MATTER : Commercial Arbitration Act 1985 (WA)

MATTER : Commercial Arbitration Act 1985 (WA)

Arbitration - Commercial Arbitration Act 1985 (WA) - Whether leave to appeal should be granted - Whether manifest error of law on the face of the award - Whether award should be set aside for misconduct - Technical misconduct - Turns on own facts

Commercial Arbitration Act 1985 (WA) s 38, s 42

1 The appellant applies for leave to appeal against, and seeks to set aside, the award of an arbitrator resolving a building dispute between the appellant (the builder), and the first respondents (the owners). The first respondents are the owners of land situated at Lot 48, Bartram Road, Banjup (the property). On 25 July 2002, the builder entered into a lump sum building contract (the contract) with the owners to build a house on the property. Various disputes arose between the parties, and pursuant to cl 16 of the contract the matter was referred to arbitration. The arbitrator, Mr Alan Swann, published his final award on 28 September 2007.

2 On 19 October 2007, the builder commenced two proceedings in this court in respect of the arbitrator's final award. First, the builder applies for leave to appeal against the decision of the arbitrator under s 38 of the Commercial Arbitration Act 1985 (WA) (the GDA matter). Secondly, the builder applies under s 42 of the Commercial Arbitration Act to set aside the award on the basis of misconduct on the part of the arbitrator, in which the arbitrator is joined as the second respondent (the ARB matter). In the GDA matter it has been ordered that the application for leave to appeal be heard at the same time as the appeal.

3 On 21 November 2007 the arbitrator filed notices of intention to abide by the decision of the court in both proceedings.

4 I begin with a summary of the history of the arbitration.

5 On 5 July 2004, by agreement and pursuant to cl 16 of the contract, the parties appointed Mr Swann as arbitrator of the dispute. Clause 16 of the contract provided, among other things, that the 'conduct of the arbitrator shall be in accordance with and subject to the provisions of the Commercial Arbitration Act 1985'. Points of claim were filed by the builder on 30 July 2004, a defence and counterclaim was filed by the owners on 25 August 2004, a reply and defence to counterclaim was filed by the builders on 22 September 2004, and a further amended defence and counterclaim was later filed by the owners.

6 A view occurred on 6 October 2004, and the dispute was heard by the arbitrator from 11 - 13 October 2004. This initial hearing was adjourned at the suggestion of the arbitrator that the parties should attempt a resolution of the matter. The attempt of the parties was unsuccessful, and the arbitration was reconvened from 18 - 21 October 2005 after an inspection of the property on 14 October 2005. The year delay in resuming the arbitration is said to be as a result of the owners' need to replace their expert, late provision of documents by both parties, and the absence of the arbitrator overseas for a period of eight weeks.

7 The arbitrator published an interim award on 20 March 2006 (the interim award). The arbitrator directed, with the parties' consent, that final submissions as to liability and damages would be submitted after the interim award, and a further hearing would be held if necessary after submissions had been received and before the final award was published. As will be seen, subsequent submissions were made and a final award was published by the arbitrator on 28 September 2007 (final award). It is the final award which the builder seeks leave to appeal from in the present case.

8 The interim award sets out the claims made by the builder and the owners before the arbitrator (AB 57). Paragraphs 6 and 7 are as follows:

1. The works reached practical completion on 5 May 2003
2. The final contract sum was $265,388.00
3. The [owners] owed a balance due of $78,673.00
4. Interest was due at a rate of 15% as incorporated in the contract from the date of practical completion 5 May 2003 accruing until the date of payment
5. Costs

The [owners'] further amended defence and counterclaim [claims]:

1. The [builder] failed to rectify all the defects to the property as notified and the [owners] made a complaint to the Builders Registration Board, but the [builder] still failed to rectify the defects and the [owners] conformed with the requirements of the contract and issued a notice of default on 8 August 2003; 2. The [builder] is alleged to have still not completed all the defects although the Builders Registration Board issued a notice on 18 August 2003 to rectify all defects within 28 days;

1. On 16 September 2003 the [owners] issued a notice of termination of the contract as the works had still not reached practical completion;

1. The amount owing at practical completion would only be $74,584.00 and in the alternative if the works had reached practical completion, the [owners] are entitled to set off the full costs of rectification of all the defects;
2. By further amended annexure A to the defence and counterclaim the [owners] listed 12 pages of defaults, defects, alleged poor workmanship, items missing, alleged failure to conform with the specification and drawings...; and
3. The [builder] shall rectify the faults at its own cost or recompense the [owners] for their costs in making good and further shall pay damages for the breaches of the contract, plus interest, plus costs.

9 Contrary to the submissions of both parties, the arbitrator found that the construction reached the contractual stage of practical completion on 16 September 2003 (AB 60, 76). Clause 17(a) of the contract states:

Practical completion means when the works are completed except for any omissions or defects which do not prevent the works from being reasonably capable of being used by the owner.

10 The arbitrator rejected the builder's claim that the works had reached practical completion on 5 September 2003, as he found that many defects were still apparent at this time (AB 76). However, the owners took possession of the premises on 16 September 2003 and have lived in the premises since that date. The arbitrator found that on that basis the works were reasonably capable of being used by the owner in accordance with cl 17(a) of the contract. Therefore, the arbitrator concluded that practical completion occurred on 16 September 2003 when the owners took occupation of the premises.

11 However, the arbitrator also found that as at the date of contractual practical completion there were many defects in the works that did not conform with the terms of the contract, and that these defects constituted 'a significant basis for the [owners] to withhold payment until the works are corrected to comply with the terms of the contract'. As a result of this finding, the arbitrator determined that the owners were justified in withholding any funds due to the builder until the final award was published (AB 76, 78).

12 It was (and remains) common ground that the contract signed on 25 July 2002 was for the sum of $264,365, adjusted to $265,388 after variations agreed upon by the parties pursuant to cl 10 of the contract. It was not in dispute before the arbitrator that the owners had made payments to the builder totalling $186,715, but the parties were unable to agree as to the amount remaining outstanding by the owners under the contract. In this regard, the parties differed by a few thousand dollars.

13 The arbitrator determined that the builder was entitled to the sum of $77,001 as final payment under the contract.

14 The arbitrator found that the builder was not entitled to receive any interest on the late payment of the amount owing.

15 The arbitrator's finding regarding the owners' termination of the contract is not immediately apparent upon reading the interim award. The arbitrator stated that on 16 September 2003 the owners had served a notice of termination, but made no finding as to its validity. When making his finding in relation to interest, the arbitrator stated:

In essence the decisions in [Rocci v Diploma Construction Pty Ltd [2001] WASC 256 and Rocci v Diploma Construction Pty Ltd [2004] WASC 18] deny that cl 17(e) has any effect if termination of the contract occurs before taking possession.

I therefore agree with the [owners'] submission that no interest is payable (AB 78).

16 I infer from the latter statement that the arbitrator accepted that the owners validly terminated the contract by way of the notice dated 16 September 2003. This conclusion was also reached by Blaxell J in Nouvelle Homes Pty Ltd v Smargiassi [2007] WASC 50 [7], where his Honour stated that the arbitrator had found that the 'owners had terminated the contract (and implicitly had validly terminated the contract) on 16 September 2003'. His Honour's decision is referred to in more detail below.

