Gordian Runoff Limited v Westport Insurance Corporation [2010] NSWCA 57 | Case summary | Zoe

NSWNSWCA

Gordian Runoff Limited v Westport Insurance Corporation

[2010] NSWCA 57

Court of Appeal (NSW)|2010-09-03|Before: Spigelman CJ, Allsop P, Macfarlan JA, Giles J

View original source

At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2010-09-03

Before

Spigelman CJ, Allsop P, Macfarlan JA, Giles J

Source

Original judgment source is linked above.

Judgment (133 paragraphs)

[1]

Introduction [4] My views in summary [17] Approach to the argument on appeal [19] The background to the dispute [21] The writing of the FAI D&O run-off policy [22] The writing of the 1999 reinsurance programme [30] The 10 xs 10 reinsurance layer [31] The lower layers of reinsurance [43] Claims arise [45] The dispute: the arbitration [58] The dispute: the application to the Commercial List [75] The primary judge's procedural judgment [82] The primary judge's principal judgment [84] The issues in the Court of Appeal [101] The procedural issue: should the primary judge have heard the leave issue before the argument on the appeal? [102] The leave issue: should leave have been granted? [114] The relevant standards for review [114] Manifest error: s 38(5)(b)(i) [116] Strong evidence of an error of law: s 38(5)(b)(ii) [119] Was there strong evidence here that the arbitrators made an error of law in respect of the point dealt with by the primary judge: the construction of the Insurance Act, s 18B? [130] The difficulties in construction of s 18B [152] Was there strong evidence of error? [161] The points not dealt with by the primary judge [175] Concluding that the loss was not caused by the events or circumstances [179] Not concluding that it was unreasonable for the reinsurers to be found to indemnify [187] The arbitrators' conclusion in relation to the CA Act, s 22 [226] The refusal of the primary judge to permit reliance on the ground that s 18B did not cover reinsurance [233] Residual matters for decision [244] The proper construction of s 18B [246] Was the loss caused by the relevant circumstance? [256] The proviso to s 18B: was it reasonable to apply s 18B? [261] The appropriate application of the CA Act, s 22 [263] Does s 18B cover reinsurance? [264] How to deal with "points of contention" in an appeal under the CA Act, s 38 [266] The first "point of contention": the finding that the FAI policy was outside Gordian's established acceptance and underwriting policy [290] The second and third "points of contention": the asserted error of construction of the policy as a run-off as having a limit of three years on reporting periods in underlying policies [293] The fourth "point of contention": the asserted error in concluding that the two lower layers were similarly restricted as the 10 xs 10 layer in respect of the reporting periods of underlying policies [301] Order [304]

[4]

5 xs 5: Westport 40% Assetinsure 30% The Copenhagen Reinsurance Company Limited ("Copenhagen Re") 20% Scor Switzerland Limited ("Scor") 10% 3 xs 2: Westport 40% Assetinsure 30% Copenhagen Re 20% Scor 10% 7 A dispute arose between the reinsurers and Gordian as to whether the reinsurance contracts responded to certain claims made on Gordian under a D&O run-off policy issued to FAI Insurance Ltd ("FAI") and its former directors and officers. 8 The dispute was referred to arbitration and heard by a panel of three arbitrators: Messrs F Hoffmann, G E Fitzgerald and I Brown. It was not contentious that the arbitrators, as a group, had deep and longstanding expertise and skill in insurance markets, including the reinsurance market, and in law, including insurance law and statutory interpretation. 9 The award of the arbitrators dated 10 October 2008 was that after the effect of the Insurance Act 1902 (NSW), s 18B was taken into account, the reinsurance contracts applied to all claims under the FAI policy made within three years of its inception, but to no other claims (that is no other later made claims), subject otherwise to the terms and conditions of the reinsurance contracts. 10 The dispute focussed upon the fact that the FAI D&O run-off policy provided cover in relation to claims made on, and notified to, Gordian within seven years of inception of the policy. It was asserted by the reinsurers that their reinsurance contracts did not respond to claims made under the FAI policy, because their contracts provided for reinsurance only in respect of underlying policies providing cover in relation to claims made on, and notified to, Gordian within three years of inception of the underlying policy. In the language of the controversy, the reinsurers said that the relevant policies only responded to claims made under original policies of up to three years or with reporting periods of up to (but no more than) three years. 11 Gordian asserted that there was no such three year temporal limitation in the reinsurance contracts. Alternatively, it submitted that if there were, the effect of the Insurance Act, s 18B, nevertheless, entitled it to cover under the contracts of reinsurance at least for claims made within three years. 12 The arbitrators concluded that, unaffected by the operation of the Insurance Act, s 18B, the reinsurance contracts (all three layers) did not respond to claims under the FAI D&O run-off policy because of the seven year period for notification under the policy. The arbitrators went on to conclude, however, that s 18B applied and that by its operation the reinsurers were obliged to pay claims in fact notified to Gordian under the FAI policy within three years. 13 The award of the arbitrators was subject to judicial review in terms of the CA Act, s 38 which is in the following terms: " s 38 Judicial review of awards

[47]

"[79] We are not persuaded that the FAI D&O run-off policy, which covered claims which were made and notified to Gordian within the extended period permitted by that policy of 7 years from 31 May 1999, was within its then 'established acceptance and underwriting policy in respect of' D&O policies. In any event we are satisfied that the 1998 reinsurance treaty applied to D&O policies which provided over for a period of 12 months plus odd time not exceeding 18 months in all. That was plainly the common understanding and intention of the parties when the 1999 reinsurance treaty was arranged at the end of 1998 and Gordian's letter of 15 December 1998 was initialled and stamped by all reinsurers which signed and stamped the slip for the 1999 reinsurance treaty." 65 The arbitrators then turned to the multi-year proposal contained in Gordian's letter of 15 December 1998, and the reinsurers' agreement thereto. The reinsurers accepted that they agreed to cover D&O policies for extended periods of up to three years. The arbitrators concluded that there was no need for rectification of the 1999 treaty to include such cover because properly construed, the 1999 treaty was so limited. The arbitrators concluded as follows at [81] of their reasons: "[81] Gordian's subsequent communications with Aon Re and internal memoranda confirmed that the reinsurance which it had sought and obtained covered claims which were made and notified to Gordian within an extended period of 3 years. Nothing in the subsequent events, including the reinsurers' attempts to have that position formally recorded in the documentation, causes us to doubt that the reinsurance treaties did not cover the FAI D&O run-off policy which covered claims which were made and notified to Gordian within the much longer period permitted by that policy of 7 years." 66 This finding left Gordian in the position that the terms of the three layers of reinsurance did not respond to claims under policies of periods or with reporting periods of greater than three years. 67 The arbitrators then turned to the Insurance Act, ss 18(1) and 18B. They disposed of s 18(1) swiftly in a manner not the subject of complaint. 68 At this point it is convenient to refer to the terms of the Insurance Act, s 18B, which are as follows: " 18B Limitation on exclusion clauses

[49]

(2) The onus of proving for the purposes of subsection (1) that, on the balance of probability, loss in respect of which an insured seeks to be indemnified was not caused or contributed to by the happening of particular events or the existence of particular circumstances is on the insured." 69 Gordian's reliance on s 18B was limited to the claims that were made within three years (albeit under a policy with an extended reporting period of seven years). 70 The reinsurers argued that s 18B had no material operation. 71 The arbitrators concluded that s 18B did apply in relation to claims made within three years, if s 18B(1)(a) was satisfied. They stated their conclusion at [88] of their reasons as follows: "[88] … we see no reason to doubt that s 18B applies in relation to the 3-year claims if the requirements of ss 18B(1)(a) are met. In particular, we are comfortably satisfied that it would be reasonable within the meaning of s 18B(1), and entirely consistent with 'considerations of general justice and fairness' within the meaning of the reinsurance treaties, for the reinsurance treaties to apply in relation to the 3-year claims." 72 At [89] of their reasons, the arbitrators set out the reinsurers' basic argument that s 18B had no operation. That argument, which was put to and accepted by the primary judge and substantially repeated in this Court, was recorded by the arbitrators as follows: " Section 18B is concerned with the operation of the scope of cover, namely with limitations or exclusions affecting the operation of the insuring clause. It operates where the cover is prima facie available, but where that cover is limited or excluded on the happening of certain events or the existence of certain circumstances. … This language implies a central requirement that there be a prima facie liability to indemnify. This is further reinforced by the words which follow paragraph (b), namely that ' the insured shall not be disentitled to be indemnified '. Disentitle means to deprive of a title or right. A disentitlement implies an initial entitlement to be indemnified which is excluded or limited by reason of some event or circumstance, thereby resulting in a deprivation of right.

[51]

"[90] We do not agree with the reinsurers' central contention that the FAI D&O policy 'was the wrong sort of policy.' By the reinsurance treaties, the reinsurers agreed to indemnify Gordian in respect of losses under D&O policies underwritten by Gordian. However, cover was limited to D&O policies which required that claims be made and notified to Gordian within 3 years from inception. D&O policies which did not require that claims be made and notified to Gordian within 3 years from inception were not covered. The reason why the reinsurance treaties did not cover D&O policies which did not require that claims be made and notified to Gordian within 3 years from inception was that such D&O policies were excluded or because the D&O policies which were covered by the reinsurance treaties were limited. As has been noted, the reinsurers put their contention in different ways at different times. In 2001, they sought to have the wording changed to add an exclusion of 'policies issued for periods longer than 36 months.' The rectification claimed in their submissions was the addition of 'a term that, absent special acceptance, the class of business covered was limited to underlying policies having a term not exceeding three years'. The formulation they initially proposed was an exclusion, the latter a limitation. [91] Subsection 18B(1)(a) requires that ' circumstances in which the [reinsurers are] bound to indemnify [Gordian] are so defined as to exclude or limit the liability of the [reinsurers] to indemnify [Gordian] on the happening of particular events or on the existence of particular circumstances '. If an exclusion or limitation of ' the liability of the [reinsurers] to indemnify [Gordian] ' is based ' on the existence of particular circumstances ', Gordian is not ' disentitled to be indemnified by the [reinsurers] by reason only of those provisions of the [reinsurance treaties] if, on the balance of probability, the loss in respect of which [Gordian] seeks to be indemnified was not caused or contributed to by … the existence of those circumstances, unless in all the circumstances it is not reasonable for the [reinsurers] to be bound to indemnify [Gordian] .' [92] The reinsurance treaties do not cover the 3-year claims under the FAI D&O run-off policy although they were made within 3 years from the inception of that policy because the policy covered claims which were made and notified to Gordian within 7 years from its inception and the reinsurance treaties were limited to policies which covered claims which were made and notified to Gordian within 3 years from inception and/or excluded policies which covered claims which were made and notified to Gordian more than 3 years from inception. Subsection 18B(1)(a) operates in relation to the 3-year claims if, but only if, that exclusion or limitation on the liability of the reinsurers to indemnify Gordian in respect of the 3-year claims under the FAI D&O run-off policy is an exclusion or limitation that is based ' on the existence of particular circumstances '. The 'particular circumstance' for this purpose can only be that the FAI D&O run-off policy covered claims which were made and notified to Gordian more than 3 years from the inception of the FAI D&O run-off policy. The ' loss in respect of which [Gordian] seeks to be indemnified ', namely, its liability on the 3-year claims, ' was not caused or contributed to by… the existence of [that] circumstance ' because the 3-year claims were made and notified to Gordian within 3 years of the inception of the FAI D&O run-off policy. [93] Consistently with the remedial character of ss18B(1) and in compliance with the obligation to construe its language so as to give the most complete remedy which is consistent with the actual language employed and to which the words are fairly open, we have concluded that the exclusion and/or limitation on the ' liability of the [reinsurers] to indemnify [Gordian] ' in respect of the 3-year claims made under the FAI D&O run-off policy is based ' on the existence of [the] particular circumstance ' that the FAI D&O run-off policy covered claims which were made and notified to Gordian more than 3 years from the inception of the FAI D&O run-off policy. If at large, 'considerations of general justice and fairness' would produce the same result. [94] Accordingly, we have determined that reinsurance treaties cover Gordian's liability, if any, in respect of the 3-year claims." 74 For these reasons the arbitrators made the award that each of the contracts of reinsurance: "applies to claims which were made under the [FAI D&O run-off policy] within 3 years from the inception of that policy but no other claims subject to the terms of the contract of reinsurance including all limits on and exclusions of indemnity under the contract of reinsurance other than the [three year limitation]."

