Plaintiff v Defendants

Plaintiff v Defendants - [2011] VSC 622 - VSC 2011 case summary — Zoe

[34]

The same was said in the Second Reading Speech in the Legislative Council.

[108] One of the considerations discussed by Lord Diplock in Nema [[1982] AC 724; [1981] 2 All ER 1030] (at 742-3; All ER 1039-40) 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 and Sheller JA 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 Investments at 187-9 per Rogers CJ CommD and at 221 and 226 per Sheller JA; 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]."

[35]

14 The present case does, in my view, fall within the class of special or exceptional cases where the treatment of an application for leave to appeal and the appeal itself are properly heard and determined in a single hearing if leave is to be granted. First, the parties consented to this course and, although this may not be thought decisive in all cases and circumstances, the Act respects and gives effect to the consent of the parties, in a variety of provisions. This is consistent with the consensual nature of arbitration itself and the importance rightly given in the context of such a consensual process to the principle of party autonomy. Secondly, the principal and decisive issue in these proceedings is the proper construction, and application on this basis, of the provisions of s 22(2) of the Act. In the relative absence of judicial authorities, less than full argument of the issues involved would not necessarily provide the Court with even a reasonably considered basis for deciding whether to grant leave to appeal on the basis of an error of law in the application of its provisions. Thirdly, submissions on this principal and decisive issue did not involve "any prolonged adversarial argument",[13] which the authorities indicate is the position the legislation seeks to avoid, for reasons both of time and cost and also because it involves interference in the arbitration process beyond that sanctioned by s 38 and the related provisions. Fourthly, in the absence of circumstances which would indicate that a single hearing would be at odds with the legislative intent of the commercial arbitration legislation, regard should be had to the cost and time of separate hearings, one by way of a leave application and the other by way of appeal if leave were given, where it is reasonably clear that full argument of critical issues could be heard expeditiously. In this respect, the very clear intention of Parliament as stated in the overriding purpose provisions of the Civil Procedure Act 2010 must be given effect, consistently with the provisions of the commercial arbitration legislation. Section 7(1) states the overarching purpose as follows:

[47]

"[45] Much difficulty in the operation of these provisions has been occasioned by the majority decision of the New South Wales Court of Appeal in Natoli v Walker (Kirby P and Mahoney JA; Meagher JA dissenting).[31] The majority appear to have treated the use of "manifest" in para (b)(i) of s 38(5) not as directed to what is presented upon the face of the award but as requiring the error of law itself to have a particular quality or character so as to include within para (b)(i) facile errors and to exclude those of complexity. This would exclude from para (b)(i), for example, an error in the construction of a complex law such as s 18B of the Insurance Act. Yet, as para (b)(ii) indicates, the policy of the statute is not to leave entirely to the operation of the arbitration agreement questions of law the determination of which may be likely to add to the certainty of commercial law. In an age when much commercial activity is regulated by statute, such questions are likely to be matters of statutory interpretation. It would be incongruous to favour judicial determination merely of egregious error apparent on the face of the award.

[46] In the present case, counsel then appearing for the reinsurers in the Court of Appeal, no doubt aware of what had been said in Natoli by the Court of Appeal, conceded that he did not press a case of manifest error of law on the face of the award. However, in his reasons, Allsop P said that he did not take the concession as going beyond the particular point of construction of s 18B upon which the primary judge had based his decision.[32] Nevertheless, his Honour applied Natoli to the construction of para (b)(i) of s 38(5),[33] so that answers given by arbitrators upon difficult questions of law, which had been open to competing arguments, did not qualify as errors of law.

[47] In this court the reinsurers relied upon para (b)(i) as well as para (b)(ii) of s 38(5) and were at liberty to do so. Natoli should not be accepted in this court as correctly construing s 38(5)(b)(i) of the Arbitration Act. The character or quality of the error of law falls for consideration, if relied upon, at the next stage, namely when the Supreme Court is considering under s 38(4)(b) whether to grant leave."

[52]

'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'.[39]

[63]

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."