17 At the recommencement of the hearing on 18 October 2005, the builder produced a schedule of work which it proposed to carry out on the premises to save further hearing time. After considerable discussions between the parties, a list of defects to be remedied by the builder was agreed. This list was to be drafted by the owners, and after being checked by the builder would be filed with the arbitrator. Several items were to be discussed between the parties' experts, and if agreement could not be reached the arbitrator was to determine the work required on those items. There was significant delay in this procedure in that the parties' expert reports were not filed until 17 and 24 February 2005. An agreed schedule was eventually filed and is included in the interim award as annexure 1.

18 In the interim award, the arbitrator addressed each defect alleged by the owners, including the defects agreed upon by the builders in the schedule. For the defects not agreed upon, the arbitrator made findings as to whether there was in fact a defect, and if there was, whether the builder should rectify the defect or compensate the owners for any cost already incurred in rectifying that defect.

19 The upshot of the interim award was, therefore, as follows. Final payment owed by the owners to the builder was determined to be $77,001. That payment was not required to be made until the builder rectified the defects which it had agreed to rectify, or which it was directed by the arbitrator to rectify. Thereafter, questions of liability in relation to the owners' counterclaims and of damages would be the subject of further submissions and be dealt with in the final award.

Application for leave to appeal from interim award

20 On 10 April 2006, the builder applied for leave to appeal to the Supreme Court from the interim award of the arbitrator. The builder submitted that the finding that the works reached practical completion on 16 September 2003 meant that the arbitrator erred in law in failing also to find that the balance of the contract sum of $77,001 plus interest was also immediately payable.

21 In his reasons, Nouvelle Homes Pty Ltd v Smargiassi, Blaxell J refused the builder leave to appeal. At [10] - [11], his Honour stated:

There would obviously be some substance to [the builder's] contention if the Arbitrator had not also found that the contract was validly terminated. As it is, the finding that the owners validly terminated the contract cannot (as a matter of law) co-exist with the finding that there was a contractually deemed 'practical completion' as a result of their subsequent occupation of the property. This is because subcl 17(a) and (e) could not take effect once the contract was terminated.

Accordingly, there is a manifest error of law on the face of the award, and in my view, it is also self-evident that the determination of this question of law could substantially affect the rights of the builder [s 38(5)(b)(i)]. It follows that I have a discretion to grant the builder leave to appeal under s 38(4)(b) of the [Commercial Arbitration Act]...

22 With regard to the exercise of this discretion, Blaxell J followed the approach of Parker J in Masawa Australasia Pty Ltd v J Corp Pty Ltd [2000] WASC 5 [8]. Parker J stated that:

While leave to appeal may not be granted by this Court unless the requirements of both s 38(5)(a) and either (b)(i) or (b)(ii) are satisfied, satisfaction of those requirements does not of itself entitle the applicant to a grant of leave. Section 38(5)(a) and (b) are in effect prerequisites or threshold requirements before leave may be granted. Satisfaction of those prerequisites or threshold requirements merely gives rise to an [unfettered] discretion to grant leave pursuant to s 38(4)(b). This discretion to grant leave is to be exercised after considering all the circumstances of the case.

23 In considering all the circumstances of the case, Blaxell J found that the 'interim award of the arbitrator, although in some respects erroneous in law, nevertheless reflects the broad justice of the case.' He determined that there was no real prejudice to the builder if the interim order was allowed to stand because the arbitrator could make a correct application of the law in the final award [17]. Consequently, Blaxell J exercised his discretion and refused leave to appeal.

24 Paragraphs 14 - 18 of Blaxell J's reasons were in the following terms:

In my view, the overwhelming considerations in the present case are the Arbitrator's findings that there were 'numerous serious faults and defects' in the works, that immediately prior to termination 'practical completion had not been achieved', and that the contract was validly terminated. It necessarily followed from these findings that the parties were released from all further performance of the contract, and that the owners were entitled to damages for the costs of rectifying the defects.

Given that practical completion had not occurred, the final payment to the builder of $77,001 had not fallen due at the time the contract had terminated. Accordingly, the builder was not entitled to payment of that sum, but it must nevertheless be accounted for in the final assessment of the owners' damages.

As it happens, the parties have agreed (at the instigation of the Arbitrator) that the builder should have further time to rectify the defects in the works. This should not be seen as a concession by the owners that the contract is still on foot, but as a willingness to provide the builder with a reasonable opportunity to limit the damages that are payable.

All of these considerations lead inevitably to the conclusion that the interim award of the Arbitrator, although in some respects erroneous in law, nevertheless reflects the broad justice of the case. There will be no real prejudice to the builder if the interim award is allowed to stand, because the Arbitrator is still in a position to accommodate a correct application of the law in his final award, and to arrive at a fair and just overall disposition of the case.

In these circumstances it is not appropriate that I should exercise my discretion to grant the builder leave to appeal from the interim award.

25 The interim award, published on 20 March 2006, contained directions for the builder to rectify specific defects in the works on the premises. However, it was not until 11 September 2006 that any rectification work was commenced by the builder. Following an exchange of correspondence, a directions hearing was held at the property on 20 September 2006 to discuss the rectification works and their progress. At this hearing, the arbitrator advised the builder that he did not consider that the builder had complied with all the requirements as directed by the interim award, and that it was up to the builder to ensure that all the works complied with the contract and the interim award. A final inspection of the property was undertaken on 1 November 2006. Upon receiving the builder's engineers' reports and other supporting documentation, the arbitrator found that completion of the rectification works had been achieved on 4 December 2006 (AB 137).

26 In accordance with the directions of the arbitrator on the last day of hearing, after publication of the interim award submissions as to damages and costs were filed by both parties. No further hearing was held by the arbitrator, and his final award was published on 28 September 2007.

27 The main findings of the arbitrator in the final award may be summarised as follows:

(1) The arbitrator determined the numerous counterclaims of the owner in respect of claimed unremedied defects. Some were determined in favour of the owners, some in favour of the builders. Damages were awarded in favour of the owners in specific amounts for defects which were not remedied in accordance with the interim award, contract and agreed schedule. These damages totalled $13,840.34. (In this regard no complaint is made by the builder in these proceedings.)

(2) Damages in favour of the owners of $46,200 for the builder's failure to complete the works on time, calculated at $350 per week (this is challenged by the builder by ground 1).

(3) Damages in favour of the owners of $32,000 for distress and inconvenience, loss of enjoyment, and disruption and inconvenience (this is challenged by the builder by ground 2).

(4) A finding that the builder is to pay the owners':

1. legal fees;
2. fees for the owners' half share in the arbitrator's costs of $45,506; and

1. fees incurred for the owners' engineer's and consultant's reports of $53,140.31.

(These findings are challenged by the builder by grounds 3 and 4).

(5) As determined in the interim award, and adjusted in the final award, a finding that the owners pay to the builders $79,101.60 as final payment in satisfaction of the contract. The owners agreed that the amount of $77,001, as determined in the interim award, would be increased by $1,000 for the builder's contribution to under-slab grouting and $1,100.60 for the purchase of a concrete pump. (This is not now challenged by either of the parties.)

