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[2010] VSC 419
Supreme Court of Victoria
2010-09-17
CROFT J
Original judgment source is linked above.
ARBITRATION - Arbitration under the Commercial Arbitration Act 1984 (Vic) - Judicial review of awards - Application for leave to appeal an award - s 38 of the Commercial Arbitration Act 1984 (Vic) - Meaning of "manifest error of law on the face of the award" - Meaning of "strong evidence that the arbitrator ... made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law" - Procedure for seeking leave to appeal on a question of law arising out of an award - Section 38(2), (4) and (5) of the Commercial Arbitration Act 1984 (Vic) - ;
1 The parties entered into an Arbitration Deed dated 9 February 2010 engaging Mr Michael Shand QC as arbitrator ("the Arbitration Deed"). For convenience, the learned arbitrator is referred to as "the Arbitrator".
2 The Arbitration Deed was entered into for the purpose of determining whether the claim made by the defendant, Equuscorp Pty Ltd ("Equus") against the plaintiff, Lorin Rosemary Winter ("Mrs Winter"), in County Court proceeding CI-08-03840, was (a) statute barred; or (b) barred by laches and delay. The Arbitrator's determination as to laches and delay was not challenged by Mrs Winter.
3 The Arbitration Deed made specific provision for the arbitration to be conducted on the basis of written submissions, commencing with submissions by Mrs Winter, followed by submissions from Equus. Provision was made for reply submissions by Mrs Winter, which would conclude the written submission process.[1] The Arbitration Deed also provided, specifically, that:
"To reduce the costs of the arbitration, the parties have agreed not to make oral submissions to the Arbitrator".[2]
4 In the spirit of cost saving and expedition, the Arbitration Deed also provided that the Arbitrator was to deliver his award within 30 days of receiving the written submissions of the parties, and the award was to contain written reasons for his decision.[3]
5 The Arbitrator and the parties attended to the arbitration, according to the agreed procedure, with expedition. The Arbitrator provided an award with written reasons, dated 9 February 2010 ("the Award"). The Award also had annexed to it "Proposed Agreed Statement of Facts, Conditions and Documents", together with a list of "Agreed Documents". As the contents of this annexure are integral to the Award and the Arbitrator's reasoning, they are properly treated as part of the Award for the purposes of this proceeding.
6 This proceeding is an application by Mrs Winter for leave to appeal the Award under s 38(5) of the Commercial Arbitration Act 1984 ("the Act") on a number of bases.
7 Section 38 of the Act provides for the judicial review of awards by way of an appeal to this Court on any question of law arising out of an award, either with the consent of the parties or, with some exceptions as provided for in s 40, with the leave of the Court.[4] Sub-section 38(5) makes provision for the circumstances in which leave may be granted, in the following terms (though cast in negative 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."
8 The parties did not, in response to my questioning, accept that it was common ground that the requirements of s 38(5)(a) were satisfied. Nevertheless, having regard to the manner in which the proceedings were conducted, it could not seriously be suggested that, in the event that the Court accepted that a "question of law" arose for determination that it would not substantially affect the rights of one or more parties to the arbitration agreement. Consequently, I am satisfied for the purposes of this application that the requirements of s 38(5)(a) are satisfied. This, in effect, confines the present controversy to the provisions of s 38(5)(b) of the Act.
9 At a very preliminary stage in this proceeding, Equus submitted that the proper course was, in effect, to hear the application for leave to appeal and not to hear argument upon the issues raised on appeal until the leave question had been determined. In support of this view, reliance was placed on the observations made by Allsop P in Gordian Runoff Ltd v Westport Insurance Corporation:[5]
"[108] One of the considerations discussed by Lord Diplock in The "Nema"[6] (at 742-743) was the undesirability of review of arbitration awards where the questions in issue took days to argue.
[109] The above considerations of the purpose of the new subss (5) and (6) of s 38 make clear what the approach should ordinarily be to this procedural question. Set against a background of the keen recognition that permitting the conduct of substantive arguments on appeal before granting leave would open up for review more arbitration awards than would occur if only truncated argument on leave were permitted, a clear legislative and contextual policy can be discerned that assists in appreciating that except in special, indeed exceptional, cases an application for leave should be dealt with and finalised before the hearing of the appeal. The relevant tasks on a leave application provided for by the text of s 38 also make it important to deal with leave first. The very assessments contemplated by s 38(5)(b)(i) and (ii) are directed to questions that are interlocutory in character and ones that should in terms be answered before full argument about the asserted error of law as an ultimate decision. That said, I am not persuaded that the text and structure of s 38 deny the court authority to hear argument upon appeal until leave to appeal has been granted.
[110] Section 38 reflects a legislative purpose of the recognition of the autonomy of the parties by the respect the court should give to the arbitrators' award. Procedures should be adopted which support, not undermine, that recognition of autonomy and respect for the award.
[111] The process of hearing full argument on the appeal will almost inevitably subvert the intention to be discerned in the CA Act, s 38 to limit judicial review. It is difficult to decide the questions in s 38(5)(b) if full argument is heard enabling a view to be reached about the ultimate correct answer. A judge will naturally find it difficult, after full argument, to conclude in the negative to both paras (5)(b)(i) and (ii), but to conclude that there was an error. Further, and as importantly, it will, in practical terms, give an appeal to a party without having to satisfy a judge of the character of the error and any other matters contemplated by s 38 (5)(b)(i) or (ii). The procedure of hearing full argument on the appeal undermines the purpose of s 38, as Rogers CJ CommD[7] and Sheller JA[8] said with clarity and force.
[112] The context and purpose of leave to appeal in s 38 make it plain what the approach should be except in special, indeed exceptional, cases. I have no hesitation in concluding that the primary judge was wrong in principle to conduct the application as he did. It is a course that is inimical to the purpose of the statute: Promenade at 187-189 (Rogers CJ Comm D)[9] and 221 and 226 (Sheller JA)[10]; Mowby Pty Ltd v Moose Property Services Pty Ltd [2007] VSC 111 at [4] and Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd [2002] VSCA 113 at [31]; [2002] VSCA 113; (2002) 5 VR 353 at 368.
[113] For these reasons, in my view, the primary judge erred in his approach. He should have restricted himself to a consideration of the leave question before embarking on hearing the appeal."
10 As indicated during the course of the hearing of the application, I decided to proceed to hear submissions and argument with respect to the leave application and, in the event that leave was granted, the appeal itself. My reasons for doing so were twofold. First, the issues raised at the hearing were relatively constrained and could be dealt with quite quickly. Secondly, the provisions of the Arbitration Deed, to which reference has been made, indicate, quite clearly, the wish of the parties to reduce the costs of the arbitration (and it follows, any subsequent court proceedings), I decided that it would be more efficient and cost-effective, and in accordance with the wishes of the parties, to deal with the leave application and any appeal issues in one hearing.
11 The Act only provides for judicial review on a question of law and not on questions of fact, though the apparent simplicity of the distinction can be deceptive.[11] The potential difficulties in classification become clear when it is suggested that an error of law arises as the result of the failure by an arbitrator to consider, or properly consider, relevant admissible evidence. In any event, it is clear that the Act does not provide for merits appeals on questions of law but, rather, restricts appeals, principally on the basis provided for in sub-s 38(5). It is also clear that, even if the requirements of sub-s 38(5) are established, there remains a discretion in the Court to refuse leave.[12]
12 The authorities indicate very clearly that the word "manifest" where it is used in s 38(5)(b)(i) does carry significant meaning which is not to be read down or effectively ignored. It was against the legislative background of the English Arbitration Act 1979 and the New South Wales Commercial Arbitration Act 1984 that the meaning of "manifest error of law on the face of the award" was considered in Promenade Investments Pty Ltd v State of New South Wales.[13]
13 In Anaconda Operations Pty Ltd v Fluor Australia Pty Ltd, Dodds-Streeton J commented that the power of judicial review is "enlivened by an obvious departure from settled principles of law".[14] I take the emphasis in this comment to lie in the word "obvious" as it prefaces reference to the principles relevant to determination of an application for leave to appeal under s 38(5) as summarised by Debelle J in Leighton Contractors Pty Ltd v South Australian Superannuation Trust, which include:[15]
"5. The epithet 'manifest' in the expression 'manifest error of law' is used to indicate an error which is evident or obvious rather than one which is arguable."
