Commercial Arbitration Act, s 33, s 38(1)

ACN 006 397 413 Pty Ltd v International Movie Group (Canada) Inc [1997] 2 VR31

Delbridge Holdings Pty Ltd v Campbell, unreported; SCt of WA; Library No 8046; 6 February 1990

J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) (1993) 49 IR 301

JJ Agro Industries (P) Ltd v Texuna International Ltd [1992] 2 HKLR 391

LNC Harper Davidson Pty Ltd v Keywest Building Co Pty Ltd, unreported; SCt of WA; Library No 7192; 13 July 1988

Middlemiss & Gould v Hartlepool Corporation Pty Ltd [1972] 1 WLR 1643

Re Elgindata Ltd (No 2) [1992] 1 WLR 1207

Triden Contractors Pty Ltd v Belvista Pty Ltd, unreported; SCt of NSW; 26 September 1989

1 MASTER SANDERSON: By chamber summons dated 7 March 2001 the applicants seek the following orders:

"The final award of arbitrator D Standen as amended by amendment to final award dated 17 October 2000 and as varied by the order of the Honourable Justice Hasluck on 20 February 2001 be entered as a judgment of the Supreme Court."

2 The application is brought pursuant to s 33 of the Commercial Arbitration Act. It is common ground between the parties that by his final award the arbitrator found that there was an amount owing by the respondent to the applicants in the sum of $97,733.63. In his award the arbitrator dealt with the question of costs. The applicants were dissatisfied with the way in which the arbitrator resolved this issue and they applied to this Court pursuant to s 38(1) of the Act, claiming that there was an error of fact or law on the face of the award. The matter came on for hearing before Hasluck J on 16 February 2001 and on 20 February 2001 his Honour published reasons for setting aside the award with respect to costs and amending the award in the applicants' favour. Because of the significance of his Honour's decision to this application I will highlight relevant parts of his Honour's decision. It is appropriate to begin with his Honour's recitation of the facts:

"[3] By an agreement in writing dated 10 June 1998, the owner, Palm Bridge, entered into a contract with the builder, whereby the builder agreed to construct a residence on the land for the sum of $542,300. The building contract was in a standard form and made provision for the works to be executed in a proper and workmanlike manner in accordance with times prescribed by the contract. By its points of claim, the owner, Palm Bridge, contended that the works were not carried out in a workmanlike manner and as a consequence of the builder's failure or refusal to remedy a substantial breach, the contract was terminated on 3 December 1999. Palm Bridge claimed, in addition to the cost of rectifying certain work, loss of rental and other damages.

[4] By its points of defence and counterclaim, the builder said that it commenced the works on or about 1 July 1998 and brought the same to practical completion on or about 28 September 1999. The builder said further that it was entitled to extensions of time beyond the date of practical completion and denied that there was any substantial breach of the contract. The builder said that Palm Bridge had paid the builder $455,075.86 under the building contract and, by its conduct in giving a notice of termination and retaking possession of the works, it had repudiated the building contract.

[5] In par 28 of the points of defence and counterclaim, the builder contended that the amount due from Palm Bridge included a progress claim of $65,000 and variations to the value of $63,417.57. A claim was also made for further loss said to have arisen as a result of the alleged repudiation.

[6] Palm Bridge presented a reply and defence to counterclaim in which it denied that the works were brought to practical completion on or about 28 September 1999. It denied that the builder was entitled to any extension of time. Palm Bridge specifically denied par 26 to par 30 inclusive of the counterclaim and thereby denied that there was an amount due to the builder in respect of the progress claim and claim for variations mentioned earlier. Elsewhere in its pleading, however, it did make some comparatively minor concessions in regard to variations.

[7] It appears, then, on the face of the pleadings, that the Arbitrator was obliged to address various matters in issue between the parties and that the resolution of these issues could have a bearing upon the financial claims on either side. In other words, it would not be until the arbitration had been completed that a final determination could be made as to whether a further amount, if any, was due to the builder.

[8] By his final award dated 25 September 2000, the Arbitrator made some comparatively small corrections to figures appearing in his interim award. He went on to say that the effect of the corrections was that there was payable by Palm Bridge to the builder the amount of $97,733.63.

[14] The Arbitrator dealt with other matters in his final award, including costs. He referred to s 34 of the Commercial Arbitration Act which provides that unless a contrary intention is expressed in the arbitration agreement, the costs of the arbitration (including the fees and expenses of the Arbitrator) shall be in the discretion of the Arbitrator who may direct to and by whom and in what manner the whole or any part of those costs shall be paid.