28 Consequently, the total amount found to be owing to the owners by the builder was $190,686.65, and the total amount found to be owing to the builder by the owners was $79,101.60. The builder was therefore ordered to pay to the owners the sum of $111,585.05.

29 I will refer to the arbitrator's reasons in more detail in the course of considering each proposed ground of appeal.

Grounds of appeal and application to set aside

30 By appeal notice in the GDA matter filed 19 October 2007, the builder invokes s 38(4)(b) of the Commercial Arbitration Act (the Act). The builder applies for leave to appeal to the Supreme Court on a question of law arising from the final award.

31 By its proposed grounds, in summary, the builder alleges that the arbitrator erred in law in:

1. Awarding the owners $46,200 damages for late completion;
2. Awarding the owners $32,000 damages for stress and inconvenience;
3. Failing to make a reasoned decision with respect to the award of legal costs in particular respects; and
4. Awarding costs, failing to take into account particular matters.

32 By originating motion in the ARB matter filed 19 October 2007, the builder invokes s 42 of the Commercial Arbitration Act. Section 42 confers jurisdiction on the court to set aside the award of an arbitrator, wholly or in part, where there has been misconduct on the part of the arbitrator or the arbitrator has misconducted in the proceedings.

33 In the present case, the builder alleges that there has been technical misconduct in that the arbitrator:

1. Has failed to competently apply the law or give appropriate reasons in relation to the specific findings the subject of grounds 1 to 4 of the proposed appeal in the GDA matter; and
2. Has charged the sum of $91,012 which is wholly unreasonable.

34 I will deal with the GDA matter first, beginning with the legal principles relevant to an application under s 38.

The GDA matter: Section 38 - Legal principles

35 Section 38(1) of the Act provides that without prejudice to the right of appeal conferred by s 38(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. By s 38(2) an appeal lies to the Supreme Court on any question of law arising out of an award, but that right of appeal is expressly made subject to s 38(4). Section 38(4) provides that an appeal may be brought (a) with the consent of all parties to the arbitration agreement or, with an immaterial exception, (b) with the leave of the Supreme Court.

36 Section 38(5) stipulates the essential requirements which must be satisfied before the power to grant leave under s 38(4)(b) may be exercised. Section 38(5) is in the following terms:

(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.

37 In this case, the builder relies upon the ground in s 38(5)(b)(i) that there is a manifest error of law on the face of the award. It is not argued that the determination of any question in this case may add or may be likely to add substantially to the certainty of commercial law.

38 In New Generation Enterprises v Western Australian Planning Commission [2007] WASCA 89 [3] - [6] Steytler P set out principles relevant to s 38(5):

There is no error of law in making what is only a wrong finding of fact (Waterford v Commonwealth [1987] HCA 25; (1987) 163 CLR 54 at 77 per Brennan J), even if the reasoning whereby the court reached its conclusion was demonstrably unsound (R v District Court; Ex parte White [1966] HCA 69; (1966) 116 CLR 644 at 654 per Menzies J; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 156 per Glass JA, Samuels JA concurring). If there is some basis for an inference, in the sense that the inference is reasonably open, there will be no error of law: Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321 at 356 per Mason CJ, Brennan J agreeing; Rhodes Corporation v Dacakis [1995] VicRp 70; [1995] 2 VR 508 at 520.

Where there is an error of law, it will be 'manifest' when there are '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': Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 at 226 per Sheller JA, Meagher JA agreeing; Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245; (2002) 27 WAR 287 at 318 - 319.

In considering whether there is a manifest error of law, the court, when dealing with the decision of an arbitrator who is not legally trained, should be cautious not to read the reasons with an over critical eye: Tor Line A/B v Alltrans Group of Canada [1982] 1 Lloyd's Rep 617 at 625 per Bingham J; Masawa Australasia Pty Ltd v J Corp Pty Ltd [2000] WASC 5 at [5] per Parker J. The reason why parties often choose to appoint an arbitrator who is not legally trained rather than embark upon court proceedings is because the advantage arising out of the training and expertise which that person has in respect of the subject matter of the arbitration (whether as a valuer, architect, engineer or anything else), coupled with the advantage of avoiding the greater technicality, delay and cost associated with court proceedings, outweighs the disadvantage brought about by the fact that the arbitrator is unlikely to express himself or herself with the precision (so far as legal issues are concerned) that might be expected of a judge, or even of a legally trained arbitrator. If the courts are too exacting in their expectations of the language used by lay arbitrators in making their awards, the benefits of the freedom of choice offered by the CA Act might to some extent be rendered illusory.

These considerations are significant, given that 'the clear policy of the ... [CA Act] is to achieve speedy economic and informal relief to parties to arbitration agreements ... [with] curial [involvement] ... [being] kept to a minimum': Lamac at 315 [110] per Mathews AJ, with whom Malcolm CJ, Anderson and Steytler JJ were in agreement; Masawa at [5], [7].

39 The scheme of the Commercial Arbitration Act is to create a limited jurisdiction for the Supreme Court to ensure that an arbitration is conducted in accordance with law. That limited jurisdiction ought not to be treated as if it were the equivalent of a right of an appeal from an arbitrator's decision: Ukranian Association of Western Australia in Perth (Inc) v Squire Constructions Pty Ltd [2004] WASC 4 [8]; Gold Coast City Council v Canterbury Pipelines (Aust) Pty Ltd [1968] HCA 3; (1968) 118 CLR 58, 77; Masawa [11].

40 The error must be an error 'on the face of the award', which means that the error is not to be discovered by looking behind the back of the award: Ukranian Association of Western Australia [8]; New Generation [48]. The reasons of the arbitrator form part of the award for this purpose: New Generation [49].

41 Satisfaction of the prerequisites in s 38(5)(a) and s 38(5)(b) gives rise to a discretion whether to grant leave pursuant to s 38(4). The discretion is to be exercised after considering all the circumstances of the case: Masawa [8]; Nouvelle Homes v Smargiassi [11].

42 Ground 1 of the builder's proposed grounds of appeal is as follows:

1. Awarding the [owners] $46,200 for late completion over the period 29 April 2003 to 1 November 2006 based on $350/week:

1.1 When the arbitrator has found as a fact that the works had reached practical completion and the contract had been terminated on 16 September 2003;

1.2 Alternatively, when the arbitrator determined in fact that the works did not reach practical completion until 1 November 2006, despite finding that the works had been terminated on 16 September 2003;

1.3 Alternatively, when the arbitrator failed to make a proper determination as to whether the contract had been terminated or reached practical completion on the date the [owners] took possession;

1.4 When there was no evidence adduced that the [owners] had incurred $350 per week or any other sum or loss during this period;

1.5 Failing to give adequate reasons for reaching such decision.

43 The primary issue between the parties in relation to ground 1 related to how the arbitrator's reasons in awarding the delay damages were to be understood. In that light, it is necessary to set out and summarise in some detail the arbitrator's reasons for awarding delay damages.

44 In the final award itself the arbitrator stated that:

Claimant's delays from the Contract Completion Date to the completion of rectification works directed in the Interim Award is 132 weeks at $350 per week and I award damages to the [owners] of $46,200 (AB 129).

45 The reference to the completion of the rectification works directed in the interim award should be noticed.

46 The arbitrator's reasons for the award of what he described as delay damages in the amount of $46,200 were set out at pages 19 to 27 of his award (AB 141 - 149).