"[38] The Commercial Arbitration Acts, in broadly uniform format, were subsequently enacted in Australian States and Territories. An apparent goal of the legislation was to minimise judicial supervision and review of arbitral decisions. In Promenade Sheller JA observed:
'The added requirements of manifest error of law on the face of the award or strong evidence that the arbitrator made an error of law and that the determination of the question may add substantially to the certainty of commercial law suggest that the draftsman was seeking to constrain the exercise of control over arbitral awards in the manner described by the House of Lords in The Nema. A manifest error on the face of the award may be an error which would be apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument.'[17]
[39] His Honour noted the recommendation of the New South Wales Working Group that 's38(5) should incorporate the guidelines enunciated in The Nema and other relevant authorities with the effect that leave may only be given if an error of law is apparent on the face of an award without hearing argument'.[18]
[40] Sheller JA relevantly observed:
'In applying s38, as amended, a construction that would promote the purpose or object underlying the Act must be preferred to a construction that would not promote that purpose or object ... The expression "error of law on the face of the award" is one of a type well-known to courts. The award having been examined, the question is whether there is apparent (and such is the denotation of the word "manifest") an error of law. 'Manifest error' is an expression sometimes used in reference to reasons given by judges or the approach taken by juries ... It is used to indicate something evident or obvious rather than arguable .... The matters referred to by Lord Diplock in The Nema remain important factors in determining whether leave should be given.
However, I have difficulty in defining the significance of an error of law by reference to whether it is apparent to a judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument. I understand the views expressed that decisions on questions of law should be left to the arbitrator with minimal interference by the courts unless the arbitrator may be establishing an erroneous precedent on a matter of law which may affect other cases between other parties, as, for example, where the question concerns the construction of a contract in standard terms. But the paragraph requires a determination as to whether or not there is a manifest error on the face of the award and I do not see why a judge should be required to do that without adversarial argument. If the judge concludes after argument that there is not such an error of law an application based on this ground fails ... There is nothing, in my opinion, in the language of the sub-section or in any other material, to which consideration can appropriately be given pursuant to the terms of the Interpretation Act which would allow the judge to proceed to determine the application without hearing argument. However, as McHugh JA pointed out "manifest" in the context of the sub-section, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law which is more than arguable. 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'.[19]
[41] Windeyer J in Gold Coast City Council v Canterbury Pipe Lines[20] stated:
'An error on the face of the award is not to be discovered by looking behind its back. It is not permissible to treat the limited jurisdiction by which a court ensures that an arbitration is conducted in accordance with law as if it were the equivalent of an appeal from an arbitrator's decision.'[21]
'Obviously, there is difficulty in the word "manifest". What may be "manifest" to one judicial officer may fail to persuade another. The criterion cannot be the swiftness of mind of the sharpest intellect. Nor can it be the perception of one whose whole career has been devoted to examining and reflecting upon building contracts. An objective, not a subjective, test for what is "manifest" is contemplated. But the word will not go away. Against the background of its history in this context it requires swift and easy persuasion and rapid recognition of the suggested error.'"
Error of law and adding substantially to the certainty of commercial law
14 The other basis upon which leave was sought was that there is, with respect to the Award, strong evidence that the Arbitrator made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law, within the meaning of s 38(5)(b)(ii) of the Act.
15 Although the provisions of s 38(5)(b)(ii) refer to an "error of law" rather than a "manifest error of law", as is the position in s 38(5)(b)(i), there is no basis, having regard to the provisions of ss 38 to 41 of the Act which constrain merits appeals, for supposing that this second basis upon which leave might be granted could be used to avoid the apparently stricter requirements of the first ground, where the reference to an error of law is qualified by the word "manifest". This is clear from the judgment of Allsop P in Gordian Runoff Ltd v Westport Insurance Corporation.[24] The position is made particularly clear in the following passage from that judgment:
"[126] The positing of these two levels of strictness for the identification of legal error ("manifest error": (b)(i) and "strong evidence that the arbitrator made an error of law": (b)(ii)) can be seen to be a reflection of aspects of Lord Diplock's speech in The "Nema". In The "Nema", at 742-743 Lord Diplock discussed the proper approach to the construction of "one-off" clauses and the "rather less strict criteria" that were appropriate for the construction of standard form contracts in respect of which a high degree of legal certainty for the relevant market was required. In such cases where there was a standard form contract operating in a market (implicitly overseen by English courts according to English law) Lord Diplock said at 743:
'But leave should not be given even in such a case, unless the judge considered that a strong prima facie case had been made out that the arbitrator had been wrong in his construction; and when the events to which the standard clause fell to be applied in the particular arbitration were themselves "one-off" events, stricter criteria should be applied on the same lines as those that I have suggested is appropriate to "one-off" clauses.'
In this context, the importance of standard form contracts in the operation of commercial markets and the role of the courts in the support thereof by clarity and consistency had, only four years before in 1977, been lucidly and commandingly expressed by his Lordship in Federal Commerce & Navigation Co v Tradax Export SA (The "Maratha Envoy") [1978] AC 1 at 7-8.
[127] What therefore has to be shown, as a first step, is that there was strong evidence, in the sense of a strong prima facie case, that the arbitrators were wrong in law. Only if this exists does one move on to the additional consideration as to whether the determination of the question (of law) may or may be likely to add substantially to the certainty of commercial law. The court needs to be careful not to downgrade the statutory requirement of "strong evidence", that is a strong prima facie case of legal error, because of the "interesting" or important legal question involved. The remit of arbitrators includes the making of errors; that is an inevitable part of any process of dispute resolution. Arbitrators may deal with "interesting" or important questions. How and what errors are to be corrected depends on the statute in question. Here, it must be shown that there is a strong prima facie case that the arbitrators were wrong on a question of law.
[128] An assessment of this question at the procedural level of a leave application requires the demonstration by arguments appropriate to a leave application of a strong prima facie case of legal error. The restriction of argument to a form appropriate to a leave application is not restricted to "manifest error". It might be obvious that in that context argument would necessarily be short. It might also be that a strong prima facie case of error requires the display of something more than obvious error. Nevertheless, it is the evidence of a prima facie case of error that is required to be strong. The longer the debate that is required to demonstrate the asserted error, the likely more contestable is the argument. The procedural context is again important. The strength of any argument and the strength of the prima facie case of error is not assessed after full concurrent argument on appeal. It is to be assessed by reference to argument suitable to a leave application in which the task is to assess the strength of the case for error, not decide the case for error."
16 Under a Deed of Loan dated 29 June 1990 between Equus and Michael Frederick Winter ("Mr Winter"), Equus agreed to lend Mr Winter the sum of $301,164.80 ("the Deed of Loan"). The sum lent was repayable by 47 monthly instalments. In order to secure this loan and any interest on it, Mr Winter agreed, under the provisions of the Deed of Loan, to charge all his right, title and interest in and to -
(b) 60 units in the unit trust established for the purpose of producing a film, originally to be titled "Night of the Leopard" ("the Film"), the trustee of which was Perpetual Trustees WA Ltd ("the Trustee").
The unit trust was constituted by a document entitled "The Second Multiple Prospectus Deed", dated 9 May 1988 ("the Trust").
17 Mr Winter defaulted in the payment of instalments as and when they fell due under the provisions of the Deed of Loan and, as a consequence, on 10 February 1992, Equus served a notice to pay on Mr Winter, specifying various defaults alleged to have occurred. On 24 February 1992, Equus commenced proceedings against Mr Winter in this Court with respect to his then alleged defaults ("the First Proceeding").
