MATTER : Commercial Arbitration Act 1985 (WA)

BETWEEN : DIPLOMA CONSTRUCTION PTY LTD (ACN 008 939 179)

Commercial arbitration - Enforcement of award whether discretion to give leave to enforce - principles governing the exercise of the discretion

Commercial Arbitration Act 1985 (WA), s 33

ACD Tridon Inc v Tridon Australia Pty Ltd [2003] NSWSC 1230

ACN 006 397 413 Pty Ltd v International Movie Group (Canada) Inc [1997] 2 VR 31

Cockatoo Dockyard Pty Ltd v Commonwealth of Australia (No 3) (1994) 35 NSWLR 689

1 MCKECHNIE J: This is an application to enforce an award under s 33 of the Commercial Arbitration Act 1985 (WA). The applicant is a builder and the respondent is a property developer. In October 2002 they entered into a standard General Conditions of Contract for design and construct for a project, known as the Arcadia Court Project, in Subiaco - a large project involving residential apartments, retail units, showrooms and an office centre.

2 Disputes arose between them, and pursuant to the contract an arbitrator, Mr Alan E Swann, was appointed on 17 February 2004. There followed delays, which do not matter for present purposes. Eventually, late in 2004 the arbitration hearing proceeded. The arbitrator indicated that he would make an interim award - a power available to him under the Commercial Arbitration Act, s 23. Neither party objected.

3 On 9 February 2005 the Arbitrator published an interim award. His award was subject to two amendments, and he then ordered that "The respondent shall pay the Claimant $2,355,558.50" and that "The Claimant shall pay the respondent $586,675", which arithmetically meant that the respondent shall pay the Claimant $1,768,883.50. It is that amount which is the subject of this application. Both the applicant and the respondent have lodged applications for leave to appeal against aspects of the award.

4 The applicant applied for leave to enforce the interim award. The provisions of s 33 of the Commercial Arbitration Act, which are common to other jurisdictions as well, provide:

"Enforcement of Award

An award made under an arbitration may, by leave 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."

5 There is no dispute that the making of an order under s 33 involves the exercise of discretion. Leave of the court being required, a discretion is enlivened whether to grant leave. Moreover, the use of the word "may" implies that the power so conferred may or may not be exercised at discretion: See the Interpretation Act 1984, s 56(1).

6 I note that the Court of Appeal in New South Wales reached a similar conclusion in ACD Tridon Inc v Tridon Australia Pty Ltd [2003] NSWSC 1230. Textbook writer's opinions notwithstanding, apart from my agreement with the decision, in the interests of comity in the interpretation of common legislation, I should follow that. As I have said it is not in issue that there is a judicial discretion.

7 In Cockatoo Dockyard Pty Ltd v Commonwealth of Australia (No 3) (1994) 35 NSWLR 689 Rolfe J observes that apart from circumstances where there is an attempt to set aside an award by an appeal:

"...it is difficult to envisage other circumstances in which the discretion not to grant leave can be exercised."

8 That may be so, but lack of imagination does not completely define the discretion.

9 I accept, with respect, the judgment of Rolfe J in Cockatoo Dockyard where he said:

"In my opinion s 33 of the Act does not provide another method whereby a party may call in question the award of an arbitrator and, although perhaps under another guise, provide the Court with a power to reverse what the arbitrator has done."

10 The award, it is true, is an interim award. The Commercial Arbitration Act draws no distinction between an interim and a final award for the purposes of s 33. I do not start with a bias against granting leave because this is an interim award. No doubt, on some occasions an interim award may have an interlocutory character, so that enforcement at that stage would not be appropriate.

11 In the present case the parties have submitted a statement of agreed facts:

"1. The arbitration was brought on short notice.

2. The solicitors agreed to cooperate re evidence and documents.

3. It was agreed that the arbitration would proceed issue by issue where possible. On each issue each party would prepare a 'statement' of its position attaching thereto its relevant evidence that it was relying upon including witness statements and relevant documents. The other party had the right to object to any document or to require a witness to be called. The statement with attachments would then be admitted as evidence and given an exhibit number.

4. On 'defects and omissions', the Applicant submitted the statement annexed hereto as 'Annexure 1', the Respondent submitted the statement annexed hereto as 'Annexure 2'. The Applicant required the Respondent to call Joe van der Voet, Peter Bacich, Tony Brand and Susan Bacich but not Paul McEvoy from Rawlinsons. After counsel addressed the arbitrator in relation to each statement and after cross-examination of the other witnesses, both statements were submitted as evidence and given an exhibit number during the arbitration.

5. During the arbitration the Applicant indicated that it was prepared to carry out defect rectification. The Respondent acknowledged that the Applicant had a legal right to do so.

