Sea Containers Ltd v ICT Pty Ltd [2006] NSWSC 134 | Case summary

Sea Containers Ltd v ICT Pty Ltd [2006] NSWSC 134 | Case summary | Zoe

[6]

A/B Gotaverken v Westminster Corporation of Monrovia [1971] 2 QB 505; [1971] 2 Lloyd's Rep 505 Abdullah M Fahem & Co v Mareb Yemen Insurance Co & Tomen (UK) Ltd [1997] 2 Lloyd's Rep 738 Australian Mutual Provident Society v Specialist Funding Consultants (1991) 24 NSWLR 326 AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 Bird Construction v United States Fire Insurance (1986) 24 DLR (4th) 104 Boncorp Pty Ltd v Thames Water Asia/Pacific Pty Ltd (1995) 12 BCL 139 CSR Ltd v Della Maddalena [2006] HCA 1 Cargill International SA Antigua v Sociedad Iberica De Molturacion SA [1998] 1 Lloyd's Rep 489 Commonwealth Trading Bank of Australia v Sidney Raper Pty Ltd [1975] 2 NSWLR 227 D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 Doran Constructions Pty Ltd v Health Administration Corporation of NSW (1996) 12 BCL 59 Elspan International Ltd v Eurocopter International Pacific Ltd [1999] NSWCA 418 Elspan International Ltd v Eurocopter International Pacific Ltd [1999] NSWSC 555 Escobar v Spindaleri (1986) 7 NSWLR 51 Expectation Pty Ltd v PRD Realty Pty Ltd (2004) 140 FCR 17; 209 ALR 568; [2004] FCAFC 189 CASES CITED : HIH Casualty & General Insurance (NZ) Ltd (in liq) v General Reinsurance Australia Ltd [2004] NSWSC 659 Hadid v Redpath (2001) 35 MVR 152; [2001] NSWCA 416 Henriksens Rederi A/S v T H Z Rolimpex - The Brede [1974] QB 233; [1973] 3 All ER 589 Ipswich Borough Council v Fisons Plc [1990] 1 Ch 709 Krivoshev v Royal Society for the Prevention of Cruelty to Animals Inc [2005] NSWCA 76 Monie v Commonwealth of Australia [2005] NSWCA 25 Moylan v Nutrasweet Co [2000] NSWCA 337 NAIS v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 77 Natoli v Walker (1994) 217 ALR 201 Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 Plaintiff S157/2002 v Commonwealth of Australia (2003) 211 CLR 476; 195 ALR 24; [2003] HCA 2 Promenade Investments Pty Ltd v NSW (1992) 26 NSWLR 203 R v Maxwell (1998) 217 ALR 452 Stadium Australia Management Ltd v Sodexho Venues (Australia) Pty Ltd [2002] NSWSC 437 Stadium Australia Management Ltd v Sodexho Venues (Australia) Pty Ltd [2002] NSWSC 765 State Construction Pty Ltd v Baulderstone Hornibrook Engineering Pty Ltd (1997) 16 Arbitrator 197 Stinnes Interoil GmbH v A Halcoussis & Co (The Yanxilas) [1982] 2 Lloyd's Rep 445

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50114/05 Sea Containers Ltd v ICT Pty Ltd JUDGMENT 1 HIS HONOUR: In these proceedings Sea Containers Ltd ("SCL") seeks leave to appeal pursuant to s 38(2) of the Commercial Arbitration Act 1984 ("the CAA") from awards given by a Board of Arbitrators ("the Board"). Mr A Street SC, together with Ms J Soars, appears for SCL and Mr Fagan SC, with Mr E Hyde, appears for the defendant, ICT Pty Ltd ("ICT"). The summons for leave was heard on 23 February, 24 February and 1 March 2006, and the defendant's further written submissions in response to Mr Street's oral submissions on 1 March were provided on 3 March 2006. I had already received extensive written submissions from counsel. 2 SCL purchased four large high-speed wave-piercing catamarans from ICT, for use as ferries in Europe. SCL had numerous complaints concerning those ferries and referred to arbitration its disputes with ICT. 3 The Board appointed to hear the four disputes (which were technically the subject of four references but which were heard together) delivered an Interim Award on 24 June 2005 and a Final Award dealing with the one remaining issue, that of costs, on 15 October 2005. 4 The Board, constituted by Mr G R Easton (Chairman), Mr R E Dubler SC and Mr G A Markham, held that ICT was not liable for any amount in respect of the claims made in respect of any of the four vessels, which I shall refer to as "Vessel 025", "Vessel 026", "Vessel 027" and "Vessel 028", and awarded costs against SCL. 5 Mr Dubler did not concur in one aspect of the Interim Award which he explained by reason of a statement, which was published by the Chairman together with the Interim Award. The disagreement was not material in the result because whatever claims were left by inclusion (on Mr Dubler's approach) of a liability for design, after removal of the matters the subject of specific settlement agreements, and taking into account the Board's conclusion on absence of proof, the amount of those claims was far less than the amount of funds ($477,850) obtained by SCL from the bank guarantee. The conclusions of the Board's members were thus unanimous.