[66]

27 In this context, the College submitted that a determination of the legal questions arising from the alleged errors made by the Arbitrator with respect to s 22(2) of the Act and the principles of estoppel may add to or be likely to add substantially to the certainty of commercial law within the meaning of these provisions. It submitted that s 22(2) of the Act has not been the subject of authoritative judicial determination by any Court: noting that the Arbitrator expressed this view in the Award.[54] It was submitted that the consideration of the operation of s 22(2) and the principles of estoppel in this context will have significance beyond the present case and affect other parties who agree to invoke those provisions in Arbitrations. With particular reference to the equitable doctrine of estoppel, it was said that the operation of this doctrine in defining the rights of parties in circumstances where the evidence may not establish the existence of a legally binding agreement between them is also a matter of general significance. I did not understand the Congregation to be seriously contending that an authoritative judicial interpretation of s 22(2) of the Act would not substantially add to the certainty of commercial law.[55] In any event, having regard to the state of the authorities, particularly the lack of common law authority, in relation to these provisions I am satisfied that such an authoritative determination would add to the certainty of commercial law an essential element to the operation of these provisions of the Act. I find it difficult to accept that the same could be said in relation to the estoppel issue; as being a matter of significance with respect to the certainty of commercial law. In any event, I am of the view that the estoppel issue does not itself arise in a sense relevant to the requirements of paragraph 38(5)(b)(ii) from the perspective of equity (in the Chancery sense), but rather from the perspective of the operation and application of sub-s 22(2) of the Act. Thus, the proper interpretation of sub-s 22(2) of the Act is significant in terms of substantially adding to the certainty of commercial law and satisfies the paragraph 38(5)(b)(ii) requirements. Consequently, the estoppel issue falls to be considered in the course of the arbitration in which sub-s 22(2) is applied, as properly construed. The same applies to the determination of what period of notice should be given to the College to vacate the land in the event that the issue is reached in the arbitration, again applying sub-s 22(2), properly construed.

[83]

39 At this point I should emphasise that it is neither open nor possible for a court such as this, which only has jurisdiction to apply common law and equitable principles (in the narrow sense derived from the Court of Chancery), to substitute its own views as to "considerations of general justice and fairness" with respect to the application of provisions such as s 22(2) of the Act. As made clear in the discussion of the proper interpretation of s 22(2) of the Act, it is, depending on all the circumstances, open to an arbitrator to ameliorate strict rules of law or equity which, for example, might include a more flexible view as to the possible application, or otherwise, of the classes referred to in Masters v Cameron[74] or the rules with respect to essential terms of leases or agreements for lease and the like. These examples are not intended to be limiting or proscriptive in any way, but to illustrate the problem that arises where an arbitrator does not apply "considerations of general justice and fairness" in accordance with s 22(2) to issues in dispute. The court cannot then speculate as to whether there would or would not have been "errors" in relation to particular matters or issues had the arbitrator proceeded in this way. Rather, it must take the view that a relevant error arises where the s 22(2) provisions are not applied in a manner in conformity with their proper construction, without speculation as to the possible outcome or outcomes of their application. Additionally, as discussed further below, an arbitrator may decide on a proper application of s 22(2) of the Act that the law should be strictly applied. This position cannot be reached, however, on a proper application of these provisions without consideration of the merits, or otherwise, of their application in the particular circumstances and the reasons why, on the basis of considerations of general justice and fairness, the law should nevertheless be applied strictly. Again a court applying the law is not able to undertake this process itself as it cannot apply "considerations of general justice and fairness" in the s 22(2) context - even though the end result is a strict application of the law. That is only the conclusion of a process which the court cannot undertake.

[94]

[67] This passage encompasses the plaintiff's allied complaints that the arbitrator did not spell out the basis upon which he was proceeding, so that one side (the defendants) could depose in affidavit material before me that he 'heard and decided the dispute by reference to considerations of general justice and fairness'[91] while the other party (the plaintiff) swore that the arbitrator applied the rules of evidence and generally followed the usual rules of procedure.[92]

[68] I have analysed those of the arbitrator's findings which were the subject of the application for leave to appeal. It is unnecessary to say more about whether or not they were in accordance with the law, although it is pertinent to point out that they were so to the extent that they were the result of the application of considerations of general justice and fairness.