[83]

The procedural issue: should the primary judge have heard the leave issue before the argument on the appeal? 102 Gordian submitted that the proper construction of s 38 was that there was no jurisdiction to hear an appeal under s 38(2) in the absence of a pre-existing grant of leave (or the consent of the parties). In the alternative, it submitted that the primary judge erred in hearing the application for leave to appeal and the appeal concurrently. 103 I am unpersuaded that the words of s 38 create a jurisdictional bar of this character. Though there are clear underlying policy reasons for the approach that Gordian said the primary judge should have adopted, the words of the statute are insufficient to restrict the Court's jurisdiction or authority in the manner suggested. There may be some support for Gordian's argument as to jurisdiction from the use of the phrase "may be brought" in s 38(4) as opposed to the phrase "shall lie" in s 38(2) (cf Supreme Court Act 1970 (NSW), s 101). Nevertheless, one would expect that a restriction on the authority of the Court to entertain the appeal of such a character be spelt out in the legislation with greater clarity than was present in the words of s 38: cf Parisienne Basket Shoes Pty Ltd v Whyte [1938] HCA 7; 59 CLR 369 at 391. 104 It can be accepted at once that the context and history of s 38 bear heavily on the proper procedural approach to be adopted. I do not repeat at any length the powerful and cogent reasons of Rogers CJ Comm D in Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 184 especially at 187-189, 192-196, and Sheller JA in Promenade Investments (1992) at 216-223 and 225-227. In that case, the parties had come before Rogers CJ Comm D jointly seeking a concurrent hearing. His Honour declined to accede to the course as to do so would be "entirely inimical to the purposes of the [CA Act]" (at 187). The reasons of Sheller JA (with whom Mahoney JA and Meagher JA agreed, Mahoney JA agreeing generally) also made clear that the leave application should precede the appeal. 105 In 1986, this Court in Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327 refused to construe the CA Act, s 38(5) in its then form in the uniform legislation in a way consistent with Pioneer Shipping Ltd v BTP Tioxide Ltd (The 'Nema') (No 2) [1982] AC 724 and Antaios Compania Naviera SA v Salen Rederierna AB (The 'Antaios') [1985] AC 191. This view, at the time at odds with other courts of the Commonwealth, had the potential to expand the likely degree of interference by courts with arbitral awards. See generally the reasons of Sheller JA in Promenade at 220-221. The Standing Committee of Attorneys-General appointed a Working Group to review the operation of the uniform legislation as well as to report on the implementation of the UNCITRAL Model Law. The Working Group was comprised of experienced and distinguished public servants and professionals. 106 In the section of its report on judicial review of arbitral awards, the Working Group was clear in its reiteration of the proposition that one of the main objectives of the uniform legislation was to minimise judicial supervision and review of awards. In this context, the Working Group said the following about the approach of Australian courts, including this Court in Qantas, in not following the so-called 'Nema' guidelines: "One of the major objectives of the uniform legislation was to minimise judicial supervision and review. The approach adopted by the Australian courts contrasts with other provisions in the legislation which give effect to this objective. To hear substantive argument on the merits of the appeal before deciding whether or not to grant leave would lead to more awards being opened for review than if The Nema guidelines applied and this would detract from the finality of arbitral awards. The Working Group considered that if arbitration were to be encouraged as a settlement procedure and not as a 'dry-run' for litigation, a more restrictive criterion for the granting of leave is desirable than that applied by the Australian courts. As a matter of policy, the Working Group agreed with Lord Diplock's statement in The Nema (at page 743) that 'the parties should be left to accept, for better or for worse, the decision of the tribunal that they had chosen to decide the matter in the first instance'. … The Working Group recommends that section 38(5) be expanded to specify the circumstances in which a court may exercise its discretion under section 38(4) to grant an application for leave to appeal. In particular section 38(5) should incorporate the guidelines enunciated in The Nema and other relevant authorities with the effect that leave may only be given if an error of law is apparent on the face of an award, without hearing argument." 107 In giving the Second Reading Speech in the Legislative Assembly the Attorney-General for New South Wales in dealing with the new s 38(5) said the following, taken from the Working Group's Report: "One of the major objectives of this uniform legislation is to minimise judicial supervision and review. If arbitration is to be encouraged as a settlement procedure and not as a dry run before litigation, a more restrictive criterion for the granting of leave is desirable and the parties should be left to accept the decision of the arbitration whom they have chosen to decide the matter in the first place."

[84]

The same was said in the Second Reading Speech in the Legislative Council. 108 One of the considerations discussed by Lord Diplock in The 'Nema' (at 742-743) was the undesirability of review of arbitration awards where the questions in issue took days to argue. 109 The above considerations of the purpose of the new subss (5) and (6) of s 38 make clear what the approach should ordinarily be to this procedural question. Set against a background of the keen recognition that permitting the conduct of substantive arguments on appeal before granting leave would open up for review more arbitration awards than would occur if only truncated argument on leave were permitted, a clear legislative and contextual policy can be discerned that assists in appreciating that except in special, indeed exceptional, cases an application for leave should be dealt with and finalised before the hearing of the appeal. The relevant tasks on a leave application provided for by the text of s 38 also make it important to deal with leave first. The very assessments contemplated by s 38(5)(b)(i) and (ii) are directed to questions that are interlocutory in character and ones that should in terms be answered before full argument about the asserted error of law as an ultimate decision. That said, I am not persuaded that the text and structure of s 38 deny the Court authority to hear argument upon appeal until leave to appeal has been granted. 110 Section 38 reflects a legislative purpose of the recognition of the autonomy of the parties by the respect the Court should give to the arbitrators' award. Procedures should be adopted which support, not undermine, that recognition of autonomy and respect for the award. 111 The process of hearing full argument on the appeal will almost inevitably subvert the intention to be discerned in the CA Act, s 38 to limit judicial review. It is difficult to decide the questions in s 38(5)(b) if full argument is heard enabling a view to be reached about the ultimate correct answer. A judge will naturally find it difficult, after full argument, to conclude in the negative to both pars (5)(b)(i) and (ii), but to conclude that there was an error. Further, and as importantly, it will, in practical terms, give an appeal to a party without having to satisfy a judge of the character of the error and any other matters contemplated by s 38 (5)(b)(i) or (ii). The procedure of hearing full argument on the appeal undermines the purpose of s 38, as Rogers CJ CommD and Sheller JA said with clarity and force.

[89]

Manifest error: s 38(5)(b)(i) 116 As to the question of "manifest error on the face of the award", Mr Pembroke SC, who, with Mr T Mehigan, appeared for the reinsurers, conceded during the hearing of the appeal that the primary judge was wrong to conclude that the construction given to the Insurance Act, s 18B by the arbitrators was manifestly wrong. That concession was entirely properly made. The argument to the contrary, however, was pressed below and for some time in this Court. These circumstances make it important to restate the content of the phrase, lest it be taken too lightly by those considering the question. The proper approach can be taken from the reasons of Kirby P and Mahoney JA in Natoli v Walker at 212-215 and 223, respectively, and from the reasons of Sheller JA in Promenade Investments at 225-226. The error must be more than arguable; it must be evident or obvious; there must be powerful reasons leaving little or no doubt on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law. In using these accepted appellate authorities I should not be taken to have overlooked the similarly expressed and equally valid views of Rogers CJ Comm D in Promenade Investments at 192 that the argument for leave should be strong and apparently compelling after a fairly rapid examination of the matter. 117 It is important to distinguish the phrase "manifest error" in this context from a similarly worded phrase, with a quite different meaning, in another, quite different, context: "plainly or clearly wrong" in the context of the decision of an intermediate appellate court as to whether to follow or depart from a previous Australian intermediate appellate court on a question of law. In Gett v Tabet [2009] NSWCA 76; 254 ALR 504 at 558-567 [261]-[301], this Court discussed the meaning of "clearly" or "plainly" wrong in this precedential context. The important matter to grasp about such phrases in that context is that a later court is not restricted to a preliminary examination to form its views. The question of "plainly" or "clearly" wrong does not involve the speed or obviousness of the appreciation of the error at a preliminary examination, but rather, amongst other things, the degree of conviction with which error is perceived: see in particular Gett v Tabet at 563 [282]-[284], Chamberlain v R (1983) 72 FLR 1 at 8-9 (Bowen CJ and Forster J) and Clutha Developments Pty Ltd v Barry (1989) 18 NSWLR 86 at 99-100 (Gleeson CJ). 118 The difference is not a product of some overly refined ascription of meaning to adjectives and adverbs that are otherwise, to a degree, synonymous. Rather, the difference is rooted in the different contexts which point to different meanings. The phrase "manifest error" in s 38 is in the context of review of arbitration awards in a section of a statute exhibiting a Parliamentary policy of restricted judicial review of and interference with arbitral awards. The phrase "plainly" or "clearly" wrong is in a wider constitutional context of intermediate courts disposing of cases according to law and giving proper weight and balance to the views of equivalent courts around Australia.

[90]

Strong evidence of an error of law: s 38(5)(b)(ii) 119 The meaning of s 38(5)(b)(ii) is connected with the meaning of "any question of law arising out of the award" in s 38(2). 120 The history and context of s 38(5)(b)(i) and (ii) were discussed by both Rogers CJ Comm D and Sheller JA in Promenade. The phrase "question of law arising out of an award" had been narrowly construed in England in Athens Cape Naviera SA v Deutsche Dampfschiffahrts-Gesellschaft Hansa AG (The 'Barenbels') [1985] 1 Lloyd's Rep 528 and Universal Petroleum Co v Handels Und Transport GmbH [1987] 1 WLR 1178; [1987] 1 Lloyd's Rep 517 to questions arising from the award and the supporting reasons, and not "arising out of the arbitration". It was held that, an applicant for leave could not bring evidence to show that the arbitrator had in some way legally erred. An applicant was limited to adducing evidence to persuade the Court that the arbitrator should be ordered to produce more reasons. These cases, however, permitted a respondent to adduce evidence to persuade the Court to refuse leave or to refuse to remit for further reasons on the ground that there would be no different conclusion if leave or remitter were granted. 121 Prior to 1990, the approach adopted in the Commercial List was, in substance, to follow Universal Petroleum, but to permit a degree of evidence to understand the award and reasons: see for example Warley v Adco Constructions Pty Ltd (1989) 5 BCL 141 (Smart J); Donvito v Diebman (Supreme Court of New South Wales, Giles J, 3 March 1989, unreported); Abignano Ltd v Electricity Commission of New South Wales (1987) 3 BCL 290; Graham Evans & Co Pty Ltd v SPF Formwork Pty Ltd (1992) 8 BCL 147; and see generally M Jacobs Commercial Arbitration: Law and Practice Vol 1B pp 8870-8880. 122 Warley went on appeal ((1992) 8 BCL 300), but the question of the correctness of Universal was not squarely addressed. At 302, Kirby P said it was arguable. See also Rogers CJ Comm D in Promenade at 194. 123 The question whether the terms of s 38(5)(b)(ii) expand the role of evidence in an application under s 38 beyond the limits discussed in Universal remains to be considered. In Promenade at 223 and 226-227 Sheller JA left open the question of the meaning of s 38(5)(b)(ii) and whether its terms widen the role for evidence beyond that discussed in Universal Petroleum. Sheller JA said at 226-227: "Assuming that there is not a manifest error of law on the face of the award it may be argued that there is strong evidence that the arbitrator made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. The requirement that the question be one the determination of which may add substantially to the certainty of commercial law indicates that it should be one of wider and greater importance than, for example, the construction of a one-off clause in the context of a particular agreement between the parties. One can discern here the sort of limitation which Lord Diplock had in mind. The expression 'commercial law' should be given no narrow construction. The expression 'strong evidence that the arbitrator … made an error of law' suggests first what might otherwise be called on the leave application a strong prima facie case and second an error of law not manifest on the face of the award and demonstrable by evidence. The amendment may have been intended to redress in part the balance which Smart J in Warley's case (at 147) described as not wholly satisfying or sensible and to enable not merely the respondent to support the award by reference to extrinsic material but the applicant to seek leave to reverse it by reference to such material. However an appeal lies only on a question of law arising out of the award. The reconciliation of subs (2) and subs (5)(b)(ii) must await an appropriate case." 124 No detailed argument took place before this Court about this issue. The parties' arguments proceeded on the basis that even if the arbitrators' error was not "manifest", the terms of s 38(5)(b)(ii) ("strong evidence") required a strong prima facie case to be revealed. It was not submitted by Mr Jackman SC, who, with Mr Faulkner, appeared for Gordian, that the "evidence" contemplated by s 38(5)(b)(ii) did not encompass the reasons for the award. His submissions, at times, flirted with the proposition that if recourse were necessary only to the award (including the reasons) to identify and consider the error in question, only s 38(5)(b)(i) was relevant. However, I did not understand him ultimately to put this. See 4 November 2009 transcript pp 42-43. 125 I will return to the relationship between s 38(2) and (5)(b)(ii) and the meaning of "question of law arising out of the award" later in these reasons. 126 The positing of these two levels of strictness for the identification of legal error ("manifest error": (b)(i) and "strong evidence that the arbitrator made an error of law": (b)(ii)) can be seen to be a reflection of aspects of Lord Diplock's speech in The 'Nema'. In The 'Nema', at 742-743 Lord Diplock discussed the proper approach to the construction of "one-off" clauses and the "rather less strict criteria" that were appropriate for the construction of standard form contracts in respect of which a high degree of legal certainty for the relevant market was required. In such cases where there was a standard form contract operating in a market (implicitly overseen by English courts according to English law) Lord Diplock said at 743: "But leave should not be given even in such a case, unless the judge considered that a strong prima facie case had been made out that the arbitrator had been wrong in his construction; and when the events to which the standard clause fell to be applied in the particular arbitration were themselves 'one-off' events, stricter criteria should be applied on the same lines as those that I have suggested is appropriate to 'one-off' clauses."

