The first issue: alleged excess of jurisdiction
16 Mr Weber relied on the terms of cl 12 of the deed. By that clause, he submitted, it was for the courts of this State, and not for an arbitrator, to resolve any dispute concerning the interpretation of any provision of the deed. That extended, he submitted, to cl 13.
17 Mr Kerr of counsel, who appeared with Mr Breakspear of counsel for Mr Hughes and Manuden, submitted that the Court should not entertain the clause 12 argument because it had not been put to the arbitrator. The only written submissions that Goodman put to the arbitrator dealt with the operation of cl 13. So far from submitting that the arbitrator had no jurisdiction to determine the effect of cl 13, those submissions put that cl 13 operated as a bar to the making of the costs order sought by Mr Hughes and Manuden. I set out para 17 of those submissions:
17. Clause 13 of the Deed provides that each party is to bear its own costs "in connection with this Deed". There can be no doubt that the arbitration is in connection with the Deed, it is after all the Deed which authorises the arbitration. The expression "in connection with" is of wide import. It needs to be interpreted in context but in essence requires a connection between two or more things. In this case the connection between the arbitration and the Deed is obvious. There is no power to award costs.
18 Mr Kerr very properly informed the Court that some additional submissions had been put orally to the arbitrator, but that those submissions related not to the cl 12 point but to the amount of costs sought. Unfortunately, there is no available transcript of those submissions.
19 If Goodman had not relied upon cl 13 as it did before the arbitrator, I would not think that its failure to raise the cl 12 point before him would necessarily stand in the way of the grant of leave today. In this context, I would take into account the fact that what is involved is a question of law, and that no further evidence would have been relevant to it. See for example Suttor v Gundowda (1950) 81 CLR 418 at 437-438. However, in this case, not only did Goodman fail to submit to the arbitrator that he had no power to determine the proper construction and application of cl 13, it in effect urged him to do so, for the purpose of rejecting the costs application that had been made to him. I have to say that it seems to me to be less than meritorious now to submit that the arbitrator erred in law, because of cl 12, in accepting the invitation implicitly extended to him by para 17 of the submissions to which I have referred.
20 For those reasons alone, I would not grant leave to appeal based on the alleged failure to comply with cl 12: more accurately, on the alleged jurisdictional error said to flow from that clause.
21 In any event, I think, the argument is misconceived. By cl 12, what is referred to the courts is disputes which may arise concerning the interpretation or enforcement of the provisions of the deed. But that general clause appears in a context which includes a specific reference of particular kinds of dispute - should they arise in the future - to arbitration. In circumstances where (as s 34 of the Act makes clear) an arbitrator has prima facie power to determine the question of costs, and in circumstances where (as Goodman now submits) cl 13 is relevant to the existence of that power, it does not seem to me to be correct to say that the operation of cl 13 was not a matter properly to be considered by the arbitrator in connection with any costs application made to him.
Second issue: did cl 13 bar the costs order?
22 I turn to the second issue: the proper construction of cl 13. In this context, it is necessary to note that I am not - at this stage at least - dealing with an appeal from the arbitrator's award. I am considering whether or not to grant leave to appeal. (Having said that, I should note that the parties very sensibly agreed that if I were to grant leave then I should proceed to determine the appeal.)
23 What Goodman must show is that there was a manifest error of law on the face of the award, insofar as it dealt with the question of costs. It is always unwise to substitute judicial exegesis for the wording of a statute, but the authorities on s 38(5) make it clear that, in deciding whether to grant leave, (and in deciding whether for that purpose whether there is a manifest error of law), the courts should exercise a considerable degree of restraint, and should not embark upon detailed scrutiny of the particular case. See, for example, the decision of Kirby P in Natoli v Walker (1994) 217 ALR 201 at 212-215, and the decision of Sheller JA in Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 at 226.
24 In this case, the question for the arbitrator, and the question in respect of which he is said to have erred in a manifest fashion, arises from the phrase "costs ...in connection with this deed". Mr Weber submitted, correctly, that the words "in connection with" are capable of denoting a very wide relationship between the two things to which they apply - in this case, costs on the one hand and the deed on the other. He submitted that the arbitration was something that occurred under, or by reason of, and in accordance with, the provisions of, the deed; and thus that costs relating to the arbitration were costs in connection with the deed.
25 Mr Kerr submitted that the true extent of the connection conveyed by the words was essentially a matter of context. In this particular contractual context, he submitted, there was ample support for the view taken by the arbitrator - namely, that the costs in question were costs relating to the preparation of the deed and not future costs.
26 Further, Mr Kerr submitted, if cl 13 were to be given the effect ascribed to it by Mr Weber, then it was void by reason of s 34(3)(a) of the Act.
27 The arbitrator dealt with the parties' submissions, as to the operation of cl 13, at paras 26 to 30 of his final award:
26. If can be accepted that s34 of the Commercial Arbitration Act permits an order for costs to be made "subject to a contrary intention" in the arbitration agreement. The respondent claims that such an intention is to be found in the Deed.