[69] It is important in this context to discredit the assumption, which seems to be implicit in the plaintiff's submission on this point, that 'the law' and considerations of general justice and fairness are frequently different and readily distinguishable, and that an arbitrator whose duty it is to apply considerations of general justice and fairness will fail in that duty if he or she applies 'the law'. This in my opinion is clearly not the effect of clause 2(d) of the form of contract adopted by the parties in this case. That clause requires an arbitrator to avoid legal technicalities if, when applied, they would be inconsistent with considerations of general justice and fairness. It does not require, or necessarily allow, an arbitrator to disregard legal principle. It does not allow an arbitrator to decide a matter by reference to considerations which appear to the arbitrator, but to no one else, to be just and fair. Nor does it require an arbitrator to categorise his or her approach as being in accordance with the law on the one hand or general justice and fairness on the other. The efficacy of arbitration as a mechanism for resolving disputes would be seriously compromised were arbitrators required to perform the mental gymnastics which adherence to that proposition would involve. An arbitrator acting under clause 2(d) will fulfil his or her duty under that clause if he or she adheres to considerations of general justice and fairness. If this is the approach, no misconduct will occur." [Footnotes, which referred only to affidavit evidence and submissions, omitted]

[95]

43 The Allmore Constructions case was not, apparently, argued on the basis of s 22(2) of the Act but rather on the basis of the arbitrator's mandate with respect to "considerations of general justice and fairness" contained in the contract containing the submission to arbitration; in other words, the arbitration agreement. It follows that, to this extent, the decision cannot be regarded as an interpretation of s 22(2) of the Act, though I think the general proposition stated in [69] of the extract of the judgment of Harper J which is set out above is equally apposite and applicable with respect to s 22(2) of the Act. For the reasons indicated below, I am of the opinion that the mandate provided by s 22(2) is in aid of greater flexibility of decision-making by an arbitrator but that, quite clearly, in particular circumstances an arbitrator might quite properly and appropriately decide that application of strict rules of law in relation to some or all issues the subject of the dispute is appropriate in terms of "considerations of general justice and fairness". Nevertheless, it is incumbent upon the arbitrator holding such a mandate to explain why the arbitrator is of this view, and I do not see anything in the judgment of Harper J in the Allmore Constructions case as being inconsistent with such a general proposition. Additionally, having regard to the reliance in Allmore Constructions on the contractual provisions of the arbitration agreement as the basis for the "general justice and fairness" mandate, it is important to emphasise that the mandate conferred by s 22(2) of the Act, though triggered by the written agreement of the parties, is a mandate conferred by statute and not by the terms of the arbitration agreement. This is, in my view, a very important matter to be borne in mind when considering the authorities which have considered the effect of such a mandate, particularly the English authorities decided at a time when the issues involved in considering such a mandate were both the extent of the mandate itself but also the extent to which English law could accommodate a provision in an arbitration agreement in this form. The latter raises issues which are not relevant to a statutory mandate.

[121]

'[a]n "equity and good conscience" clause does not permit a "court substitute" tribunal to set aside the relevant substantive law and determine cases by reference to what appears to be fair and just in the circumstances, either generally or in those cases where the application of unduly technical rules of law may produce what appears to the tribunal to be an unfair result. Also, an "equity and good conscience" clause is not a grant of jurisdiction to a tribunal to apply the principles of equity when determining the outcome of proceedings. It is no longer meaningful to speak of equity in such a fashion that it could constitute a discrete body of law over which a tribunal had jurisdiction. As Justice French recently pointed out when writing extra-judicially, equity is a body of law which is historically defined and now forms "part of the single body of unwritten law administered by most, if not all, courts of the land, albeit it retains its distinctive character and functions".

There is far less certainty about what an "equity and good conscience" clause actually permits a "court substitute" tribunal to do which it could not do if it did not have that statutory power. If "equity and good conscience" clauses do not permit "court substitute" tribunals to depart from applying the relevant substantive law it seems that they must be a grant of procedural power in the sense that they allow the tribunal to excuse a party's failure to comply with some procedural requirements. As Gleeson CJ and McHugh J said in Eshetu, these provisions are 'facultative' because they are designed "to free tribunals, at least to some degree, from constraints otherwise applicable to courts of law".

It is challenging, however, to identify any modern procedural constraints applicable to courts of law which may be overcome by a tribunal's use of an "equity and good conscience" clause. It is self-evident that an "equity and good conscience" clause cannot permit a "court substitute" tribunal to give itself jurisdiction to hear and determine a particular matter when jurisdiction does not otherwise exist. While such a provision may be employed to excuse non-compliance with some statutory procedural requirements and, presumably, all of the tribunal's own procedural requirements, modern courts invariably possess the power to excuse non-compliance with rules of procedure and modern tribunals usually have a separate power to excuse procedural irregularity. It may well be the case that everything which can be done by a "court substitute" tribunal pursuant to an "equity and good conscience" clause may be done by a modern court pursuant its power to excuse non-compliance with rules of procedure.