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7 The building contract for Vessel 025 ("025 BC") was entered into on 16 September 1988, and was amended by written agreement on 21 June 1989. The document is found at pp 175-203 of Exhibit "A", the two volumes of which I shall refer to in the balance of these reasons as the Tender Bundle ("TB"). 8 On the delivery voyage a number of failures occurred, both structural and mechanical, and on 28 May 1990 the vessel was docked for urgent repairs in Curacao. It was then taken on to New York on 4 June 1990. 9 SCL took delivery of Vessel 025 on 18 June 1990 in New York and signed the Delivery Agreement ("the 025 Delivery Agreement") on that date. One of the clauses, clause 2.1, which is found at TB 220 is not legible in the form presented to the Court, but it was agreed that that clause assists neither party in this matter. 10 At the time of delivery, Vessel 025 did not fully comply with the requirements of 025 BC. Under the terms of the 025 Delivery Agreement (TB 220-231), ICT paid for necessary rectification work and also warranted the repair work carried out at Gladding Hearn "as if such works had formed part of the specification in the contract [025 BC]". ICT also undertook to pay for or carry out certain other works, as listed in a schedule to the 025 Delivery Agreement. 11 After a successful record attempt across the Atlantic, Vessel 025 was taken for repairs to CMN Shipyard in France, where repairs to the water jet compartments, superstructure and hull were carried out. Further repair work was carried out at a shipyard in Southhampton from 7 July 1990 to 7 August 1990. Vessel 025 entered commercial service for SCL's wholly owned subsidiary, Hoverspeed Ltd ("Hoverspeed") on 14 August 1990. 12 The guarantee period under clause 8.01 of the 025 BC was 12 months from the date of entry into service or 15 months after delivery, whichever was earlier. During that guarantee period Vessel 025 spent considerable time laid up while repair work to her hull, structural frame, and superstructure was carried out. The guarantee period expired on 18 June 1991. 13 On 18 June 1991, ICT and Hoverspeed entered into the 025 Warranty Settlement Agreement ("WSA") (TB 232-233). SCL was not a party to that agreement, but in return for release by Hoverspeed of all ICT's obligations under the guarantee provisions of 025 BC and the 025 Delivery Agreement, ICT agreed to pay SCL a total of £343,894 and to extend the guarantee in respect of structure "actually constructed by [ICT]" under 025 BC by a further three months to 18 September 1991. 14 In September 1991, Vessel 025 went into the Royal Schelde Shipyard (Vlissingen, Holland) for three weeks to enable extensive crack rectification and other repairs to be undertaken. There were further repairs at the Ash Shipyard on the Isle of Wight, and at the Schottel Yard in Buenos Aires in March 1993, and at CMN and ASC shipyards. The costs of repair and rectification at these shipyards were the subject of claim.

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(1) Without prejudice to the right of appeal conferred by subsection (2), the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award. (2) Subject to subsection (4), an appeal shall lie to the Supreme Court on any question of law arising out of an award. (3) On the determination of an appeal under subsection (2) the Supreme Court may by order: (a) confirm, vary or set aside the award, or (b) remit the award, together with the Supreme Court's opinion on the question of law which was the subject of the appeal, to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration, and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make the award within 3 months after the date of the order. (4) An appeal under subsection (2) may be brought by any of the parties to an arbitration agreement: (a) with the consent of all the other parties to the arbitration agreement, or (b) subject to section 40, with the leave of the Supreme Court. (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. (6) The Supreme Court may make any leave which it grants under subsection (4)(b) subject to the applicant complying with any conditions it considers appropriate. (7) Where the award of an arbitrator or umpire is varied on an appeal under subsection (2), the award as varied shall have effect (except for the purposes of this section) as if it were the award of the arbitrator or umpire.