[91]

In this context, the importance of standard form contracts in the operation of commercial markets and the role of the courts in the support thereof by clarity and consistency had, only four years before in 1977, been lucidly and commandingly expressed by his Lordship in Federal Commerce & Navigation Co v Tradax Export SA (The 'Maratha Envoy' ) [1978] AC 1 at 7-8. 127 What therefore has to be shown, as a first step, is that there was strong evidence, in the sense of a strong prima facie case, that the arbitrators were wrong in law. Only if this exists does one move on to the additional consideration as to whether the determination of the question (of law) may or may be likely to add substantially to the certainty of commercial law. The Court needs to be careful not to downgrade the statutory requirement of "strong evidence", that is a strong prima facie case of legal error, because of the "interesting" or important legal question involved. The remit of arbitrators includes the making of errors; that is an inevitable part of any process of dispute resolution. Arbitrators may deal with "interesting" or important questions. How and what errors are to be corrected depends on the statute in question. Here, it must be shown that there is a strong prima facie case that the arbitrators were wrong on a question of law. 128 An assessment of this question at the procedural level of a leave application requires the demonstration by arguments appropriate to a leave application of a strong prima facie case of legal error. The restriction of argument to a form appropriate to a leave application is not restricted to "manifest error". It might be obvious that in that context argument would necessarily be short. It might also be that a strong prima facie case of error requires the display of something more than obvious error. Nevertheless, it is the evidence of a prima facie case of error that is required to be strong. The longer the debate that is required to demonstrate the asserted error, the likely more contestable is the argument. The procedural context is again important. The strength of any argument and the strength of the prima facie case of error is not assessed after full concurrent argument on appeal. It is to be assessed by reference to argument suitable to a leave application in which the task is to assess the strength of the case for error, not decide the case for error. 129 If, as here, a public statute is involved, it may be necessary for the court hearing the application for leave to become familiar (if it is not already) with the text, structure and context of the Act and provision in question. Likewise, a familiarity with the relevant commercial subject (here, insurance and reinsurance) can be gained (if not held already). The judge hearing the application needs these matters of background. In the Commercial List they generally exist. Was there strong evidence here that the arbitrators made an error of law in respect of the point dealt with by the primary judge: the construction of the Insurance Act , s 18B ? 130 It is first necessary to say something about Part 6 of the Insurance Act and s 18B in particular. 131 Part 6 of the Insurance Act contains various provisions to protect, or otherwise give rights to, insureds. Part 6 was introduced into the Insurance Act in 1974 (ss 18, 19, 20 and 21 being inserted) and amended in 1983 (ss 18A and 18B being inserted) and 1995 (s 22 being inserted). 132 Section 18 gives a power to the court to excuse a failure by an insured to observe or perform a term or condition of the insurance. Its subject matter is now substantially dealt with by the Insurance Contracts Act 1984 (Cth) (the "IC Act"), s 54. 133 Section 19 removes any contractually binding effect on an insured of an arbitration clause, unless entered into after the dispute arose. 134 Section 20 deals with repairs to motor vehicles. 135 Sub-section 21(1) provides for a regulation making power exempting persons, classes of persons, contracts of insurance or classes of contracts of insurance from provisions of Part 6. Since the arbitration, a regulation has been made exempting reinsurance contracts from the reach of s 18B. 136 Subsection 21(2) is in the following terms: (2) Without limiting subsection (1), sections 18A and 18B do not apply to or in respect of:

[94]

140 Bazouni concerned the operation of a "basis clause". The insured, who was illiterate in English, having had all insurance withdrawn by one insurer that covered the commercial premises in question after a robbery, made application by a written proposal for a fire policy from another insurer. The proposal contained a declaration that no insurer had declined or referred renewal or cancelled insurance. The policy contained a "basis clause" under which it was agreed that the proposal "shall be the basis of the contract and be considered as incorporated herein". After a fire, the insured made a claim. The insurer avoided the policy and refused the claim because of the falsity of the declaration in the proposal. Yeldham J followed Kolokythas. The failure to comply with the general law duty of non-disclosure did not fall within s 18. Although dealt with on this basis, there were arguments before the court and comments of Yeldham J that raised doubt as to whether breach of a basis clause was the "failure to observe or perform a term" of the policy for the purposes of s 18. 141 The NSWLRC made the following comment about s 18 and basis clauses at [2.11]: "2.11 It would seem that the power of the court under section 18 to excuse a failure by the insured 'to observe or perform a term or condition of the contract of insurance' does not extend to a 'basis of contract clause'. This is because an incorrect answer in a proposal which is subject to a basis of contract clause, probably cannot be described as constituting a failure by the insured 'to observe or perform' a term or condition of the contract. The error is more accurately regarded as a failure by the insured correctly to complete a proposal, which is made the basis of the contract than a breach of a term or condition. The error may more properly be categorised as a failure on the part of the insured correctly to complete a proposal which is made the basis of the contract, than a breach of a term or condition." 142 The practical consequence of successful pleas by an insurer of failure by an insured to comply with the duty of disclosure and of breaches by an insured of a basis clause was that a policy could be avoided and claims denied for acts and omissions that were innocent and which had no causative bearing or effect on the loss in question. 143 The proposal to deal with the general law duty of disclosure was to introduce the Consumer Credit Act 1981 (NSW), s 137. This was the origin of s 18A. 144 The proposal to deal with the issue of basis clauses was to introduce the Consumer Credit Act, s 138 which was in the following terms: "138. (1) Where by or under the provisions of a contract of insurance relating to a regulated contract or a regulate mortgage that is entered into, reinstated or renewed by the debtor or mortgagor under the regulated contract or regulated mortgage with an insurer who knew or ought reasonably to have known that the contract of insurance was such a contract - (a) the circumstances in which the insurer is bound to indemnify the insured are so defined as to exclude or limit the liability of the insurer to indemnify the insured on the happening of particular events or on the existence of particular circumstances; and (b) the liability of the insurer has been so defined because the happening of those events or the existence of those circumstances was in the view of the insurer likely to increase the risk of loss occurring, the insured shall not be disentitled to be indemnified by the insurer by reason only of those provisions of the contract of insurance if, on the balance of probability (the onus of proof being upon the insured) the loss in respect of which the insured seeks to be indemnified was not caused or contributed to by the happening of those events or the existence of those circumstances. (2) The onus of proving for the purposes of subsection (1) that on the balance of probability loss in respect of which a debtor or mortgagor seeks to be indemnified was not caused or contributed to by the happening of particular events or the existence of particular circumstances is on the debtor or mortgagor."

[98]

the insured shall not be disentitled to be indemnified by the insurer by reason only of such provisions of the contract of insurance if the insured proves on the balance of probability that the loss in respect of which the insured seeks to be indemnified was not caused or contributed to by the happening of such events or the existence of such circumstances." 147 The NSWLRC accepted submissions from the Insurance Council of Australia and at [7.33] and [7.34] of its report said the following in relation to the proposed s 18B (the reference to the "ICA" being to the Insurance Council of Australia): "7.33 Exclusion Clauses - Section 138. The second amendment which we have made pursuant to the ICA submission relates to section 18B which provides a mechanism whereby an insured person may remain indemnified in the face of an exclusion clause (paragraphs 4.16 and 4.17). The ICA submission suggested that there could be circumstances in which the continuation of the obligation to indemnify because of the operation of the section would be unfair to an insurer, because, at the least, the insurer would have required a greater premium at the outset had it foreseen the cancellation of the exclusion. We did not agree with the analysis by the ICA of a hypothetical case put to us in the written submission but we do agree that the terms of section 18B could be improved. In particular, we accept that there could be cases in which there may be no nexus between a loss and an exclusion clause (thus entitling the insured under the section to remain indemnified), in which the insurer, relying upon the exclusion clause, may have been influenced in setting the premium or may even have been influenced to accept the proposal. A case which comes to mind is that of an exclusion in a motor vehicle policy declining cover where the driver is unlicensed or disqualified. A vehicle driven by such a driver may be involved in an accident in circumstances entirely due to the fault of another driver. In such a case it is unlikely that the absence of a licence could be shown to have 'caused or contributed to' the loss. Yet it might still be reasonable on policy grounds, for the insurer to rely on the exclusion. We believe that the proposed legislation should be able to accommodate this case and not preclude reliance on the exclusion where appropriate.

[99]

7.34 We can see a number of ways of improving the drafting of section 18B but for reasons already given in paragraphs 7.16 and 7.17, we think that it is preferable to retain as much harmony as possible in the relevant legislation. We have, however, come to the view that there is a sound basis for inclusion in section 18B of additional protection for insurers. We believe that this can best be achieved by a similar approach to that which underlies section 18 of the Insurance Act, 1902, namely, conferring on the courts a discretion under which the insurer could be relieved of the obligation to give indemnity when it is reasonable to do so. Accordingly, we have added to section 18B(1) the following words: unless in all the circumstances it is not reasonable for the insurer to be bound to indemnify the insured." 148 In the Second Reading Speech in the Legislative Assembly, the reform emphasised was the limitation on the right of insurers to rely on exclusions or limitations triggered by events having no connection with the loss. The Minister said: "… Once again, this proposed section will have the effect of placing the parties to the contract of insurance in a much better position when the contract is entered into. Both parties will be fully aware of their obligations to the other, and the insurer will be required to clearly state the circumstances in which it will be entitled to deny liability." 149 It is tolerably clear from this background that the statutory objective of s 18B was to remedy a perceived commercial mischief whereby insurers were able to avoid liability on claims otherwise based on exclusions or terms operative upon, or triggered by, events that had no relationship to the cause of the event giving rise to the loss and claim in question. 150 No consideration whatsoever appears to have been given to the application of s 18B (or indeed any of Part 6) to contracts of reinsurance. Though, it can be said with confidence that the debate and discussion in the NSWLRC report concerned with ss 18A and 18B was directed solely to consumer protection and not to the relationship between insurer or reinsured and its reinsurer. 151 I have set out the background of s 18B in some detail. That this detailed material may not have been before the arbitrators is not determinative of the question whether it should be examined at the point of the application for leave. The Court should assess the arguments as to the strength of any prima facie case of error against any appropriate background material for the ascertainment of meaning of a statute. That includes its legal context and object or purpose: CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; 187 CLR 384 at 408; Newcastle City Council v GIO General Ltd [1997] HCA 53; 191 CLR 85 at 112; Network Ten Pty Ltd v TCN Channel Nine Pty Ltd [2004] HCA 14; 218 CLR 273 at [10]-[11]. That said, whilst context can be essential, the task is to construe the words used by Parliament against the background of that context.