The outer limits to the procedural flexibility granted by an "equity and good conscience" clause are uncertain as there are some statutory procedural requirements, invariable associated with the notion of a fair hearing, which are beyond the reach of an "equity and good conscience" clause because compliance with them is mandatory. It is also apparent that an "equity and good conscience clause" cannot be relied upon to excuse a tribunal's non-compliance with its natural justice obligations, regardless of whether the content of those obligations is specifically described in legislation or falls to be determined by common law rules.'

[128]

"I thought for quite a time during the argument that the present case was affected by s 22(2) of the Commercial Arbitration Act and indeed it is principally for this reason that I reserved my decision. That subsection which was brought into play because of the agreement of the parties at the preliminary conference, provides that an arbitrator 'may determine any question that arises for determination in the course of proceedings under the agreement by reference to considerations of general justice and fairness.' The agreement of the parties at the preliminary conference actually said that the arbitrator was to decide 'by reference to considerations of general justice and fairness rather than according to law.'

There is some doubt in my mind as to whether the person who drafted the standard list of matters to be dealt with at a preliminary conference properly construed s 22. Even though a tribunal is instructed to exercise its jurisdiction in accordance with equity and good conscience, that does not usually mean that it can disregard the law and decide a matter according to the personal feelings of the person who constitutes it; Ex parte Herman: Re Mathieson (1960) 78 WN (NSW) 6 and Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26.

However, one must appreciate that s 22 comes from international arbitration rules and the conception of an amiable compositeur. It should be noted, however, that, although s 22 of the NSW Act purports to follow Art 33 of UNCITRAL Arbitration Rules, Art 33 as printed at 776 of the 2nd ed of Mustill and Boyd appears less drastic than s 22. In particular Art 33 requires the amiable compositeur to decide in accordance with the terms of the contract and the custom of the trade.

As Mustill and Boyd (op cit at 74 and following) point out, it is extremely difficult to fit the conception of amiable compositeur into the common law. The learned authors deal with at least seven possible interpretations of such clauses. The clause at least means that arbitrators are free to some extent from strict rules and may use their own knowledge and commercial expertise without formal proof; Home Insurance Co v Administration Aseguraridor de Stat [1983] 2 Ll Rep 674; Overseas Union Insurance Ltd v AA Mutual International Insurance Co Ltd [1988] 2 Ll Rep 63.

In a speech The Determination of Insurance Disputes - The Letter or the Spirit reported in (1990) 6 BCL 84, 88, Rogers, CJ Comm D set out Mustill and Boyd's seven possibilities and commented that 'In Australia we are writing on a blank sheet'. I am not aware of any development since.

Again in Rowland v Cassidy (1888) 13 App Cas 770, Lord Selborne giving the reasons of the Privy Council in an appeal from Quebec whose law applied the French notion of amiable compositeurs said (at 772):

[130]

Whether the parties' permission under s 22 for the arbitrator to decide the matter according to considerations of general justice and fairness extended beyond this, especially in an arbitration involving a small building contract within the State of New South Wales and having no foreign law elements at all, is most debateable. Probably the clause goes further than evidentiary and procedural problems and permits an amiable compositeur to disregard such rules as the parol evidence rule, the rule that contracts by specialty cannot be varied by oral contract (cf Re Me and Angus Pty Ltd (1992) 7 ACSR 748) and the rule that one cannot look to subsequent conduct to construe a contract: L Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2; [1974] AC 235).

The amiable compositeur may also disregard the rule that collateral contracts cannot be inconsistent with the main contract, he or she may apply principles of rectification and perhaps may also supplement the contract by filling out the contractual regime in areas where the parties have not thought it through. It is uncertain how far, if at all, the amiable compositeur can go beyond this. Certainly the absolute ceiling is where the doctrine of manifest disregard by the arbitrator of his mandate comes into play; see Wilko v Swan [1953] USSC 112; 346 US 427 (1953) and Mustill and Boyd 1st ed Appendix 4 at 704 et seq.