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23 Mention was made in SCL's written submissions of Ipswich Borough Council v Fisons Plc [1990] 1 Ch 709. I have had regard to the discussion of "strong" at 724-5 of Donaldson J's judgment (in which Woolf LJ and Beldan LJ concurred) but the discussion was not concerned with a statutory requirement of "strong evidence" but rather of judicial guidelines found inter alia in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724. I do not accept that "strong" in s 38(5)(b)(ii) is affected by the expertise of the arbitrator. Even were I to accept that the fact that the majority of arbitrators in this case are not lawyers and the dissentient is a lawyer, would make the test less stringent, as the English Court of Appeal thought, it would not affect my conclusion in this case. 24 Section 38(5)(b)(ii), it seems, deliberately lowered the bar to appeals where the issue is one of wider commercial import, and in such a case permits a wider ranging enquiry as to whether there has been an error of law. There is authority for the proposition that "strong evidence" is required in respect of the commercial certainty requirement: HIH Casualty & General Insurance (NZ) Ltd (in liq) v General Reinsurance Australia Ltd [2004] NSWSC 659, but that view was criticised in Jacobs, Commercial Arbitration Law and Practice, looseleaf, at [35.629]. There is, in my view, an alternative construction available based on reading the words "and that" in s 38(5)(b)(ii) as conjunctive with "that" in the first part of s 38(5)(b). No argument on this point was addressed to me and I shall proceed on the basis that "strong evidence" does not qualify the commercial certainty requirement. 25 With these principles of approach in mind, I turn now seriatim to the issues identified in [18] above. The design issue 26 The majority of the Board held that the word "workmanship" in the phrase "any part of the vessel manufactured by the Builder has become defective on account of inferior or faulty materials or workmanship" (clause 8.01 at TB 192, set out in the Award at para 5.12 at TB 505) did not include defects in design. By virtue of s 15(a) of the CAA the majority view is the decision of the Board. 27 The majority's view accords with the natural and ordinary meaning of "workmanship" and it is SCL's proposed construction that requires, for its acceptance, a more complex process of reasoning. I note that Mr Dubler SC took a different view to the other members of the Board on this point. I reject the proposition advanced in SCL's submissions that the manifest nature of the error is evidenced by the fact that the decision of the Board on this construction point was not unanimous (para 24 of SCL's submissions of 22 February 2006). What Mr Dubler's view and the view of Donaldson J in A/B Gotaverken v Westminster Corporation of Monrovia [1971] 2 QB 505; [1971] 2 Lloyd's Rep 505 indicates is that a credible argument can be mounted that the clause ought to be construed as SCL contends, a radically different matter. Nor do I think that this is a case of ambiguity of expression of the kind discussed in Stadium Australia Management Ltd v Sodexho Venues (Australia) Pty Ltd [2002] NSWSC 437 at [54] and see also Stadium Australia Management Ltd v Sodexho Venues (Australia) Pty Ltd [2002] NSWSC 765 at [30]-[34]. The design/workmanship distinction is one that is well known in the law of insurance: see Bird Construction v United States Fire Insurance (1986) 24 DLR (4th) 104. The construction taken by the majority of the Board was entirely open to them and is one that does not appear, without the need for extensive analysis, to be obviously wrong. Westminster Corporation was readily capable of being distinguished and the view as to the meaning of "workmanship" expressed in that case is open to question. That case was referred to in the pages of S Curtis, The Law of Shipbuilding Contracts, 3rd ed, LLP, 2002, to which the Board did not expressly refer but to which Mr Dubler did refer. No criticism can be levelled at the Board for failing to refer to the text, which itself offered no analysis supportive of SCL's position. 28 I do not think that the fact the plain words of the clause were construed to exclude responsibility for design after delivery, even though the Board construed the 025 BC as otherwise imposing upon ICT a liability for design (see para 7.33 TB 531), produces a result that is so commercially implausible, as SCL contends, so that the Board's decision must be erroneous. This is particularly when clause 8.01 is read with clause 8.03 (set out at para 5.12 of the Interim Award at TB 505), which provided: 8.03 Except for the guarantees which are expressly provided in this Contract and the undertakings contained in this Clause 8 all conditions, warranties and guarantees whether statutory, expressed, implied or constructive or arising by reason of any description used are hereby excluded and every form of liability for consequential loss or damage is expressly excluded.

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and where the contract provided for the involvement of third parties Det Norske Veritas (paras 6.2-6.13 of the Interim Award), Hart Fenton (paras 6.14-6.10 of the Interim Award), and Incat Design Pty Ltd (paras 6.21-6.26 of the Interim Award). 29 Neither the "manifest error on the face of the record" or "strong error of law" requirements are met. I do not need to consider whether decision on the point of clause 8 of 025 BC would or might substantially add to the certainty of the commercial law. The Warranty Settlement Agreement 30 SCL was not a party to the 025 WSA, and by the document itself it made no representations. It was agreed between ICT and Hoverspeed (the wholly owned subsidiary of SCL) that Hoverspeed was "the beneficiary of various warranties, guarantees and undertakings given by ICT under the [025 Building] Contract" (my emphasis) and delivered to Hoverspeed pursuant to the 025 Delivery Agreement (the latter agreement was tripartite being between SCL, ICT and Hoverspeed). 31 I think that those words emphasised are significant - they point to the source of warranties, guarantees and undertakings as being not the Delivery Agreement but 025 BC. There is no clause of the 025 Delivery Agreement by which the warranties, guarantees and undertakings were formally transferred or assigned to Hoverspeed. Nor does the 025 Delivery Agreement use the language of novation, and yet Hoverspeed (SCL's wholly owned subsidiary) released ICT "of all its obligations under the guarantee clause in the contract" as well as under the 025 Delivery Agreement. The Board notes that the monies which ICT agreed to pay to Hoverspeed as the consideration for Hoverspeed's promise to release, was by arrangement with SCL, effectively paid to SCL as a set off against SCL's liability to make payments under the 025 BC (see para 12.2 TB 561). 32 Mr Street argued that the reasoning of the Board was demonstrably erroneous because it had no evidence of reliance before it from the person who signed the 025 WSA on behalf of ICT (Mr Clifford who did not give evidence) and no hard evidence of knowledge on the part of SCL that Hoverspeed had represented to ICT that it had authority. 33 The Board found reliance in the payment of the £343,894 by ICT to SCL, and that was also the source of the evidence of knowledge on the part of SCL that the representations had been made coupled with the fact that Hoverspeed was SCL's subsidiary. The fact that Hoverspeed was SCL's wholly owned subsidiary and the fact that clause 6 of the WSA required ICT to obtain SCL's consent to any settlement with Riva, as well as the appearance of a novation, makes SCL's argument unattractive, but I have some doubt as to the appropriateness of the Board's conclusion on this estoppel point. However, even if the findings on this point are not, as ICT contends, findings of fact (and hence cannot in any event be the subject of appeal), I am not satisfied that the conclusion of the Board amounts to a manifest error of law or strong evidence of an error of law. Even were I persuaded that there is strong evidence of error, the point in my view does not meet the second criterion under s 38(5)(b)(ii), as a conclusion on a question of estoppel in such unusual circumstances is unlikely to add certainty to the commercial law; and further taken alone, it was conceded (see T28.10) it does not meet the requirement of s 38(5)(a) if the design issue is decided adversely to SCL. The Riva Settlement 34 The correspondence, particularly the wording of the letter of 5 December 1991 accepting the ICT offer, is not as clearly expressed as it might have been, but in my view it was open to the Board to conclude that the letter constituted a release by SCL of ICT of all liability (if any) that ICT had to SCL in respect of the water jets and water jet parts, provided that the problems had manifest themselves by 20 November 1991. It was also open to the Board to conclude that the reference to "water jet" included structural problems, as these had been identified as matters of complaint by SCL in its letter of 6 November 1991: TB 437-440, TB 563 and ICT's letter of 28 November 1991 (TB 450 and 567). It makes no difference to the Board's view on construction that the cost of rectifying water jet problems was incurred subsequently - the test was manifestation of problems, not their cure. I can see no manifest error or strong evidence of error in the Board's approach. I do not regard the point as one which could or may substantially add to the certainty of commercial law.