47 The arbitrator's reasons in relation to delay damages commenced with a reference to cl 7 of the contract. Clause 7 provided that:

[T]he builder shall commence the works by the time specified in item 9 of the schedule or as soon thereafter as may be reasonably practicable and shall proceed therewith with reasonable despatch and diligence and reach practical completion within the time specified in item 9 of the schedule (namely 150 working days).

48 Thus cl 7 stipulated a date for practical completion of the works.

49 The arbitrator then referred to the finding in his interim award that practical completion had occurred on 16 September 2003. (The reasons mistakenly referred to 16 October 2003). The arbitrator stated that that finding was based on the language of cl 17(a) which defined 'practical completion' as meaning 'when the works are completed except for any omissions or defects which do not prevent the works from being reasonably capable of being used by the owner'. The arbitrator then stated that there were many defects in the work and many items that did not conform with the terms of the contract at the time of practical completion, as he had referred to in the interim award.

50 The arbitrator then recited [14] - [18] of the reasons of Blaxell J, which I have set out earlier in these reasons.

51 Immediately thereafter in his reasons the arbitrator said as follows:

To calculate the Time Factor from the Contract Date for Practical Completion to the completion of rectification works directed in the Interim Award

Part 1 - Delay from Contract Date Completion to Termination ... 29th April 2003 to 16th September 2003 ... 20 weeks

Date of Contract.... 25th July 2002

Schedule of particulars states ... 28 working days to commence

Contractual start date is 25 July 2002 plus 28 working days is ... 27th August 2002

It is recorded that the concrete slab was poured in early September 2002.

The [owners] claim the Contractual Completion Date is ... 1st April 2003

However, from the Contract my calculation for Contractual completion date is 25 July 2002 plus 150 working days to ... 29th April 2003. This date allows for Public Holidays, RDOs and the Christmas Building Industry recess.

Pursuant to Clause 7 of the Building Contract, the Builder is obligated to advise the Owner of any delays and to have approval to extend the Contract Period. This did not occur.

To allow for all the various problems and other claims and counter claims, for the purpose of this item only in the time factor I shall take the completion as the date the [owners] terminated the Contract, took possession and lived in the house, ie ... 16th September 2003

Based on the above details the [owners are] entitled to damages for late completion for the period of 29th April 2003 to 16th September 2003 and is 140 days or 20 weeks, but as there is no allowance for delay defined in the Contract, the Contract does not automatically cover delay or the costs of non-approved delay. (original emphasis)

52 The arbitrator next proceeded to deal with determining the quantum of the delay loss. The arbitrator recorded the builder's submission that because (as was common ground) the owners had lived with relatives during the period 29 April 2003 to 16 September 2003, the owners had suffered no financial loss.

53 The arbitrator rejected that submission, stating that the delay to 16 September 2003 'obviously cost the [owners] and entitles [them] to some recompense, and the minimum would be shared living expenses, travelling, housing removals, schooling and general disruption during rectification works'.

54 The arbitrator stated that he considered $350 per week to be a reasonable figure.

55 The arbitrator then divided the time from 16 September 2003 to 1 November 2006 (when the arbitrator conducted his final inspection after the rectification works) into various periods, identified by the arbitrator's assessment of the causes of the delay in each period.

56 For each period, the arbitrator made an assessment of the percentage of the responsibility for delay which he attributed to the builder and applied that percentage to the number of weeks the subject of the relevant period. The number of weeks so derived was then applied to the formula of $350 per week.

57 The arbitrator concluded that for the period from 16 September 2003 until 1 November 2006 the delay attributable to the builder, in total, was 112 weeks. The figure of $350 per week was then applied to those 112 weeks, as well as the 20 weeks the subject of the period from 29 April 2003 to 16 September 2003, totalling an amount of $46,200 payable by the builder to the owners for delay damages.

58 On my reading of the reasons of the arbitrator in awarding the delay damages of $46,200, those reasons reveal a manifest error of law in awarding damages for the period from 16 September 2003 to 1 November 2006. In my opinion, that is so for two reasons. First, the arbitrator found that practical completion was achieved on 16 September 2003. Secondly, the arbitrator did not calculate delay damages by reference to the delay in practical completion. Rather, he assessed delay damages by reference to the delay from the contract date for practical completion to the date of completion of the rectification works directed in the interim award. I proceed to explain these conclusions.

59 By ground 1.1 the builder contends that the arbitrator found that the date of practical completion was 16 September 2003. Counsel for the owners conceded that if the arbitrator had found that practical completion had occurred on 16 September 2003, the award of damages for the period after that date could not be supported and would therefore reveal a manifest error of law.

60 In my opinion, that concession was properly made. The obligation, breach of which was said to give rise to the claim for damages for delay, was that created by cl 7. Clause 7 relates to the date for achieving practical completion. It follows that if practical completion had been reached on 16 September 2003 there was no delay after that date, with the consequence that no damages for the period after that date could be awarded.

61 The owners submitted that because the arbitrator had awarded damages for breach of cl 7 through to 1 November 2006, it should be inferred that the arbitrator found that practical completion had not occurred prior to 1 November 2006. Absent indications to the contrary in the arbitrator's reasons, there would be some force in that submission. However, for the reasons below, I do not accept that submission as to how the arbitrator's reasons should be read.

62 Although the arbitrator referred to cl 7 at the commencement of the relevant part of his reasons, I do not consider that the arbitrator was awarding damages for the delay between the contract date for practical completion and the date at which practical completion was in fact reached. There are a number of aspects of the reasons which lead me to that conclusion.

63 First, at no point in the arbitrator's reasons is there a clear statement to the effect that practical completion was not achieved until 1 November 2006.

64 Secondly, there is nothing in the arbitrator's reasons to suggest that he considered the date at which practical completion was actually achieved was the critical end date for the ascertainment of the period of delay. The indications in the reasons are to the contrary. In the statement of the award at AB 129 and in the heading at AB 142, set out earlier in these reasons, the arbitrator describes the relevant period of delay as being from the contract date for practical completion to the completion of the rectification works that had been directed in the interim award. The arbitrator does not describe the relevant period of delay as being from the contract date for practical completion to the date of actual practical completion.

65 In that regard, the owners submitted that it should be inferred that the arbitrator considered that practical completion was not reached until the rectification works directed in the interim award had been completed. I do not consider there is any sufficient basis to draw that inference. To the contrary, there appears to me to be an express statement by the arbitrator that the date of practical completion was 16 September 2003, at least for the purposes of the delay claim. That is the third consideration, to which I now turn.

66 At AB 143, in the passage set out earlier in these reasons, the arbitrator stated that:

[F]or the purpose of this item only in the time factor I shall take the completion as the date the [owners] terminated the Contract, took possession and lived in the house, ie ...16 September 2003. (original emphasis)

67 In my opinion, that passage is to be read as a statement by the arbitrator that for the purposes of the delay damages claim he proceeds on the basis that the date of practical completion was 16 September 2003. I am unable to identify, and counsel for the owners was unable to identify, any other sensible reading of that passage. Further, nowhere else in the reasons relating to the delay damages claim is there any clear statement as to the date of practical completion. Moreover, my reading of the passage involves reading 'completion' as referring to practical completion. Two paragraphs earlier in his reasons, the arbitrator uses 'completion' when he is plainly referring to practical completion (AB 143; see also the last paragraph at AB 141).