[100]

The difficulties in construction of s 18B 152 Bearing in mind the mischief to which s 18B was directed, the use of the phrase "the insured shall not be disentitled to be indemnified" accords with the notion that the provision is designed to deal with circumstances whereby cover, to which the insured was otherwise entitled, might be lost by the operation of some clause of the policy. 153 Paragraph (a), however, contemplates a definition of cover of the circumstances in which the insurer is bound to indemnify the insured. Paragraphs (a) and (b) provide for that definition of cover excluding or limiting the liability of the insurer on the happening of particular events or on the existence of particular circumstances if the happening of those events or the existence of those circumstances is, in the view of the insurer, likely to increase the risk. Thus, in the words employed by Parliament, the exclusion or limitation of cover may be in the definition of cover. 154 Where these events or circumstances occur or exist, the insured is not "disentitled" to be indemnified, by reason only of such provisions if the loss for which the insured seeks indemnity was not caused or contributed to by the happening of the events or the existence of the circumstances. 155 The section operates (if the happening of the events or the existence of the circumstances did not causally contribute to the loss) to remove the effect of provisions of the policy and, thus, to allow the policy to operate otherwise according to its terms. 156 Thus, essential to the operation of the provision is the ascertainment as to whether there is exclusion or limitation of the liability of the insurer as contemplated by paras (a) and (b). If there is, and if that would provide a partial or whole answer to the claim, the provision will not operate to disentitle the insured (in whole or in part) if it can prove the matters in s 18B (2). 157 The section does not operate by imposing statutory liability on the insurer. Rather, it operates to remove the effect of certain provisions of the policy which were part of the definition of the obligation of the insurer to indemnify, in certain circumstances, thereby allowing the policy otherwise to operate, without the effect of such provisions. 158 The section does not employ concepts such as (dominant) "scope of cover" and (servient) "exclusion" or "limitation" clauses. It operates according to its terms in the manner I have described. 159 It is important also to recognise that this was a beneficial provision intended for the protection of insureds. That benefit was in respect of the curing of the mischief which I have identified. That does not mean, however, that a limitation should be read into the provision to confine it to the precise circumstances illustrated by Kolokythas or Bazouni. Nor is the Court engaged in construing the NSWLRC report, or the Second Reading Speech. They identify the purpose, object or mischief. The words drawn to fulfil that purpose or object should be construed to give the fullest relief which a fair meaning of the words allow: Bull v Attorney-General (NSW) [1913] HCA 60; 17 CLR 370 at 384. With these considerations in mind, it can be readily accepted that the question as to whether one finds a provision of a character described by s 18B(1)(a) and (b) is a matter of substance (to which form will be relevant) and not a matter of mere form. 160 The difficulty posed by this appeal and which was before the arbitrators can be expressed in a manner referable to the argument of the reinsurers: whether s 18B can operate to extend beyond its effect on so-called exclusion and limitation clauses leaving the so-called true scope of cover to operate and to have an effect on clauses that truly reflect the so-called scope of cover, thereby extending the intended substantive reach of the policy. Was there strong evidence of error? 161 The question as to whether there was strong evidence of relevant legal error by the arbitrators should first be viewed from the perspective of the reasons of the primary judge. Was his analysis (though principally directed to manifest error) correct? In my view, it was not. The proper construction of s 18B is not without its difficulties. I have set out its pre-enactment history and its context and apparent purpose. Nevertheless, the imposition upon s 18B, or the reading into it, of a distinction between "scope of cover" and "limitation" or "exclusion" clauses is, arguably, not warranted. 162 Such a distinction based on the characterisation of the clauses in a policy does not find its source in the words used by Parliament. To the contrary, s 18B(1)(a) contemplates the scope of cover to be defined, in part, by an exclusion or limitation clause: "the circumstances in which the insurer is bound to indemnify … are so defined as to exclude or limit the liability …". 163 The absence of the distinction suggested by the reinsurers and accepted by the primary judge in the words used by Parliament is not surprising: it is one, if based only on the text of a policy, that promotes over-reliance upon form, rather than substance. For example, if an event or a circumstance is perceived to increase a risk, such can be contained in a limitation or exclusion clause with an otherwise ample insuring clause, or the insuring clause can be framed to exclude the risk. The matter is one of drafting. The point is well illustrated by the facts here. The first response of the reinsurers to what they saw as the inadequately expressed treaty wording by its omission to deal with policy reporting periods of up to three years, was to have an exclusion inserted into the treaty (in Article 5: Exclusions) excluding policies issued for periods longer than 36 months: see [47] above. They could equally have required the insuring clause to be amended. 164 If the distinction between "scope of cover" and "limitation" or "exclusion" clauses depended upon the form of the policy, the operation of the provision, avowedly for the benefit and protection of insureds would depend on the drafting policy and acuity of insurers. 165 Mr Pembroke SC disavowed such an approach based on form. He submitted that the matter was one of substance, not form. Properly understood, this was the approach of the primary judge. What was required in the application of the section was to characterise the policy and its terms to identify its true nature (the class of business) and its true scope or essence. Once that had been done, clauses limiting or removing matters from the cover could be identified. It was only to the latter provisions that s 18B spoke. Thus, here, Mr Pembroke submitted that it did not matter whether the question of policies for periods beyond 36 months was in the insuring clause or an exclusion; it went to the substance of the cover and was characterised as related to scope of cover to which s 18B did not speak. 166 Whilst it can be accepted that the notion of scope of cover and class of business are important working concepts in insurance, especially reinsurance, s 18B is concerned with all types of insurance and not merely (on the present hypothesis) reinsurance. It is strongly arguable that the drafter of s 18B and Parliament did not intend to introduce such an unexpressed distinction between scope of cover and limitation or exclusion clauses into s 18B. The just and reasonable operation of s 18B can be ensured by the application of the requirements under (b) (if the loss was not caused or contributed to by the event or circumstance) and by the overall test of reasonableness in the proviso. 167 Extreme examples were posited in argument and by the primary judge as consequences of not imposing the scope of cover / limitation or exclusion clause distinction on the proper construction of the section; for example, a fire policy might be called upon to respond to a professional indemnity risk. Such examples ignore the sensible or practical working of the text of the section. Professional indemnity risk is not covered by a fire policy, but this is so because it is a different risk described and not because the liability of the insurer is defined as to exclude or limit its liability by an event or circumstance seen by the insurer as likely to increase the risk. 168 Reliance on cases such as Burton Lommers and QBE v Commercial Union is not helpful. Those cases concerned s 18. The inutility of the distinction between scope of cover and the condition in relation to the cognate section in the IC Act, s 54 was made clear in a number of cases: East End Real Estate Pty Ltd v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400 at 403-404; FAI General Insurance Co Ltd v Perry (1993) 30 NSWLR 89; Antico v Heath Fielding Australia Pty Limited [1997] HCA 35; 188 CLR 652; Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706 (esp 722); FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (1999) 10 ANZ Insurance Cases ¶61-445 and [2001] HCA 38; 204 CLR 641. 169 I cannot agree with the primary judge that there is an inconsistency between [78]-[81] and [90]-[93] of the award reasons and that [90]-[93] are somehow wrong. Read together, these paragraphs reflect the conclusion of the arbitrators that, properly understood in its context, the 1999 treaty contained a definition of the circumstances in which the reinsurers were bound to indemnify Gordian so as to exclude or limit the liability of the reinsurers on the existence of a circumstance that an underlying policy provided for a reporting period of more than three years, the liability being so defined, because that particular circumstance was in the reinsurers' view likely to increase the risk of loss occurring rather than if the policy had provided a reporting period of three years or less. 170 That approach that was employed by the arbitrators involves an entirely arguable construction and application of s 18B. It does not involve the requirement of any antecedent question as to whether the restriction on cover (to use a neutral term) was properly characterised as referable to "scope of cover" to which s 18B did not speak or "exclusion" or "limitation" of cover to which s 18B did speak. 171 The broad construction placed on s 18B by the arbitrators is supported in particular by at least two factors: first, it employs, without gloss, the words chosen by Parliament without the need either to rely on the form of restriction chosen by the insurer or to answer a question of characterisation not expressly found in the section; and, secondly, it gives the most complete remedy that such language permits in aid of a beneficial section. 172 For these reasons, I am of the view that the primary judge was wrong to conclude that there was strong evidence (in the sense of a strong prima facie case) that the arbitrators misunderstood or misconstrued s 18B. 173 If I be wrong about that, and there was a strong prima facie view that the arbitrators were wrong about their construction of s 18B, leave would have been correctly granted by the primary judge. I would accept that the proper construction and interpretation of the Insurance Act, s 18B was the determination of a question that may add or may be likely to add substantially to the certainty of commercial law. The contrary was submitted by Gordian, but in my view judicial exposition of the meaning of a provision affecting the operation of insurance markets in Australia plainly satisfies that criterion. This is so even if much of the work of the Insurance Act is undertaken by Commonwealth law: the IC Act, the Marine Insurance Act 1909 (Cth) and the Life Insurance At 1995 (Cth). 174 It would then (and only then) be necessary to deal with the question of the proper construction of s 18B on the appeal and the appropriate remedial consequences based on that construction. I will come to this in due course.

[102]

Concluding that the loss was not caused by the events or circumstances 179 The reasons of the arbitrators in this regard were in [92] of their reasons. The arbitrators concluded that the loss in respect of which Gordian sought to be indemnified "namely, its liability on the 3-year claims" was not caused or contributed to by the existence of the circumstance that the FAI D&O run-off policy covered claims within a reporting period of more than three years, because the claims were made and notified within three years of inception. 180 There may, perhaps, be seen to be an error in this approach. There was an underlying policy; it provided for more than a three year reporting period; it can be said that the existence of such a policy was the relevant circumstance; the claims to be met by the reinsurance came from that policy, irrespective of whether they were reported within three years. In that sense, the loss in respect of which Gordian sought to be indemnified might be seen to be caused or contributed to by the existence of the circumstance - the policy with a reporting period of more than three years. But for the existence of the policy (with a seven year reporting period) there would have been no claims on the reinsurers. 181 That is not how the arbitrators approached the question. They viewed the relevant aspect of the FAI policy as creating the risk, as the existence of the extended reporting period in the fourth to seventh years. That circumstance, which increased the risk of loss occurring, did not cause the loss, because all the claims were within three years. This approach tended to emphasise the relevance of the underlying claims against FAI within the three years, rather than the connection between the existence of the (seven year) policy and (any) claims under it. 182 It can be accepted that it was arguable that the arbitrators erred. Nevertheless, there was a contrary argument. The error that might be seen to be available does not fall into the description of the necessary errors for s 38(5)(b)(i) or (ii) for at least the following reasons. First, the question is one of causation of loss and as such is not a question of law. 183 Secondly, if there be an error of law, it is neither manifest nor strongly arguable as such. The reasoning of the arbitrators identified the loss as Gordian's liability under its policy. Nevertheless, they concluded that the circumstance being the policy reporting period of more than three years did not cause the loss because the claims were made on Gordian within three years. A but-for analysis tends to gainsay this approach. But such a but-for analysis can be seen to be founded upon the reinsurance being a form of separate liability insurance. The conventional analysis is to characterise reinsurance by reference to the underlying subject matter, the insurable interest of the reinsured being its exposure under the original insurance: Wasa International Insurance Co Ltd v Lexington Insurance Co [2009] UKHL 40; [2010] 1 AC 180 at [33]. The approach of the arbitrators can be seen as not having this "but-for flaw", if one views the loss for s 18B as the underlying claims and, as such, not having been caused by the existence of the circumstance in question - the extended reporting period beyond three years. This conclusion would not make s 18B inapplicable (as contended for by the reinsurers), rather it would simply lead to the conclusion that the causal relationship was not present. 184 Thirdly, the approach of the arbitrators can be seen as viewing the operative circumstances as the length of the reporting period greater than three years as being the circumstance that increases the risk. This is the better interpretation of [92] of the arbitrators' reasons. The "particular circumstance" is not the issue of the FAI policy as a unitary policy, but rather the fact that the policy had the extended reporting period from the fourth to the seventh years. Viewed thus, the arbitrators' reasoning is defensible. 185 Fourthly, determination of the question would not add or be likely to add substantially to the certainty of commercial law. 186 The reinsurers also complained that this part of the reasons of the arbitrators lacked adequate reasons. I cannot agree. Though succinct, and perhaps to a degree translucent, the reasons reveal sufficiently the approach of the arbitrators. The reinsurers were able to understand the reasons of the arbitrators as can be seen from their written submissions before the primary judge that described the reasoning of the arbitrators with sufficient detail to enable criticism to be made of it. Even applying the standard for arbitrators' reasons laid down by the Court of Appeal of Victoria in Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255; 18 VR 346 the reasons are adequate in that they indicate to the parties why the arbitrators reached the conclusion to which they came. In these circumstances, it is unnecessary for this issue to consider the correctness of Oil Basins.

