BETWEEN : EASTERN METROPOLITAN REGIONAL COUNCIL

Arbitration - Application to remove arbitrator on the grounds of misconduct or where there is a reasonable apprehension that the arbitrator will be unable to bring an impartial mind to bear on the arbitration - Turns on own facts

Commercial Arbitration Act, s 44

MV Myron (Owners) v Tradax Export SA [1970] 1 QB 527

Alpine Shipping Co v Vimbee (Manchester) Limited, the Dusan (1980) 1 Lloyds Rep 400

Asea Construction Co v Crown Pacific Ltd (1988) 44 BLR

Aussi Airlines Pty Ltd v Australian Airlines Pty Ltd [1996] FCA 1308; (1997) 65 FCR 215

Bluegate Nominees v Isaacs, unreported; SCt of WA (Owen J); Library No 940704; 16 December 1994

Commissioner for Main Roads v Leighton Contractors, unreported; SCt of NSW (Smart J); 4 July 1986

Doran Constructions Pty Ltd v Health Administration Corporation of NSW (1994) 12 BCL 59

Elkateb v Lawindi & Austin [1999] NSWSC 720

Gas and Fuel Corporation of Victoria v Wood Hall Ltd & Anor [1978] VicRp 41; [1978] VR 385

Giustiniano Nominees Pty Ltd v The Minister for Works & Ors, unreported; FCt SCt of WA; Library No 950604; 10 November 1995

Henry Sotheran Limited v Norich Union Life Insurance Society (1992) 31 EG 70 (QBD)

Holland Stolte Pty Ltd v Murbay Pty Ltd, unreported; SCt of ACT (Miles CJ); 22 October 1991

Road Regenerating and Repair Services v Mitchell Water Board, unreported; SCt of Victoria (Nathan J); 15 June 1990

Stannard v Sperway Constructions Pty Ltd & Anor [1990] VicRp 57; [1990] VR 673

Thiess Contractors Pty Ltd v Water Corporation of Western Australia, unreported; SCt of WA; Library No 970561; 28 October 1997

1 WHITE AUJ: This is an application for the removal of an arbitrator, Mr Kersh De Courtenay ("the Arbitrator"), pursuant to the provisions of ss 44(a) and (c) of the Commercial Arbitration Act. The summons is dated 13 September 1999 and refers to an application before a Master of this Court. On 16 September 1999, the matter was referred to a judge in chambers by Master Sanderson and it came before me on 17 January 2000 when, at the request of the respondent it was adjourned sine die. Subsequently, there has been comparatively little progress made in the application.

2 The applicant is a regional council established under Division 4 of the Local Government Act and has as its members six local governments, namely the Town of Bassendean, City of Bayswater, City of Belmont, and the Shires of Kalamunda, Mundaring and Swan.

3 The application came before me again in chambers on 8 February 2002.

4 In his judgment in these proceedings delivered by Master Sanderson on 21 May 1999, [1999] WASC 36, the learned Master conveniently summarised the position as between the parties in the following words:

"These two parties are involved in a related action, being CIV 2292 of 1998. In those proceedings EMRC, as plaintiff, sought a declaration against Four Seasons, as defendant, as to whether or not a contractual relationship between the parties had come to an end. Immediately after the issue of the writ Four Seasons sought to have the action stayed. In essence, it was argued that as the dispute had been referred to arbitration that was the proper forum for determination as to whether the contract between the parties had been terminated. I heard argument on this question and on 10 February 1999 made orders that EMRC's action be stayed: see Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd, unreported; SCt of WA; Library No 990052; 10 February 1999. In the course of those reasons I summarised the facts in the following terms:

'The plaintiff is a body corporate constituted under the Local Government Act. It has responsibility for a waste disposal site at Redhill to the east of Perth. The defendants are a firm of builders. By written contract ("the Contract") dated 2 December 1997 the plaintiff engaged the defendant to carry out certain earthworks and drainage works ("the works") at the Redhill site for a sum of $222,222. The date for the completion of the works was 20 April 1998. This completion date was extended to 11 May 1998 by written notice from the plaintiff to the defendant on 8 April 1998. None of these facts are controversial, although there is an issue as to what is the proper date for completion of the works.