68 For these reasons, in my opinion, the arbitrator awarded delay damages for the delay from the contract date for practical completion until the date when all the rectification work directed in the interim award had been completed. That reveals a manifest error of law in that cl 7, which the arbitrator purported to apply, created an obligation in respect of achieving practical completion. It did not create any obligation in respect of the time for completion of the rectification works the subject of the interim award. Because the arbitrator found that the date for practical completion was 16 September 2003 it follows that the award of damages for the period after that date cannot be sustained.

69 I do not consider that any manifest error of law is revealed in the award of delay damages for the period from 29 April 2003 to 16 September 2003. In principle, delay damages for that period were appropriate. On the (unchallenged) findings of the arbitrator, the builder was in breach of cl 7 for that period, so the owners were entitled to damages for their loss caused by that delay.

70 The builder complains that there was no evidence that the owners suffered any adverse financial consequence from living with relatives for the period prior to 16 September 2003 instead of living in their practically complete home. Further, the builder submits, there was no evidence to justify the figure of $350 per week used by the arbitrator in calculating the delay damages.

71 Once some loss is established, difficulty in assessing damages is not a bar to recovery: Fink v Fink [1946] HCA 54; (1946) 74 CLR 127, 143; The Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64, 83, 102, 153.

72 In this application, regard is not to be had to what material was in fact before the arbitrator. The claim by the builder that there was no evidence must be considered in the statutory context of the Act. It is only a manifest error of law on the face of the award which can satisfy the precondition in s 38(5)(b)(i). Thus any absence of evidence must be manifest from the award itself, including the reasons.

73 I am not persuaded that, on a consideration of the arbitrator's reasons, it can properly be concluded that there is a manifest error of law arising from the absence of evidence to support the award of delay damages. To my mind, the reasons do not so clearly reveal a complete absence of evidence as to establish a manifest error of law in that regard.

74 For those reasons, I conclude that there is a manifest error of law on the face of the award in respect of the award of delay damages for the period 16 September 2003 to 1 November 2006. I would grant leave to appeal in that respect and uphold the appeal to that extent.

75 The consequence of this finding is that the final award should be varied to substitute delay damages of $7,000 for the sum of $46,200. The sum of $7,000 is the amount awarded by the arbitrator for the period 29 April 2003 to 16 September 2003. Whether that variation should affect the award by the arbitrator of costs in favour of the owners is a matter to which I will return, after I deal with grounds 3 and 4.

Ground 2 - Damages for distress and inconvenience

76 Ground 2 complains of the award to the owners of damages in the sum of $32,000 for distress and inconvenience. Ground 2 pleads that the arbitrator erred in law in:

1. Awarding the [owners] damages for stress and inconvenience of $32,000:

2.1 without giving adequate reasons for this finding;

2.2 without any cogent evidence of loss and suffering of this nature being adduced or at least being referred to in the award;

2.3 contrary to the established principles as to the circumstances in which damages for stress and inconvenience are payable and as to the quantum payable;

2.4 failing to take into account that the arbitrator found that the works reached practical completion on 16 September 2003 and/or was terminated on that date; and

2.5 the [owners] were free to carry out any rectification works themselves at any time after 16 September 2003 given the ruling by the arbitrator that [the] contract had been validly terminated as at that date.

77 In his oral submissions, counsel for the builder identified the builder's complaints as to the award of damages for distress and inconvenience by three propositions. First, it was said to be an error of law to award any damages under this head because, in principle, they were not available in the circumstances of this case. Secondly, the builder submitted that the arbitrator had awarded damages for distress and inconvenience which was not caused by any breach of contract by the builder. Thirdly, it was submitted that the quantum of damages awarded, read in the light of the reasons given by the arbitrator, revealed a manifest error of law.

78 For the reasons which follow, I do not accept any of those propositions.

79 As to the builder's first proposition, it is evident from the arbitrator's reasons that, in the course of the arbitration, the builder did not challenge the availability in principle of damages for distress and inconvenience (AB 150). In those circumstances, I would hesitate before exercising a discretion under s 38(4)(b) to grant leave to appeal against the award on the grounds of an error of law which, in my opinion, the conduct of the builder encouraged by its failure to raise the argument in the arbitration. In any event, for the reasons which follow, I am not satisfied that there is any manifest error of law in the arbitrator's decision to award damages for distress and inconvenience for breach of the contract by the builder.

80 The builder submitted that the High Court decision in Baltic Shipping Company v Dillon [1993] HCA 4; (1992) 176 CLR 344 was authority for the proposition that the only circumstance in which damages for distress and inconvenience could be awarded was where the contract is one the object of which is to provide enjoyment, relaxation or freedom from molestation. I do not accept that proposition. Contracts an object of which is to provide enjoyment, relaxation or freedom from molestation are one category of exception to the general rule that damages for distress and disappointment are not recoverable for breach of contract. That category is not the only exception. If the disappointment and distress proceeds from physical inconvenience caused by the breach then damages for distress and disappointment may be recoverable: Baltic Shipping (365, 381, 405); Thorpe v Lochel [2005] WASCA 85; (2005) 31 WAR 500 [30], [148].

81 Moreover, there are other Australian authorities which support the award of damages for distress and inconvenience in cases of breach of a building contract. See, for example, the decision of the Victorian Court of Appeal in Boncristiano v Lohmann [1998] 4 VR 82, 94 - 95.

82 In my opinion, the arbitrator did not make a manifest error of law in finding that damages for distress and inconvenience were available in principle.

83 Secondly, the builder submits that the arbitrator awarded damages for distress and inconvenience which was not caused by any breach of contract on the part of the builder. Counsel for the builder submitted that if anything, the arbitrator awarded damages for distress and inconvenience caused by the builder's conduct in and following the arbitration proceedings. The latter, the submission continued, is not a proper basis for the award of damages.

84 It is clear from the arbitrator's reasons that he took into account the distress of the owners in the period after termination of the contract on 16 September 2003, and that he also took into account his view of the builder's conduct in the arbitration proceedings (AB 150). In the latter respect, the arbitrator viewed the builder's conduct as causing or substantially contributing to the lengthy delays which were a source of ongoing distress to the owners.

85 In a case such as this of breach of a building contract, the conduct of a party to an arbitration or litigation in those proceedings is not itself a wrong giving rise to any right to damages. However, it does not follow from that proposition that distress coming after the termination of the contract, in the course of litigation or an arbitration, cannot be the subject of an award of distress and inconvenience damages for breach of contract. In other words, an award of damages for distress which takes account of the distress arising after the termination of a contract and in the course of an arbitration about the contract does not of itself reveal a manifest error of law.

86 The defendant's breach must be a cause of distress and inconvenience the subject of the award of the distress and inconvenience damages. The question of whether a defendant's wrongful conduct caused particular damage is a question of fact to be determined by applying common sense to the facts of the case. The but for test of causation is a useful aid although it is not the exclusive or definitive test: March v E & M H Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506, 508, 515 - 519, 522 - 524.

