TITLE OF COURT: SUPREME COURT OF TASMANIA (FULL COURT)

Arbitration - The award - Enforcing - No statement of reasons - Cost of construction of future fence - Unquantified costs of arbitration.

Boundary Fences Act 1908 (Tas), s41.

Commercial Arbitration Act 1986 (Tas) ss33, 38.

Judgment Number: [2001] TASSC 98

2 Order of 7 February 2001 refusing application set aside.

3 There is to be a new hearing of the originating application of 28 June 2000 limited to that part of the arbitrator's award that relates to the costs of the arbitration.

4 There is to be a pre-trial conference before a judge before the originating application is listed for the new hearing.

1 I agree with the reasons for judgment of Blow J and the orders he proposes.

2 I agree with the reasons for judgment of Blow J and the orders he proposes.

3 This appeal concerns the fencing of a boundary between two adjoining pieces of land at Deer Point, near Saltwater River. It involves the provisions of the Boundary Fences Act 1908 and the Commercial Arbitration Act 1986. Those Acts have been carefully designed to provide dispute-resolution mechanisms that are simple, cheap, decisive and able to be used by ordinary citizens in simple cases without reliance upon the legal profession. None of those objectives has been fulfilled in this case.

4 The boundary in question is 441.76 metres long. The appellant wants it fenced. The respondent apparently does not want it fenced, or at least does not want to contribute to the cost of fencing it. On 4 June 1998, the appellant sent the respondent a notice under the Boundary Fences Act, s9(1), for the purpose of compelling him to contribute to the cost of a fence along the boundary. The respondent wrote back on 30 June 1998 signifying his objection on various grounds. His letter complied with the Boundary Fences Act, s10. As a result, s10 required the dispute between the parties to be determined by arbitration. By virtue of s26, the dispute was required to be referred to, and decided by, arbitration in accordance with the Commercial Arbitration Act. Under that Act, s7, there is a presumption that a single arbitrator is to be jointly appointed by the parties. The appellant wrote to the respondent on 13 October 1998 asking him to nominate a person whom he would wish to arbitrate the matter within 14 days after receiving that letter, and saying that he would appoint an arbitrator if the respondent did not nominate one. The respondent did not nominate one. On 26 November 1998, the appellant sent the respondent a notice under the Commercial Arbitration Act, s8(1), requiring him to exercise his power to appoint an arbitrator within 14 days, and proposing that a Mr G E J Smith be appointed as sole arbitrator in default. There was further correspondence, but the respondent did nothing about the appointment or selection of an arbitrator. As a result, by operation of the Commercial Arbitration Act, s8(3)(a), Mr Smith was deemed to have been duly appointed as the arbitrator. On 30 August 1999, he published an award whose operative parts read as follows:

I make the following award in accordance with Part II - Erection of Fences contained in the Boundary Fences Act 1908.

Mr R Walter shall share equally with Mr G Ridler the cost of constructing a sufficient fence on the adjoining boundary at the Northern end of Mr Ridler's property running West from the Coastal Reserve on the Eastern side of Deer Point to the existing fence at the top of the hill, that being the Eastern side of the Reserved Road and referred to in attachment No 1; and that a sufficient fence shall be of the kind described herewith (see attachment No 2):

a) Waratah Stocklock Wire Fence Number 7.90.30 (Cattle/Sheep/Lamb) or similar

b) With Treated Pine Posts (3" to 4") at 5 Metre Intervals

Mr R Walter shall pay 100% of the costs of the Arbitration."

5 On 28 June 2000, the appellant applied, by originating application, for "An order or orders enforcing an arbitration award handed down by arbitrator, Mr Jack Smith on the 30th of August 1999". That application proceeded to a hearing. Both parties were unrepresented. The learned primary judge dismissed the application, essentially on the bases that (a) the arbitrator had not taken into consideration the benefit likely to accrue to each of the parties by reason of the construction of a rabbit-proof fence, as required by the Boundary Fences Act, s36, and that that failure vitiated the whole award; and (b) the arbitrator had not given any reason for ordering the respondent to pay all the costs of the arbitration, and that that failure vitiated that part of the award.