[103]

Not concluding that it was unreasonable for the reinsurers to be found to indemnify 187 At [88] of the reasons for the award the arbitrators expressed their view as to the reasonableness and fairness of their approach. 188 This question is one of evaluation and fact. Subject to the question of reasons, to which I will come, this was not an error of law. 189 The reinsurers submitted that the (factual) findings of the arbitrators compelled the conclusion that it was not reasonable for the reinsurers to be bound to indemnify Gordian. That is a factual question. It was not submitted (nor could it have been) that there was no evidence to support the conclusion reached by the arbitrators. The conclusion was an evaluative one made by the arbitrators. Even if illogical or even perverse (which I am not persuaded it was), it was factual: Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139, it being the case that the arbitrators did not misdirect themselves as to the correct question. 190 The reinsurers submitted that the error of law was the failure to give adequate reasons for the conclusion. I will come to the substance of this complaint shortly. 191 The consequence of this asserted legal error (lack of reasons) was, it was submitted, the entitlement of the Court to substitute its own conclusion on the (factual) question whether, even if s 18B applies, it is not reasonable that the reinsurers be bound to indemnify Gordian. 192 That approach should not be accepted. If it be available legally under the rubric of the power contained in the CA Act, s 38(3)(a), a matter strongly open to debate, it would be entirely inappropriate, in my view, for the Court to impose its own view of an evaluative fact bound up with insurance practice, when the matter could be (on this hypothesis) remitted to the experienced arbitrators for further reasons. 193 Further, there was no manifest error or strongly arguable error. The arbitrators had all the facts before them and made an evaluative judgment as to reasonableness. The assessment is one which encompasses an understanding of the policy and the purpose of s 18B. The arbitrators dealt with these matters throughout their reasons. 194 Nor would a determination of this question add substantially to the certainty of commercial law, it being a primarily fact and context specific analysis and evaluation. 195 The only complaint made by the reinsurers to the primary judge about this aspect of the award reasons was that there were inadequate reasons applying the test in Oil Basins. This submission was repeated in this Court. 196 The reinsurers submitted that it was an error of law for the arbitrators to have failed to express their reasons as to the application of the proviso, there having been detailed submissions by the reinsurers on the issue. Those submissions focussed upon the unwillingness of the reinsurers to accept risks on underlying policies of greater than three years, and on the otherwise exceptional nature of the FAI D&O run-off policy (apart from the length of the reporting period). 197 Before turning to the question of the adequacy of reasons, it should be stated that the reasons of the arbitrators reveal a comprehensive appreciation of the underlying factual material, including the matters upon which the reinsurers' submissions focussed in this regard and referred to in the preceding paragraph. 198 The conclusion as to reasonableness was an ultimately evaluative task after all relevant facts had been found. As such, even assuming that the arbitrators had an obligation to give reasons to the standard of a judge (to which proposition I will come), it was open to the arbitrators to state an evaluative conclusion as they did: see Pacific Steel Constructions Pty Ltd v Barahona [2009] NSWCA 406 at [139]; Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378 at 386 D-E; Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 270 E-G, 271-273, bearing in mind, however, the valid point made by McHugh JA at 218 C-D about Selvanayagam v University of the West Indies [1983] 1 WLR 585. The reference to Selvanayagam by Mahoney JA in Soulemezis retains some value. It can be seen to assist in the support of the proposition that if a discretionary or evaluative task of a necessarily conclusory character is undertaken and it is clear what are the found facts from which, or in respect of which, the evaluative conclusion is drawn, it is not generally necessary to identify the particular influence measured in terms of weight of each and every integer bearing upon that evaluative conclusions. See also Najdovski v Crnojlovic [2008] NSWCA 175; 72 NSWLR 728 at 732-733 per Basten JA (with whom I agreed) and Container Terminals Australia Ltd v Huseyin [2008] NSWCA 320 at [6] per Basten JA. This is especially the case in circumstances where there was no right of appeal on questions of fact, the extent of reasons being related to the function to be served by their being given: Soulemezis at 273. As Tobias JA (with whom Beazley JA and McClellan CJ at CL agreed) said in Sasterawan v Morris [2008] NSWCA 70 at [34]: "In a case such as the present where there was no right of appeal from the decision of the primary judge, the critical determinant as to whether the primary judge's reasons were sufficient was whether they were so inadequate as to render the decision unintelligible to the reader and/or whether the absence of an explicit finding by the primary judge in relation to the defences raised by the claimant suggests that those defences were not considered."

[104]

199 The reinsurers relied on Oil Basins. It was argued that the decision of the Court of Appeal in that case required the arbitrators to do more than set out their evaluative conclusions after making the findings they did, in particular in the light of the submissions before the arbitrators. The relevant proposition from Oil Basins relied upon in argument was that the requirement for reasons as provided for by the CA Act, s 29(1)(c) was a statutory importation of the same standard that applies to a judge in Australia: Oil Basins at 363-366 [49]-[54] and especially 364 [50]. It is not, with respect, entirely clear that that is what the Court in Oil Basins found. That was, however, the submission as to the effect of the decision in Oil Basins. In [50], the Court stated that the terms of s 29(1)(c) ("to that extent") contained a requirement that was no different to that which applies to a judge." (The same proposition was stated by Kirby P in Warley (1992) at 305 in an obiter dictum that s 29(1)(c) "appears to be equivalent to the common law obligation imposed on judicial officers to provide such reasons.") 200 If I be incorrect that the evaluative conclusion required no further explanation by way of reasons by reference to the standard of judicial decision making, the proposition in Oil Basins needs to be examined. 201 The decision of the Court of Appeal of Victoria in Oil Basins should be followed by this Court in a matter of the interpretation of a statute intended to be uniform in the States and Territories of the Commonwealth unless this Court comes to the considered view that it is plainly or clearly wrong. The meaning of "plainly wrong" was considered in Gett v Tabet. The question involves the conviction that the decision is wrong. If that conviction is reached other considerations may arise affecting whether the later Court will give effect to the view to which it is clearly persuaded and convinced: see Gett v Tabet at [296]-[301]. 202 The examination of the relevant proposition from Oil Basins does not require consideration as to whether the particular conclusion reached in Oil Basins about the reasons of the majority arbitrators was wrong or not. 203 The CA Act, s 29(1) provides as follows: "(1) Unless otherwise agreed in writing by the parties to the arbitration agreement, the arbitrator or umpire shall:

[109]

207 With great respect, it is far from clear that the UNCITRAL Model Law required more stringent reasons than required under the 1979 Act and, if so, to what extent. The words of s 29(1)(c), which reflect the expression in the Model Law, Art 31(2), which was based on the UNCITRAL Arbitration Rules, Art 32(3) and which is now reflected in the Arbitration Act 1996 (Eng) (the "1996 Act "), s 52(4), should be viewed against the context of the compromise embodied in the Model Law and against the background of international commercial arbitration. 208 The compromise in the Model Law was not between those who thought arbitrators' reasons should reach the standard of detail of a judge in the common law system and those who thought some lesser standard was called for. Rather, it was a compromise between national laws requiring reasons and those not requiring any reasons: see HM Holtzmann and J E Neuhaus A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (1989, Kluwer) at 837-838; First Working Group Report on the Model Law A/CN.9/216 at para 80; Seventh Secretariat Note A/CN.9/264, Art 31 para 3; P Binder International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions (3rd Ed, 2010, Sweet & Maxwell) at 354. 209 There is no record in the discussions leading to the framing of the Model Law of a desire of any nation to raise the standard required of arbitrators to those of judges in the common law systems giving reasons, in particular, in circumstances where issues of fact and law were appellable by way of rehearing. 210 No national law can be identified leading up to the agreement on the Model Law in which arbitrators were by law required to give reasons commensurate with a judge in a common law system. Mustill and Boyd's statement at 377-378 reflects English law prior to the enactment of the Model Law. That statement was as follows: "The 1979 Act calls for the arbitrator to state his reasons, not his reasoning. The practice should in general be as follows - 1. The award should set out all the facts necessary for a decision by the Court on the question of law. 2. The award should not set out the evidence from which the arbitrator has deduced his findings of fact. These findings are not open to review, so that a statement of the evidence will serve no useful purpose. On the contrary, it may cause confusion, since the Court may not be sure how much of the evidence has been accepted by the arbitrator. 3. The arbitrator should explain briefly how he arrived at his own decision on the question of law. In particular, if his chain of reasoning includes a conclusion of mixed fact and law - for example that the contract was frustrated on a particular date, or that a notice was given within a reasonable time, the arbitrator should state his conclusion in the award, for then it will carry considerable weight on the hearing of the application for leave to appeal. 4. Where a party has argued for a finding of fact with which the arbitrator does not agree, the award should state explicitly that the allegation has not been proved. Otherwise there may be a suggestion that the matter has been accidentally overlooked. 5. If the arbitrator's conclusion is supported by more than one reason he should set out each of his reasons, and not just one. Unless this is done, there is a risk that, if the Court is minded to give leave to appeal on the one reason which he has given, the award may have to be remitted for further reasons on the point which he has not decided." 211 Reference to international authority is legitimate, not only to understand the Model Law, but also the CA Act, s 29(1)(c) given its inspirational source in this respect in the Model Law. Binder op cit at 359, refers to three authorities on Art 31(2), two Canadian and one German. None gives apparent support for the proposition that Art 31(2) of the Model Law required reasons of a standard expected by law of a judge in a common law jurisdiction. The German authority from the Hanseatisches Oberlandesgericht (Hamburg) 8 June 2001 stated as follows (see Binder op cit at 359): "In the court's view in this case, the respondent's right to be heard was not infringed through the allegedly incomplete discussion of the respondent's essential arguments in the reasoning of the award. Such a defence was only available where he reasoning as required under art.31(2) of the Model Law was entirely lacking content senseless or contrary to the main body of the decision, amounting de facto to a complete lack of reasoning." 212 The nations which tended to require reasons and which brought that requirement to the Model Law negotiations were often civil law countries where, in some countries at least, the duty to give reasons was considered a rule of international public policy: J-F Poudret and S Besson (translated by S Berti & A Ponti) Comparative Law of International Arbitration (2nd Ed, 2002, Sweet & Maxwell) at 667. Yet, that rule in operation was at times expressed by saying that the reasons can be confined to a summary justification, in fact and in law, of the tribunal on the issues to be determined so as to allow a party to understand the main reasons supporting the decision and to assess the possibilities of appeal, without necessarily addressing all the arguments advanced: Poudret and Besson op cit at 671 ff discussing the European position. 213 A perusal of the contemporary writings on commercial arbitration, in particular international commercial arbitration does not identify any express support for the standard of reasons in Art 31(2) to be that of a judge in a common law system. (See generally: Binder op cit at [6-074]; A Redfern & M Hunter Law and Practice of International Commercial Arbitration (4th Ed, 2004, Sweet & Maxwell) at 381-384; A Walton & M Vitoria Russell on the Law of Arbitration (20th Ed, 1982, Stevens & Sons Ltd) at 291-292; Mustill & Boyd op cit at 377-379; Holtzmann & Neuhaus op cit at 837-838; E Gaillard & J Savage (Eds) Fouchard Gaillard Goldman on International Commercial Arbitration (1999, Kluwer Law International) at 590 and 763; M Rubino-Summartano International Arbitration Law (1990, Kluwer Law and Taxation Publishers) at 437; J Lew et al Comparative International Commercial Arbitration (2003, Kluwer Law International) at 648-649; Jacobs op cit at [28.20]; Poudret & Besson op cit at 666-673; J Parris Arbitration Principles and Practice (1983, Granada) at 141; P Rowland Arbitration Law and Practice (1988, Institute of Chartered Accountants in England and Wales in association with Sweet & Maxwell) at 75-76; A Tweedale & K Tweedale Arbitration of Commercial Disputes: International and English Law and Practice (2005, Oxford University Press) at 341-342 and 866-867; J Tackaberry & A Marriott Bernstein's Handbook of Arbitration and Dispute Resolution Practice Vol 1 (4th Ed, 2003, Sweet & Maxwell) at 347-348; R Merkin Arbitration Law (2004, LLP) at 718-720; Lord Bingham "Reasons and Reasons for Reasons: Differences Between a Court Judgment and an Arbitration Award" (1988) 4 Arbitration International 2, 141 at 152-154 and (1997) 16 The Arbitrator 19; Sir Harry Gibbs "Reasons for Arbitral Awards: the John Keays memorial lecture, Sydney 7th September 1988" (1988) 7 The Arbitrator 3, 95-130; P Gilles & N Selvadurai "Reasoned awards: How extensive must the reasoning be?" (2008) 74 Arbitration 125-132). 214 The history of the development of the uniform commercial arbitration legislation in Australia reveals the same compromise on reasons. A number of States prepared reports on commercial arbitration. Some suggested that there be no requirement of reasons in aid of finality. Others suggested reasons should be required. See generally the discussion in the NSWLRC Report on Commercial Arbitration (LRC 27 1976) at 169-170. The compromise reached under the auspices of the Standing Committee of Attorneys-General ("SCAG") that can be seen in the uniform CA Acts was that a statement of reasons was required. The documents reflecting the reaching of this compromise in SCAG are not publicly available.