[16] Against that background, the Arbitrator then said this:

'In the exercise of the discretion given to me in this Section of the Act I direct that the unsuccessful party shall pay to the successful party the successful party's costs as between party and party which unless otherwise agreed between the parties shall be taxed in the Supreme Court. I also direct that the unsuccessful party shall pay my costs and expenses.

C2 It is therefore necessary for me to determine which party is the successful party. In an arbitration where there is only one issue, determining who is the successful party is usually a simple matter. In an arbitration in which there are several issues, some overlapping, it is not so simple unless one party succeeds on all issues.

In this arbitration there were several issues. The final flow of money was necessarily from one of the parties to the other but it was not the case that the receiving party (in that sense) was the successful party in all issues or even in a majority of issues_._

C3 It is the Claimant's position in this context that the Claimant was the successful party because it was the party that won on most of the issues. It is the Respondent's position that the Respondent was the successful party because it was the party who was 'substantially successful'. Both parties in their submissions on costs have provided me with authorities in support of their respective 'correct approaches'.'

[17] The Arbitrator then referred to certain decided cases and seemed to accept that, prima facie, where the 'final flow of money' was in favour of one party, that party would be allowed the costs upon the basis that costs should follow the event unless something to the contrary appears on the face of the record. He seemed to acknowledge that there was a final flow of money in favour of the builder, but was, nonetheless, of the view, in the circumstances of the present case, that there was 'something to the contrary on the face of the record'. In other words, there were features of the case warranting a departure from the general rule in that, after a close analysis of various matters in issue, it was apparent that many of the contentions of the owner, Palm Bridge, were justified.

[18] A question arises, however, as to whether, in the course of undertaking a conscientious review of the various issues with a view to determining which party had 'won' or 'lost' on that issue, a degree of ambiguity began to colour the Arbitrator's reasoning.

[21] Towards the end of his ruling on the question of costs, the Arbitrator said this:

'C.21 "Costs follow the event" : I have referred above, in paragraph 3.4 and others to the proposition that "costs follow the event" means that costs follow the final flow of money. That is certainly the Respondent's view, made clear by its reference to Hudson's Building and Engineering Contracts, 10th edition, page 870, where in elaboration of "the usual rule that costs should follow the event" it is added : "the party ultimately successful on a final balance of claim and counterclaim should be paid his costs".

A different view of "costs follow the event" is found in John Holland Pty Ltd v Ng, in which is quoted a number of propositions in Scherer and Anor v Counting Instruments Ltd in which no 1 reads

The normal rule is that costs follow the event. That party who turns out to have unjustifiably either brought another party before the court, or given another party cause to have recourse to the court to obtain his rights is required to recompense that other party in costs.

C2.22 These two views of "costs follow the event" are both clearly relevant in this arbitration but they do not match. Thus the question arises, which should prevail over the other?

My summarising of the outcomes issue by issue above tells me that

(i) The Claimant was not unjustified in bringing the Respondent to the arbitration, and

(ii) The Respondent did give the Claimant cause to have recourse to arbitration to obtain its rights

notwithstanding that the Respondent was the party to whom the final money flowed. I find as a consequence that the Respondent should not expect the Claimant to pay its costs in addition to paying the money I have directed to be paid under the interim award. I do not accept that "Whoever secures or avoids paying the balance in effect has won" is in this arbitration an appropriate guide to payment of costs.'

[22] The Arbitrator then referred briefly to the possibility of each party being required to pay their own costs. He said that having determined that the owner, Palm Bridge, was not unjustified in bringing the builder to the arbitration and that the builder gave Palm Bridge cause to have recourse to arbitration to obtain its rights, and having noted in his issue by issue summary of wins and losses that the owner, Palm Bridge, won most of the issues in which there was a winner, he did not see how a ruling that the owner, Palm Bridge, should pay its own costs could possibly be justified. He added, 'In other words, there is no scope in the exercise of my discretion for me to decide that each party should pay its own costs.'

[23] The Arbitrator then referred back to his earlier formulation of the central issue at his par C2 wherein he concluded that it was necessary for him 'to determine which party is the successful party'. He proceeded to hold that the owner, Palm Bridge, was 'the successful party for the purposes of Part C.2 above.'

[24] It emerges, then, in the final analysis, that the Arbitrator purported to apply the so-called general rule that costs must be allowed to the successful party. It seems, however, that, in effect, he resolved that in this case the successful party should be identified not by reference to any precept concerning the 'final flow of money', because this was not thought to be appropriate to the circumstances of the case before him, but rather by undertaking a review of the wins and losses in regard to various issues. It seems also that his review was affected to some extent by his understanding as to whether a party was justified in bringing an issue to arbitration, or whether a party had given the opposing party cause to have recourse to arbitration to obtain its rights.