87 It is not necessary, in order to establish causation, to find that the breach was the dominant, effective or real cause of the loss: March v E & M H Stramare Pty Ltd (512 - 514); Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310, 315, 352 - 358. Rather, it is enough if the breach materially contributed to the loss or damage. See also Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1, 6 - 7; Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 [61], [106]. Further, the existence of another concurrent cause does not prevent the breach from having caused the damage. It will be enough if the breach is a cause of the damage. See the cases already referred to, and Simonius Vischer v Holt [1979] 2 NSWLR 322, 346.

88 In some cases an intervening or superseding event may be viewed as breaking the chain of causation. This may occur if the intervening event is treated in a practical sense as the sole cause of the damage: Alexander v Cambridge Credit (315, 361); Henville [106]; Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408, 412 - 413.

89 On the face of it, all of the distress and inconvenience the subject of the award of damages would not have occurred if there had been no breach by the builder. Thus the but-for test is satisfied. However, as I have said, that is not decisive.

90 The way in which the principles of causation would apply in the circumstances of this case would require a careful assessment of all the facts and circumstances to determine whether the builder's breach of contract was a cause of the owner's subsequent distress and inconvenience for which damages were awarded. All of the facts and circumstances are not known to me. My task is to assess whether on the face of the award there is a manifest error of law. Because the causation question is sensitive to the detailed facts and circumstances, and because these facts and circumstances are not available to inform my assessment, it is more difficult to conclude that the reasons reveal a manifest error of law on the causation question.

91 By its nature, the question of whether, in all the circumstances, there is sufficient causal connection between a breach and subsequent distress and inconvenience is one on which minds may well differ. That is illustrated by Thorpe v Lochel, on which the court was divided on a question of a similar nature.

92 The principles stated in New Generation [3] - [6] (set out at [38] of these reasons) must be taken into account.

93 Taking into account all of the matters I have mentioned, I am not satisfied that the reasons of the arbitrator reveal a manifest error of law in awarding damages for distress and inconvenience which were not caused by a breach of contract on the part of the builder.

94 Finally, I turn to the question of quantum of the distress and inconvenience damages awarded.

95 The starting point must be a recognition that the assessment of damages for distress and inconvenience is in the nature of a discretionary judgment with which an appeal court would not interfere unless it is satisfied that there was an error of principle, or is otherwise satisfied that the assessment is wholly erroneous: see, for example, Boncristiano (95).

96 The burden for an applicant for leave under s 38(4)(b) of the Act requires it to go one step further. The assessment of damages must be so excessive as to reveal a manifest error of law on the face of the award.

97 The arbitrator determined that he should award damages in a reasonable sum and that he was not limited to making a 'modest' award (AB 150). There is no manifest error of law in that approach. It is supported by the reasons of Winneke P (with whom the other members of the court agreed) in Boncristiano (94 - 95).

98 In his reasons, the arbitrator referred to his observations of the owners at directions hearings and the main hearings, and to 'doctor's comments' (AB 150). I take the latter to be a reference to a doctor's report which was in evidence before the arbitrator. These matters taken into account by the arbitrator are matters not known to me. That is a consideration warranting additional caution before I would arrive at a conclusion that the assessment of damages was so excessive as to reveal a manifest error of law on the face of the award.

99 In Olympic Holdings Pty Ltd v Lochel [2004] WASC 61 McLure J awarded the sum of $30,000 for damages for physical inconvenience and mental distress. That award was overturned by a majority in Thorpe v Lochel on the ground that, in the circumstances, such damages were not recoverable. No issue was raised on appeal as to the quantum of damages awarded [19].

100 I am not satisfied that the award of the amount of $32,000 reveals a manifest error of law.

101 The arbitrator expressed his award of damages in respect of distress and inconvenience as being damages for the adults (namely, the owners) of $25,000, and for the children (being the owners' two young children) of $7,000, leading to a total award of $32,000.

102 The award of damages for distress and inconvenience suffered by the children is, on its face, difficult to reconcile with conventional principles of contract law, including privity of contract. The children were, of course, not parties to the building contract and not parties to the arbitration.

103 The award of an arbitrator should be viewed holistically and not with an overly critical and technical eye: New Generation [5] - [6], GRD Kirkfield Ltd v First Trade Consulting Pty Ltd [2004] WASC 158 [36] - [38]. It was, arguably, open to the arbitrator in assessing the award of damages for the owners' anxiety and distress to take into account distress and anxiety of the owners arising from the inconvenience and distress suffered by their children. See Luntz H, Assessment Of Damages For Personal Injury And Death (4th ed, 2002) [3.2.2], which suggests there is some support for this approach.

104 In any event, I am not satisfied that the requirement in s 38(5)(a) would be satisfied by an appeal in respect of the award of $7,000 based on the childrens' distress and inconvenience. I do not consider that the determination of the questions of law arising from the award to the children could substantially affect the rights of the parties to the arbitration. In the context of the arbitration as a whole, I am not satisfied that an aspect of one head of damages comprising $7,000 can fairly be described as substantially affecting the rights of the parties.

105 For these reasons, I would refuse leave to appeal in respect of ground 2.

106 As both these grounds relate to costs they can conveniently be dealt with together. I will begin by summarising the arbitrator's reasons, before setting out the grounds of appeal.

107 The arbitrator dealt with legal costs at pages 31 - 35 of his reasons (AB 153 - 157).

108 He commenced with the observation that the owners effectively proved the existence of the majority of the original defects that were denied by the builder until the fourth hearing day, at which point the builder agreed to remedy numerous defects, albeit without accepting any liability.

109 The arbitrator then made some observations as to the causes of delay in the progress of the arbitration and some observations about the first engineering expert used by the owners, Mr Hazzard.

110 The arbitrator recorded that the builder had submitted that the flow of money from the arbitration as a whole was in favour of the builder, and that that ought to lead to the recovery by the builder of at least some of its costs in the arbitration. The arbitrator stated that that submission overlooked other considerations which he enumerated as five points (AB 155). The fifth point was that the interim award indicated that the owners were successful on all their major counterclaims and that the builder's concession on the fourth day of the hearing further indicated that the owners were successful in the arbitration proceedings.

111 The arbitrator stated that the general approach to costs is that costs follow the event, and he reiterated that the owners had effectively been successful on all counterclaims. The arbitrator therefore awarded that the builder pay the owner's legal fees to be taxed if not agreed by a taxing officer of the Supreme Court.

112 Immediately thereafter the arbitrator considered the costs of the engineers' reports and the cost of the engineers' attendance at site and at hearings. The arbitrator referred to findings he had made earlier (AB 135, 153) that Mr Hazzard's reports had been of significant assistance in coming to his findings against the builder. The arbitrator directed the builder to reimburse the owners for certain fees in respect of Mr Hazzard. The arbitrator noted that the owners did not claim for the fees of Mr Hazzard at the first hearing which, the arbitrator said, was appropriate given that Mr Hazzard's evidence was rejected on the basis of his lack of experience and failure to describe the matters in question.

113 He awarded an amount to the owners in respect of another aspect of Mr Hazzard's work which related to the drilling and taking of samples of the concrete slab and his investigations of the slab crack.