[110]

215 The Privy Council (comprising Lord Nicholls of Birkenhead, Lord Cooke of Thorndon, Lord Clyde, Lord Hutton and Lord Millett) in 2001 in a Turks and Caicos Island appeal, Bay Hotel and Resort Ltd v Cavalier Construction Co Ltd [2001] UKPC 34, expressed the English position as to what is a reasoned award since the 1996 Act as governed by what Donaldson LJ had said in Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2) [1981] 2 Lloyd's Rep 130 at 132-133, as follows at [25]: "All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is. That is all that is meant by a 'reasoned award'." 216 The underlying difference between arbitration and court litigation should be borne in mind at all times: see in particular the article by Lord Bingham "Reasons and Reasons for Reasons: Differences Between a Court Judgment and an Arbitration Award" op cit. Though courts and arbitration panels both resolve disputes, they represent fundamentally different mechanisms of doing so. The court is an arm of the state; its judgment is an act of state authority, subject generally in a common law context to the right of appeal available to parties. The arbitration award is the result of a private consensual mechanism intended to be shorn of the costs, complexities and technicalities often cited (rightly or wrongly, it matters not) as the indicia and disadvantages of curial decision making. 217 That some difficult and complex arbitrations tend to mimic the procedures and complexities of court litigation may be a feature of some modern arbitration, but that can be seen perhaps more as a failing of procedure and approach rather than as reflecting any essential character of the arbitral process that would assist in a conclusion (erroneous in principle) that arbitrations should be equated with court process and so arbitrators should be held to the standard of reasons of judges. 218 Subject to agreement to the contrary, there is, however, a requirement for a reasoned award in arbitration. As expressed by the Model Law, Art 31(2) and the CA Act, s 29(1)(c), it is a statement of reasons for making the award, not a statement of reasons for not making a different award. The essential requirement mandated by s 29(1)(c) and Art 31(2) is a statement of reasons for making the award that was made. This will require a statement of factual findings and legal or other reasons which led the arbitrators to conclude as they did. These provisions do not in terms require the arbitrators to resolve other issues or deal with other matters not necessary to explain why they have come to the view that they have. What is required in any particular case may be a question open to debate. However, nothing in the terms of the Model Law or in the reported history of its negotiation or in any contemporary writings of jurists, practitioners or scholars from before agreement on the Model Law to the present day leads to the legitimacy of any conclusion that Art 31(2) (and so the CA Act, s 29(1)(c)) mandates in law a standard of reasons equivalent to those required of a judge at common law, in particular one subject to appellate review on questions of fact and law. 219 The Model Law, Art 31(2) and the CA Act, s 29(1)(c) do not say that the arbitrator must deal with every substantial argument put forward by the contending parties. Nor do they state that the arbitrator should state the evidence from which he or she draws his or her findings of fact and give reasons for preferring some evidence over other evidence. 220 The reasons required are those for making the award. To the extent that a crisp summary of that is required, I would adopt the statement of principle of Donaldson LJ in Bremer v Westzucker employed by the Privy Council as recently as 2001. That the language in s 29(1)(c) describes at one level what a judge does and is obliged to do does not as a matter of language or logic impose all the obligations upon judicial officers in this respect on to arbitrators. 221 The above is not inconsistent with what the High Court (Mason, Wilson, Brennan, Deane and Dawson JJ) said in Askew v Fields [1985] HCA 4; 156 CLR 268 at 270-271 in relation to the Arbitration Act 1902 (NSW), s 12 that "arbitrators are bound to decide the issues submitted for their determination." This is a statement of the requirement to fulfil the contractual task. In doing so, they must comply with s 29(1)(c). 222 The above is sufficient to explain why I disagree with the view of the Court in Oil Basins if that conclusion can be taken from the reasons that the legal obligation of an arbitrator to give reasons is to be equated with a judge in the common law system. It is unnecessary to discuss the particular requirements of individual circumstances other than those obtaining in this case, or the many cases on the adequacy of arbitrators' reasons in the context of particular facts, such as Transcatalana de Commercio SA v Incobrasa Industrial Commercial Brazileira SA (The 'Vera') [1995] 1 Lloyd's Rep 215; Universal Petroleum Co Ltd v Handels und Transport GmbH [1987] 1 Lloyd's Rep 517; Ascot Commodities NV v Olam International Ltd [2002] CLC 277; Checkpoint Ltd v Strathclyde Pension Fund [2003] EWCA Civ 84; World Trade Corp Ltd v C Czarnikow Sugar Ltd [2004] EWHC 2332 (Comm); Protech Projects Construction (Pty) Ltd v Al-Kharafi & Sons [2005] 2 Lloyd's Rep 779; Petroships Pte Ltd v Petec Trading & Investment Corp of Vietnam (The 'Petro Ranger') [2001] 2 Lloyd's Rep 348; Hawk Shipping Ltd v Cron Navigation Ltd [2003] EWHC 1828 (Comm); and Torch Offshore LLC v Cable Shipping Inc [2004] 2 Lloyd's Rep 446. 223 On the test in these cases, and in particular in Bremer v Westzucker applied in Bay Hotel, the arbitrators gave adequate reasons. 224 To the extent that it is necessary for the reinsurers to rely on Oil Basins to make out an argument that the arbitrators were obliged to refer specifically to the arguments of the reinsurers in relation to reasonableness I am persuaded to the point of conviction that it is wrong to equate the obligations of judges and arbitrators to give reasons as part of the ascription of meaning to the CA Act, s 29(1)(c). This is because of my view that so to equate the responsibilities of arbitrators and judges is not in accordance with the content of either s 29(1)(c) or the Model Law (being relevantly its source and inspiration) or with international arbitration practice as reflected by the cases and writing to which I have referred. To the extent that the Court of Appeal in Oil Basins can be seen to have so decided in relation to s 29(1)(c), I am of the respectful view that such view is plainly or clearly wrong and should not be followed. To the extent that there is a choice involved in taking that course by reason of the kinds of factors discussed in Gett v Tabet at [296]-[301], I would make that choice because of the importance of the issue, not only to the CA Act, but also to the Model Law. This produces inconsistency in approach between intermediate appellate courts, which is regrettable; but, in my view, the issue is of such importance as to require exposure and the taking of a different course to that in the Victorian Court of Appeal. 225 If I be wrong about the adequacy of reasons, the appropriate remedy would be to remit the matter to the arbitrators for further reasons under the CA Act, s 43. The arbitrators' conclusion in relation to the CA Act, s 22 226 The reinsurers put two arguments. The first was whether, on the facts, considerations of general justice and fairness favoured or compelled a conclusion favourable to the reinsurers. The second was whether there was an absence of reasons. 227 The first argument was not the subject of complaint before the primary judge. Further, it is a question of fact. No leave could have been granted on this ground. 228 The second argument rests on the assertion of inadequate reasons. There is, however, a point antecedent to the question of reasons that impels a conclusion that this is not a ground for leave to appeal here. 229 Neither party submitted that the arbitrators were permitted to ignore or depart from the proper construction of s 18B in their assessment of "general justice and fairness". The conclusion based on s 22 can be seen as evaluative similar to the assessment of "reasonableness", being the cognate conclusion reached in the same paragraph of the reasons for the award. 230 On the way the matter was dealt with by the arbitrators and assuming that there is no other ground of appeal available, the application of s 22 was in no way determinative of the controversy and can therefore not affect the rights of the parties. 231 Thus, even if the reasons were inadequate, no leave to appeal would be given and no remitter for further reasons would be ordered. 232 The question of the adequacy of reasons falls to be determined by reference to the analysis of the adequacy of reasons in relation to reasonableness in the proviso. For the reasons given earlier, there was no inadequacy of reasons.

[111]

The refusal of the primary judge to permit reliance on the ground that s 18B did not cover reinsurance 233 Before the primary judge, the reinsurers sought leave to appeal on the ground that the arbitrators had mistakenly applied s 18B to a circumstance of reinsurance. 234 It had been common ground between the parties at the arbitration that s 18B was applicable. This was no oversight. Gordian relied on HIH Casualty & General Insurances Ltd (In Liq) v R J Wallace [2006] NSWSC 1150; 68 NSWLR 603 in which case Einstein J concluded that the Insurance Act, s19 (and so implicitly Part 6 of the Insurance Act and s 18B) applied to reinsurance. Mr Pembroke frankly said during argument on appeal that a choice had been made at the arbitration not to contest this reliance by Gordian on Wallace. Later, perceiving an error, those advising the reinsurers sought to take the point before the primary judge. See the appeal transcript 5 November 2009 p 43 cll 1-13. 235 The point is sought to be agitated as a ground for the notice of contention in this Court in order to support the orders of the primary judge on other grounds; and as the basis for a cross-appeal to the effect that the judge should have permitted the ground to be argued. 236 Though the primary judge should have given reasons, he was correct to refuse the amendment to the Commercial List Statement and to refuse to allow this issue to be raised. 237 Putting to one side for a moment the fact that this was an application under the CA Act, s 38 for judicial review of an arbitration award and treating the matter in a fashion akin to an appeal from a court of first instance, the fact that it is a question of law not involving factual issues would not be determinative to permit the matter to be raised. The finality of litigation is important as is keeping parties bound to the cases they make at trial: Crampton v The Queen [2000] HCA 60; 206 CLR 161 at 172 [15] (Gleeson CJ) and 217 [157] (Hayne J); University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 at 483; and Coulton v Holcombe [1986] HCA 33; 162 CLR 1 at 8. In the last mentioned case four members of the High Court repeated the statement of six members of the High Court in Metwally at 483 that: "It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so." 238 Relevant to the question of allowing a new point to be raised on appeal are the interests of justice: Water Board v Moustakas [1988] HCA 12; 180 CLR 491 at 497; H v Minister for Immigration and Multicultural Affairs [2000] FCA 1348; 63 ALD 43; Branir v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 117 FCR 424 at 439-440; Multicon Engineering Pty Ltd v Federal Airports Corporation [1997] NSWCA 214; 47 NSWLR 631 at 645-646; and Della Patrona v Director of Public Prosecutions (Cth) (No 2) (1995) 38 NSWLR 257. 239 The reinsurers chose to fight on the basis they did. They should be kept to their choice. That they now regret it is not to the point. 240 The position is even clearer when one appreciates that this is judicial review of an arbitration award. There is no right of appeal. The circumstances of curial review are intended to be narrowly confined by the CA Act, s 38. There must be an "error of law" of the character in s 38(5)(b). How, one asks, can there be any error of law in a tribunal resolving a dispute by reference to the legal parameters consciously put forward by the parties? 241 There may, in some contexts, be circumstances where a tribunal cannot, even with the agreement of the parties, approach the resolution of a problem in a particular way. For instance, in Kuswardana v Minister for Immigration and Ethnic Affairs (1981) 35 ALR 186 the Administrative Appeals Tribunal had overlooked a fundamental Constitutional limitation on the section under consideration. There, an essential statutory precondition was overlooked. 242 In the context of the conduct of commercial arbitration, it is doubtful that it can be stated that an arbitrator erred by approaching a question on an agreed (but in fact legally erroneous) basis: cf Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 at [55]-[57]. Even if it can be described as an error, and even if it is an error within s 38(5)(b)(i) or (ii), arguably it did not "arise out of the award"; and, further, there is every reason to refuse leave to appeal on discretionary grounds informed by principles of the kind referred to earlier as to finality of litigation. 243 I would unhesitatingly refuse leave to raise this fresh matter on any application under s 38. The absence of reasons given the primary judge (in all likelihood reflecting an equally clear and unhesitating view) is therefore irrelevant.