18 The statement of claim in the First Proceeding alleged that Mr Winter had failed to pay instalments of interest due under the Deed of Loan in November and December 1991 and January 1992, on the due days, or at all. It was also alleged, and is common ground in the present proceedings, that the notice of 10 February 1992 both notified Mr Winter that he was in default in the payment of instalments of interest, and also that Equus had exercised its option to make the whole of the principal sum and accrued interest due and payable immediately. It was alleged that none of these sums of money had been paid and, consequently, Equus claimed the whole of the principal sum under the Deed of Loan together with interest.
19 The right of Equus to demand repayment of the whole of the principal sum the subject of the Deed of Loan was provided for under sub-clause 12.1 of that Deed, which is in the following terms:
"Upon the occurrence of one of those events specified in Clause 11, the whole of the Principal Sum and such other moneys as are comprised in the Secured Moneys together with such interest accrued as is then outstanding shall at the option of the Lender become due and payable immediately although any time appointed for payment thereof may not have arrived, thereupon the Borrower will pay the same to the Lender forthwith (together with interest thereon at the Higher Interest Rate computed from the date of the said demand), and upon non-payment thereof, the Lender shall be entitled to sue for and recover the same whether or not the Lender has exercised or pursued any power of sale or any other power or remedy, except for closure, which is contained or implied in this Deed or any Collateral Security."
For convenience, this provision is referred to as the "acceleration clause".
20 The issue of the First Proceeding resulted in an exchange of correspondence between Nevett Ford, solicitors for Mr Winter, and Mr Allan Herskope, solicitor for Equus between 23 March 1992 and 31 July 1992.[25] In a letter dated 23 March 1992 from Nevett Ford to Mr Allan Herskope, reference was made to previous telephone discussions followed by a proposal of three payments of $7,500, $12,500 and $10,000 between 24 March and 15 April 1992 together with an offer of further security, being a charge over 1,000 $1 shares held by Mr Winter in Glyzinc Pharmaceuticals Limited. Mr Herskope responded by letter dated 27 March 1992 stating that he had instructions on behalf of Equus to accept Mr Winter's proposal. He also requested copies of relevant share scrip to facilitate the preparation of the security documents for the further charge, and stated that Equus would require Mr Winter to pay all costs to date. By letter dated 2 April 1992 from Nevett Ford to Mr Allan Herskope, a request was made to amend the schedule of payments as set out in the 23 March 1992 letter. Additionally, the letter enclosed a cheque for the sum of $7,500 on the basis that the schedule of payments would be amended. In a letter dated 3 April 1992 from Mr Allan Herskope to Nevett Ford, receipt was acknowledged of the $7,500 cheque which had been forwarded with the 2 April 1992 letter. Importantly, the letter also confirmed agreement to the amended schedule of payments and also the ongoing obligation of Mr Winter to make instalments, in the following terms:
"It is noted that pursuant to the schedule of payments as agreed, my client requires payment of the next instalment as set out in your letter of yesterday's date, namely receipt of a bank cheque in the sum of $12,500 by not later than 5.00pm Monday next, 6th inst.
My client then agrees to the balance being paid (inclusive of bringing all instalments up to date) by 7 May 1992. I will advise you of the precise amount required shortly."
21 The correspondence between 23 March and 3 April 1992 is all marked "Without Prejudice". As might be expected, no point was made of this because, although the correspondence would be regarded as being in the nature of settlement negotiations and therefore privileged, the negotiations bore fruit by 3 April 1992 when the settlement agreement was reached and, consequently, the correspondence became "open" and of relevance if necessary to determine the terms of the settlement agreement. This correspondence was followed by two open letters, one dated 1 July 1992 and another dated 31 July 1992 between solicitors. The 1 July letter is from Nevett Ford to Mr Allan Herskope and encloses a cheque for the sum of $23,565.91. The letter states that "This amount represents the amount previously advised by you to be payable and the cheque had already been drawn and was in transit to us at the time of our conversation with you on 30 June". Having regard to the previous correspondence, it appears that this is probably a final payment as part of the settlement agreement, representing solicitors costs with respect to the First Proceeding and the preparation of the additional security. The 31 July 1992 letter is also a letter from Nevett Ford to Mr Allan Herskope and, omitting formal parts, simply states: "We enclose cheque for the sum of $4,705 being monthly payment payable by our client".
22 The agreed documents do not indicate that there was any further correspondence in relation to the default the subject of the First Proceeding, but it appears from the Award that there were not. The Proposed Agreed Statement of Facts Conclusions and Documents which is contained in Annexure A to the Award indicates that Mr Winter made one further payment of interest in the sum of $4,705.70 on 29 August 1992. This appears to have been the last payment of interest which Mr Winter made during 1992 prior to the allegation of further default under the Deed of Loan. Equus gave a Notice to Pay dated 10 February 1992, which gave rise to an option to make the whole of the principal sum and accrued interest due and payable immediately, pursuant to the acceleration clause contained in the Deed of Loan. Equus submitted that the settlement negated the exercise of this option for the post-settlement operation of the Deed of Loan, and thus a new cause of action would accrue following further default in interest payments. Mrs Winter, on the other hand, submitted that this was not the position but, rather, the settlement reached in the correspondence to which reference has been made, did not have the effect of negating the operation of the acceleration clause once triggered, with the result that the whole of the principal sum and interest under the Deed of Loan continued to be due and payable. In other words, for the purposes of the Limitation of Actions Act 1958 (Vic) provisions, Equus submitted that the "clock" was stopped by this settlement agreement, whereas Mrs Winter submitted that this was not the case and that the clock was running, since at least 24 February 1992, the date of commencement of the First Proceedings.
23 It was common ground, and appeared to be common ground in the arbitration, that the applicable limitation period with respect to the Deed of Loan was that governed by the provisions of sub-s 20(1) of the Limitation of Actions Act which provides:
"20. Actions to recover money secured by a mortgage or charge
(1) No action shall be brought to recover any principal sum of money secured by a mortgage or other charge on property, whether real or personal, after the expiration of fifteen years from the date when the right to receive the money accrued, notwithstanding that the money is by any Act or instrument expressed to be a charge until paid.
..."
24 The Arbitrator found that by the issuing and service of the First Proceeding on 24 February 1992, Equus exercised its option under the acceleration clause and, consequently, the whole of the principal and interest the subject of the Deed of Loan became due and payable. The Arbitrator found that time began to run under the Limitation of Actions Act in respect of the cause of action the subject of the First Proceeding.
25 The Arbitrator considered the correspondence to which reference has been made and accepted the contention of Equus that the cause of action the subject of the First Proceeding merged in the settlement agreement effected by this correspondence, referring for the substantive law in this respect to Osborn v McDermott[26] and Kutsourias v Metledge & Associates.[27] The Arbitrator concluded that:
"If following that settlement, Equus was to be entitled to recover the whole of the principal and interest outstanding, it would first have to establish that its right to do so had again been enlivened under clauses 11 and 12 of the Deed of Loan by reason of a default arising after the settlement agreement".[28]
26 The crucial findings and position which the Arbitrator reached as to the proper application of legal principle in the circumstances was that the settlement of the First Proceeding, which he found to have been effected by the correspondence to which reference has been made, resulted in a merger of the cause of action the subject of the First Proceeding. This cause of action could not be revived, though a fresh cause of action on a similar basis, relying upon clauses 11 and 12 of the Deed of Loan might arise subsequently in the event of further default under the Deed of Loan subsequent to the settlement agreement. Mrs Winter, on the other hand, submitted that the authorities were clear that once time commenced to run under limitation of actions legislation, it continued to run whatever happened. In this respect, the Arbitrator noted in the Award references in Mrs Winter's submissions to the cases of Re Benzon: In re Bower v Chetwynd[29] and Re George.[30] Further, the Arbitrator noted that Mrs Winter contended that the cause of action could not be suspended by any conduct of the parties and, further, that if a right was "suspended", it was thereby extinguished.[31] In response, the Arbitrator said that in Benzon, the court distinguished the case before it from one where a new cause of action had subsequently arisen, and in Re George, the time under the statute of limitations was held to continue to run during the executorship of the debtor's estate.[32]
27 In support of the present application, Mrs Winter argued that sub-s 20(1) of the Limitation of Actions Act operates to bar any action to recover moneys secured by a mortgage or other charge on property, irrespective of who is then registered or entitled to be registered as the proprietor of that land. It was submitted that these provisions deal, in effect, with a proprietary interest in land in a manner separate and distinct from the provisions of s 5 of the Limitation of Actions Act, which deals with the personal liability of a debtor to a creditor. It was submitted that the existence of a cause of action against the debtor is no necessary part of recovery of a principal sum secured by a mortgage or other charge, and that this proposition is rendered self-evident in the present circumstances where any cause of action by Equus against Mr Winter personally ceased in October 1996 when any such rights merged in his bankrupt estate.