114 The arbitrator also awarded an amount in respect of another engineer engaged by the owners, Mr Breuchle.

116 Proposed grounds of appeal 3 and 4 are that the arbitrator erred in law in the following respects:

1. Failing to make any reasoned or considered decision with respect to the award of legal costs in particular:

3.1 awarding legal costs for the [owners'] engineers without first making a determination as to who was to bear costs of the arbitration; and

3.2 failing to take into account the fact that the arbitrator completely rejected the evidence of the first of the [owners'] engineers, Hazzard, necessitating the appointment of the second one, but still awarding the respondent the cost of the first engineer.

1. Awarding the [owners] their legal costs and the arbitration costs and in so doing:

4.1 failing to take into account findings in the interim award and the fact that against a claim of $581,385.20 the [owners] had obtained an award of $92,040.34; and

4.2 failing to take into account delays in the arbitration caused by the [owners].

117 For the reasons which follow, I am not satisfied that grounds 3 and 4 reveal any manifest error of law.

118 In Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245; (2002) 27 WAR 287 [174], Matthews AJ stated (Malcolm CJ, Murray, Anderson and Steytler JJ agreeing) that orders as to costs are essentially discretionary and that 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.

119 I am not satisfied that the builder has demonstrated any error by the arbitrator in the exercise of discretion as to costs.

120 Ground 3.1 complains that the arbitrator awarded costs for the owners' engineers without first having made a determination as to who was to bear the costs of the arbitration. That ground involves a misreading of the arbitrator's reasons. The arbitrator dealt first with the question of legal costs. After consideration of various factors he determined that it was appropriate that the builder pay the owners' costs. Immediately thereafter, he proceeded to consider the costs associated with the engineers. That consideration was in the framework of the decision he had just reached that the builder should pay the owners' costs. In my opinion, there is no basis to suggest that the arbitrator had not made a determination as to who should bear the cost of the arbitration before awarding to the owners their costs associated with the engineers (AB 155).

121 Ground 3.2 complains that the arbitrator failed to take into account the 'fact' that he had completely rejected the evidence of the first of the owners' engineers, Mr Hazzard, but still awarded the owners the costs of that engineer. For two reasons, I do not accept that complaint.

122 First, I do not accept that the arbitrator completely rejected the evidence of Mr Hazzard. As I have already said, the arbitrator stated on more than one occasion that he was considerably assisted, in identified respects, by the evidence of Mr Hazzard. Secondly, the arbitrator did not fail to take into account, as alleged in the ground, that he had in some respects rejected the evidence of Mr Hazzard. The arbitrator identified the areas in which Mr Hazzard's evidence was of assistance to the arbitrator's decision, and awarded costs associated with those aspects of Mr Hazzard's work. The arbitrator expressly mentioned that the owners had not claimed for the fees of Mr Hazzard at the first hearing, and expressed his view that that was appropriate because Mr Hazzard's evidence at this hearing was not accepted.

123 For these reasons there is no merit in ground 3.

124 The arbitrator did not overlook the relevance of the flow of funds to the question of who should pay the costs. He specifically referred to it (AB 154). However, the flow of funds is not the decisive consideration in all cases as to who should be liable for costs. See, for example, Palm Bridge Pty Ltd v Miles [2001] WASCA 334.

125 In the present case, the arbitrator properly gave consideration to what he perceived to be the real and most substantial issues the subject of the arbitration. The primary issue was the existence of and responsibility for numerous defects of which complaint was made by the owners. At the commencement of the arbitration, the builder denied responsibility for those defects. Ultimately, the builder agreed to or was directed to rectify a substantial majority of those defects. The work done by the builder to rectify those defects was no doubt of substantial value. In those circumstances it was, in my opinion, well and truly open to the arbitrator to find that the flow of funds was by no means the decisive consideration in the exercise of the costs discretion.

126 I am not satisfied that in the exercise of the costs discretion the arbitrator failed to take into account any of the matters referred to in ground 4 so as to reveal a manifest error of law on the face of the award. The arbitrator did take into account his findings in the interim award. I am not satisfied that it can be inferred that, in exercising his discretion as to costs, the arbitrator overlooked the other matters referred to in ground 4.

127 For these reasons I would not grant leave in respect of grounds 3 or 4.

128 That brings me to the question of whether the variation of the award, by the partial success of ground 1, means that the question of costs should be remitted to the arbitrator for him to reconsider in light of the variation to the award. Counsel for the builder submitted that if grounds 1 or 2 succeeded, that result should follow. However, substantially for the reasons identified in the owners' submissions, I do not accept that proposition.

129 As I have already said, the crucial consideration on the arbitrator's analysis of the relevant considerations as to costs was the success by the owner on the main issue in the arbitration, namely the question of defects. The partial success of the builder in respect of ground 1 reduces the damages payable under one head of damages. It does affect the question of liability.

130 In the light of the reasoning of the arbitrator in the exercise of the costs discretion, there seems to me to be no utility in remitting the question of costs to him for reconsideration. That is because, on the arbitrator's reasoning, the decrease in the award of damages for delay would make no difference to his exercise of the costs discretion.

131 That brings me, finally, to the application to set aside the award under s 42.

The ARB matter: Application to set aside the award

132 The builder applies by s 42 of the Commercial Arbitration Act to have the final award set aside on the ground of misconduct of the arbitrator.

133 I begin with an outline of the relevant legal principles.

134 Section 42 and s 44 of the Act are in the following terms.

(a) there has been misconduct on the part of an arbitrator or umpire or an arbitrator or umpire has misconducted the proceedings; or

(b) the arbitration or award has been improperly procured,

the Court may, on the application of a party to the arbitration agreement, set the award aside either wholly or in part.

(2) Where the arbitrator or umpire has misconducted the proceedings by making an award partly in respect of a matter not referred to arbitration pursuant to the arbitration agreement, the Court may set aside that part of the award if it can do so without materially affecting the remaining part of the award.

(3) Where an application is made under this section to set aside an award, the Court may order that any money made payable by the award shall be paid into court or otherwise secured pending the determination of the application.

(a) there has been misconduct on the part of an arbitrator or umpire or an arbitrator or umpire has misconducted the proceedings;

(b) undue influence has been exercised in relation to an arbitrator or umpire; or

(c) an arbitrator or umpire is incompetent or unsuitable to deal with the particular dispute,

the Court may, on the application of a party to the arbitration agreement, remove the arbitrator or umpire.

135 Misconduct is defined in s 4 to include corruption, fraud, partiality, bias and a breach of the rules of natural justice. No conduct on the part of the arbitrator of that character is alleged by the builder.

136 In Gebauer Nominees Pty Ltd v Cole [No 2] [2008] WASCA 41 [60] - [65] the Court of Appeal restated the following principles relevant to an application under s 42 and s 44 of the Act.

There can be no doubt that the power to remove an arbitrator for misconduct is a drastic remedy and not one to be exercised lightly. The value of arbitration as a method of resolving disputes, and the willingness of disputants to commit the necessary time and money to the arbitration process, would be seriously undermined if the courts were too ready to intervene to remove an arbitrator.

It is, however, impossible to provide a comprehensive definition of what would constitute misconduct within the meaning of s 44 of the Act warranting the removal of an arbitrator. Given the infinite variety of circumstances that could arise, it would be unwise to attempt to do so.