6. Neither party at that stage of the arbitration asked the Arbitrator to determine any damages occasioned by the Claimant's failure not to remedy legitimate defects, but the Respondent did ask the Arbitrator to retain funds (up to $600,000) against the Claimant carrying out future defect rectification.

7. Beyond that there was dispute about:

(a) what defects were to be rectified;

(b) whether the defect rectification process required a scope of and a programme of works;

(c) the manner of implementation and checking of defect rectification.

8. That dispute and those issues have never been resolved and remain to be resolved by the arbitration process."

12 It is clear from the statement of agreed facts, and from the affidavits read into evidence this morning, that substantial issues remain to be settled between the parties. The arbitrator was aware of those issues and crafted his award accordingly.

13 Two major matters yet to be resolved are the rectification of defects by the applicant and the claim of interest against the respondent. The arbitrator, as part of the interim award, required each party to lodge security against the respective claims. Thus the applicant is required to lodge the sum of $700,000 and the respondent is required to lodge the sum of $320,000.

14 Having regard to the arbitration proceedings so far, this seems an appropriate response. The significance is that the arbitrator felt able to make an interim award to deal with the bulk of the contentious matters between the parties while preserving funds against final resolution of those other issues. I conclude that there is nothing in the award and its structure that would suggest why enforcement should be withheld simply because issues remain outstanding.

15 I move to the principles that might be applied in the grant of leave. Discussion and submissions this morning extended beyond what I might term the purposes of the Commercial Arbitration Act. The applicant suggested that the financial position of the respondent may be relevant. To that end, matters relating to earlier Mareva order proceedings and voluntary undertakings given were adduced and submissions by both parties were made in respect of that in similar material. I doubt whether such matters are relevant. Nor do I think relevant the possible attitude of a liquidator in the event of a liquidation of the respondent.

16 The discretion enlivened by an application under s 33 is to be exercised generally for the purposes of the Commercial Arbitration Act. Section 33 is a facilitative provision designed, among other things, to provide an expeditious means of enforcing an award. A party no longer has to institute proceedings separately to sue on the award. Without deciding on the relevance of the material relating to the financial viability of the respondent (which I use as an omnibus term) I set those matters to one side because I can resolve this application without resort to them.

17 It is common ground that the existence of arguable grounds of appeal is a factor in forming the exercise of the discretion, and I agree. As Rolfe J said in Cockatoo Dockyard at 695:

"Prima facie, and so much was conceded by Mr Bennett, 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 a 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 to award, for example, on the ground of misconduct"

18 Although both parties have instituted proceedings for appeal I ignore, for present purposes, the applicant's appeal as irrelevant to this application for the exercise of discretion. If the applicant is successful, the award will be increased beyond that sum presently subject to the interim award.

19 I therefore turn to the respondent's appeal, to a document entitled Arbitration Number 10 of 2005. There are within paragraph 2 four enumerated grounds of appeal raised. The applicant accepts that grounds (a) and (b) raise arguable grounds of appeal. I need say no more about them. It proposes a method to safeguard the sum of $700,000 for the respondent should it be successful on appeal while still enforcing the judgment. I will turn to that matter later.

"(c) In determining that the Claimant was entitled to extensions of time in the amount of 55 days, the Arbitrator:

(i) misdirected himself as to the meaning and effect of clause 35.5 of the Building Contract;

(ii) failed to have regard to Special Condition (xii) of the Building Contract;

(iii) failed to give the Respondent a fair or reasonable opportunity to be heard in that at the hearing he indicated that the claims were grossly exaggerated but then changed his position after the hearing without giving the Respondent any opportunity to call expert rebuttal evidence or any other evidence;

(iv) made an award in the face of a complete lack of evidence regarding the value, work involved, timing or site disruption effects;

(v) did not consider each claim for extension of time, had no regard to the underlying variation upon which each extension of time claim was based, gave no consideration to concurrent delays, and gave no reasons for why some extensions of time were accepted and others rejected and it is not possible on the face of the Award to determine the length of any extension of time in relation to each claim which was awarded.

(d) Erred in holding that the statutory declaration provided by the Claimant on 25 October 2004 satisfied the requirements of clause 43.2 when on the face of the statutory declaration it clearly did not."

21 The respondent submitted that these grounds relate to the commencement date of the contract. The commencement date is important as, among other things, payment of liquidated damages by one party, or bonuses by the other party, will depend upon it. The arbitrator found that the commencement date was 14 May 2003. The respondent argues that the correct date is 18 November 2002. If the respondent is correct, it is submitted that it will have a claim for liquidated damages. This is a matter to which Mr Bacich deposes in par 14 of the affidavit, to which I have referred, where he says:

"14. If the Respondent is successful in its appeal the following will be the effect on the interim award:

(a) the Respondent will not have to pay the claimant $700,000 in bonuses for early completion;"

(b) the Claimant will be required to pay the Respondent up to $340,000 in damages for late completion."

