Commercial Arbitration Act 1985, s 38(4)(b), s 38(5)(a), s 38(5)(b)

Respondent (Claimant) : Mr C B Edmonds SC & Mr J D Finlay

Angelatos v Alternative Constructions Pty Ltd, unreported; FCT of SCt Vic; 30 November 1992

Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873

BMD Constructions Pty Ltd v Golding Contractors Pty Ltd [2000] QSC 57

Carpaolo Nominees Pty Ltd v Marrosan Nominees Pty Ltd [1997] NTSC 1; (1997) 112 NTR 1

Commonwealth v Rian Financial Services & Developments Pty Ltd (1991) 105 FLR 239

Cretazzo v Lombardi (1975) 13 SASR 4

Crewford Pty Ltd v Transit Authority Pty Ltd, unreported; SCt Qld; 23 March 1999

Cummings v Lewis (1993) 41 FCR 559

D Phillips Constructions (Vic) Pty Ltd v Mullavey & Adams [1980] VicRp 21; [1980] VR 171

Exxon Coal Australia Ltd (formerly White Industries Ltd) v Chadtech Pty Ltd [1999] NSWSC 574

Hally v Dennis [1955] HCA 41; (1955) 95 CLR 661

Kleerstyle Homes v Dickson, unreported; SCt Qld; 16 September 1997

Leighton Contractors Ltd v Western Australian Government Railways Commission [1966] HCA 58; (1966) 115 CLR 575

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

Lovell v Lovell [1950] HCA 52; (1950) 81 CLR 513

Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72

Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724

Re Caf-Grains [1994] 2 Qd R 252

Re FA Pidgeon & Son Pty Ltd [1992] 2 Qd R 275

Robinson v Australian Association of Social Workers Ltd [2000] SASC 239

Scherer v Counting Instruments Ltd [1986] 1 WLR 615

Tramountana Armadora SA v Atlantic Shipping Co SA [1978] 2 All ER 870

Tuta Products Ltd v Hutcherson Bros Pty Ltd [1972] HCA 4; (1972) 127 CLR 253

UDR Equipment Pty Ltd v Afkos Industries Pty Ltd [2000] WASC 57; (2000) 22 WAR 221

Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] VicRp 12; [1991] 1 VR 129

Warley Pty Ltd v Adco Constructions Pty Ltd (1988) 8 BCL 300

1 SCOTT J: This is an application for leave to appeal under s 38(4)(b) of the Commercial Arbitration Act 1985 ("the Act").

3 The claimant (the present respondent) engaged the appellants (builders) to construct a residence on land owned by them in City Beach for a contract price of $541,300.

4 A dispute arose between the claimant and the respondent under the contract and that dispute was ultimately resolved at arbitration. The Arbitrator made an award, pursuant to which the claimant was to pay to the respondent $97,733.63.

5 The Arbitrator ordered that, notwithstanding the fact that the claimant owner was to pay that sum to the appellant builder, the appellant builder should pay the claimant's costs of the arbitration to be taxed in the Supreme Court.

6 The Arbitrator made that order for costs notwithstanding the fact that the flow of money was from the respondent (claimant) to the appellant builder.

7 It is not necessary in these reasons to examine why the Arbitrator made such an order because an application to appeal against that order was made by the appellant builder. That application came before Hasluck J who reversed the order for costs: Miles v Palm Bridge Pty Ltd [2001] WASC 42.

8 The present respondent appealed from that decision to the Full Court. The Full Court set aside the decision of Hasluck J and directed that the question of costs be remitted to the Arbitrator to reconsider the question of costs. That order was made because the Full Court was of the view that the Arbitrator had misunderstood the applicable legal principles in determining the issue of costs.

9 The Full Court identified the matters material to the issue of costs and remitted the matter to the Arbitrator so that he could properly exercise his discretion on the question of costs applying those principles.

10 In a further reconsidered final award the Arbitrator concluded that instead of 100 per cent of the claimant's costs being paid by the respondent, his order should be varied so that 90 per cent of those costs were paid by the present respondent. In reconsidering the matter, the Arbitrator reviewed his earlier decision, taking into account the matters identified by the Full Court, but came to almost the same decision he had earlier.

11 It is from that decision that the present appellants-respondents seek leave to appeal.

12 As I have indicated earlier in these reasons, leave to appeal is governed by the provisions of s 38 of the Act:

"38 Judicial review of awards

(1) Without prejudice to the right of appeal conferred by subsection (2), the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law, on the face of the award.

(2) Subject to subsection (4), an appeal shall lie to the Supreme Court on any question of law arising out of an award.

(3) On the determination of an appeal under subsection (2), the Supreme Court may by order --

(a) confirm, vary or set aside the award; or

(b) remit the award, together with the Supreme Court's opinion on the question of law which was the subject of the appeal, to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration,

and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make the award within 3 months after the date of the order.