28 Mrs Winter submitted that it was clear on the agreed facts that the right of Equus to receive the moneys secured by the charge had accrued by February 1992. It was said that, by that date, Equus had made demand for payment of the whole of the moneys secured by the charge consequent upon a default by Mr Winter, which commenced proceedings to recover them. It was submitted before the Arbitrator, and it was submitted in these proceedings, that Equus would have been barred from bringing an action to recover moneys secured by the charge after February 2007 and that the settlement agreement between Equus and Mr Winter made no difference to this position. Consequently, it was submitted that the Arbitrator was in error in finding that the cause of action with respect to the principal and interest claimed in the First Proceeding merged in that settlement agreement.
29 It is against this background that Mrs Winter submitted that there was a manifest error on the face of the Award or, at least, strong evidence that the Arbitrator had made an error of law. It was further submitted that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. The deficiencies in the Award which were said to provide the basis for these submissions, as relied upon at the hearing of this application, are set out in Mrs Winter's written outline of submissions, as follows:
"18. The conclusion of the arbitrator represents an inference as there was no express intention disclosed by the correspondence between the parties as to what the legal effect of their 'settlement' was intended to be. The actual agreement was to bring the instalments due under the deed of loan up to date and to pay the future instalments as provided by the deed of loan: at paragraph 21. The corollary imposed by the arbitrator was an agreement by Equus 'that no longer was it entitled to the whole of the principal and interest outstanding on account of the issue of the writ in the first proceeding and the defaults relied upon in support of that writ'. Equus nowhere expressly agreed any such thing. The agreement between the parties was rather more plausibly to be construed as an agreement by Equus not to sue Mr Winter provided he complied with the terms of the loan agreement thereafter, and not to press its rights in respect of the charge if he did so. That is a different matter from a finding that they no longer have those rights.
30 Equus submitted that the effect of the settlement agreement with Mr Winter was to produce a merger of all causes of action then available to Equus which were the subject of the First Proceeding. Further, it submitted that the correspondence to which reference has been made indicates clearly that the parties agreed and accepted that the result of the settlement was that the whole of the principal sum which had been rendered due and payable by the exercise of Equus' option under the acceleration clause was no longer due and payable. Rather, it was submitted, the parties had agreed to revert to the original regime for its repayment under the Deed of Loan provisions, provided outstanding interest instalments were brought up to date and further instalments were paid in accordance with the provisions of that Deed. There were, of course, agreements as to the payment of costs and further security, as has been mentioned, but that does not affect this particular issue. Additionally, Equus submitted that an agreement to pay further instalments of interest on an ongoing monthly basis would be redundant and in conflict with the position that the whole of the principal sum remained due and payable.
31 In my opinion, the Arbitrator quite properly accepted submissions in this vein by Equus and found that the settlement agreement between Equus and Mr Winter did result in the merger of all causes of action. A consequence of this was that the whole of the principal sum ceased to be then due and payable, and the parties were left to pursue their commercial relationship as an ongoing relationship in accordance with the provisions of the Deed of Loan.
32 In relation to the submissions of Mrs Winter, set out above, I am of the opinion that they indicate a misapprehension in relation to the operation of sub-s 20(1) of the Limitation of Actions Act and as to the nature of the First Proceeding. The assumption underlying those submissions appears to be that the First Proceeding was a proceeding in rem, rather than in personam and that s 5 of the Limitation of Actions Act is directed solely to actions in personam whereas s 20 is not directed to actions in personam at all, but is confined to actions in rem with respect to property which has been mortgaged or charged. In my opinion, no such distinction can be drawn between s 5 and s 20 of this Act. Rather, the opening words of sub-s 20(1) of the Act make it clear that its provisions are directed to an action for the recovery of money which has been secured by a mortgage or charge, rather than an action in rem for recovery of or against the property which has been mortgaged or charged to secure that money. Additionally, the First Proceedings is in my view, clearly an action to recover money and, indeed, is properly characterised as an action to "recover any principal sum of money secured ...", and not an action for interest only. In my opinion, this makes it very clear that sub-s 20(1) is the applicable provision. As the First Proceeding seeks no relief by way of recovery of the property securing the charge, it must follow that Equus' action to recover the principal sum merged in the settlement agreement with Mr Winter.
33 For these reasons, I am of the opinion that the Arbitrator was entirely correct in the position he reached in relation to the effect of the settlement agreement between Equus and Mr Winter. Consequently, the principal sum secured by the Deed of Loan ceased to be due and payable. If Equus sought to recover the whole of the principal and interest outstanding at a subsequent date, it would need to establish its right to do so had been enlivened again under clauses 11 and 12 of the Deed of Loan, as a result of a default by Mr Winter arising after this settlement agreement.
34 As indicated previously, the last payment made by Mr Winter pursuant to the provisions of the Deed of Loan was a payment of the sum of $4,705.70 on 29 August 1992. As a result of Mr Winter's failure to pay any further monthly instalments, and his consequent default under the provisions of the Deed of Loan, Equus gave notice to him, dated 2 November 1994, specifying defaults in this respect and stating that if the notice was not complied with, Equus would "exercise all its rights and remedies under the Deed of Loan". No further payments were made and the result was the issue of the second proceeding by writ and endorsed statement of claim dated 15 November 1994 ("the Second Proceeding"). The statement of claim in the Second Proceeding was similar to that of the statement of claim in the First Proceeding and, in particular, relied upon Equus' exercise of its rights under the acceleration clause to make the whole of the principal sum secured and interest due and payable. It is not in dispute that if the Second Proceeding triggered the running of the limitation period under sub-s 20(1) of the Limitation of Actions Act, that the limitation period would not have expired at the time Equus commenced a proceeding in the County Court on 12 September 2008.[33] In that proceeding, Equus claimed to be entitled to recovery and sale of the interest in the property the subject of the charge under the Deed of Loan and the application of the proceeds of the sale of that property towards satisfaction of the debt the subject of that Deed.
35 The second main issue the subject of the arbitration and also the present application was the effect, in terms of the Limitation of Actions Act, of two payments made to Equus by the Trustee. The first of these payments was a payment of the sum of $13,710.09 on 29 June 1994, and the second was a payment of $16,200 on 3 or 29 July 1995. Equus argued that both payments by the Trustee fell within the operation of sub-s 24(1) of the Limitation of Actions Act and that, consequently, Equus' cause of action accrued from the later of those payments.