6 The arbitrator's award incorporated a diagram, copied from the appellant's notice of 4 June 1998, showing the design of the required fence. The award required a "Warratah Stocklock Wire Fence Number 7.90.30 (Cattle/Sheep/Lamb) or similar" with treated pine posts at 5 metre intervals, a single barbed top wire, and steel strainers as appropriate. The diagram showed that the bottom strand of non-barbed wire was to be 14 centimetres above ground level. No mesh or anything like that was required below that strand. I take judicial notice of the fact that a rabbit could pass between that strand and the ground surface with ease. I infer that the required fence was not intended to be rabbit-proof. It follows that the Boundary Fences Act, s36, did not apply, and that the learned primary judge erred in holding that the arbitrator had failed to comply with it by failing to consider the benefit likely to accrue to each of the parties by reason of the construction of a rabbit-proof fence. It seems likely that his Honour fell into error as a result of the appellant's notice having been headed "NOTICE TO JOIN IN ERECTING A SUFFICIENT OR RABBIT PROOF FENCE AND NOTICE TO JOIN IN REPAIRING EXISTING FENCE TO SUFFICIENT OR RABBIT PROOF STANDARD". It seems that, although there was no intention to create any rabbit-proof fencing, the notice was so headed in an effort to comply with regulations under the Boundary Fences Act.

7 It is true that the arbitrator gave no reasons for determining that the respondent should pay all the costs of the arbitration. Although the learned primary judge relied on the failure to give reasons only in relation to the determination as to costs, the arbitrator gave no reasons for the substantive part of his award either. Mr Hamilton, who appeared for the respondent on the appeal, submitted that the whole award was vitiated as a result, and that the order dismissing the originating application should therefore not be disturbed.

8 The Commercial Arbitration Act, s29(1)(c) requires that an arbitrator "include in the award a statement of reasons for making the award". In this arbitration, the arbitrator should have given his reasons for deciding that a fence should be erected, for his decision as to the description or kind of fence to be erected, and for his decision as to the proportion of the costs to be borne and paid by each party. These are important matters that are specifically referred to in the section in the Boundary Fences Act that confers powers on arbitrators, namely s35.

9 The failure to include in the award a statement of the reasons for making the award amounts to an error of law: R P Constructions Pty Ltd v Williams (1989) 6 BCL 219. Under the Commercial Arbitration Act, a party to an arbitration who is aggrieved by an award can apply to the Court for it to be set aside pursuant to s42, or can apply to the Court for it to be remitted to the arbitrator for reconsideration pursuant to s43, or can seek leave to appeal to the Court pursuant to s38. Although the respondent is apparently aggrieved by the award, he has not taken any of those steps. Instead, he opposed the appellant's application under s33 for the enforcement of the award, and his counsel has made submissions in relation to this appeal to the effect that the award is a nullity as a result of the arbitrator not having stated his reasons for the award.

10 In my view, the failure of an arbitrator to state his or her reasons does not prevent an award from being valid, effective and enforceable. In the absence of any legislative or contractual requirement as to a statement of the reasons for an award, an award may contain no statement of reasons, and will nevertheless still be a valid and enforceable award. The wording of the Commercial Arbitration Act, s29(1)(c), which imposes a prima facie requirement that the arbitrator shall "include in the award a statement of the reasons for making the award" appears to be based on the premise that, at common law, an award need not contain reasons.

11 One of the objectives of the Commercial Arbitration Act is to provide a system of dispute resolution that has the advantage of finality. Thus, the powers of the Court in relation to appeals from awards, setting aside awards, and remitting matters to arbitrators, are limited by s38. By section 38(1), the jurisdiction to set aside or remit an award on the ground of error of law on its face was abolished. By s38(2) and (4), a right of appeal was conferred in relation to any question of law arising out of an award, provided the appellant obtained the consent of all parties to the arbitration agreement or, subject to an exclusion agreement, obtained the leave of the Court. By virtue of s38(5)(a), such leave may not be granted unless the Court considers that the determination of the question of law could substantially affect the rights of one or more of the parties. By virtue of s38(5)(b), it is a further requirement for the granting of such leave that there be either a manifest error of law on the face of the award or strong evidence of an error of law raising a question whose determination would add or be likely to add substantially to the certainty of commercial law.