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The Delivery Agreement issue 35 In respect of clause 1.03 of the Delivery Agreement's reference to "as if such works had formed part of the specification in the contract", the Board took the approach that this imported the same obligations upon ICT in respect of the repair work as would have been imposed had the work been performed by ICT under the contract, and no more than that. They rejected SCL's argument that even if clause 8 was limited to defective workmanship and materials (contrary to SCL's submissions), SCL's obligations under clause 1.03 were not so limited. I see nothing in the conclusion or reasoning to warrant the description "manifest error" or "strong evidence of error". It makes sense that ICT, in agreeing, in effect, to warrant Gladding Hearn's repair work, did so to the same extent that ICT had originally been liable under 025 BC. Even if the contrary position is arguable that is not sufficient for either limb of s 38(5)(b). Nor is the commercial certainty requirement satisfied. The clause 1.03 of 025 BC point ("the IMO issue") 36 Clause 1.03 was in the following terms: "The Vessel shall be built to Det Norske Veritas Class + 1A1 Light Craft (CAT) + MV R280 Passenger Ship EO Car Ferry B (PET) and Bahamas Register of Shipping Short International Voyage Passenger Vehicle categorised as a Dynamically Supported Craft in accordance with IMO Code of Safety Resolution A.373(X) 14th November, 1977 in compliance with the By-laws, requirements and recommendations of the Survey Authorities and shall also comply with all rules, regulations and requirements to obtain the following: - Det Norske Veritas Class Certificate for Hull and Machinery. - Bahamas Register of Shipping Certificates including Passenger Certificates. - Tonnage Certificates. - Load Line Certificate. - Certificate of Compass Installation and Adjustment. - Certificates which may be issued by the Survey Authorities for materials, machinery etc. The Builder shall arrange with the Survey Authorities for assignment by the said Survey Authorities of Surveyors (hereinafter referred to as the "Surveyors") to the Vessel during construction. All fees and charges incidental to survey and to the compliance with the above specified rules, regulations and requirements of this contract, as well as royalties, if any, payable on account of the construction of the Vessel shall be for the account of the Builder. All key drawings, detailed drawings, materials and labour entering into the construction of the Vessel shall at all times be subject to inspection and test by the said Survey Authorities and Buyer in accordance with the Specification. The facilities, labour and materials necessary for the safe and convenient conduct of such inspection and test shall be furnished by the Builder without charge. The Builder, in executing the work, shall comply with all the requirements of the Survey Authorities. Survey Certificates and other necessary documents covering the approval and indicating compliance with the Survey Authorities' Requirements shall be provided by the Builder at its own expense and furnished to the Buyer at acceptance, of the Vessel at Dover or as soon as possible thereafter." 37 SCL contended that this clause on its proper construction required ICT to build the vessels to comply with IMO Code of Safety Resolution A 3.73(x) 14th November, 1977. ICT contended that the words "categorised as a Dynamically Supported Craft in accordance with IMO Code of Safety Resolution A.373(X) 14th November, 1977" were words of description and did not impose a contractual obligation to build in accordance with the IMO Code. 38 In support of its contentions in this Court, SCL relied on the Specification for Vessel 025 which included the following found at TB 213 p 5: " 1.2.3 Classification and Survey The vessel will be built under Survey by Det Norske Veritas and Classed + 1A1 light craft (cat), + MV, R280, passenger ship, EO, car ferry B (PET). The vessel may be categorised as a dynamically supported craft in accordance with IMO Code of Safety, Resolution A.373 (X) 14th November 1977 in so far as it is applied by the National Authorities. It is recognised that this Code applies to vessels up to 450 passenger capacity. This Specification is based on the understanding that the Code will apply as if any reference to '450 passenger limit' in the Code is read '600 passenger limit'." 39 Only the words in bold were referred to in the Interim Award (see TB 524) but no point was taken about this by ICT before me. 40 Clause 1.02 of the 025 BC provided that the vessel was to be built in accordance with: "Drawing No. 956/1-2 dated 18th March 1988 ("the Drawing") and Specification No. 956/1-2 dated 14th September 1988 (the "Specification") attached hereto"