[117]

The proper construction of s 18B 246 Given the full arguments of the parties, it is neither inappropriate nor inconvenient to deal with the proper construction of s 18B. In so doing, I do not repeat what I have already said about s 18B. 247 The proper interpretation of s 18B requires, of course, attendance to context as well as text. The context which I have set out points to the existence of a mischief in the operation of exclusion clauses in insurance policies in a way that was unjust: the denial of cover when a basis clause or an exclusion clause operated by reference to a factor unrelated to the cause of the loss. 248 A form of words was chosen to address that mischief. The form of words was not expressed or structured by reference to a distinction between scope of cover and exclusion or limitation clauses or by reference to basis clauses. It is true that the word "disentitled" was employed in s 18B. This, however, can be seen to be used in a descriptive sense: that the insured will be able to claim, rather than as an indicator of the essential attributes of cover. Further, the words of s 18(1)(a) and (b) contemplate the definition of cover to be dependent, in part, on the exclusion or limitation. 249 As I have earlier said, the distinction between scope of cover and exception or limitation clauses cannot solely rest on the form the policy takes. If it were so the benefit of s 18B would be placed at the mercy of drafting decided upon by insurers. 250 To deal with the question as a matter of substance, one would be required to ask in each case, whether the aspect of the wording of the policy which denies cover is truly an attribute or feature of the underlying "scope of cover" or whether it is a feature of a secondary aspect of the policy - an exclusion or limitation clause removing cover that prima facie applies. Such an analysis does not arise from the words chosen by Parliament. It adds a layer of complexity to the conceptual analysis that is not justified. 251 Irrational and capricious consequences do not necessarily arise. The whole section must be applied, including causation and reasonableness. These operate, as they were intended to, as restrictions on the operation of the provision. 252 Further, before one finds that s 18B applies, there must be an exclusion or limitation of defined cover by reference to the events or circumstances which, in the view of the insurer, would be likely to increase the risk of loss. Many aspects of coverage, have no relationship to such a view by the insurer. Rather, types of cover and limits will often be determined by factors such as the division of business (such as marine / non-marine; professional indemnity / public liability), or the availability of reinsurance or classes of reinsurance; or instructions. The words of s 18B need to be considered in their totality. 253 It was argued that the section heading to s 18B was important in the ascertainment of its meaning. The use of section headings for such a purpose is problematic: D C Pearce and R S Geddes Statutory Interpretation in Australia (6th Ed, 2006, LexisNexis Butterworths) at 161-163. In any event, the heading here does not persuade me that the imposition of a construct based on scope of cover should be imposed on the section. 254 Thus, like the arbitrators, I would not impose upon s 18B a distinction based on scope of cover. 255 If I be wrong about this, and if, as a matter of substance, it was necessary for the arbitrators to decide whether the exclusion or limitation on the definition of indemnity, by reference to the happening of the events or the existence of the circumstances, was within or outside the true "scope of cover" of the policy, that question should have been remitted to the arbitrators pursuant to s 38(3)(b) for consideration and decision. That question, if it be relevant, is one not restricted to the legal interpretation of the policy and would be of a character well-suited to the skill and experience of the arbitrators.

[121]

How to deal with "points of contention" in an appeal under the CA Act, s 38 266 The arguments of the parties raised a significant procedural issue. In the light of the fact that there was full argument and in the absence of existing Australian appellate authority it is appropriate to deal with the issue. 267 Gordian submitted that it had a right to assert any legal question in a "purely defensive way" (there being some looseness in the use of that expression) to support the award, that is the result of the arbitration. It relied on a decision of the South Australian Supreme Court (Besanko J) in Décor Ceilings Pty Ltd v Cox Constructions [2005] SASC 146 and on comments of Lord Steyn in Vitol SA v Norelf Ltd (The 'Santa Clara') [1996] AC 800 at 813-814. 268 The reinsurers submitted that the Court had no jurisdiction to entertain the so-called "points of contention". It characterised each of the points as, in substance, a ground of appeal; and it characterised the points collectively as, in substance, a cross-appeal. Since each of the points seeks to attack a factual conclusion of the arbitrators (in each case by arguments said to raise a question and an error of law), the only mechanism to do so, it was said, was to seek leave to appeal under s 38 by way of a contingent appeal. Further, it was submitted that Décor did not help the reinsurers as Besanko J had limited his reasons to circumstances where there was no attack on findings of fact in the notice of contention and his Honour also refrained from commenting upon a notice of contention of a respondent dealing with grounds where the appellant had been successful or the respondent unsuccessful. 269 Gordian responded by submitting that s 38 provided for appeals against an award, not against findings made in the reasons for the award. 270 The arguments about the correctness of permitting points of contention by reference to Décor and The 'Santa Clara' at times descended to a comparative analysis of the different rules of court in question. Rule 97.08 of the South Australian Rules conferred on a respondent to an appeal a right to file a notice of contention. Besanko J, with respect, correctly concluded that the rule could not operate contrary to the (South Australian) CA Act. In The 'Santa Clara', Order 73 r 5(9) of the Rules of the Supreme Court conferred a right to file a notice of contention. UCPR r 50.10 applies to cross-appeals, but not to proceedings in the Commercial List: r 50.10 (5). UCPR r 50.11 applies to notices of contention, but does not apply to proceedings in the Commercial List: r 50.11 (4). 271 I do not think that the issue should be resolved by the niceties (or otherwise) of the construction of the rules of court. The CA Act is a piece of State legislation enacting uniform national policy. It should be construed in that light. Part of that policy is to restrict and limit appeals against arbitration awards. Another policy that inheres in all aspects of the administration of justice is the avoidance of capricious or unjust results. It was this latter point to which both Besanko J and Lord Steyn were directing themselves in Décor and The 'Santa Clara'. In The 'Santa Clara', Lord Steyn said at 813-814: "The question whether section 1(7) applies to a respondent must be considered on the basis that the respondent requires no leave to appeal in order to argue that the award ought to be upheld on a ground different from the ground on which the arbitrator made his award. Given that the respondent requires no leave to appeal, it seems wholly implausible that the legislation would seek to impose on him a procedural barrier of a section 1(7) certificate by way of a subsection introduced by the words 'No appeal shall lie …' The contextual scene of section 1(7) further shows that no such procedural barrier was intended in the case of a respondent. Under the stated case procedure, which existed before the Act of 1979, a respondent who wished to argue that the award should be sustained for reasons not expressed or fully expressed in the award or not considered or upheld at first instance did not have to obtain a certificate of the type envisaged by section 1(7). The idea that in 1979 the legislature intended to make the position of a respondent, who had an arbitration, more difficult by requiring him to obtain a certificate under section 1(7) before he would be permitted on appeal to the Court of Appeal to defend the award on other grounds is convincingly refuted by the history and policy of the Act of 1979. The primary purpose of the Act of 1979 was to reduce the extent of the court's supervisory jurisdiction over arbitration awards. It did so by substituting for the special case procedure a limited system of filtered appeals on questions of law. The change was intended to tilt the balance toward greater emphasis on the finality of arbitration awards. Now postulate a respondent in the Court of Appeal who at first instance won on the main point but lost on a sound alternative argument. He loses on the main point on appeal. If he requires a certificate to argue the alternative case there is a risk that he may not obtain a certificate. A perfectly good award may then be set aside. In a very relevant sense such a risk would imperil the finality of arbitration awards. It would also be a manifestly unfair consequence in cases when the respondent has a good alternative argument which does not pass the test of being a question of general public importance, eg the construction of a 'one off' exception clause. And it is no answer to say that in some cases a judge may grant a certificate for some other special reasons. Recognising the force of these arguments counsel for the buyers said that the policy of section 1(7) was the improvement of English commercial law and that any injustice to a respondent was the price of the policy. I am reminded of irreverent observations of Lord Devlin about a similar argument. He said: 'So there must be an annual tribute of disputants to feed the minotaur. The next step would I suppose, be a prohibition placed on the settlement of cases containing interesting points of law:' see Devlin, The Judge , (1979), p 106."

[122]

272 Accepting these considerations, one must return to the terms of s 38. What, if anything, can a respondent raise? As a respondent to an application for leave to appeal, the consideration as to whether leave should be granted could be affected by arguments directed to s 38(5)(a) and the general discretion that the award was otherwise correct. 273 Once leave is granted to the appellant, can the respondent seek to uphold the award otherwise? The terms of powers of the Court's jurisdiction in s 38(2) and the powers of the Court in s 38(3)(a) and (b) assist in the answer to this. The Court has authority to hear an appeal "on any question of law arising out of the award" and the award may be confirmed or varied or remitted to the arbitrator with an answer to the question the subject of appeal. 274 Consider an award remitted under s 38(3)(b) for reconsideration. With the Court's opinion, the reconsideration by the arbitrator may lead to a different award, the balance of the issues not being reagitated (if they have not been). The erstwhile respondent to the appeal will or may now find itself in the position of an applicant for leave to appeal based on aspects of the (new) award that were present in the old award about which it previously did not complaint because it had an award in its favour. Its application for leave will be governed by s 38(5). The process might go on ad infinitum. Such is no way to conduct judicial review of arbitration awards with despatch and finality. 275 The Court's authority is not to hear an appeal against an award, but to hear an appeal "on any question of law arising out of the award". This phrase identifies the scope of the appeal. (It is unnecessary to refer to the many statutory contexts in which "appeals" on, or by reference to, questions of law are limited from tribunals: see generally B & L Linings Pty Ltd v Chief Commissioner of Stamp Duties [2008] NSWCA 187 and the Court of Appeal webpage "NSW Statutory Appeals and Referrals on Questions of Law".) The framing of the Court's authority in this way means that if there are complaints on questions arising out of the award, leave should be sought and obtained. A party content with an award has, of course, no reason to complain about questions that may arise out of the award, unless the award is to be interfered with. One way of looking at the operation of s 38 is that once leave to appeal is sought against a respondent, the respondent is in a position to raise, contingently, questions of law arising out of the award of which it would complain if the appellant is permitted to make its complaints on appeal. Thus, in the related leave applications, the questions about what is said to be wrong with the award can be ventilated by reference to s 38(2), (4) and (5). Such complaints as to error by the arbitrators can then be ventilated in the appropriate context: an application for leave to appeal "on a question of law arising out of an award". 276 Assuming leave is given, and refused in relation to such issues, the appeal proceeds only on the issues upon which leave is granted. On this way of looking at the operation of s 38, it would be wrong to permit the appellant or respondent to rely on points in a notice of contention upon which leave to appeal was refused. 277 The above, however, may not be exhaustive of the universe of considerations. If a respondent to an appeal can point to questions upon which the arbitrator could have found in favour of the respondent notwithstanding the hypothesised error, but which were not dealt with in the reasons for the award, such questions may affect the relief to be granted. These would not on one view "arise out of the award". These would be truly "defensive" matters (to use the language of Besanko J in Décor) not dependent on any complaint about the arbitrators' reasons and restricted to a question of law not dependent on overturning any findings of fact. Section 38(3)(b) only permits the remitter of awards together with the Court's opinion on the question of law the subject of appeal. It does not permit a remitter to find further facts relevant to the operation of a legal principle raised in a notice of contention. Section 43, however, may permit that. 278 This approach is substantially in accordance with the submissions of the reinsurers that complaints of the character contained in Gordian's points of contention are complaints that give rise to an entitlement to seek leave to appeal on an question of law arising out of the award. 279 Whether or not an otherwise satisfied respondent should have its award taken away because the error made against the interests of the appellant satisfies s38(5) but the error or errors made against the respondent do not, is to be answered by the proper construction of s38. The section plainly leaves mere questions of fact outside the authority of the Court. This was accepted in argument by Mr Jackman (who made a similar concession as to questions of mixed fact and law). 280 The section should be construed in a manner likely to promote the restricted interference by courts with arbitral awards. To the extent that review is to be permitted by leave, such review should take place promptly and efficiently. The consequence of this is that parties who wish to complain about questions of law arising out of an award must obtain leave to appeal. The circumstances for making such application may not arise until another party to an award seeks leave to appeal on any question of law arising out of an award and so seeks to upset the award. Nevertheless, when it does arise, leave should be sought if a complaint about a question arising out of the award is to be made. There may need to be amendments to UCPR Part 47 dealing with appeals under the CA Act. Rule 47.4 limits the time for appeal to 28 days. This may not allow a respondent time to apply in a responsive way. At the moment, the matter is left in the Court's general power to extend time. 281 The alternative is to give an unrestricted right to the respondent to assert any error of law by the arbitrator, including the kinds of error to which I am about to come (factual findings asserted to be made without adequate evidential foundation and the construction of documents). Such a course would broaden the scope and range of curial review of arbitral awards unconstrained by any leave requirement and would be legitimate only through the remedial provision in s 38(3). Further, and potentially still more destructive of the limits on curial review, the appellant may wish to meet these questions of law in the respondent's notice of contention, with arguments of other legal error of the arbitrators, and so on and so forth. 282 The leave requirement in s 38 should not be seen as a mere gateway through which one party must pass and if it is successful the respondent (and perhaps even the appellant) may then attack the award on legal questions without restriction. The purpose of s 38 was to restrict judicial intervention. It should be construed to further that purpose. Complaints about the award and the reasons for it, whether primary or contingent, should be made by way of application for leave to appeal on any question arising out of the award. This may leave legal questions not dealt with by the arbitrator as capable of being raised in the appeal in order to persuade the court to some conclusion about remedy. But, if they arise out of the award, leave should be sought and if refused the point is not available in the appeal. This way of looking at the operation of s 38 makes it all the more important to hear the leave application or applications separately and before any appeal.