12 Although s29(1)(c) requires that a statement of reasons for the making of an award to be included therein, the Commercial Arbitration Act does not contain any express provision to the effect that the failure to include such a statement of reasons will result in an award being a nullity. Since the common law did not require an award to include a statement of reasons, an award that does not include a statement of reasons must not amount to a nullity unless the implied effect of one or more of the provisions of the Commercial Arbitration Act is that such a deficiency results in an award being a nullity. In my view, there is nothing in the provisions of that Act to justify such a conclusion. On the contrary, the provisions that I have referred to which restrict appeals and applications for awards to be set aside or remitted for further consideration suggest that, at least as a general rule, Parliament intended awards that were in some respect defective or deficient to be valid and enforceable.

13 Further, the Boundary Fences Act, s41, provides, "no award shall be set aside for irregularity or error in matter or form". In my view the failure to include a statement of reasons is an irregularity in form or error in form within the meaning of that section. Thus, that section also operates to prevent the award in this case, including the part relating to costs, from being treated as vitiated, void, a nullity, or anything of that sort. It follows that the learned primary judge erred in holding that the failure to give reasons in relation to costs vitiated the determination as to costs. It also follows that the award remains valid, effective and enforceable, despite the failure to give reasons.

14 Mr Hamilton submitted on various other bases that the order dismissing the originating application should not be disturbed. In his written outline of submissions, he contended that the arbitrator had not been appointed as required by the Commercial Arbitration Act. However, the arbitrator was validly appointed pursuant to that Act, s8, on the basis that I have outlined in par2 above. Mr Hamilton resiled from that submission during the hearing of the appeal, but instead argued that the arbitrator had "dis-appointed" himself by means of a letter that he wrote to the parties dated 16 March 1999. However that letter went no further than expressing a tentative view that he had not been validly appointed, and cancelling a preliminary conference. In the second last paragraph, the arbitrator wrote , "... subject to any submissions which either party may care to make, I consider that I have not been validly appointed and so cannot proceed with the arbitration". Subsequently, the arbitrator obtained legal advice and concluded that he had been validly appointed. He was correct in that conclusion. His letter of 16 March 1999 did not amount to a resignation. He therefore remained in office at all material times.

15 Mr Hamilton contended in his written outline of submissions that "the arbitrator denied the respondent natural justice in that the arbitrator failed to conduct an arbitration hearing or otherwise advise the respondent that he was proceeding upon the arbitration in a different manner, thereby depriving the respondent of his right to be heard". There was simply no evidence before the learned primary judge to substantiate any allegation that the respondent was denied procedural fairness. This submission should therefore be rejected.

16 Mr Hamilton's next submission was expressed in his written outline as follows:

"... the arbitrator acted in a manner such as to raise a reasonable apprehension of bias in the mind of the respondent in that he without the knowledge of the respondent obtained, accepted and incorporated into his determination legal advice received from the solicitor who was at the time or had previously been acting for the appellant."

However, there was simply no evidence before the learned primary judge or the Full Court of the arbitrator having engaged the same solicitor as the appellant. This submission must therefore also be rejected.