[25] The builder's notice of appeal in respect of the application for leave to appeal before me contains grounds of appeal in these terms:

'1. The Arbitrator erred in law in failing to apply the rule that the party ultimately successful on a final balance of claim and counterclaim in an arbitration over building works should be awarded its costs.

2. The Arbitrator erred in law in determining the question of costs by whether he considered the Respondent (Claimant) was justified in bringing the Applicant (Respondent) to arbitration and having recourse to arbitration.' "

3 His Honour then reviewed the authorities and the reasoning of the arbitrator. His Honour concluded:

"[60] In my view, the Arbitrator misconceived the task before him. In the circumstances of the present case, in order to exercise his discretion judicially, he was obliged to identify the successful party having regard to the principle just mentioned, namely, that in the context of claims and cross-claims the successful party will generally be the party securing the final flow of money. In this case, the party fulfilling that description was the builder.

[61] It would then be open to the Arbitrator in the exercise of his discretion to determine whether there were special circumstances referable to the way in which the dispute was conducted and to the outcome which might justify a displacement or amelioration of the prima facie position that the builder was entitled to the costs. It was at this stage that it might have been appropriate for the Arbitrator to determine whether the builder's lack of success in regard to a number of significant issues required that there be some amelioration of the prima facie entitlement. If the special circumstances were identified on the face of the award persuasively and with particularity, then it is doubtful, having regard to the decision of the High Court in Leighton's case (supra), and the reasoning of Kearney J in Carpaolo (supra), whether the Supreme Court would be prepared to interfere with or quash the award. As it turned out, however, because of the view taken by the Arbitrator of the Scherer proposition, I consider that the builder was placed at a disadvantage in that the Arbitrator did not give proper weight to the builder's prima facie entitlement to an exercise of the discretion in his favour."

His Honour determined that the award should be varied so that the costs of the applicant should be paid by the respondent and unless agreed should be taxed on a party and party basis. The respondent was also ordered to pay the fees and expenses of the arbitrator. Put simply then, the applicants were successful in their application for leave to appeal and in the appeal itself.

4 From that decision the present respondents have appealed. I was not provided with a copy of that notice of appeal but I understand that the respondents say that leave to appeal should not have been granted and even if leave was granted and the appeal allowed, the matter should have been referred back to the arbitrator. It is not clear when the respondent's appeal will be heard and determined, but I accept, as was submitted by counsel for the respondents, that the appeal is being pursued with due diligence.

5 The respondent now says that the applicants should not be permitted to enforce the entire award. It is submitted that the question of costs is so inexorably bound up with the award itself that part only of the award ought be entered as a judgment. The amount proposed by the respondent is the sum of $57,342.21. As I understand the respondent's argument, it is said that because the arbitrator awarded costs in relation to particular aspects of the claim, there is such an inter-relationship between the costs and the claim itself that it is not possible to sever the part of the award which is not in dispute from the cost question which is in dispute. Thus it is said that part only of the award should be enforced.

6 With respect, in my view it is clear that there are two separate and distinct aspects to the total award. The first is the amount which the respondent owes the applicant - that is, $97,733.63, plus interest. The second aspect is the costs and as the award stands at the moment, consequent upon amendment pursuant to the decision of Hasluck J, the respondent is to pay the applicant's and the arbitrator's costs of the arbitration. There is no difficulty about separating one part of the award from the other. Furthermore, a reading of the decision of Hasluck J makes it plain that his Honour concluded, in effect, that costs should follow the event and that as there was a flow of money to the applicants, the applicants were entitled to their costs. In the circumstances then, I can see no basis upon which it could be suggested that the full amount of the award should not be registered as a judgment.

7 Moreover, I can see no basis upon which it can be said that the applicants should not be entitled to register the award with respect to costs. It is certainly the case that in certain circumstances the court may decline to allow enforcement of an award. One frequently cited reason for such refusal is that the award is arguably vitiated by an appealable error: See Cockatoo Dockyard Pty Ltd v Commonwealth of Australia (No 3) (1995) 35 NSWLR 689; De Vaugh Pty Ltd v Lamac Developments Pty Ltd [2000] WASC 314. Both of these cases, and indeed all cases cited on this question, deal with a situation where the award of the arbitrator is called into question. What the respondent is calling into question here is the decision of Hasluck J. In my view it would only be in the clearest of cases that a court would refuse to enforce an award based upon a claim that a decision of a Judge who had granted leave to appeal and allowed an appeal in relation to the arbitration had fallen into error. In my view this is not such a case.

8 The applicants are entitled to enforce the award under s 33. In my view this is not a case where part of the award only should be enforced. Accordingly, subject to hearing from the parties as to the form of the orders, I would propose to make orders in terms of the chamber summons.