(4) An appeal under subsection (2) may be brought by any of the parties to an arbitration agreement --

(a) with the consent of all the other parties to the arbitration agreement; or

(b) subject to section 40, with the leave of the Supreme Court.

(5) The Supreme Court shall not grant leave under subsection (4)(b) unless it considers that --

(a) having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement; and

(b) there is --

(i) a manifest error of law on the face of the award; or

(ii) strong evidence that the arbitrator or umpire 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.

(6) The Supreme Court may make any leave which it grants under subsection (4)(b) subject to the applicant complying with any conditions it considers appropriate.

(7) Where the award of an arbitrator or umpire is varied on an appeal under subsection (2), the award as varied shall have effect (except for the purposes of this section) as if it were the award of the arbitrator or umpire.

[Section 38 amended by No. 43 of 1997 ss 17 and 22]"

13 As can be seen from that provision, under s 38(2) an appeal lies to the Supreme Court only on a question of law arising out of the award.

14 In addition, under s 38(5) the legislature has provided that leave shall not (my underlining) be granted unless the matters contained in subs (5)(a) and subs (5)(b)(i) or subs (5)(b)(ii) apply.

15 It is important to note that under subs 38(5)(a) the primary consideration is that "the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement". As to this aspect of the matter, it has been pointed out by counsel for the appellant that this arbitration took 11 days and that the question of costs is a very significant matter to the parties to the arbitration because of the amount of costs involved.

16 It is also to be noted that to be granted leave to appeal under s 38 of the Act not only must the appellant satisfy the provisions of subs (5)(a), but also the appellant must, in addition, satisfy the requirements of subs (5)(b). In that respect the appellant is required to satisfy the Court that either:

(i) there is a manifest error of law on the face of the award; or

(ii) strong evidence that the arbitrator or umpire 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.

17 Counsel for the appellant contends that there is a manifest error of law, on the face of the award, of such a nature that leave to appeal should be granted. In this respect, counsel submitted that part of the appellant builder's claim related to extensions of time sought pursuant to the contract. Counsel points to the fact that the Arbitrator, in his award, accepted that the appellant builder was entitled to make the claims for extension of time in his defence and counterclaim. Notwithstanding that, his award as to costs was based upon the proposition that had the builder sought extensions of time from the owner during the course of the running of the contract and at a time when the owner could properly have considered such claims, then many of the extension claims would have been considered and either granted or rejected. For this reason the Arbitrator was of the view that the builder had substantially contributed to additional and unnecessary costs by failing to comply with his obligation in that regard under the contract.

18 Counsel for the appellant submitted that there was an inconsistency between these two views and submitted that the Arbitrator's decision on costs depends very much upon his view that these claims for extension of time should have been made at the time when the matter giving rise to the extension claim was current. It is submitted that this consideration was critical in the Arbitrator's determination that the builder should pay the costs of the arbitration notwithstanding the fact that the flow of money was ultimately to him.

19 I am not persuaded, however, that there is any manifest error of law on the face of the award. I turn then to consider s 38(5)(b)(ii) which is set out earlier in these reasons.

20 The question of the right of appeal from an arbitrator has been recently considered by a bench of five Justices of this Court in the matter of Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245. In that case the question was whether there was a right of appeal to the Full Court from the refusal of leave by a single Judge. The Full Court held that such a right of appeal did exist. In his reasons, however, Malcolm CJ referred to the decision of Aintree Holdings Pty Ltd v Corderoy (1996) 16 WAR 416 and, in particular, the judgment of Steytler J, at 425 - 426:

"For myself I would have thought that an appeal from the grant or refusal of leave to appeal from the decision of an arbitrator, whether the substantive matter has or has not been dealt with, is likewise a thoroughly undesirable (and unintended) addition to legal remedies in the context of an Act which, as I have said, is designed to provide speedy, informal and comparatively inexpensive relief to litigants and which, as I have also said, is designed to minimise interference by the Supreme Court."

21 The decision, however, in Aintree's case was that there was no right of appeal to the Full Court from the refusal of leave to appeal by a single Judge.

22 In Lamac Developments Pty Ltd v Devaugh Pty Ltd, however, that decision was reversed. Importantly, for the purposes of the present case, Murray J said at [59]

"In the context of this legislation, it seems to me that that requirement increases substantially the difficulty of the task of a prospective appellant from the refusal of leave to appeal from an arbitrator's award, when one considers that such leave may only be granted in the circumstances specified in the Commercial Arbitration Act, s 38(5). Not only is it necessary that the question of law raised may have a substantial impact upon the rights of the parties to the arbitration agreement, but it must be one the resolution of which may have a wider impact by adding substantially to the certainty of commercial law."

23 Murray J accepted and followed the decision in Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203. In that case Sheller JA, with whom Meagher JA agreed, said, at 226, that error ought to be clearly apparent. As Sheller JA expressed it:

"There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law."