On 6 April 1998 the plaintiff served a notice on the defendant purporting to revise the design of the works and to reduce the material to be excavated from 130 cubic metres to 121,020 cubic metres. The plaintiff then pleads that as at 9 July 1998 the defendant was in breach of the Contract, essentially because significant parts of the works were incomplete. The plaintiff says that this was a breach of the Contract which, under the terms of the agreement, allowed the plaintiff to terminate the Contract. There are two further alternative claims made against the defendant by the plaintiff. First, it is said that as at 9 July 1998 there were certain defects in the way the defendant had carried out the works which amounted to a breach of the terms of the Contract. Secondly, it is said that between 9 June 1998 and 17June 1998 the defendant suspended the works without written approval of the plaintiff and that this, too, was a breach of the terms of the Contract. It is then pleaded that on 9 July a notice was served by the plaintiff on the defendant specifying the alleged breaches of the Contract and requiring remedy of the default. The alleged defaults were not remedied and the plaintiff purported to terminate the Contract on 23 July 1998 by written notice. The defendant responded by advising the plaintiff that it did not accept the plaintiff was entitled to terminate the Contract and that, in purporting to do so, the plaintiff had repudiated the Contract. The defendant accepted that repudiation.

This last point is of some significance. It would appear, whatever else is in issue between the parties, there is no doubt that the Contract is at an end. The plaintiff says the Contract came to an end because it followed the appropriate procedure set down by the terms of the contract and that the notice of termination was good and proper. In fact, it seeks a declaration to that effect in the prayer for relief in the statement of claim. The defendant, by its correspondence, clearly does not accept that the plaintiff was entitled to terminate the Contract. Nonetheless, in treating the plaintiff's conduct as a repudiation of the Contract and accepting that repudiation, it has brought the Contract to an end. During the course of submissions very little attention was directed to this issue. I did raise it with counsel and neither resiled from the view that one way or another the Contract was at an end. In my view, this is a point of some significance.' "

5 The main thrust of the application was that the applicant entertains a reasonable apprehension that the Arbitrator might not bring an impartial and unprejudiced mind to the resolution of the matters to be arbitrated. Reliance was placed on the decisions in Webb v The Queen [1994] HCA 30; (1994) 68 ALJR 582 at 595, Pflieger v Sparks, unreported; SCt of NSW; 9 March 1989 per GilesJ and Xuereb v Viola (1989) 18 NSWLR 453. The applicant also alleged misconduct including bias, breach of the rules of natural justice, error in procedure, persisting with incorrect views and an unexplained relationship with the respondent.

6 Mr Robinson submitted that the relevant issues in the arbitration are:

1. When did the respondent get possession of the site for the works;

2. why did the respondent not complete the works on time, including within the extended period determined by the sujperintendent;

3. what weather or other matters caused delay to the respondent;

4. to what extent did the respondent do the works the subject of the contract;

5. what was required by the applicant to complete the work; and

7 The applicant has filed as annexures to the affidavits of Mr Robinson and of Mr Gavin Watters, the Chief executive Officer of the applicant, respectively, copies of correspondence passing between the applicant's solicitors and the Arbitrator and of the Minutes of Proceedings before the Arbitrator.

8 In the Minutes of Proceedings on 30 January 1998, the following was recorded:

"Mr Robinson stated the EMRC had another problem which was the superintendent had been admitted to hospital last week and would be in hospital for 10 weeks and was heavily sedated.

Mr De Courtenay responded: 'This was convenient. First there were people going on holidays and now there's someone in hospital."

9 The applicant submits that that comment establishes a reasonable apprehension of bias on the part of the Arbitrator against the applicant.

10 The applicant points to a letter dated 13 April 1999 written to the Arbitrator by Mr Michael E Parker, then acting on behalf of the respondent, which is addressed to "Kersh", suggesting to the applicant some undisclosed relationship between the respondent and the Arbitrator.

11 The applicant sought certain further particulars from the respondent of its response, dated 20 July 1998, to the "show cause" letter written to it by the applicant on 9 July 1998. At a directions hearing before the Arbitrator on 17 February 1999 the respondent agreed that its reply was limited to its letter dated 20 July 1998, but subsequently withdrew from that position in a letter to the Arbitrator reading:

"I refer to the first paragraph on page two of your letter dated 17 February 1999, and seek to correct the implication that Four Seasons agreed that its letter of 20 July 1998 be accepted as comprising the whole reply to the EMRC show cause letter of 9 July 1998.