It is, however, not necessary to look at this upper limit because it would seem to me that had this point been raised before the arbitrator gave his award, it would have been a matter which he could have solved by applying his powers as amiable compositeur to lift the veil of corporate personalities and adoption of privity of contract and to produce a just result. It may be that in doing so he would have had to notify at least Woodbud Pty Ltd that its rights may be affected, but that does not deflect from the major point.

As I have said, for a while I considered that this was the solution to the problem. However, on more mature consideration, my view is that because the arbitrator did not deal with the point before he published his final award, the consideration after the presentation of the award was not a consideration in the course of the arbitration and so s 22 of the Commercial Arbitration Act and the agreement of the parties did not absolve him from proceeding strictly in accordance with the law."

[131]

49 The passages from the judgment of Young J in Woodbud relied upon by the Arbitrator do not, in my view, capture the extent of his Honour's views as to the ambit and operation of s 22(2) of the Act. The first passage in this judgment relied upon by the Arbitrator is quite consistent with the authorities already considered and is, in my view, an uncontroversial proposition. Nobody is suggesting, and the international jurisprudence from which s 22(2) is derived, does not suggest that it condones anything like subjective, "palm tree" justice. The remainder of the passages relied upon by the Arbitrator are, as the context shows, directed to the nature and extent of the powers and discretions of an arbitrator acting amiable compositeur. Two points may be made in this respect. The first is that even if the discussion is confined to an arbitrator acting amiable compositeur, the parts of the judgment which follow the last passage relied upon by the Arbitrator clearly indicate that, in the view of Young J, the amiable compositeur may go further than merely dispensing with technical matters and may involve the non-application of more substantive rules of law. The examples given with respect to the consequences of applying s 22(2) of the Act are in terms of the rule that collateral contracts cannot be inconsistent with the main contract, in the application of principles of rectification and, possibly, by "filling out the contractual regime in areas where the parties have not thought it through". Young J then noted, specifically, that it is not clear where the "absolute ceiling" is for an arbitrator acting amiable compositeur and then, apart from indicating that it was not necessary to look at this "upper limit", that the powers of the arbitrator as amiable compositeur may have included the power "to lift the veil of corporate personalities and adoption of privity of contract and to produce a just result". As the College submitted, these statements of Young J are probably, strictly, obiter dicter but they were, nevertheless, relied upon by the Arbitrator, though only reproduced in part. In terms of the present question, I think that the statements of Young J in Woodbud make it very difficult to sustain the Arbitrator's view that s 22(2) has no operation in relation to the formation of enforceable contracts.[110] Further, to the extent that the Arbitrator made findings that the claimed agreement for lease was deficient in omitting essential terms, one might think that the statement of Young J would support a power under s 22(2) of the Act to "apply principles of rectification" or to "supplement the contract by filling out the contractual regime in areas where the parties have not thought it through" to overcome these difficulties if in all the circumstances the Arbitrator thought this was appropriate. In citing this example, I am not necessarily suggesting that this would have been an appropriate course, but it seems to me that the decision in Woodbud, would at least merit a reasoned consideration of this possibility in the Award.

[133]

"[87] One of the citations to which the reinsurers referred was Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd.[113] The English Court of Appeal had under consideration a clause providing that the arbitrators were not bound by the strict rules of law, and enjoining them to decide 'according to an equitable rather than a strictly legal interpretation of the provisions of' the agreement. It was submitted that the clause was void as ousting the jurisdiction of the courts. The Court of Appeal, in ex tempore judgments, rejected that submission, but did not specifically propound any construction supporting the reinsurers in this appeal. Lord Denning MR said that the clause 'only ousts technicalities and strict constructions'.[114] Goff LJ said that the clause rendered the arbitrators 'able to view the matter more leniently and having regard more generally to commercial considerations than would be done if the matter were heard in Court'.[115] On that point Shaw LJ agreed with both judgments. Their Lordships did not say whether the clause rendered the interpretation inquiry 'objective' or 'subjective'. In any event the relevant clause was different from s 22(2).

[88] The second citation to which the reinsurers referred was a passage in Mustill and Boyd.[116] The passage referred to treated Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd as offering a narrow interpretation - the second narrowest out of seven - of a particular type of provision. The learned authors gave two instances of that type of provision.[117] One was: 'The arbitrator shall be entitled to decide according to equity and good conscience and shall not be obliged to follow the strict rules of law'. The other was: 'The arbitrator shall be entitled to act as amiable compositeur'. Again, the clauses are different from s 22(2); and, again, the learned authors, in their discussion of the seven interpretations, did not offer any opinion about whether the objective rule of contractual interpretation or the rule against taking into account post-contractual events were to be abandoned."