27. That appears, according to the respondent, in clause 13. This clause is in the following terms -
"Each party will bear its own costs both in connection with the Deed and the proceedings"
28. The respondent claims that this arbitration is clearly in connection with the Deed and clause 13 prohibits the making of a costs order.
29. The claimant points out that 'proceedings' are defined in Recital C to the Deed as being the proceedings No. 6152 of 2001, in the Industrial Relations Commission of New South Wales and there is no basis in the Deed for the word to be given a wider meaning.
30. It is clear to me that clause 13 was designed to cover the costs of the preparation of the Deed and the costs of proceedings in the Industrial Relations Commission. It does not, however, in context, relate to any of the arbitrations which may occur in relation to valuations.
28 If it were necessary to decide the question - that is, if this were an appeal and not an application for leave to appeal - I would conclude that the arbitrator did not err. It seems to me that there is a sufficient context in the deed itself to suggest that what the parties were looking at was the question of costs up until the date of execution of the deed and not future costs. Thus, for example, clause 13 explicitly refers to not only costs in connection with the deed but also to costs of the proceedings.
29 Further, clause 13 appears in an agreement that contains provision for referral of certain kinds of dispute - should they arise - to arbitration. It is plain that the parties had the benefit of competent legal advice. They must be taken to have been aware of the provisions of s 34 of the Act (given that they contemplated the possibility of an arbitration that would be governed by the Act). Had they intended to circumvent the operation of s 34, one might have expected that they would deal with it specifically in cl 3.9, and not through the remote and general provisions of cl 13. Perhaps they did not seek to do so because they were mindful of s 34(3)(a) of the Act.
30 But it is not necessary to go so far. It is sufficient to say, essentially for the same reasons, that even if the arbitrator's view were wrong, it could not be said to be manifestly wrong.
31 In any event, I think, Mr Kerr's alternative submission, based on s 34(3)(a), must be accepted. Mr Weber submitted that the arbitration agreement was not one for the reference of future disputes to arbitration. He submitted that there had been a present dispute as to fees, which dispute had been agitated in the Proceedings and was resolved by the deed. Thus, he submitted, any arbitration pursuant to cl 3.9 would be an arbitration in respect of that present dispute.
32 I do not accept those submissions. The deed provided how it is that the parties have resolved their dispute. One of the matters on which they agreed was that Goodman would pay Hughes amounts in accordance with cl 3.1, at times in the future. Those times were defined by cl 4.1 as being "within 45 days of completion of the valuation for the relevant year".
33 The amount of the fee for any particular year was not fixed by cl 3.1. What cl 3.1 did was fix a mechanism for ascertaining the amount of the fee. True it is that the execution of that mechanism might produce a fee as to which there was no dispute. But, until the mechanism had been followed through, the fee would not be payable. Clause 4 makes that clear, including because of the provision for interest in cl 4.2 (by which the right to interest accrues from the date on which the fee is payable under cl 4.1).
34 Further, the mechanism contemplated that there might be a dispute as to a valuation for a particular year. If that dispute proved to be of a kind that activated cl 3.9, then there was a right to go to arbitration. Until that right was activated, then again the fee would not become payable.
35 The disputes that were referred to arbitration were potential disputes as to a valuation to be carried out in the future - after the date the deed was made. Clearly enough, there could be no present dispute until a valuation was made and a party, having considered it, genuinely believed that it was based on inherently flawed reasoning or calculation methodology.
36 Thus, I think, disputes of the kind referred to arbitration by cl 3.9 are necessarily "future disputes" in the context of the arbitration agreement. For those reasons, were it necessary to do so, I would conclude that if, contrary to what I have said, cl 13 did have the operation for which Mr Weber contends, it would be void by virtue of s 34(3)(a) of the Act.
Third issue: alleged want of reasons
37 I turn to the alleged failure to give reasons. There were, as I have indicated, two limbs to this submission. One related to the question of whether Mr Hughes and Manuden should have any costs order in their favour at all. The other related to the arbitrator's quantification of those costs.
38 It is plain that the way the dispute as to costs was submitted to the arbitrator was based (from the point of view of Mr Hughes and Manuden) on the proposition that costs should follow the event. That is clear from the written submissions on their behalf:
COSTS FOLLOW THE EVENT
5. In paragraph 12 of the interim award, the arbitrator identifies the "two major flaws" asserted by the Claimants in the arbitration. In paragraphs 25, 27 and 28 of the interim award, the arbitrator answers the first of those questions in favour of the Claimants.
6. Consideration of the second question commences at paragraph 31. At paragraph 47, the arbitrator, by way of summary, confirms that the two major flaws earlier identified had been made out by the Claimants.
7. Whilst the Respondent had sought, in effect by way of cross complaint, to raise issues in the arbitration, those were rejected by the arbitrator at paragraphs 45 and 46.