[124]

285 The terms of s 38(5)(b)(ii) are such that it cannot be gainsaid that evidence may be brought to persuade the court of the existence of an error of law by the arbitrator. The existence of such an error, however, is one of the things of which the Court must be satisfied to grant leave on a "question of law arising out of the award". The error of law must be one relevant to such a question of law. The express permission to adduce evidence to reveal the existence of such an error of law must mean that the procedural approach in The 'Barenbels' and Universal Petroleum of not permitting evidence beyond the reasons for the award to demonstrate relevant error cannot be maintained under the CA Act. Nevertheless, s 38(5)(b)(ii) does not say anything as to types of error of law or question of law in respect of which leave may be sought. Section 38 remains hinged around "questions of law arising out of an award". Thus, the distinction between a question of law "arising out of an award" and one "arising out of an arbitration" remains. The award for this purpose under the CA Act includes the reasons for the award: the CA Act, s 29(1)(c) and cf The 'Barenbels' at 532. 286 The phrase "arising out of" takes its meaning from its context. It may be narrow or wide in its relational content. In the context of construing the reach of an arbitration clause, the phrase undoubtedly connotes a wide relational connection: see generally the discussion of cl 45 of the New York Produce Exchange Charterparty in Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45 at 87-93 [162]-[187]. As Lord Brandon of Oakbrook said in Samick Lines Co Ltd v Owners of the Antonis P Lemos [1985] AC 711 at 727 (with whom Lord Scarman, Lord Diplock, Lord Roskill and Lord Templeman agreed): "I would readily accept that in certain contexts the expression 'arising out of' may, on the ordinary and natural meaning of the words used, be the equivalent of the expression 'arising under', and not that of the wider expression 'connected with'. In my view, however, the expression 'arising out of' is, on the ordinary and natural meaning of the words used, capable, in other contexts, of being the equivalent of the wider expression 'connected with'. Whether the expression 'arising out of' has the narrower or the wider meaning in any particular case must depend on the context in which it is used." 287 Here the context is one of the identification of narrow boundaries for curial review of arbitration. Narrower concept and context are involved: not mere connection with the award, but arising out of it, in the sense of coming from the award (including the reasons) not merely coming out of the arbitration process to which the CA Act, s 42 may be seen to be directed. 288 It is unnecessary to seek to resolve the terminological and theoretical differences that may be seen in the approaches of judges in this State discussed in Jacobs op cit at pp 8869-8878/1. It is sufficient to say that the above approach is consistent with the approach of this Court in Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1991) 7 BCL 122 at 125, and Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234. 289 It is necessary to turn now to the individual "points of contention". On the view that I favour, each was required to be the subject of an application under the CA Act, s 38 or s 42.

[126]

The second and third "points of contention": the asserted errors in the construction of the reinsurance policy as having a limit of three years on reporting periods in underlying policies and run-off policies 293 These complaints involve the central conclusions drawn by the arbitrators about the reach of the 10 xs 10 1999 treaty. They are questions arising out of the award. 294 None of the complaints would be given leave under s 38(4) and (5). For their ultimate resolution they require a virtual rehearing of significant parts of the debate before the arbitrators. They reveal the consequences of a different construction in relation to dealing with so-called notices of contention. 295 The submissions required the Court to review the arbitrators' conclusions on industry practice. It was asserted that the arbitrators failed to set out the appropriate legal principles to reach their conclusion of general industry practice or to state facts said to be essential to the conclusions to imply a term consistent with industry practice. 296 Further, it would be necessary to examine the evidence before the arbitrators to assess the contention that there was no evidence available to support the conclusion. 297 It was also, asserted that the reference to "common understanding and intention of the parties" in [79] of the reasons was a (legally erroneous) reference to the subjective intentions of the parties. 298 Further, a process of construction and interpretation of the slips, letters and policy documents would be called for with the attendant examination of surrounding factual material. 299 None of these points would be given leave under s 38. 300 It is not appropriate to deal with these matters as if they were to be decided by this Court afresh. To do so would reveal that the CA Act had failed in its role to limit review of arbitration awards. To do so would countenance general appeals on questions of law arising out of an award as long as they were matters raised by a respondent (or even an appellant in answer to a respondent).

Parties

Applicant/Plaintiff:

Gordian Runoff Limited

Respondent/Defendant:

Westport Insurance Corporation

Legislation Cited (9)

Commercial Arbitration Act 1984(NSW)

(Eng) Commercial Arbitration Act 1984(NSW)

Consumer Credit Act 1981(NSW)

IC Act, the Marine Insurance Act 1909(Cth)

Arbitration Act 1902(NSW)

Insurance Act 1902(NSW)s 18B

Insurance Contracts Act 1984(Cth)

Marine Insurance Act 1909(Cth)

Supreme Court Act 1970(NSW)

Cases Cited (48)

CITATION: Gordian Runoff Limited v Westport Insurance Corporation [2010] NSWCA 57

Abignano Ltd v Electricity Commission of New South Wales (1987) 3 BCL 290 Antaios Compania Naviera SA v Salen Rederierna AB (The 'Antaios') [1985] AC 191 Antico v Heath Fielding Australia Pty Limited [1997] HCA 35; 188 CLR 652 Ascot Commodities NV v Olam International Ltd [2002] CLC 277 Askew v Fields [1985] HCA 4; 156 CLR 268 Athens Cape Naviera SA v Deutsche Dampfschiffahrts-Gesellschaft Hansa AG (The 'Barenbels') [1985] 1 Lloyd's Rep 528 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 B & L Linings Pty Ltd v Chief Commissioner of Stamp Duties [2008] NSWCA 187 Bazouni v Sun Alliance Insurance Limited (1981) 1 ANZ Insurance Cases 60-432 Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 Branir v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 117 FCR 424 Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2) [1981] 2 Lloyd's Rep 130 Bull v Attorney-General (NSW) [1913] HCA 60; 17 CLR 370 Burton Lommers Contractors Pty Ltd v Manufacturers Mutual Insurance Ltd (1990) 6 ANZ Insurance Cases 61-000 Checkpoint Ltd v Strathclyde Pension Fund [2003] EWCA Civ 84 CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; 187 CLR 384 Clutha Developments Pty Ltd v Barry (1989) 18 NSWLR 86 Container Terminals Australia Ltd v Huseyin [2008] NSWCA 320 Coulton v Holcombe [1986] HCA 33; 162 CLR 1 Crampton v The Queen [2000] HCA 60; 206 CLR 161 Décor Ceilings Pty Ltd v Cox Constructions [2005] SASC 146 Della Patrona v Director of Public Prosecutions (Cth) (No 2) (1995) 38 NSWLR 257 Donvito v Diebman (Supreme Court of New South Wales, Giles J, 3 March 1989, unreported) East End Real Estate Pty Ltd v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400 Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd [2002] VSCA 113; 5 VR 353 FAI General Insurance Co Ltd v Perry (1993) 30 NSWLR 89 FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (1999) 10 ANZ Insurance Cases 61-445, [2001] HCA 38; 204 CLR 641 Federal Commerce & Navigation Co v Tradax Export SA (The 'Maratha Envoy') [1978] AC 1 Gett v Tabet [2009] NSWCA 76; 254 ALR 504 Graham Evans & Co Pty Ltd v SPF Formwork Pty Ltd (1992) Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706 H v Minister for Immigration and Multicultural Affairs [2000] FCA 1348 Hawk Shipping Ltd v Cron Navigation Ltd [2003] EWHC 1828 (Comm) HIH Casualty & General Insurances Ltd (In Liq) v R J Wallace [2006] NSWSC 1150; 68 NSWLR 603 Hanseatisches Oberlandesgericht (Hamburg) 8 June 2001 Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206 CASES CITED: Kolokythas v Federation Insurance Ltd [1980] 2 NSWLR 663 Kuru v State of New South Wales [2008] HCA 26; 236 CLR 1 Kuswardana v Minister for Immigration and Ethnic Affairs (1981) 35 ALR 186 Mowby Pty Ltd v Moose Property Services Pty Limited [2007] VSC 111 Multicon Engineering Pty Ltd v Federal Airports Corporation [1997] NSWCA 214; 47 NSWLR 631 Najdovski v Crnojlovic [2008] NSWCA 175; 72 NSWLR 728 Natoli v Walker (1994) 217 ALR 201 Network Ten Pty Ltd v TCN Channel Nine Pty Ltd [2004] HCA 14; 218 CLR 273 New York Produce Exchange Charterparty in Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45 Newcastle City Council v GIO General Ltd [1997] HCA 53; 191 CLR 85 Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255; 18 VR 346 Pacific Steel Constructions Pty Ltd v Barahona [2009] NSWCA 406 Parisienne Basket Shoes Pty Ltd v Whyte [1938] HCA 7; 59 CLR 369 Petroships Pte Ltd v Petec Trading & Investment Corp of Vietnam (The 'Petro Ranger') [2001] 2 Lloyd's Rep 348 Pioneer Shipping Ltd v BTP Tioxide Ltd (The 'Nema') (No 2) [1982] AC 724 Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 184 Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 Protech Projects Construction (Pty) Ltd v Al-Kharafi & Sons [2005] 2 Lloyd's Rep 779 Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327 QBE Insurance (International) Ltd v Commercial Union Assurance Company of Australia Ltd (1987) 5 ANZ Insurance Cases 60-839 Rebenta Pty Ltd v Wise [2009] NSWCA 212 at [9]-[12] Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Samick Lines Co Ltd v Owners of the Antonis P Lemos [1985] AC 711 Sasterawan v Morris [2008] NSWCA 70 Sea Containers Ltd v ICT Pty Limited [2006] NSWCA 327 Selvanayagam v University of the West Indies [1983] 1 WLR 585. Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 Torch Offshore LLC v Cable Shipping Inc [2004] 2 Lloyd's Rep 446 Transcatalana de Commercio SA v Incobrasa Industrial Commercial Brazileira SA (The 'Vera') [1995] 1 Lloyd's Rep 215 Universal Petroleum Co Ltd v Handels und Transport GmbH [1987] 1 Lloyd's Rep 517 Universal Petroleum Co v Handels Und Transport GmbH [1987] 1 WLR 1178; [1987] 1 Lloyd's Rep 517 University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1991) 7 BCL 122 Vitol SA v Norelf Ltd (The 'Santa Clara') [1996] AC 800 Warley v Adco Constructions Pty Ltd (1989) 5 BCL 141 Wasa International Insurance Co Ltd v Lexington Insurance Co [2009] UKHL 40; [2010] 1 AC 180 Water Board v Moustakas [1988] HCA 12; 180 CLR 491 World Trade Corp Ltd v C Czarnikow Sugar Ltd [2004] EWHC 2332 (Comm)

Held, allowing the appeal and dismissing the cross appeal, per Allsop P (Spigelman CJ and Macfarlan JA agreeing): (1) The context and legislative history of the CA Act, s 38 make it plain that ordinarily a leave application should precede an appeal. An application for leave to appeal and an appeal should only be heard concurrently in special, indeed exceptional, cases: [102]-[113]. (2) A "manifest error" for the purposes of s 38(5)(b)(i) must be more than arguable; it must be evident or obvious. The primary judge erred in concluding that the arbitrators' construction of s 18B was manifestly wrong: [116]-[118]. (3) The assessment of whether there was "strong evidence of an error of law" under s 38(5)(b)(ii) required a strong prima facie case that the arbitrators were wrong on a question of law. The arbitrators adopted a broad construction of s 18B, supportable by the words of the legislation. The primary judge was wrong to conclude that there was strong evidence of an error of law: [119]-[174]. (4) None of the three grounds not dealt with by the primary judge was a basis for giving leave to appeal: [175]-[232]. (5) In particular, the assertion that the arbitrators had not provided reasons required by s 29(1)(c) was rejected. To the extent that it was argued that arbitrators had the same legal obligation to provide reasons as judges based on Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255; 18 VR 346, such proposition was incorrect. No support can be found from international authorities on the UNCITRAL Model Law Art 31(2), the equivalent of s 29(1)(c), or the legislative history of the uniform CA Acts for the proposition that arbitrators must provide reasons to the standard equivalent to that of a judge. Oil Basins was clearly wrong in this respect and should not be followed: [199]-[222]. (6) The place of "points of contention" raised by a respondent to an application for leave to appeal discussed within the scheme of s 38. In particular, the requirement on a respondent to bring its own application for leave discussed: [266]-[289]. (7) The primary judge was correct not to permit the question whether s 18B applied to reinsurance to be raised. The point had not been taken before the arbitrators and even if they made an error which could satisfy s 38(5)(b)(i) or (ii), arguably it did not "arise out of the award" and given the way the parties had approached the matter before the arbitrators, as a matter of discretion the point should not be allowed to be raised: [233]-[243].

[1985] HCA 4

[2005] SASC 146

[2002] VSCA 113

[2009] NSWCA 76

[2007] VSC 111

[1988] HCA 12

(1985) 4 NSWLR 139

(1989) 18 NSWLR 86

(1995) 38 NSWLR 257

(1991) 25 NSWLR 400

(1993) 30 NSWLR 89

(1998) 44 NSWLR 706