36 The relevant provisions of the Limitation of Actions Act are sub-ss 24(1) and 25(2):
"24. Fresh accrual of action on acknowledgment or part payment
(1) Where there has accrued any right of action (including a foreclosure action) to recover land or any right of a mortgagee of personal property to bring a foreclosure action in respect of the property, and-
(a) the person in possession of the land or personal property acknowledges the title of the person to whom the right of action has accrued; or
(b) in the case of a foreclosure or other action by a mortgagee, the person in possession as aforesaid or the person liable for the mortgage debt makes any payment in respect thereof, whether of principal or interest-
the right shall be deemed to have accrued on and not before the date of the acknowledgment or payment.
...
25. Formal provisions as to acknowledgments and part payments
...
(2) Any such acknowledgment or payment as aforesaid may be made by the agent of the person by whom it is required to be made under the last preceding section, and shall be made to the person, or to an agent of the person, whose title or claim is being acknowledged or, as the case may be, in respect of whose claim the payment is being made."
37 Mrs Winter submitted that the payments by the Trustee to Equus were not made by the Trustee as agent for Mr Winter but, rather, that the payments were received by Equus in its capacity as chargee in possession of the charged property and, consequently, the payments were not a "payment" for the purposes of sub-s 25(2) of the Limitation of Actions Act. It was further argued by Mrs Winter that when the payments or one of them were made, Mr Winter denied liability to Equus and this, together with the status of Equus as chargee and assignee of the charged property, precluded the operation of the deeming provisions of sub-s 24(1) of that Act.
38 Mrs Winter submitted that it was necessary to have regard to the provisions of the Deed of Loan and also the "Charge and Assignment and Notice to Trustee" ("the Notice").
39 In relation to the Deed of Loan, it was noted that it provided that Mr Winter "as beneficial owner hereby charges in favour of the lender all of its right, title and interest in and to the secured property". It was also submitted by Mrs Winter that the agreed facts also established that at the time of entering into this Deed, Mr Winter executed the Notice, which was addressed to the Manager of the Trustee advising him that with respect to Mr Winter:
"I hereby charge and assign to Equus Financial Services Limited of 2 Clarke Street, South Melbourne ('Equus') all of my right, title and interest in the Film (including the Base Production Services Fees arising under the Production Services Agreement for the Film, and secured by my proportionate interest in the letter of credit held therefore by the Trustees and all my units and parcels of Production Contribution Moneys and moneys payable in respect thereof) as security for the payment of all moneys due by me to Equus".
Attention was also directed to the following paragraph of the Notice, as follows:
"I hereby irrevocably direct the Trustee to make payment to Equus of all and my moneys due to me at any time (including the secured Base Production Services Fee and any moneys payable to me under the letter of credit) in respect of my investment in the trust".
40 The agreed facts also indicated that Mr Winter entered into the Deed of Loan to permit him to acquire units in the Trust, and that one of the agreed documents was the Prospectus for the production of the Film ("the Prospectus"), offering units in that trust. Reference was also made to the Trust, in terms of "Second Multiple Prospectus Deed" dated 9 May 1988, to which Mr Winter became a party as the result of allocation of units to him. Mrs Winter submitted that it was not part of the agreed facts, and contested the proposition that Mr Winter knew the terms of the Trust or, indeed, had ever seen the Deed constituting the Trust ("the Trust Deed"). In relation to the payments themselves, it was submitted that it was not suggested that Mr Winter knew of the payments, still less that he approved of them or consented to them otherwise than by execution of the documents to which reference has been made, in 1990.
41 As has been noted, it was submitted by Mrs Winter in this proceeding that the Arbitrator was in error for accepting the contention by Equus that the Trustee was the agent of Mr Winter within the meaning of s 25 of the Limitation of Actions Act, in relation to the making of the two payments, in June and July 1994 and 1995, respectively.
42 In support of this position, it was submitted that it was not part of the agreed facts that Mr Winter or Equus knew of the terms of the Trust. It was further said that whilst Mr Winter may well have become bound as a unit holder by the terms of the Trust Deed, there was nothing in the agreed facts to suggest that Mr Winter and Equus had agreed to deal with each other in accordance with its provisions. In this respect, it was noted that the Prospectus directed to investors made no mention of the power contained in the Trust Deed for the Trustee to make payments as agent of the investor. It was said that the terms of the Trust Deed were, however, the key to the finding by the Arbitrator that the Trustee was acting as agent for Mr Winter in making the payments. It was submitted that the document that did pass between Equus and Mr Winter was the Notice which purported to assign all of Mr Winter's right, title and interest in the Film, as noted previously. It was also said that Mr Winter charged his interest over the same assets. The observation was made that it was not possible to both assign property and to charge it in favour of the assignee. It was submitted that plainly the intention of the drafter of the document was to give the greatest possible interest to Equus over the asset or assets in question so that if an assignment failed, then the charge "takes hold". It was also submitted that if neither the assignment nor the charge was effective, it was also a direction to the Trustee to make payment of moneys subsequently due to the Trustee, under the provisions set out above.
43 In this context it was submitted that the Arbitrator's acceptance of the argument by Equus, that the requirements of the Trustee to pay borrowed funds in priority to making a distribution to Mr Winter, was founded in the Notice and that this document characterised the obligation. Consequently, it was said, the Trustee was obliged by the direction in the Notice to make payment of all moneys to Equus, irrespective of the status of accounts between Equus and Mr Winter. It was also submitted that this obligation is expressed to continue until Equus gave written notice that all obligations to Equus had been satisfied. It was said that this obligation was operative irrespective of whether there was any amount due and owing by Mr Winter to Equus, or indeed whether the loan had been repaid in full. Consequently, it was submitted that the Arbitrator, on this analysis, was in error in stating that "It would be an artificial analysis of what has happened to conclude that the payments by the Trustee to Equus were merely receipts under a security previously given and not payments on behalf of Mr Winter".[34] Rather, it was submitted, the intention of the parties was that Equus should, if possible, be made the legal owner of Mr Winter's rights in the Film and this was the express purpose of the provisions of the Notice. Further, it was said that if this failed, then the parties intended that Equus should be possessed of a charge over all of Mr Winter's rights in respect of the Film, coupled with a direction to the Trustee to pay all moneys falling due under those rights to Equus.
44 It was submitted that the Arbitrator's approach was artificial insofar as it treated the receipt of money by Equus, which occurred without the knowledge of Mr Winter or without any possibility of him preventing its payment, as a payment by Mr Winter acknowledging the continued existence of the debt. The effect of the Notice, it was said, was clearly to charge and assign all of Mr Winter's right, title and interest in the Film, including "all my units", as well as "moneys payable in respect thereof". It was said that the authorities dismissed by the Arbitrator made it clear that at least in some circumstances a mortgagee possessed of the security receives the moneys generated by that security as a right incident to that possession and not from the hands of the mortgagor. It was emphasised that the effect of the Notice was that Mr Winter could no longer interfere in the payment of moneys as between the Trustee and Equus and, consequently, these payments should be characterised as payments to Equus as chargee in possession and not payments made by Mr Winter by his agent, the Trustee. Rather, it was submitted that the correct analogy was a situation where a mortgagee took possession of the secured property and received rents and profits for which the mortgagee was ultimately liable to account, but until the mortgagee did so, those payments were not to be regarded as having been received from the mortgagor.
45 Finally, in the context of this particular application, it was submitted that in the event that the Arbitrator's errors in relation to this issue may be regarded as falling short of manifest errors on the face of the Award, they should, nevertheless, be regarded as errors for the purpose of, and to provide a ground for, granting leave to appeal under the provisions of s 38(5)(b)(ii) of the Act, on the basis that the determination of this issue would add substantially, or be likely to add substantially, to the certainty of commercial law.