17 Mr Hamilton submitted that the fence proposed by the appellant and described by the arbitrator in the award was not "a sufficient fence" as defined in the Boundary Fences Act, s4. That term is relevantly defined as meaning "a fence which is ordinarily capable of resisting the trespass of cattle and sheep ...". In a novel submission, Mr Hamilton told the Full Court that the fence described would not be capable of resisting the trespass of cattle and sheep because they would be able to walk around it. Apparently the frontages of the parties' properties onto Price's Bay are not fenced. I do not think the definition of "a sufficient fence" in s4 should be interpreted in the manner suggested. I think Parliament was concerned with the quality of the fence itself, rather than the situation beyond either end of it. An interpretation concerned only with the quality of the fence itself would certainly promote the object of the Act. The interpretation suggested by Mr Hamilton would have the absurd result of not enabling landowners to take advantage of the Act in relation to a particular boundary unless the rest of their boundaries were sufficiently fenced. This submission should be rejected.

18 In my view, the strongest argument available to the respondent was one which his counsel did not advance, namely that the award was not in an appropriate form for an order to be made for its enforcement pursuant to the Commercial Arbitration Act, s33. That section reads as follows:

"33 An award made under an arbitration agreement may, by leave of the Court, be enforced in the same manner as a judgment or order of the Court to the same effect and, where leave is so given, judgment may be entered in terms of the award."

19 It is clear from the wording of s33 that an award can only be enforced pursuant to that section if there is some manner in which "a judgment or order of the Court to same effect" could be enforced. This Court does not make orders or give judgments requiring litigants to contribute to the costs of the future construction of fences or anything else. If the Court did make such an order, in the nature of a mandatory injunction, the only established procedure whereby it could be enforced is that whereby an application can be made for a party who has failed to comply with an order to be punished for contempt. I do not think it would be appropriate to allow the enforcement of the award by any such means since a more appropriate mechanism is provided by the Boundary Fences Act, s13(b). It provides as follows:

"13 - If either party neglects or fails for the space of 3 months -

(b) to carry out any award made under the provisions of this Act -

the other party may thereupon, or at any time within 12 months thereafter, erect a fence of the kind or description, ... as may have been ... awarded, and may, within two years after the completion of the fence ... recover in any court of competent jurisdiction from the defaulting party such proportion of the actual cost of erecting ... such fence as has been ... awarded, together with interest thereon at the rate of 6 per cent per annum from the date of the completion ...".

20 It is unfortunate for the appellant that he lost the right to rely upon this section as a result of not erecting the fence within 15 months after the date of the award. However, in my view, s13(b) is the only appropriate mechanism for enforcing an award requiring a party to contribute to the future cost of constructing a fence.

21 However, I take a different view in relation to the arbitrator's decision in relation to costs. It appears that the costs of the arbitration have not yet been quantified, but there is no reason why they cannot be quantified in the future pursuant to the Boundary Fences Act, s39, which provides as follows:

"39 - All the costs and expenses of any arbitration and incident thereto shall be settled by the arbitrators or umpire, and shall be borne by the parties in such proportions as the arbitrators or umpire may determine."

22 Until such time as the arbitrator has "settled" the costs and expenses of the arbitration, he is not functus officio. Counsel for the appellant told the Court that, apart from the arbitrator's fee, the appellant wished to recover legal costs incurred when he obtained legal advice in connection with the arbitration. That is a matter for the arbitrator. Until the amount to be paid by the respondent has been quantified by the arbitrator pursuant to s39, it would be inappropriate for an order to be made granting leave to enforce the award. The costs part of the award is not in a form which can be enforced in any manner in which a judgment or order of the Court can be enforced. But, if and when the arbitrator "settles" the costs, it will be appropriate for the award to be enforced, in relation to costs only, in any of the ways that an order for costs made by the Court can be enforced following a taxation of costs.

23 In my view, it follows that the learned primary judge should have refused the application in relation to the substantive part of the award, but should have adjourned the application sine die so that it could be relisted following the quantification of costs by the arbitrator. I think this Court should make orders which would place the parties in the position that they would have been in if the learned primary judge had taken such a course. I think there should be a pre-trial conference before a judge prior to the hearing of the application being relisted. I would therefore allow the appeal, set aside the order of the learned primary judge, order a new hearing of the application limited to that part of the arbitrator's award that relates to the costs of the arbitration, and direct that there be a pre-trial conference before a judge prior to the listing of that hearing.