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41 SCL's Points of Claim in the Arbitration (see TB 11) gave, as particulars of the claim that compliance with the IMO Code was an express term of the contract, clause 1.03 (and its analogues for the other contracts). No mention was made of the Specification. Indeed it seems to have been ICT which relied on that part of the Specification emphasised in [38] above in submissions to refute SCL's contentions (see para 7.13 TB 524). The Board dealt with this at paras 7.13-7.16 TB 524. In my view, there was no manifest error in the Board's rejection of SCL's contention that clause 1.03 imposed a contractual obligation for the vessel to meet IMO requirements; the contrary view would be more difficult to justify. The Specification, had it been relied on by SCL, may have strengthened SCL's argument on how clause 1.03 should be construed but it would, with such assistance, be an arguable point, not one the rejection of which would point to manifest error of law or strong evidence of error of law. Nor is the commercial certainty requirement satisfied. 42 Even if SCL were successful on this point, it would have to overcome the design point. Section 38(5)(a) would therefore be an obstacle and the Riva Settlement would also present a difficulty in this regard. The equitable defence issue 43 There was in place a bank guarantee for AUD$477,850 given by ICT in favour of SCL in respect of Vessel 028 which was called on by SCL. In its claims SCL did not give credit to ICT for the receipt of those funds. 44 At the commencement of the hearing of the arbitration ICT sought to amend its defence to raise by way of defence the payment of the $477,850, not only in respect of SCL's claim in respect of Vessel 028 but also in respect of SCL's other claims. SCL resisted the amendment asserting that there had been no notice of dispute given to SCL and no referral to arbitration. SCL also asserted that it was too late for the dispute to be referred, that the claim to return of the funds was statute barred and that SCL was prejudiced by the amendment because had it known of the claim it would have added further claims against ICT beyond those which it had advanced in the arbitrations. 45 The Board granted ICT leave to amend. In the light of the majority's findings it was unnecessary in delivering the Interim Award for it to consider the defence of set off but Mr Dubler did refer to the point as it was relevant to his conclusion that even if "workmanship" included design, SCL would recover nothing against ICT. As I have noted, his view was that the $477,850 was well in excess of the amounts that he and the Board would have allowed, but for the design point. The ICT submissions calculate, based on the Board's analysis of specific claims, the total of those amounts at £36,000, although there was no concession by SCL as to the correctness of that figure or the means by which it was derived. I do not need to decide whether the figure is correct or not. 46 Mr Street attacked the decision to grant leave as a manifest error or alternatively one for which there was strong evidence of error (and an important point for commercial certainty). 47 Mr Street (and Mr Fagan) accepted that AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 set out the appropriate principles for equitable set off, namely that a defendant will be permitted to raise a cross demand by way of equitable set off or equitable defence where it would be unjust or inequitable for the plaintiff to proceed with its claim without making allowance for the cross demand, but SCL argued that the Board had no jurisdiction to entertain the defence because it was statute barred and was not the subject of a notice to refer to arbitration. As part of this point it was SCL's position that because ICT had not raised the receipt of the funds via the bank guarantee, SCL had not raised other additional claims it had against ICT. A further argument of SCL was that there was insufficient connection between Vessel 028 and the other vessels within the test laid down in AWA v Exicom and D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 which was referred to and followed in AWA v Exicom. 48 Mr Street argued that since the juristic basis of an equitable set off had been an injunction to restrain a plaintiff at law seeking to continue with his action without giving verdict for the amount of his cross demand (see AWA v Exicom at 710) a statute barred claim could never found equitable set off because equity would not lend its hand in relation to a stale debt. 49 This approach does not accord with the views of Moffitt P in Commonwealth Trading Bank of Australia v Sidney Raper Pty Ltd [1975] 2 NSWLR 227 at 238, the English Court of Appeal in Henriksens Rederi A/S v T H Z Rolimpex - The Brede [1974] QB 233; [1973] 3 All ER 589, or of Rogers CJ Comm Div in Australian Mutual Provident Society v Specialist Funding Consultants (1991) 24 NSWLR 326. Rogers CJ held that a s 82 Trade Practices Act 1974 (Cth) claim which was statute barred was available against the plaintiff's claim. 50 So far as the absence of notice of referral is concerned, there appears to be no support for SCL's contention that such is required in relation to a defence of the kind in question here. There is authority for the view that where the claim is within the arbitration clause, all defences must be available as matter of general principle: see Abdullah M Fahem & Co v Mareb Yemen Insurance Co & Tomen (UK) Ltd [1997] 2 Lloyd's Rep 738 at 742; Mustill & Boyd, Commercial Arbitration, 2nd ed, 1989, p 131. The approach taken by the Board was open to it and in my view was clearly correct. 51 The Board's reasoning on allowing the amendment is found at TB 459-471. I can discern no error, obvious or otherwise, in the approach taken by the Board and in my view it was a result entirely open to the Board to reach. 52 It follows that I can see no manifest error nor even strong evidence of error. I do not think s 38(5)(b)(ii) is satisfied either. 53 Further, given the views I have expressed on the earlier points, the outcome on this point would not have any substantial effect on the overall outcome so that s 38(5)(a) is not satisfied. The delay issue 54 In the written submissions of 22 February 2006 relied on by SCL it was put that: "A court concerned with a challenge to a delayed decision may need to look with special care at any finding of fact challenged in case it was not justified by the evidence or was the result of oversight or forgetfulness ( Elspan International Ltd v Eurocopter International Pacific Ltd & Anor [1999] NSWCA 418 at [6] per Sheller JA and see also CSR Ltd v Della Maddalena [2006] HCA 1 (2 February 2006))." 55 This proposition (which was not challenged by ICT) was expanded upon considerably by Mr Street in oral submissions. The 19 months of delay was, he said, exorbitant and amounted to a "serious fundamental denial of procedural fairness". He was critical of the absence of detailed consideration of the evidence and cross examination of witnesses in a hearing lasting 31 days; the serious factual issues should have been the subject of detailed analysis, he submitted. Mr Street submitted that it was important in arbitrations, particularly commercial international arbitrations, for decisions of arbitrators to be handed down promptly and that this Court should not lend its imprimatur to such extensive delay, but rather should signal the Court's rejection of such delay. 56 Mr Street contended that delay here constituted procedural unfairness, and that procedural unfairness constitutes a manifest error of law on the face of the record, requiring leave to appeal from the Interim Award (and consequently the Award dealing with costs), leading, if leave was granted, to the quashing of the Awards and the matter being remitted to the Board. Mr Street made it clear that following remission his client would then be seeking the Board to disqualify itself and a fresh arbitration process would need to be commenced. 57 In support of SCL's contention that procedural unfairness constituted an error of law, Mr Street relied, inter alia, on Escobar v Spindaleri (1986) 7 NSWLR 51 and Plaintiff S157/2002 v Commonwealth of Australia (2003) 211 CLR 476; 195 ALR 24; [2003] HCA 2 at [25], [62]. It appears to have been accepted by the parties in Escobar that this is correct (at 57B) and Glass JA at 59A expressed agreement with that conclusion. I proceed upon the basis that procedural unfairness can constitute an error of law. 58 Mr Street relies on NAIS v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 77; Expectation Pty Ltd v PRD Realty Pty Ltd (2004) 140 FCR 17; 209 ALR 568; [2004] FCAFC 189 at [69]-[83] and Elspan International Ltd v Eurocopter International Pacific Ltd [1999] NSWSC 555, the latter two cases dealing with "misconduct" in an arbitration. 59 The NSW Court of Appeal, NSW Court of Criminal Appeal and the High Court have had to consider the issue of delay in the context of a lengthy delay in judgment by a trial judge: Moylan v Nutrasweet Co [2000] NSWCA 337; Hadid v Redpath (2001) 35 MVR 152; [2001] NSWCA 416; Krivoshev v Royal Society for the Prevention of Cruelty to Animals Inc [2005] NSWCA 76; Monie v Commonwealth of Australia [2005] NSWCA 25; R v Maxwell (1998) 217 ALR 452 and by an administrative tribunal: NAIS v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 77. 60 As Kirby J remarked in NAIS, whilst there are differences in the case of delay in a court subject to appeal and in a tribunal subject only to judicial review, there are common principles: "Ultimately, in either case, if the court, on appeal or review, concludes that the delayed decision is unsafe or involves material unfairness or injustice to the losing party, an affront to the common hypothesis of decision-making is established": at [60].