46 Equus submitted that a consideration of the provisions of the Prospectus and Trust Deed together with the contents of the Notice demonstrated that the Arbitrator was correct in observing that
"It would be an artificial analysis of what has happened to conclude that the payments by the Trustee to Equus were merely receipts under a security previously given and not payments on behalf of Mr Winter. It would be erroneous to ignore the contractual and other relationship that existed between the Trustee and Mr Winter".[35]
47 It is clear that Mr Winter borrowed money from Equus to invest in the Trust which was established, as has been noted, for the purpose of producing the Film. The Prospectus invited investment and, for this purpose, set out the intended commercial relationship in some detail. As indicated in the Prospectus, Mr Winter would, as a result of purchasing units, become a "Production Contractor" and thereby be obliged to contribute production moneys and be entitled to a share of profits from the production of the Film.
48 The link between the Prospectus and the Trust Deed is made clear by the terms of the Application for Units and Interests dated 29 June 1990 ("the Application") which Mr Winter signed. The Application was for 60 units in the Trust. The Application was on the bases specified in that document, including the following:
"(1) THE APPLICANT HEREBY APPLIES TO KAMISHA CORPORATION LIMITED ("the Manager") being the Manager in relation to the Prospectus for the Film Production, dated the 11th day of June 1990, ("the Prospectus") for the number of Units shown above (or such lesser number of Units as may be allotted by the Manager pursuant to this Application), which Units are applied for and, as and when issued, are to be issued in accordance with the Second Multiple Prospectus Trust Deed dated the 9th day of May 1988, as amended ("the Deed") made between the Manager, PERPETUAL TRUSTEES W.A. LIMITED ("the Trustee") and each several Applicant and Production Contractor thereunder.
(2) The Applicant also hereby applies to the Trustee, for the Trustee to act as the agent of the Applicant for the purposes of the Film Production in accordance with the terms and conditions of the Deed and the Prospectus and, in such capacity as agent, to nominate the Applicant as one of the Production Contractors under the Production Services Agreement."
The parties to the Trust Deed were Kamisha Corporation Limited, as Manager, Perpetual Trustees WA Ltd, as the Trustee and each Applicant and Production Contractor. Having regard to the provisions of the Trust Deed, the Prospectus and the Application, I am of the view that the Arbitrator was undoubtedly correct in concluding that Mr Winter was a party to the Trust Deed as a result of his successful application and that he was, consequently, bound by its terms.
49 The Deed of Loan was inextricably linked to the Prospectus and the Trust Deed. The Schedule to the Deed of Loan contained a disbursement authority addressed to Equus in favour of "Perpetual Trustees WA Ltd 'The Night of the Leopard'" in the sum of $300,000. A further $1,164.80 was to be paid to the Comptroller of Stamps. Further, the "Secured Property" was described as:
"(B) Land situated at Flat 6, 1 Lansell Road, Toorak, Vic. 3142
...
(D) Any other Secured Property (as defined herein) the 60 units owned by the Borrower in the Trust between Kamisha Corporation Limited (Manager) and Perpetual Trustees WA Ltd (the Trustee)."
50 The Deed of Loan contains provisions, in clause 7, charging the Secured Property, in the following terms:
"7.1 As security for the due and punctual payment of the Secured Moneys and the due and punctual performance and observance of the terms of this Deed the Borrower as beneficial owner hereby charges in favour of the Lender all of its right, title and interest in and to the Secured Property and all property hereafter to be held or acquired by the Borrower in substitution or replacement of or addition to the Secured Property. The Borrower hereby agrees that the provisions of this Deed relating to the powers of the Lender upon the default of the Borrower shall apply to the charge granted under this Clause provided that these powers shall only apply upon the occurrence of an event of default specified in Clause 11.
..."
Clause 1 of the Deed of Loan contains provisions by way of definition and interpretation. The "Secured Property" is defined as meaning the property described in the Schedule, to which reference has been made. "Secured Moneys" is broadly defined to include the Principal Sum as described in the Schedule, as indicated above.[36]
51 The Notice, which was addressed to the Trustee, was signed by Mr Winter, signed on behalf of the Trustee and also initialled or signed apparently by Equus with the note "Acknowledged revocable only by Equus". The relevant provisions of the Notice with respect to the present issue are as follows:
"35. The Security Document also relevantly provided:
'In connection with my investment in the Trust ... I hereby charge and assign to [Equus] all of my right, title and interest in the film ... as security for the payment of all monies due by me to Equus.
I hereby irrevocably direct the Trustee to make payment to Equus of all and any monies due to me at any time ... in respect of my investment in the Trust.
This notice shall have effect until such time as Equus shall have given the Trustees the written notice that all my obligations to Equus have been satisfied.
I confirm that Equus may exercise all of the powers of a mortgagee whether conferred by statute of law without notice to you or to me on default by me of my arrangements with Equus.' (emphasis added)"
52 The Arbitrator concluded that he was satisfied that the loan to Mr Winter was intended to facilitate the purchase of units in the Trust.[37] In my opinion, the Arbitrator was entirely correct in this view when regard is had to the provisions of the Trust Deed. The following provisions of the Trust Deed do, in my view, establish this position quite clearly.
53 The following recitals of the Trust Deed are relevant:
'Pursuant to each Production Services Agreement the persons nominated as Production Contractors pursuant to that agreement shall contract to carry out film production services and/or to produce and deliver one or more films and the party with whom they contract ... shall agree to pay to the Production Contractors certain fees to be received by the Trustee as agent for the Production Contractors.'
'Provision for a Loan Facility may be made in each Prospectus so that any person who wishes to become a Production Contractor may apply to borrow part of the moneys payable as Production Contribution Moneys under the Prospectus.'
'The Trustee has agreed to act as the trustee of each Fund to be set up pursuant to each Prospectus and as the agent for each Production Contractor pursuant to the provisions of this Deed for the purpose of holding Production Contribution Moneys and other purposes as authorised under this Deed.'
'The Trustee will receive on behalf of each Production Contractor all fees payable under any Relevant Production Services Agreement, which will be paid into a Fees Account, and, (subject to any repayments required under any Loan Facility), the Trustee will disburse those fees to each relevant Production Contractor after paying its own commission, certain fees per hour, certain expenses, and the Manager's fees ...'."
54 The loan to Mr Winter was an interest only loan during the period of the production of the Film, with the principal sum due for repayment at or about the time when the investment was intended to produce its major return. Thus, the investment was due to generate three significant payments to investors such as Mr Winter. The first was the payment of 4% of the amount invested on the fourth anniversary, in June 1994, the second the payment of 5% of the amount invested on the fifth anniversary, in June 1995 and the third, 116% of the amount invested on the sixth anniversary, in June 1996. In anticipation of these payments, the Notice specifically directed the Trustee to pay proceeds of the Film investment to Equus in repayment of the principal which was owed by Mr Winter and secured by the provisions of the Deed of Loan. As they are of particular relevance in this respect, the following provisions of the Notice are emphasised:
"In connection with my investment in the trust between Kamisha Corporation Limited and Perpetual Trustees WA limited ... I hereby charge and assign to Equus ... all of my right title and interest in the film ... as security for the payment of all monies due by me to Equus.
I hereby irrevocably direct the Trustee to make payment to Equus of all and any monies due to me at any time ... in respect of my investment in the trust."
55 Under the terms of the Trust Deed, the Trustee was given power to act as Mr Winter's agent in his capacity as a "Production Contractor"; status he gained under these provisions as a result of his investment in the production of the Film. Clause 6 of the Trust Deed provided, insofar as is relevant:
"6.01 ... Each Production Contractor hereby subject to the provisions of this Deed appoints the Trustee as its trustee with the powers, rights, duties and indemnities set out variously in this Deed and the Trustee accepts such appointment.
6.02 ... Each Production Contractor hereby subject to the provisions of this Deed appoints the Trustee as its agent and attorney for the purpose of entering into the Relevant Production Services Agreement and for the further purposes set out in this Deed and the Trustee accepts such appointment."