22 There are two answers, I think, to the submission and the contention in the affidavit set out above. First, I do not consider that the grounds of appeal make any claim for liquidated damages at all. In my opinion, there is no present appeal seeking liquidated damages. Secondly, the commencement date is defined in the contract:

"Commencement date (milestone one) on the project shall be determined on the basis that there is official notification that funding for the project is in place, together with a signed tripartite agreement between the principal, contractor and financier, and the building licence being available for the entire project."

23 This is a matter which the arbitrator considered as, I think, Claim 8, and he rejected the respondent's submissions in respect of it. It is not clear to me how the asserted error by the arbitrator as to the commencement date is raised in the grounds of appeal, but accepting for the moment that it is raised, I do not rate the point as having sufficient prospects of success as to refuse leave to enforce the judgment on that account.

24 The argument which was put forward this morning pointed to questions of waiver and variation of the contract, and I note cl 48 of the contract.

25 The fourth ground of appeal raises the issue of the statutory declaration provided by the claimant on 25 October 2004. Whether or not the statutory declaration of 25 October 2004 satisfied the requirements of the contract, as found by the arbitrator, is a matter about which I express no opinion. The applicant has now delivered a statutory declaration dated March 2005 which appears to comply with the contractual requirements. The respondent submits that this declaration raises questions as to the costs and whether, if the respondent's argument on the statutory declaration is upheld, there was an arguable dispute at all in October 2004. That may be so. Again, I do not express an opinion, but it seems to me to make no difference to the present award. It means that a further award may be necessary to deal with costs. However, costs are usually dealt with separately from the main contractual dispute anyway. I do not consider this is a sufficient reason to refuse leave.

26 The arbitrator's interim award is not uncertain or incapable of enforcement. The arbitrator has identified a money sum now owing by the respondent to the applicant under the contract. The arbitrator has made provision to protect both parties until a further award by requiring sums to be lodged by way of security. In these circumstances the only reason to decline to grant leave would be the existence of grounds of appeal with some reasonable prospect of success.

27 I do have power to sever an award and enter judgment for part only: See ACN 006 397 413 Pty Ltd v International Movie Group (Canada) Inc [1997] 2 VR 31. I do not regard the minute of proposed orders submitted by the applicant however as inviting me to exercise that power. Once leave is granted, the judgment is subject to the rules and process of the court and to the inherent powers of the court, so long of course as the award is not subverted.

28 A proposal to quarantine the set sum against the possibility of the respondent's appeal being successful on the arguable grounds is appropriate and, in my opinion, sufficient to overcome any reason not to give leave to enforce. The balance of the minute in fact sets out the terms and obligations of the party pursuant to the interim award.

29 In conclusion, I am satisfied that an order under s 33 should be made, and subject to deletions of the words "within 21 days of 9 February 2005" from cl 2(a), I will make orders in terms of the applicant's minute of proposed orders as follows:

"1. Pursuant to Section 33 of the Commercial Arbitration Act 1985, the Claimant have leave to enter and enforce the Interim Award dated 9 February 2005 in the above mentioned Arbitration of Mr Alan E. Swann, the Arbitrator therein, in the same manner as a Judgment of this Honourable Court to the same effect.

2. Judgment be entered in favour of the Claimant that the Respondent do pay:

(i) $700,000 of this judgment may be stayed if the Respondent pays the sum of $700,000 into Court by 4pm on Friday 8 April 2004 pending the outcome of its application for leave to appeal or further order;

(ii) $700,000 of the judgment may be paid by the respondent into a joint interest bearing account to be established by the solicitors for the applicant and respondent to be dealt with in accordance with the Arbitrator's Interim Award or further order of this Court;

(iii) $368,883.50 to the applicant;

(b) an amount of $320,000 into a joint interest bearing account to be established by the solicitors for the applicant and respondent to be dealt with in accordance with the Arbitrator's Interim Award or further order of this Court.

3. Interest on the sum of $1,768,883.50 is to be paid by the Respondent to the Claimant from 3 March 2005 until payment at the rate applicable pursuant to Section 32 of the Supreme Court Act.

4. The Respondent do pay the costs of this application and the costs of signing judgment to be taxed."

"(a) the taxing officer is directed to have regard to the contents of the affidavits of the Applicant in the context of the issues in considering costs to be allowed for those affidavits;

(b) there by a certificate for the costs of two counsel for the Applicant."