[38]

Gleeson CJ, and Heydon and Callinan JJ agreed with Kirby J that the delay of four and a half years amounted to procedural unfairness in that case, which involved demeanour based findings (at [7]), and required the decision to be set aside. Gleeson CJ and Kirby J were of the view that the appellant need only establish that there was a substantial risk that the tribunal's capacity to assess fairly the appellant's sincerity and reliability was impaired: per Gleeson CJ at [10], per Kirby J at [106]. Heydon and Callinan JJ at [166]-[168] held that "delay of itself may undermine the basis for a judgment that requires the weighing of claims and facts" and that it was "not possible to say that the Tribunal's decision, depending so much as it did, on the credibility of the appellants who gave oral evidence, was made fairly". 61 Kirby J at [85] said: "Relevance of delay: The significance of delay, depending as it does on the issues for decision, necessitates examination of the matter actually decided. If this involved no more than the construction of a written document, the interpretation of a statutory provision applied to agreed facts or other like questions, undue delay, whilst regrettable, might not affect the acceptability or validity of what has been done. The court conducting the appeal or judicial review could judge that matter for itself. Where, however, the matter for decision involves an assessment of the truthfulness of a party or important witnesses, the resolution of competing versions of the facts and the differentiation of truth and falsehood, delay, especially protracted delay, in the provision of a reasoned decision may cast doubt on the validity of that decision. Commonly, this is explained by reference to the need to ensure that "the trier of fact can recall the testimony and the demeanor of the witnesses as well as the dynamics of the trial"." [footnotes omitted, emphasis added] 62 Kirby J at [88] said: "Where there is a possibility that the foregoing [ie that extensive delay has tempted the decision maker to take the path of easy resolution or advantages of the decision maker have been lost or significantly reduced] might have occurred, it is incumbent on a court, reviewing the impugned decision in an appeal or on judicial review, to approach its task with vigilance. Where the decision-maker reaches a decision in reliance upon considerations of the credibility of parties or witnesses, significant delay undermines the acceptability of such assessments. Where there is lengthy delay in the provision of a reasoned decision, whether by a judge or a tribunal, it may not be enough for the decision-maker simply to announce conclusions on credibility. It may then be necessary to say why the evidence of a witness is believed or disbelieved, in effect to demonstrate that any countervailing evidence has not been forgotten or overlooked. That it has not been would, in a timely provision of the decision, more readily be assumed." [footnotes omitted, emphasis added] 63 The cases of Moylan v Nutrasweet Co [2000] NSWCA 337, R v Maxwell (1998) 217 ALR 452 and Monie v Commonwealth of Australia [2005] NSWCA 25 establish that delay between the conclusion of the hearing and the delivery of judgment "does not, in itself, justify upholding an appeal against the judgment given. Error must still be established on the part of the trial judge warranting either a reversal of the judgment or the grant of a new trial": per Hunt AJ at [44] of Monie, and per Giles JA in Krivoshev v Royal Society for the Prevention of Cruelty to Animals Inc [2005] NSWCA 76 at [123]-[124]. See also Expectation Pty Ltd v PRD Realty Pty Ltd (2004) 140 FCR 17; 209 ALR 568; [2004] FCAFC 189, in which judgment, which dealt insufficiently with the evidence and was delivered 17 months after receipt of submissions and 21 months after the date of evidence, was set aside. 64 There have been a number of cases dealing with delay in the context of arbitrations. For reasons to which I shall advert in due course, the question has been considered in the context of applications pursuant to s 42 or s 44 of the CAA which are in the following terms: 42 Power to set aside award