Additionally, under clause 7 of the Trust Deed, the Trustee agreed to create and hold on trust for each Production Contractor a fund containing all amounts received and held by the Trustee for each Production Contractor. The Trustee was directed to hold the moneys standing to the credit of each Production Contractor as agent for each Production Contractor, under the provisions of sub-clause 8.01. Further, in relation to the Trustee's capacity as agent, sub-clause 11.04 permitted the Trustee as agent for the Production Contractor to borrow funds to make payments of any money borrowed by the Production Contractor. Finally, sub-clause 15.05 provided that the Production Contractors' rights under the Trust Deed were only exercisable through the Trustee:
"15.05 ... each Production Contractor severally covenants with the Manager and the Trustee that, without in any way limiting any rights, powers or authorities or any obligations granted by each production contractor to the Trustee under this Deed, the production contractor [had] no right other than through the Trustee:
(a) to exercise any right, power, authority or election which it may have [had] ...
pursuant to or in relation to any relevant Production Services Agreement entered into or made by it through the Trustee ..."
56 The provisions of clauses 18 and 19 of the Trust Deed made provision for the receipt and distribution of moneys by the Trustee on behalf of a Production Contractor. Moneys payable to a Production Contractor were to be paid to the Trustee to be held in a "Fees Account", pursuant to sub-clause 18.01. Under sub-clause 19.01, each Production Contractor authorised the Trustee as agent for the Production Contractor to receive any fees payable to that Production Contractor pursuant to the Relevant Production Services Agreement. Sub-clause 19.06 provided for an order of priority for the making of payments by the Trustee. In summary, these provisions require payment in the following order:
(c) thirdly, in respect of out-of-pocket expenses and costs; and
(d) fourthly, to the production contractors, but only "after taking into account any repayments made on behalf of any production contractor of money borrowed, including charges and interest, pursuant to the Loan Facility". (emphasis added)
57 The expression "Loan Facility" was defined in the Trust Deed as "the offer by some person to a Production Contractor of a secured or unsecured loan". It was submitted by Mrs Winter that this expression should be read as limited to a loan by the Manager, namely Kamisha Corporation Limited, or some other entity specified as the lender under the Prospectus. Reference was made to the Prospectus which, it was said, made no provision for any such loan and, consequently, the loan and security arrangements between Mr Winter and Equus could not be regarded as a "Loan Facility" for the purposes of the Trust Deed, particularly sub-clause 19.06. Further, it was submitted that the Arbitrator's reasoning in relation to this issue depended upon a finding that the financing arrangements made between Mr Winter and Equus were to be regarded as a "Loan Facility" for the purposes of these provisions.[38] On the basis that this was not the position, Mrs Winter submitted that the Arbitrator's reasoning and conclusions on this issue were, consequently, flawed and in error.
58 Further, clause 19.07 of the Trust Deed provided:
"... in the event that any production contractor shall have entered into any loan agreements the subject of any relevant Loan Facility, ... the Trustee shall (if required by the relevant loan agreements) first in priority to the distribution under para. (d) of sub-clause 19.06, repay any monies borrowed by the production contractor under the loan agreement entered into pursuant to the relevant loan facility ... together with any fees, expenses, charges, withholding tax and interest thereon as shall be payable pursuant to the relevant loan facility ..."
59 In my opinion, the Arbitrator was not in error in his interpretation of the effect of sub-clause 19.06, 19.07 and the other provisions of the Trust Deed. In particular, I accept that these provisions demonstrate that repayment of the loan principal from proceeds of the Film investment, and the appointment of the Trustee to make those payments to Equus as Mr Winter's agents were features of the commercial scheme in which Mr Winter invested. I accept that the construction of the legal relationships between Mr Winter, the Trustee and Equus properly required a consideration of the Trust Deed, the Deed of Loan and the Notice and that, consequently, it cannot be said that the Arbitrator acted on wrong principles of construction, applied correct principles wrongly, or relied on evidence which was not properly permissible for the purpose of construction in having regard to these provisions in what were interrelated commercial instruments.
60 Equus also cited in aid of its position the decision of the High Court in The Melbourne Harbour Trust Commissioners v Hancock[39] and other authorities in which that decision has been applied, including Thoroughvision Pty Ltd v Sky Channel Pty Ltd.[40] In this respect, it is sufficient that I refer to my summary of the effect of those authorities in Thoroughvision v Sky Channel:
"[25] More particularly, I am of the opinion that the Kelantan [Kelantan Government v Duff Development Co Ltd [1923] AC 395 (HL)] and The Melbourne Harbour Trust Commissioners decisions should be treated as informing the concept of "manifest error of law on the face of the award", as applied in s 38(5)(b)(i) of the Act. In other words, where a question of construction of a document is referred to arbitration, there is no manifest error of law on the face of the award for the purposes of s 38(5)(b)(i) of the Act merely because the court would or may have come to a different conclusion on the question of construction. The position is otherwise when it is apparent "on the face of the award" that the arbitrator has acted contrary to law in, for example, applying wrong principles of construction, applying correct principles wrongly or relying upon evidence which is not properly admissible for the purposes of construction.[41] In these circumstances it might be said, in the language of Viscount Cave in the Kelantan case, that the arbitrator has acted "illegally".[42] In my opinion, this approach is also entirely consistent with the authorities already considered in the meaning of the expression "manifest error on the face of the award" as used in s 38(5)(b)(i) of the Act.[43]
61 In my view, it is not necessary for present purposes to deal with this aspect of the submissions in detail, save to note that I would be more inclined to the view that the arbitration agreement in the present matter should be regarded more in the nature of an agreement for the determination of defined legal and factual issues, where the construction of documents and statutes is relevant but not an agreement to arbitrate where the principal purpose of the reference was the construction of a particular document or documents. In any event, for the reasons I have already indicated, it is not necessary to determine this question.
Effect of the Charge and Assignment and Notice to Trustee
62 Mrs Winter argued, in the context of the agency issue with respect to sub-ss 24(1) and 25(2) of the Limitation of Actions Act, that the effect of the Notice was to place Equus in the position of a mortgagee or chargee in possession. As a result, it was said that any moneys received by Equus from the Trustee were not to be characterised as moneys to which Mr Winter was entitled at the relevant time but, rather, moneys which were to be characterised as in the nature of "rents and profits" or income from the mortgaged or charged property received by a mortgagee or chargee in possession. Consequently, it was said that Equus never became beneficially entitled to any of those moneys unless and until an account was taken of moneys received on this basis by Equus.
63 In support of Mr Winter's position in this respect, reference was made to a number of authorities in which moneys received by a mortgagee in possession were treated as receipt of rents and profits from the mortgaged property of which the mortgagee was in possession, rather than money to which the mortgagor was entitled at the time it was received by the mortgagee.[44] In my opinion, these cases do not assist Mr Winter's position. The payments are not in the context of the situations the subject of these cases, being in the nature of repayments of principal and interest under an integrated commercial arrangement. In their particular circumstances, the payments are truly to be regarded as the income "fruits" of the mortgaged property which were, in due course, to be accounted for by the mortgagee, and in the process of taking accounts credited to the account of the mortgagor or mortgagee according to their entitlements. Until this taking of accounts was concluded, neither the mortgagor nor the mortgagee could be regarded as beneficially entitled to any part of those moneys.
64 In my opinion, the authority of particular importance in the present context is In re Pawson's Settlement; Higgins v Pawson.[45] This case concerned the assignment by way of mortgage of all the defendant's interest in the income of certain funds which were vested in the trustees of a settlement. In relation to the mortgagor's claim, Sargant J said:[46]
"The plaintiff's claim against the trustees of the settlement is unusual, and is a very bold and almost preposterous claim. The plaintiff gave notice of his mortgage to the trustees' solicitors, and after a little delay the receipt of the notice was duly acknowledged. I am satisfied that the plaintiff intended to give the notice in order to perfect his title as mortgagee and for no other purpose. After the receipt of the notice the trustees, as might have been expected, continued to pay the income of the trust funds to the tenant for life, and it was not until nearly a year and a half after the notice had been given that a claim was made against the trustees that they were personally liable to the plaintiff for not paying the income to him instead of to the tenant for life, and that the notice of the mortgage was, as a matter of law, equivalent to entering into possession of the income of the trust funds."
