Representative of the Main Contractor's Representative's payment certificate, whichever is the earlier, the Main Contractor shall pay to the Subcontractor or the Subcontractor shall pay to the Main Contractor, as the case may be, an amount not less than the amount shown in the Certificate as due to the Subcontractor or to the Main Contractor as the case may be, or if no payment certificate has been issued, the Main Contractor shall pay the amount of the Subcontractor's claim. A payment made pursuant to this Clause shall not prejudice the right of either party to dispute under Clause 47 whether the amount so paid is the amount properly due and payable and on determination (whether under Clause 47 or as otherwise agreed) of the amount so properly due and payable, the Main Contractor or Subcontractor, as the case may be, shall be liable to pay the difference between the amount of such payment and the amount so properly due and payable."

7 The case was complicated by the fact that the main contractor did not appoint a main contractor's representative pursuant to the terms of the subcontract agreement. Nonetheless, both the Master at first instance and the Full Court on appeal found that the subcontractor was entitled to be paid "the amount of the subcontractor's claim" 35 days after the issue of the relevant claims. On appeal, Malcolm CJ put the position in the following way (at par 57):

"... The payment was provisional, subject to final payment claim and final certificate procedures and, finally, to the dispute resolution procedure under clause 47. In the event the claims were found to be excessive Lamac would be obliged to refund any excess to Devaugh."

8 It is important to note in the context of this present application that what the subcontractor Lamac was entitled to receive was payment of its "claim for payment". This was in the nature of a payment on account. Circumstances could arise (and in fact have arisen in this case) where part of the payment could be clawed back. But nonetheless, pursuant to cl 42, the subcontractor was entitled to payment of its claim.

9 Clause 42.9 of the subcontract agreement deals with "Interest on Overdue Payments". It is in the following terms:

"If any moneys due to either party remain unpaid after the date upon which or the expiration of the period within which they should have been paid then interest shall be payable thereon from but excluding the date upon which, or the expiration of the period within which they should have been paid, to and including the date upon which the moneys are paid. The rate of interest shall be the rate stated in the Annexure and if no rate is stated the rate shall be 18 percent per annum. Interest shall be compounded at six monthly intervals."

10 It was pursuant to cl 42.9 that interest was claimed in the writ and was awarded as part of the successful summary judgment application. The interest was awarded on sums found by the learned Master and by the Full Court to be properly due and payable by Devaugh to Lamac.

11 Clause 47 of the subcontract agreement deals with dispute resolution. Clause 47.2 allows the parties to refer any dispute to arbitration. Clause 47.3 deals with the way in which the arbitration is to be conducted and details, to some limited extent, the powers of the arbitrator. In this case Devaugh disputed Lamac's right to the interim payments made pursuant to the summary judgment application and referred the matter to arbitration. The arbitrator published an interim award on 16 November 2000. The award is to be found as annexure "KWM1" to the affidavit of Kevin Wayne McDonald sworn 23 November 2000 and filed in support of the stay application. Question 6 of the matters referred to arbitration and the arbitrator's finding in relation to that question are as follows (see page 26 of McDonald's affidavit):

Is the Respondent due the return of interest or part there of in relation to the payment of $675147.14 plus interest of $85031.43.

The claim was in fact in error because the Claimant was not entitled to all the money claimed so Lamac were in fact in default.

To attempt to keep interest on monies that were not due is not contractually correct.

The Claimant was not kept out of all their money, because they were not owed all of it.

I have read the judgement of the Supreme Court 1999 WASCA 280, which deals with the appeal by Devaugh against the judgement by Master Bredmeyer on 25th June, 1999, in which Devaugh were ordered to pay Lamac the sum of $675147.14 plus interest Of $62609.99.

The decision of the appeal was delivered on 8th December, 1999, by which time the interest had amounted to $85031.43, calculated at the rate of 18% per annum, compounded at 6 monthly intervals.

The Claimant has repaid the sum of $179218.46 on 4th July, 2000 as a result of the agreements reached at mediation. The Claimant also repaid a further sum of $145,987.32 on 15th August, 2000 as a result of a reduction of claims made in Folder F and an amount of $400.40 as a result of back charges. This makes a total repayment of $325606.18.

At 57 on page 22 of the Supreme Court Judgement. Malcolm CJ says in the last sentence, 'In the event the claims were found to be excessive Lamac would be obliged to refund any excess to Devaugh.

In my view, if Lamac are obliged to refund part of the principal they must also be obliged to refund part of the interest.

As the original interest was calculated at 18% per annum as set in Cl 42.9. I see no reason to alter that percentage figure for the purpose of calculating refund amounts of interest and under Cl 47.3 I consider the amount of 18% per annum compounded at 6 monthly intervals to be reasonable in this instance.

I do not agree with counsel for the Claimants submission, that the Arbitrator is being asked to overturn a decision on interest, of the Full Court. Rather my understanding of the judgement is that the interest was calculated on the amount claimed for the time outstanding. If the amount claimed was excessive then the interest would also be excessive.

The total amount of the overpayment is $431501.78 as shown in the following calculations.

The amount of $31622 has not been included in the amount of progress payments made by Devaugh. (see reason - question 5)

Resulting overpayment $431501.78

Therefore the claim for $675147.14

Should have been for $243645.36

Which is 36.09% of the original claim.

Therefore the interest payable is:

$85031.43 x 36.09% = $30687.84.