[40]

Where the Court is satisfied that: (a) there has been misconduct on the part of an arbitrator or umpire or an arbitrator or umpire has misconducted the proceedings, (b) undue influence has been exercised in relation to an arbitrator or umpire, or (c) an arbitrator or umpire is incompetent or unsuitable to deal with the particular dispute, the Court may, on the application of a party to the arbitration agreement, remove the arbitrator or umpire. 65 In Elspan International Ltd v Eurocopter International Pacific Ltd [1999] NSWSC 555, Einstein J reviewed a number of authorities concerning delay in arbitrations. He accepted (see at [134]) that misconduct within the meaning of s 42 of the CAA may include a mistake in procedure which unjustly prejudices a party, and that extensive delay could amount to unjust prejudice to a party (see at [140]-[141]), but rejected the claim that a delay of 13 months by the arbitrator had been in that case productive of such prejudice. In Boncorp Pty Ltd v Thames Water Asia/Pacific Pty Ltd (1995) 12 BCL 139, Byrne J held that a delay of eight and a half months did not prejudice the legitimate interests of either party. A delay of six months in providing a decision on an issue of pleading in State Construction Pty Ltd v Baulderstone Hornibrook Engineering Pty Ltd (1997) 16 Arbitrator 197 was held not to amount to misconduct. 66 I proceed on the basis that extensive delay can constitute misconduct where the delay gives rise to the apprehension that the arbitrator has not decided the dispute on its merits. 67 Mr Fagan conceded that the period of delay here was "unacceptable" and "regrettable". He conceded that SCL had attempted to prod the Board to deliver its Award more promptly than it had. He pointed out that the Court could indicate its disapproval of the time taken by the Board without taking the extreme step of allowing an appeal from the Awards. The spectre of a further hearing on the appeal and another arbitration in circumstances where his client was blameless and had already had to expend very considerable sums of money was, he submitted, an unpalatable one, particularly where the original events giving rise to the arbitration had occurred in 1988. 68 ICT's riposte to SCL's contentions was not limited however to these more general matters. First, Mr Fagan emphasised that SCL had not made any claim in these proceedings for relief under s 42. Although some of the argument initially focused on s 44 and the failure of SCL to take action before the Interim Award was handed down, that argument was not pressed with vigour. There may have been difficulties in seeking removal of the Board for misconduct on the ground of delay where the Award had not yet been received, particularly since delay per se does not constitute misconduct. 69 The absence of a claim for relief under s 42 was connected to the second point, which was that whilst in a case for misconduct under s 42 the Court can consider the material presented to the arbitrators and form a view as to whether inferentially the arbitrator has failed due to the passage of time to have regard to evidence that was before him, this is not possible when leave is sought to appeal under s 38(5), since there the "error of law" must either be "manifest", or one, a decision on which, will or may add certainty to the commercial law and one for which there is strong evidence of the error of law. 70 Thus, says ICT, whilst the fact of delay may appear on the face of the record, the factual question of whether the delay has compromised the arbitrators' fact-finding remains, and that involves findings of fact in respect of which there is no appeal pursuant to s 38 of the CAA. 71 Further ICT submitted that even if it were legally possible to characterise the Board's delay as a manifest error of law on the face of the Award, that would depend upon SCL identifying aspects of the Board's fact-finding which are likely to be unreliable by reason of that delay, and SCL had failed to identify weaknesses in the Board's fact-finding. SCL in response submitted that the Interim Award was flawed because it did not contain analysis of the large volume of evidence received, or the cross examination heard, by the Board. 72 Paragraphs 6-11 of submissions on behalf of ICT of 3 March 2006 are: "6 In answer, the Court is reminded that the plaintiff bore the onus of proving to the arbitrators, on the balance of probabilities, the nature, extent and cause of each defect as well as the fact of notification under clause 8 and the cost of repair. All evidence in chief was in statement form (see paragraph 4.2 of the Interim Award at [491]-[501]). The arbitrators expressly noted the paucity and the unhelpful generality of the plaintiff's evidence in chief (see paragraphs 15.2-15.4 at [581]-[582]).