"In my judgment that is not the law. ...
In the case of a mortgage of real estate, whether held in fee simple or for life, the mortgagor, in the absence of notice by the mortgagee to the tenants to pay the rents to him, is undoubtedly entitled to remain in possession of the rents and profits, and that is the ordinary understanding as to the income of personal property which has been mortgaged. I am not prepared to say, without definite authority - which has not been shown to me - that the mere giving notice of the existence of a mortgage of personal property to the trustees holding that property has any further effect in depriving the mortgagor of the receipt of income than it would have in the case of a mortgage of real estate. Accordingly, I hold that the plaintiff is not entitled to recover from the trustees personally the income paid by them to the tenant for life."
65 In my opinion, the reasoning in In re Pawson's Settlement is applicable in the present circumstances because, as indicated above, the Arbitrator was correct in characterising the arrangements and agreements between Mr Winter and Equus as a security transaction. Consequently, to the extent that the Notice purported to assign Mr Winter's right, title and interest in the Film (and associated rights), that assignment was by way of security. Given the commercial context and interrelationship between the documents which underpinned the Film production scheme, which has been discussed previously, the agreements could not be regarded as anything other than a security transaction. Additionally, having regard to the detailed, comprehensive and specific provisions of the Loan Agreement and the Trust Deed, the Notice should, on the basis that it is a document of generality relative to the comprehensiveness and specificity of those documents, be regarded as a subsidiary document, to the extent that it might be said that its provisions had the effect of producing an assignment apparently more broadly than by way of security.[48] Nevertheless, I remain of the view that the provisions of the Notice construed in the context of these broader arrangements are clearly intended to, and do so operate, merely by way of security. They do not produce a situation where Equus is to be regarded as a mortgagee or chargee in possession.
66 For the preceding reasons, I find that there is no manifest error of law on the face of the Award within the meaning of s 38(5)(b)(i) of the Act. Further, I find that that there is no strong evidence that the Arbitrator has made an error of law within the meaning of s 38(5)(b)(ii) of the Act. It is not necessary to express a view on the latter element of this paragraph, that the "determination of the question may add, or may be likely to add, substantially to the certainty of commercial law", in view of these findings. Consequently, the application for leave to appeal under s 38 of the Act is refused. In any event, were I to have granted leave to appeal, on the basis of the preceding reasons, I would have found that there was no error of law made by the Arbitrator for the purposes of s 38(2) of the Act.
67 I will hear the parties in relation to consequential orders and in relation to costs.
[1] See Arbitration Deed, clause 6, paragraphs (a) to (c).
[2] See Arbitration Deed, clause 6, paragraph (d).
[3] See Arbitration Deed, clause 6, paragraph (e).
[5] [2010] NSWCA 57; (2010) 267 ALR 74 (with whom Spigelman CJ and Macfarlan JA agreed).
[6] Pioneer Shipping Ltd v BTP Troxide Ltd ("The Nema") (No. 2) [1982] AC 724.
[7] Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 184.
[8] Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 203.
[9] Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 184.
[10] Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 203.
[11] See Thoroughvision Pty Ltd v Sky Channel Pty Ltd [2010] VSC 139 at [13].
[12] See Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 at 225-6 (Sheller JA); and see Supreme Court (Miscellaneous Civil Proceedings) Rules 2008 (Vic) r 4.09(1).
[13] (1992) 26 NSWLR 203 (CA); and see Energy Brix Australia Corporation Pty Ltd v National Logistics Co-Ordinators (Morwell) Pty Ltd [2002] VSCA 113; (2002) 5 VR 353 (CA); Melbourne VV Pty Ltd v Pratt [1995] VSC 21 (App Div); Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255; (2007) 18 VR 346 (CA) at 369-70 (Buchanan, Nettle and Dodds-Streeton JJA); and Anaconda Operations Pty Ltd v Fluor Australia Pty Ltd [2003] VSC 275 where the approach of Sheller JA in Promenade Investments was approved.
[14] [2003] VSC 275 at [30].
[15] [1994] SASC 5197; (1994) 63 SASR 444 at 448; and see Crewford Pty Ltd v Transit Australia Pty Ltd [1998] 1 Qd R 690.
[16] Anaconda Operations Pty Ltd v Fluor Australia Pty Ltd [2003] VSC 275 at [38] to [43]; noting that the first paragraph in the passage from the judgment of Sheller JA in Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 at 225 was referred to with approval in Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255; (2007) 18 VR 346 at 369-70 (Buchanan, Nettle and Dodds-Streeton JJA).
[17] (1992) 26 NSWLR 203 at 222.
[18] (1992) 26 NSWLR 203 at 222 (being a reference to the February 1988 Report of the Working Group requested by the Standing Committee of Attorneys-General to review the operation of the uniform commercial arbitration legislation); and see Gordian Runoff Ltd v Westport Insurance Corporation [2010] NSWCA 57 at [105] and [106] (Allsop P with whom Spigelman CJ and Macfarlan JA agreed).
[19] (1992) 26 NSWLR 203 at 225-226.
[21] [1968] HCA 3; (1967) 118 CLR 58 at 77.
[23] (1994) 217 ALR 201 at 215.
[24] [2010] NSWCA 57; (2010) 267 ALR 74 (with whom Spigelman CJ and Macfarlan JA agreed).
[25] See list of Agreed Documents as appended to the Award (documents AD-9 to AD-14).
[26] [1998] 3 VR 1 at 9 to 11 (Phillips JA).
[27] [2004] NSWCA 313, [48]-[49] (Bryson JA).
[29] [1914] 2 Ch 68 at 76.
[31] Referring to Belsaw v Bush [1851] EngR 4; (1851) 138 ER 444.
[32] [1914] 2 Ch 68 at 75 (Channel J).
[33] Proceeding CI-08-03840 (see above, paragraph 2).
[36] See Deed of Loan, paragraphs 1(i) to (k).
[41] Obvious instances of the latter would be the admission of evidence of the subjective intent of parties, contrary to the principles enunciated in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 or the admission of evidence of subsequent conduct, contrary to the position in FAI Traders Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343.
[42] See [1923] AC 395 at p 409 (the passage set out in the judgment of Knox CJ and Gavan Duffy J in The Melbourne Harbour Trust Commissioners case [1927] HCA 26; (1927) 39 CLR 570 at 581, which is set out, above, at paragraph 22).
[44] Bradshaw v Widdrington [1902] 2 Ch 430; Cockburn v Edwards (1881) 18 Ch D 449; Harlock v Ashberry (1881) LR 19 Ch D 539.
[46] [1917] 1 Ch 541 at 543-4.
[47] [1917] 1 Ch 541 at 544-5.
[48] See, for example, Lewison, Interpretation of Contracts (4th ed, Sweet and Maxwell, London 2007), para 7.05, pp 253-4; particularly the principle stated by Hoffman LJ in William Sindall Pty Ltd v Cambridgeshire County Council [1993] EWCA Civ 14; [1994] 3 All ER 932 where his Lordship said:
"It is, of course, a principle of construction that words capable of bearing a very wide meaning may have to be given a narrower construction to reconcile them with other parts of the document. This rule is particularly apposite if the effect of general words would otherwise be to nullify what the parties appear to have contemplated as an important element in the transaction."
Winter
Equuscorp Pty Ltd [2010] VSC 419
(2010) 267 ALR 74
(2002) 5 VR 353
(1991) 26 NSWLR 184
(1991) 26 NSWLR 203
(1992) 26 NSWLR 203
(2007) 18 VR 346
(1994) 63 SASR 444
(1967) 118 CLR 58
(1994) 217 ALR 201
(1927) 39 CLR 570
(1982) 149 CLR 337