[147]

58 A further difficulty arises with respect to the limited construction of s 22(2) of the Act adopted by the Arbitrator within the provisions of s 22 itself. Section 22(1) provides that unless otherwise agreed, the arbitrator is bound to determine any question that arises for determination "according to law". The natural reading of s 22(2) of the Act, both in terms of its content and its juxtaposition with s 22(1), is that it provides an alternative to the latter; namely, that the parties to an arbitration agreement may choose to have their dispute determined other than "according to law". Further, the legislature's intention that an arbitrator should not be constrained by strict principles of law in determining a dispute is reinforced and emphasised by the inclusion of the word "general" preceding the phrase "justice and fairness". It is clear, in my view, given the language and contextual setting of s 22(2) vis-à-vis s 22(1) of the Act that the legislature intended sub-s (2) to have an effect different from sub-s (1), certainly not virtually the same effect, which is what, in essence, the Arbitrator decided. In my opinion, the use of the word "may" in s 22(2) does not affect or detract from this position. As indicated by Harper J in Allmore Constructions Pty Ltd v Failli,[126] it does not follow that considerations of "general justice and fairness" may not, in some circumstances, be satisfied by the arbitrator applying legal principles strictly, that is determining issues in dispute "according to law". Indeed, the use of the word "may" indicates a discretion which must be exercised by the arbitrator in an appropriately reasoned way. Were this not the case, there would be very few disputes that parties would ever agree to have determined according to considerations of "general justice and fairness" if this meant automatic and complete abandonment of the framework of the legal system. Thus the proper application of s 22(2) of the Act opens the possibility of a "mosaic" of decision-making where an arbitrator properly decides, with reasons, that aspects of the dispute are to be decided "according to law" and that others are to be decided having regard to considerations within the ambit of "general justice and fairness" but which depart from legal rules or principles to the extent that they would not be able to be described as being determined "according to law".

[148]

59 The Congregation also sought to treat the use of the word "may" in s 22(2) in conjunction with the use of the word "may" in the Arbitration Rules contained in the Arbitration Agreement as supportive of the approach of the Arbitrator. In this respect, it was submitted that the Arbitrator was to determine "the Matters" referred to arbitration under the Arbitration Rules provided for in the Arbitration Agreement in the course of an arbitration conducted in "accordance with the Act".[127] The basis of this submission was the proposition that his mandate required him to determine matters in accordance with s 22(1) of the Act - that is "according to law" - with a discretion, indicated by the mandate for an arbitration "in accordance with the Act" and the use of the word "may" in both the Arbitration Rules and in s 22(2), which meant that it was entirely in the Arbitrator's discretion whether to apply the latter provisions. In my opinion, this is not a proper interpretation of the Arbitration Agreement. First, because the provisions of paragraph 1 of Schedule 3 of the Arbitration Agreement specifically apply the provisions of the Act "and as otherwise set out in these Arbitration Rules". Secondly, as discussed previously, paragraph 2 of Schedule 3 contains the agreement that "the Arbitrator may determine any question ... by reference to considerations of general justice and fairness" (emphasis added); clearly something "otherwise set out" in the Arbitration Rules. The effect of these provisions read in the context of Schedule 3, and the Arbitration Agreement as a whole, is that the provisions of the Act will apply to the arbitration and to the extent it is open to the parties to vary the operation of the mandatory law applicable to the arbitration, namely the Act, the parties agree to its application with s 22(2) enlivened. In my view, the use of the word "may" in paragraph 2 of Schedule 3 does no more than echo the words of s 22(2) and no more confers any discretion on the Arbitrator than does its use in s 22(2) itself. In any event, even if the Congregation were correct in the position advanced on this point, the Arbitrator has, even on this basis, failed in the discharge of his mandate because he has not given reasons, or reasons of an appropriate standard, for the exercise of any discretion in favour of strict application of the law to critical matters in issue. In other words, the same issues arise with respect to the failure to properly apply s 22(2); particularly the failure to explain the basis of his strict application of the law in this context.

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Judgment (385 paragraphs)

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Legislation Cited (18)

Cases Cited (28)