Four Season's accepts no limitation in the acceptability of any correspondence or event leading up to this show cause notice, and maintains that all prior correspondence and events remain relevant, and should be so considered by the arbitrator.

In particular Four Seasons maintains that all of the correspondence referred to in its letter of 20 July 1998 is relevant to and forms part of what it considers was a wholly adequate response to that show cause notice."

12 The Arbitrator has declined to direct the provision of further particulars despite the applicant's expressed desire to have the issues for arbitration cleasrly defined.

13 The applicant expresses a belief, based on the general conduct of the proceedings to date, that the Arbitrator may be biased against the applicant and in favour of the respondent.

14 In his judgment delivered on 9 September 1999, [1999] WASC 167, Master Sanderson says, in pars 13, 14, 15, 16 and 17:

"This letter is an attempt by the arbitrator, as I understand it, to set out a timetable leading to the resolution of the dispute between the parties. In other words, the letter deals with presently outstanding interlocutory matters which must be disposed of prior to the arbitration taking place.

It would appear that the letter was generated without reference to the parties and the letter itself does not make it entirely clear how the arbitrator intends to approach the arbitration. For instance, it is not entirely clear whether the arbitrator intends to deal with the arbitration simply on the papers or whether it is his intention to have a hearing at which the deponents to affidavits will be cross-examined.

It is also not entirely clear just what issues are before the arbitrator and how those issues are defined, whether by points of claim or otherwise. I must say that I have grave concerns as to the way that this arbitration is progressing. The point has been repeatedly made by counsel for the present applicant, and properly made I might say, that the prime question in this case is whether or not the contract between the applicant and the respondent has been terminated and, if so, properly terminated.

As I think the decision of the Full Court makes clear, this is a matter which in the normal course would be considered by a court and it may be that a court would be a more appropriate forum to consider such a discrete question of law. But for reasons which the Full Court has articulated, the parties have determined that they will go to arbitration and that is the way the matter must be resolved.

Having said that, it does, I think, behove the arbitrator to proceed in a manner which acknowledges that one of the prime points between the parties is a question of law which should be determined and should be approached in the same way as a court would approach such a question."

15 I am informed that the respondent is insolvent and that Mr Mavlian, who appeared in person to speak for the respondent, without objection by the applicant, is an undischarged bankrupt. In his opposition to the application, Mr Mavlian sought to rely upon two affidavits, sworn by him on 7 April 2000 and filed in these proceedings. Mr Robinson, for the applicant, objected to reliance being placed on these affidavits and said that he had not read them and that, if I were disposed to allow the respondent to rely upon them, he wished to have the opportunity to read them and to make representations in relation to these affidavits. I indicated that I would accede to that request and I adjourned the matter on the basis that I would consider these affidavits and decide the point.

16 The two affidavits in question, with their annexures, are voluminous, comprising 572 and 117 pages respectively. Most of the annexures to the first of those affidavits consist of Scott Schedules for the purposes of the arbitration and are not relevant to the issues presently before me. Furthermore, some of the annexures to the first affidavit are unnecessarily duplicated in the second affidavit. I was not assisted by any submissions from Mr Mavlian as to what parts of the annexures to the affidavits are relevant to the issues before me. He simply urged me to read all the papers. In support of his objection to the application, Mr Mavlian handed up certain written submissions, reading as follows:

"It is exactly 3 years and five days since the Eastern Metropolitan Regional Council (EMRC), having found itself in arbitration, which was initiated by Four Seasons Construction Pty Ltd(FSC), launched what was to become 9 separate unilateral actions in this court,7 of which have been dismissed to date, including 3 on appeal, and the only real achievement has been to effectively prevent a properly constituted arbitration from proceeding for 3 years.

The actions of the EMRC, which are the subject of arbitration, began on 19 August 1998, are directly responsible for both my own and my company's impecuniosity, and the detailed history leading up to today's hearing are outlined in my affidavit, sworn 12 May 2000, directed to a chamber summons dated 20 April 2000, which resulted in the judgement [sic] by Hasluck J in [2000] WASC 178, allowing leave for me to appear on behalf of the company at this hearing.

