Is s.53 of the Commercial Arbitration Act available?
27 This conclusion that the relevant part of clause 46 is an "arbitration agreement" does no more, in the present context, than to introduce the question whether the Court has jurisdiction under s.53 of the Commercial Arbitration Act to order a stay of the proceedings against the first defendant. The s.53 jurisdiction arises if:
"… a party to an arbitration agreement commences proceedings in a court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement."
28 Consistently with the approaches taken in the High Court in PMT Partners, I read "agreed to be referred to arbitration by the agreement" as if there appeared after "agreed" the words "whether unconditionally or upon an election being made, an event occurring or some other condition being satisfied". That being so, I regard the present dispute between the plaintiff and the first defendant as a matter agreed by the final sentence of clause 46.5 to be referred to arbitration, even though the agreement to refer is subject to the dual contingencies of a particular outcome of the preliminary expert determination and the giving of notice by a party.
29 Section 53 empowers the Court to stay proceedings if two conditions are satisfied. No issue arises here in relation to the second condition (laid down by s.51(1)(b)) that the applicant for a stay was at the commencement of the proceedings and still remains ready and willing to do everything necessary for the proper conduct of the arbitration. That leaves the question posed by the condition in s.53(1)(a), namely, whether there is a sufficient reason why the matter should not be referred to arbitration under the agreement. Any enforced resort to arbitration under clause 46 carries with it, as a necessary corollary, enforced resort in the first instance to the expert determination procedure provided for in that clause. The s.53(1)(a) question therefore turns in part on whether it is appropriate to require, in the indirect way which a stay would effect, that the dispute between the plaintiff and the first defendant be submitted to that expert determination procedure. That, in turn, leads to consideration of the question whether the expert determination process is capable of producing a result which is both useful and meaningful in the circumstances.
30 The plaintiff's case against the first defendant is that it entered into the head contract under a serious misapprehension about the availability of the necessary tiles which, it says, are impossible to make and therefore could not have been produced by the two manufacturers specifically identified by the first defendant (one of the two being the second defendant) or at all. That misapprehension, says the plaintiff, was induced by misleading and deceptive conduct on the first defendant's part or, in the alternative, was known to the first defendant, actually or constructively, when the head contract was made so that the contract is affected by mistake on the part of the plaintiff. The plaintiff claims that the head contract is void (or should be declared void under the Act) and that damages should be awarded on a quantum meruit basis. In the alternative (and assuming that the head contract is neither void nor declared void) the plaintiff makes a number of claims against the first defendant for breaches of the head contract.
31 Determination of the dispute between the plaintiff and the first defendant will therefore involve a decision as to the content and quality of the representations made by the first defendant and its representatives in the process of contract negotiation and formation and a decision on the legal questions whether the head contract is void for mistake and, in the alternative, whether an order should be made declaring it void. Are these decisions which it is appropriate to leave to the process of expect determination provided for in the head contract?
32 The first defendant says that this question should be answered "yes". The plaintiff disagrees. Two strands of authority about arbitrators are relevant, together with the question whether they should be regarded as applicable also to experts. First, it has been the law in this State since Ferris v Plaister (1994) 34 NSWLR 474 that, under an appropriately drafted arbitration clause, an arbitrator may determine that a contract is void ab initio without depriving himself or herself of jurisdiction. The notion that, as in Heyman v Darwins Ltd [1942] AC 356, such a determination amounts to ex post facto self-destruction by the arbitrator is no longer accepted. The arbitration clause is seen as severable. Second, it has been the law in this State since IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 that, subject always to the terms of the particular arbitration clause, an arbitrator may make awards and orders of the kind contemplated by the Trade Practices Act 1974 (Cth). Such a power of an arbitrator can, of course, derive only from the relevant arbitration clause. That clause must be such that, upon its proper construction, the parties intend an unknown person who might in future become arbitrator to dispense remedies of a kind which a statute puts in the hands of courts. In Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture (1981) 146 CLR 206 it was held that, even though an arbitration provision contained no express reference to the awarding of interest, the scope of the power was sufficient to imply a power to award interest in accordance with the Supreme Court Act. The same reasoning caused the Court of Appeal to conclude in the IBM Australia case that an arbitrator might give remedies which the Trade Practices Act allows a court to give.
33 Does the same hold good in the case of expert determination? It was argued by Mr Rudge SC, senior counsel for the plaintiff, that while an arbitrator and the functions and role of an arbitrator have characteristics which justify the conclusions in GIO v Atkinson-Leighton and IBM Australia, the same cannot be said of an expert acting under an expert determination clause. He pointed to provisions of the Commercial Arbitration Act which facilitate the proceedings of arbitrators and assimilate them in certain respects to court proceedings. Arbitrators may compel the attendance of persons and the production of documents. They may administer oaths. They must give reasons for their decisions. All these things are provided for in the Act.