The amount of interest over paid is $54343.59

Interest calculation on interest repayable:

Amount of interest repayable 54343.59

Interest from 25/6/99 to 26/12/99 4890.92

59234.51

Interest from 27/12/99 to 26/6/00 5331.11

64565.62

Interest from 27/6/00 to 16/11/00

140 days @ $31.84 per day. 4457.60

69023.22

Total interest repayable $69023.22

Interest Calculations on Over Paid Amount

Amount over paid 431501.78

Interest from 25/6/99 to 26/12/99 38835.16

470336.94

Interest from 27/12/99 to 26/6/2000 42330.32

512667.26

Interest from 27/6/2000 to 4/7/2000

7 days at $252.82 1769.74

514437.00

First repayment 4/7/2000 179218.46

335218.54

Interest from 5/7/2000 to 15/8/2000

42 days at $165.31 per day 6943.02

342161.56

Second repayment 15/8/2000

(including $400.40) 146387.72

195773.84

Interest from 16/8/2000 to 16/11/2000

93 days at $96.55 8979.15

204752.99

Amount to be repaid $204752.99"

12 Lamac has made an application for leave to appeal against the arbitrator's decision. The application is brought pursuant to s 38(2) of the Commercial Arbitration Act. The grant of leave falls to be determined under s 38(5) of that Act. Lamac is appealing in relation to a number of the findings of the arbitrator. However, for the purposes of this application, it was said that the error in relation to interest as disclosed by the answer to question 6 indicates that Lamac has a strong likelihood of success on appeal.

13 Given the nature of this application it is not proper that I say too much in relation to the likely success or otherwise of an appeal in relation to question 6. This is not an application for leave to appeal, still less an appeal, and it is inappropriate for me to say anything which could be thought influential, still less determinative, of an application for leave or an appeal. It is sufficient if I say, however, that on my reading of the answer to question 6, I am satisfied that Lamac has an arguable case. To say anything further might compromise any consideration of an application for leave to appeal and in particular, matters which are to be considered under s 38(5)(b)(ii).

14 The principles upon which a court should decline to enforce an award under s 33 were considered by Rolfe J in Cockatoo Dockyard Pty Ltd v Commonwealth of Australia (No 3) (1995) 35 NSWLR 689. His Honour said (at 695 - 696):

"Prima facie ... a party with the benefit of an award can seek to enforce it by resort to s 33. It is necessary for a party resisting an order under s 33 to establish a reason why the award should not be enforced. A reason may be that the Court considers the award is arguably vitiated by appealable error, or by other circumstances making it susceptible of being set aside in accordance with the provision of the Act. In other words it may well be an appropriate exercise of the Court's discretion not to grant leave if an application for leave to appeal is on foot or if an application has been made to set aside the award, for example, on the ground of misconduct. However unless an attempt is being made to have the award set aside I have difficulty envisaging other circumstances in which the discretion can be exercised. Certainly I do not regard s 33 as a 'back door' method of appealing against an award in so far as it constitutes a decision by the arbitrator how he should exercise his discretion. The discretion given does not include, in my opinion, an ability to re-visit the way in which the arbitrator exercised his discretion where, otherwise, his discretion is not subject to attack in accordance with the Act. A contrary conclusion would, I believe, be totally at odds with the obvious intention and philosophy of the Act."

15 In my view this case fits squarely within the criteria set out by his Honour. An application for leave to appeal is on foot. An attempt is being made to set aside the award and the award is arguably vitiated by appealable error. This is not a case where Lamac is seeking to use a "back door" to attack the discretion exercised by the arbitrator.

16 During the course of his submissions counsel for Devaugh argued that in addition to the test propounded by Rolfe J in the Cockatoo Dockyard case, it was also necessary for Lamac to establish that the failure to decline to enforce the judgment was likely to render the appeal nugatory. In other words, as a second limb of the applicable test, counsel submitted that the principles governing the grant of a stay of execution should be adapted. Counsel pointed out that it would be illogical to have a different test for granting a stay of execution and for declining to enforce an award under s 33. In making this submission counsel acknowledged that there was no authority supporting his proposition. Although the submission is not without merit and has about it a logical symmetry, in the absence of any binding authority I would not be prepared to go outside what was said by Rolfe J in the Cockatoo Dockyard decision. I accept what his Honour said as a statement of the principles governing the exercise of discretion.

17 During the course of his submissions counsel for Devaugh urged if I was persuaded to the view that an appeal in relation to the interest calculation was arguable, I should nonetheless enforce the remainder of the award. In support of the proposition that part of an award can be enforced, counsel relied upon the decision of ACN 006 397 413 Pty Ltd v International Movie Group (Canada) Inc (1997) 2 VR 31. Despite the fact that I drew the attention of the parties to the question of whether part of an award could be enforced, neither counsel dealt with this aspect of the application in their written submissions. Both parties appeared to proceed on the basis that if there was doubt as to part of the award then enforcement should be declined. While this may not be the correct position at law, it does seem to me in the context of this case, given the broad challenge to the decision of the arbitrator, that it would be inappropriate to enforce part of the award.

18 I would decline to enforce this award. I think the appropriate order is that the originating summons be dismissed and that the costs of the originating summons be costs in the application for leave to appeal. I will hear the parties before making these formal orders.

Arbitration Act 1985

Devaugh Pty Ltd v Lamac Developments Pty Ltd [2000] WASC 314

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Judgment (36 paragraphs)

Devaugh Pty Ltd v Lamac Developments Pty Ltd [2000] WASC 314 (21 December 2000)

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