24 In Lamac Developments Mathews AJ considered the issue of an appeal against an arbitrator's costs order and said at [174]:

"I do not propose to discuss this issue in any great detail. Orders as to costs are essentially discretionary. It would require a glaring error or omission for an arbitrator's costs order to fall within the terms of s 38(5) so as to attract leave to appeal. In my view, no such error has been displayed here."

25 Mathews JA went on to refer to the fact that an appeal against a costs order was an appeal in relation to the exercise of a discretion. As such, her Honour was of the view that such an appeal would not normally give rise to a question of law.

26 Those judgments, in my view, make it clear that in this case the appellant has a number of very difficult hurdles to overcome before leave to appeal should be granted. That is the more so, in circumstances such as these, where an earlier appeal has already been heard by a single Judge and the Full Court prior to remission to the Arbitrator from whose subsequent decision leave is sought.

27 On the other hand, in my view, it is quite apparent that in this case the Arbitrator has varied his original costs order only to the extent of 10 per cent. That is so, notwithstanding the reasons of the Full Court in Palm Bridge v Miles & Anor [2001] WASCA 334, which identified error on the part of the Arbitrator in relation to his costs order. Steytler J, in his judgment, identified with some precision the matters that the Arbitrator needed to review and, as I have said, remitted the matter to the Arbitrator so that those matters could be taken into account in the exercise of the costs discretion. In my view, Steytler J was careful not to impede the Arbitrator's discretion beyond identifying factors that the Arbitrator was properly required to take into account in exercising his discretion as to costs.

28 Whilst there is, in my opinion, evidence that the Arbitrator made an error in the re-exercise of his discretion, I am not satisfied that in all of the circumstances as they now exist that the determination of that question "may add or may be likely to add substantially to the certainty of commercial law" That is particularly so where the matter has already been the subject of a decision by the Full Court.

29 Taking all of these factors into account and, in particular, the history of this matter, I have ultimately determined that leave to appeal should be refused. I am not satisfied that it is in keeping with the philosophy of s 38 of the Commercial Arbitration Act that repeated appeals should be countenanced except in an obvious case. In my view, this is not such a case in all the circumstances.

30 In case I am wrong, however, as to that view and an appeal court should take the view that leave to appeal should have been granted, I will indicate my views as to the merits of the application.

31 The first thing to be said about the appeal is that by his initial decision on the question of costs the Arbitrator awarded to the claimant 100 per cent of its costs. The Full Court identified error in the reasons of the Arbitrator in relation to his costs order in that, although the final flow of money was to the builder, as I have already indicated, the Arbitrator gave little or no weight to that factor and ordered the builder to pay 100 per cent of the costs of the owner. The flow of money was an important consideration: Badge Constructions Pty Ltd v Penbury Coast Pty Ltd [1999] SASC 6 (unreported), at page 4. Hasluck J reversed the costs order so that the builder received 100 per cent of his costs. That was also held by the Full Court to be in error, inter alia, because no or no sufficient allowance had been made for the fact that the owner did not know, and could not know, of the builder's claims or entitlement to time extensions until such time as the builder's claims in that respect had been proved during the course of the arbitration. As I understand the reasons of Steytler J and the other members of the Full Court, that was a factor to be taken into account in the exercise by the Arbitrator of the appropriate costs discretion.

32 As I have already indicated, when the matter was remitted to the Arbitrator, he varied the original costs order only to the extent of reducing the costs payable by the builder from 100 per cent to 90 per cent. In my view, in doing so, the Arbitrator has not only failed properly to apply the reasons of the Full Court but, importantly also, failed to take into account in the exercise of his costs discretion the fact that the builder was the successful party in terms of the flow of money to him. That being the case, it is clear, in my view, that the costs discretion has still not been appropriately exercised in the manner intended by the Full Court. It should also be said, as indeed, in my view, should have been apparent to the Arbitrator, that the Full Court would not have remitted the matter to the Arbitrator for further consideration if the Full Court was of the view that the appropriate costs order was a variation of only 10 per cent from the original costs order. Such an outcome would have been to tinker with the original costs order and, in my view, it is clear that the Full Court intended no such result. What was required of the Arbitrator was a full reconsideration of the question of costs based on appropriate legal principles. Whether an appropriate costs order in favour of the builder should have been discounted either wholly or in part by reason of the factors identified by the Full Court was a matter for the Arbitrator to consider. It was not appropriate, however, for the Arbitrator to vary the original costs order by only 10 per cent without strong or compelling reasons for doing so.

33 Had I been of the view that leave to appeal should be allowed once again, I would have ordered that the matter be remitted to the Arbitrator to reconsider afresh the question of costs unimpeded by the errors revealed in both of his sets of reasons on this issue. However, as I have reached the conclusion that leave to appeal should not be granted a second time, no further order is required beyond the dismissal of this application and any appropriate ancillary orders.