34 Mr Rudge also referred to the distinctions drawn between arbitration and expert determination in Baulderstone Hornibrook Engineering Pty Ltd v Kayah Holdings Pty Ltd (1997) 14 BCL 277. Heenan J there observed that, as Lord Esher MR said in In Re Carus-Wilson and Greene (1886) 18 QBD 7, arbitration is "a judicial enquiry worked out in a judicial manner". An arbitrator, it was said, "must not only be impartial but, unlike an expert, must decide the dispute in accordance with the substantive law".
35 Mr Rudge also made reference to the cases which have examined the enforceability of the determinations of experts and the grounds on and extent to which those determinations may be reviewed or corrected by courts. He referred to the decision of Rolfe J in Fermentation Industries (Aust) Pty Ltd v Burns Philp & Co Ltd (unreported, NSWSC, 12 February 1998) and to the cases there cited, particularly the decision of the Court of Appeal in Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314. The relevant authorities on this are conveniently collected and discussed by Palmer J in Kanivah Holdings Pty Ltd v Holdsworth Properties Pty Ltd [2001] NSWSC 405 and by Mr M S Jacobs QC in "Impugning Expert Determinations in Australia" (2000) 74 ALJ 858. It is sufficient to note, for present purposes, that there is no equivalent, in relation to a determination of an expert, of the judicial review and judicial enforcement jurisdiction conferred by ss.38 and 33 of the Commercial Arbitration Act in the case of an arbitrator's award. In the absence of factors such as fraud and collusion, an expert determination declared by contract to be final and binding is open to challenge only to the extent that it is not in conformity with the enabling contract, including such implied terms as there may be as to the conduct and procedures of the expert.
36 The various statutory incidents of and adjuncts to the role of an arbitrator were not in any way the source of the conclusions in GIO v Atkinson-Leighton and IBM Australia. Nor was any underlying assumption that an arbitrator would preside over some form of quasi judicial inquiry. Those decisions turned wholly on what Mason J described in the former as "the real question", namely:
"… whether there is to be implied in the parties' submission to arbitration a term that the arbitrator is to have authority to give the claimant such relief as would be available to him in a court of law having jurisdiction with respect to the subject matter."
37 That is also "the real question" here in relation to expert determination. It is quite conceivable that parties will refer to an expert the question whether, in the circumstances in which they are placed, a court would make an order, pursuant to ss.72(1) and 72(5)(a) of the Fair Trading Act, declaring their contract void, and that they will agree to abide by the expert's decision on that question as if it were an order made by a court under those sections. If such an agreement may be made expressly, it may also arise by implication if the terms of the referral clause so warrant.
38 In the present case, it is necessary to look only at the parts of clause 46 which concern disputes arising from claims made by the contractor. Under the first sentence of clause 46.5, the thing which is to be determined in accordance with "the Process" is the "dispute" which arises from notification of one party's dissatisfaction with the "decision" (which includes "deemed decision") of the superintendent. That decision will arise with respect to the claim initially made by the contractor being, in terms of clause 46.1 or clause 46.2, a "claim by the Contractor in respect of or arising out of a breach of Contract" or a "claim by the Contractor under, arising out of or in any way related to the Contract".
39 A claim by the contractor that the formation of the contract was affected by mistake or that pre-contractual representations had involved misleading and deceptive conduct attracting, via s.42, remedy by way of cancellation as envisaged in ss.72(1) and 72(5)(a) of the Fair Trading Act would be within the clause 46.2 description if it could properly be said to be a claim "under" or "arising out of" or "in any way related to" the contract. Such a claim would, to my mind, be beyond the scope of the "under" and "arising out of" connectors. It was held by the Court of Appeal in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 that a claim based on misleading and deceptive conduct was a claim "arising out of" a contract where the conduct was engaged in during performance of the contract. In Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 90 FCR 1, Emmett J considered an arbitration clause referring to any dispute arising "in connection with" the relevant contract. He observed that this more expansive "in connection with" connector "as a matter of construction, is wide enough to include a claim alleging contravention of Part V of the Trade Practices Act inducing the contract in question". In O'Connor v LEAW Pty Ltd (1997) 42 NSWLR 285, Rolfe J held that a clause extending to any dispute or difference "concerning this agreement" applied to a claim on a quantum meruit. The same conclusions are, I think, even more clearly dictated where, as here, the words denoting the necessary connection between the claim or dispute and the contract are "in any way related to". This is confirmed by the following passage in the judgment of Sundberg J in Timic v Hammock [2001] FCA 74:
"The opening part of clause 10 recites that the provisions that follow apply to the resolution of any disputes or claims 'arising out of or relating to this Agreement'. An expression such as this is to be broadly construed so as to include more than disputes about the interpretation or performance of the agreement. By force of the words 'or relating to' it includes issues beyond the agreement itself, such as misrepresentations allegedly made before the agreement was entered into, claims in tort and claims under the Fair Trading Act and the Trade Practices Act ."