But what is clear is that an error of law, even a serious error of law, does not of itself amount to misconduct: Moran v Lloyd's [1983] QB 542, Forsayth NL v Australasian Gold Mines NL (No 1) (1992) 7 WAR 549, 560 - 561. In that connection, it is important to recognise that while parties to arbitration, like parties to litigation, are entitled to expect that the arbitration will be conducted without mishap or misunderstanding, and that the procedure adopted will be fair and appropriate, they are not entitled to expect of an arbitrator, any more than of a judge, that he or she will necessarily and in all circumstances arrive at the 'right' answer as a matter of fact or law: King v Thomas McKenna Ltd [1991] 2 QB 480, 491.

If the position were otherwise it would make unrealistic demands of arbitrators and would be likely to discourage parties from undertaking arbitration as a means of dispute resolution. We respectfully agree with the view of the learned authors (Mustill & Boyd) of the Law & Practice of Commercial Arbitration in England (2nd ed, 1989), where they say:

'The fact that the court is given a wide power to remove the arbitrator in cases of misconduct does not mean that the power will be freely exercised. An arbitrator may commit errors - even serious errors - in the course of the reference, and yet remain perfectly able to carry the arbitration to a successful conclusion once his mistakes have been pointed out. Justice requires that in such a case the arbitrator should be left in office, rather than that the parties should suffer the delay and expense of beginning arbitration afresh (530).'

As Miles CJ observed in Holland Stolte Pty Ltd v Murbay Pty Ltd (1991) 105 FLR 304:

'To remove an arbitrator from office for [procedural errors or errors of law] which must inevitably occur from time to time would render the position of an arbitrator too precarious and deprive the arbitration system of the regularity and stability necessary to an efficacious dispute resolution system which might be a proper alternative to judicial resolution (309).'

In our view, an arbitrator will be removed by reason of an error made in the course of an arbitration proceeding only where the error indicates some impropriety, partiality or general lack of capacity on the part of the arbitrator, so that 'a reasonable person would no longer have confidence in the ... arbitrator's ability to come to a fair and balanced conclusion on the issues if remitted': see Lovell Partnerships (Northern) Ltd v AW Construction Plc (1996) 81 BLR 83.

137 There is substantial authority to support the proposition that an application to set aside an award for misconduct is not to be used in a way which would circumvent the restraints imposed under s 38 for the obtaining of leave to appeal in respect of an alleged error of law: Boncorp Pty Ltd v Thames Water Asia/Pacific Pty Ltd (1995) 12 BCL 139, 141; Qenos Pty Ltd v Mobil Oil Australia Pty Ltd (No 2) [2002] VSC 524 [5]; Forsayth NL v Australasian Gold Mines NL (No 1) (1992) 7 WAR 549, 559; Doric Building Pty Ltd v Marine & Civil Construction Co Pty Ltd [2005] WASC 155 [38].

138 There is some authority that fees charged by an arbitrator might constitute misconduct in circumstances that the arbitrator dishonestly subordinated the interests of the parties to his own: Appleton v Norwich Union Fire Insurance Society Ltd [1922] 13 LIL Rep 345, 347; Government of Ceylon v Chandris [1963] 2 QB 327, 333 - 334.

139 However, the starting point must be that the fees charged by the arbitrator are a matter of contract between the arbitrator and the parties, and the parties retain rights in contract in the event the fees charged by the arbitrator exceed the amount to which the arbitrator is contractually entitled. See, in this regard, Appleton (346).

140 Another remedy available to the builder in relation to the arbitrator's costs is the right conferred by s 35(2) of the Act to have the arbitrator's costs taxed.

141 The builder did not allege that the arbitrator had engaged in any conduct within the inclusive definition in s 4 of the Act. By its grounds and submissions, the builder claimed that the combination of alleged errors the subject of grounds 1 to 4 of the appeal in the GDA matter, together with what was said to be the charging of excessive fees for the arbitration, amounted to misconduct on the part of the arbitrator.

142 I have summarised the builder's submissions in respect of grounds 1 to 4 in the GDA matter earlier in these reasons.

143 The builder says that the arbitrator's fees of about $91,000 should be viewed as misconduct given that the arbitration was heard over 4 1/2 days, together with a number of conferences, and that it related to a not uncommon dispute between a builder and a residential home owner.

144 In my opinion, the matters relied upon by the builder as constituting misconduct on the part of the arbitrator fall well short of constituting misconduct.

145 In my opinion, the very limited material available to me does not enable an informed judgment to be made as to whether the fees charged by the arbitrator were in fact excessive. Much less does it enable a judgment to be made that the fees charged were so grossly excessive as to amount to misconduct.

146 I note that there is before me no evidence or submission that the builder has exercised its right under s 35(2) of the Act to have the arbitrator's fees taxed.

147 Even had I formed the view that the fees charged by the arbitrator were grossly excessive, I am far from persuaded that such a conclusion would have provided a proper foundation for the exercise of a power under s 42 to set aside the award made by the arbitrator. The arbitrator's award did not include the fixing of his fees. (In this respect, the position in the present case differed from the circumstances in the cases relied upon by the builder.) The only aspect of the award which related to the arbitrator's fees was an order that the builder pay to the owners the half-share of the arbitrator's fees which the owners had already paid. If I had formed the view that the fees were grossly excessive it would not seem to me to follow that the award of payment of one-half of the fees already paid in favour of the successful party in the arbitration, namely, the owners, should be set aside.

148 I turn to the alleged errors the subject of grounds 1 - 4 in the GDA matter.

149 There is, at the least, a real question as to whether the making of one or more errors of law in a final award is properly able to be characterised as misconduct for the purpose of enlivening the powers under s 42 and s 44 of the Act. The owners submitted that such an approach would undermine the scheme of the Commercial Arbitration Act. That submission is supported by Ipp J's analysis of the statutory scheme in Forsayth NL v Australasian Gold Mines NL (559 - 560).

150 The builder submitted that the errors on the part of the arbitrator satisfied the test stated in Gebauer Nominees [No 2] [65] that a reasonable person would no longer have confidence in the arbitrator's ability to come to a fair and balanced conclusion on the issues. I doubt whether that test is intended to apply to an error made in an arbitrator's final award. Rather, it seems to me that it is intended to apply only to an error made in the course of the proceedings, as is specifically stated by the court at [65]. In any event, to my mind, the alleged errors fall well short of meeting that test even if it is applicable to an error made on the final award.

151 In my opinion, the complaints the subject of grounds 1 to 4 fall well short of giving rise to a conclusion of misconduct on the part of the arbitrator. I have found that ground 1 does identify an error of law on the part of the arbitrator. I have also found that no manifest error of law is revealed by the complaints made in grounds 2, 3 and 4. I refer to my reasons for these conclusions. As I have said, the making of one or several errors of law in the course of an award does not amount to misconduct.

152 For these reasons I would dismiss the builder's application under s 42 of the Act.

153 For the reasons I have given, I would make orders to the following effect:

1. The builder have leave to appeal on ground 1;
2. Ground 1 be upheld in part by varying the arbitrator's award so that the amount of delay damages be $7,000 (in lieu of the $46,200 awarded by the arbitrator);
3. Leave to appeal against the arbitrator's award otherwise be refused; and
4. The builder's application under s 42 be dismissed.

154 I would hear from the parties as to the precise orders to be made, and as to costs.