In the transcript of proceedings following the above judgement [sic], on 13 July 2000, Judge Hasluck stated at page [10]:- 'The leave being allowed to Mr Mavlian is of a comparatively limited order and arises from the inherent jurisdiction of the court to control its proceedings in the manner in which hearings are conducted, it therefore follows that at some later stage another judge of the court in the light of additional or other information, may have some further direction to make or take a different view as to how any particular hearing should be conducted.'

Following the arbitrator's letter of 30 August 1999, announcing his intention to proceed immediately to bring down an interim award as to liability only, the Applicant applied to this court on 3 September 1999, for 'Topup' Security for Costs and Directions in Arbitration.

On 13 September he lodged another application to remove the arbitrator. Once again, this latter application effectively halted the arbitration.

Above two applications by EMRCin the Supreme Court were pending and no attempt was made by the applicant to list the matters for hearing. On 30 June 2000, the EMRC served a Statutory Demand to wind up FSC on its sworn basis that the EMRC's counterclaim in arbitration was a due and payable debt, whereas in fact, the arbitrator has yet to consider and bring down a decision on this matter. In dismissing this application, the judgement [sic] 16 November 2000, [2000] WASC 277, stated that it gave rise to a substantial injustice, and a later appeal on 27 September 2001, [2001 WASCA 299], was also dismissed. (This application has also caused substantial delay while arbitration was on already halt.)

Because of Mr Haydn Robinson's involvement in this duplicity,I have lodged a complaint with the WA Legal Practitioners' Complaints Committee, and I am still awaiting a response.

I ask the Honourable Judge in this Court, to exercise the court's inherent jurisdiction in the control of its proceedings, and for it to consider the evidence contained in the two lengthy affidavits, sworn by myself on 7 April 2000, the first of which is directed specifically to the application for security for costs, and the second of which is directed specifically to the applications for removal of the Arbitrator. These affidavits (Supreme Court Registry Doc Nos. 26 & 27 Filed on 10 April 2000), include the annexures containing the bulk of the evidence presented in arbitration, together with the Scott Schedules ordered by the arbitrator, (details of both parties' claims and counterclaims lodged in December 1998), and they comprise significant 'additional or other information', to use Judge Hasluck's words from the transcript referred to above.

One of these two affidavits (Doc no 27), includes a letter from the arbitrator dated 15 September 1999 (Annexure PM18), which states:- 'I sympathise with the Master in that he does not have the large amount of documentation prepared and submitted, mostly in December 1998. I hope the full facts on which he may be asked to make a decision will be put before him by both party's [sic] representation.'

I am concerned that justice may not be served if this court does not take into account the evidence contained in these two affidavits, and in this respect I note that the EMRC has withheld the bulk of this evidence from all of its Supreme Court applications."

17 The affidavits in question, sworn on 7 April 2000 by Mr Mavlian, were the subject of his application to admit those affidavits which came before Hasluck J on 19 June 2000. In His Honour's judgment delivered on 13 July 2000, the application to adduce those affidavits was refused. After a full and careful analysis of the relevant authorities, Hasluck J said, in par 50:

"What is the result when I apply this analysis to the circumstances of the present case? I am of the view that to allow Mr Mavlian to submit to the court and rely upon his two affidavits sworn 7 April 2000 directed to the EMRC application for security for costs and the application to remove the Arbitrator would be to allow him to "defend" the present proceedings, in the sense of taking a step in the proceedings, contrary to the prohibition contained in O 12 r 1(2). It follows from earlier discussion that his application to file and rely upon the affidavits - and to take similar steps in the future - should be refused. This is because I am not at liberty to disregard the explicit language of the rule, notwithstanding that the court has an inherent power to regulate its procedures. "

18 I respectfully agree and, accordingly, decline to permit the respondent to rely on those affidavits referred to by Mr Mavlian in his submissions.

19 In my opinion, the applicant has made out the case that the facts give rise to a reasonable apprehension that the Arbitrator might not bring an impartial mind to bear on the arbitration. I should stress that I have not heard from the Arbitrator in these proceedings and I expressly do not, of course, find that he is, as a matter of fact, biased against the applicant.

20 Accordingly, I shall make an order in accordance with pars 1, 2, 3 and 4 of the chamber summons dated 13 September 1999.