[46]

75 No case was cited to me in which the question of how delay is to be dealt with under s 38 is considered. It would make sense, if delay in the publication of an Award amounting to prejudice constitutes misconduct, as it has been held it can, that a party seeking relief in relation to delay would found its application for relief on s 42, which as Kirby P (as he then was) pointed out in Doran Constructions Pty Ltd v Health Administration Corporation of New South Wales (1994) 12 BCL 59 is untrammelled by the constraints of s 38(5). 76 I have considerable doubt that s 38(5) has any application at all to delay, since even if delay does amount to procedural unfairness and can be described as an error of law, s 38(5)(a) speaks of "the determination of the question of law" and (b)(ii) of "the determination of the question" and procedural unfairness and/or misconduct is not a question of law or determination of a question of law. The absence of authorities dealing with delay in the context of s 38(5), the fact that the CAA by s 42 and s 44 provides a specific remedy for misconduct, and the difficulties of fitting consideration of the delay issue into the framework of s 38(5), only strengthen that doubt. 77 Putting aside the doubt to which I have referred and assuming that s 38(5) can apply to delay amounting to "misconduct" within s 42 of the CAA, I shall consider SCL's contention that the delay of 19 months coupled with the contents of the Interim Award enlivens s 38(5)(b)(i) or (ii). 78 The hearing before the Board took approximately four weeks. There were over 2000 pages of transcript, 26 folders of exhibits and detailed submissions. The Interim Award is 206 pages long. "Delay" has to take the complexity of the matter into account and allowance also needs to be made for the fact that the Board was constituted by three members. Nevertheless 19 months is, as Mr Fagan conceded "very regrettable" and "unacceptable", even with allowance for these matters. Its excessiveness requires that the Interim Award be scrutinised more carefully than would be normal on a summons for leave to appeal under s 38. 79 My first impression when I read the Interim Award was that it was a detailed and fair consideration of the issues. In my view, the Interim Award is expressed in clear terms and presents the competing arguments in what appears to be a comprehensive way. 80 I regard it as of significance that Issues (1), (3), (4), (5), (6) and (7)(b) and (c) are all issues of construction of the various agreements and do not involve issues of credibility of witnesses. Issue (2), whilst not a construction point, does not appear to be based on any adverse finding of any witness's credit but rather is based on inferences to be drawn from undisputed facts. This case is therefore quite different to NAIS (even putting aside the fact that it was concerned with a tribunal acting under a statute). 81 It is true that the Interim Award does not embark upon detailed analysis of much of the evidence that was before it but I agree with the submissions made by ICT and which I have set out above in [72] that the absence of such analysis is explicable in terms of the Board's findings. It has not been demonstrated that any factual finding of the Board ignores or wrongly rejects specific evidence that was before it, or that its summary of the general problems with SCL's evidence of defects (para 15.1-15.12 TB 581-585), which underpins its approach on that aspect of the case, was based on a misperception of the evidence which it had received. There does follow an examination of each of the categories of claimed defects which in the context appears comprehensive. 82 Having had the benefit of Mr Street's submissions, I am not persuaded that the long delay in delivery of the Interim Award has or may have been productive of unfairness to SCL because the Board's perception of testimony had been dulled or diminished, or that the failure to advert to the specifics of oral evidence points to any unfairness. The Board's conclusions are in my view expressed with clarity and do not instil disquiet as to the likelihood that time has eroded perception or pressed the Board into an easy path. 83 So far as s 38(5)(b)(ii) is concerned, the determination of "the question" could not be the determination of whether there has been delay productive of prejudice, but even if it could be, the determination of whether there has been delay productive of prejudice in a particular case could not add substantially to the certainty of commercial law. 84 The undesirability of extensive delay has been emphasised at the highest level. Arbitrators in this state must appreciate that lengthy delay can amount to misconduct and will lead to increased prospect of complaint and scrutiny of their decisions. A conclusion of misconduct may also have consequences in respect of their remuneration: see "Salutary Lesson for Delinquent Arbitrators", A A de Fina, (2000) 16(2) BCL 47. I do not think however that SCL has established that the extensive and regrettable delay in this case has been productive of unfair prejudice to SCL. The derivative points and the absence of notification issue 85 It was conceded by Mr Street that the outcome of these matters on their own could not meet the criteria of s 38(5)(a). They would only become important should he be successful in persuading the Court that leave should be granted on the substantive issues or the remaining two procedural issues (7)(a) or (b). In view of my conclusions on those other matters I do not need to consider these questions further or whether some of them are in fact questions of law as contended or are correctly stated, a matter put in issue by ICT's submissions. The minority view point 86 Mr Dubler did not agree with the conclusion that clause 8.01 was not concerned with design defects. Nevertheless for reasons he explained in the statement published with the Award (see TB 681 and 682) that dissenting view did not affect the outcome because he found, with the majority, that few of the Scott Schedule items were made out and the total value of those items would have been less than the bank guarantee of $477,850 "in respect of which ICT has the benefit of a defence by way of set off". 87 Mr Street submitted that Mr Dubler's dissenting view should have been included in the Award and should have been addressed by the majority in the Award. He argued that the use of a separate statement amounted to a lack of transparency, and was effected in order to reduce his client's prospects of appeal and that it had that effect. Whilst he did in final oral submissions say that he was not asserting mala fides, he described the approach taken by the Board and Mr Dubler as "descending into the arena". 88 The majority at para 7.53 did not there refer to the fact of dissent but they did make reference to it at para 21.1 (TB 678). The dissenting view was published with the Award. The claim of lack of transparency is entirely without merit. 89 Mr Street quite properly drew to my attention Cargill International SA Antigua v Sociedad Iberica De Molturacion SA [1998] 1 Lloyd's Rep 489 and Stinnes Interoil GmbH v A Halcoussis & Co (The Yanxilas) [1982] 2 Lloyd's Rep 445, cases which he conceded pointed to a practice in England that accepted as appropriate the approach taken by the Board here. 90 So far as the assertion that the majority should have dealt in the Award with the dissentient view explicitly, I do not think the failure to do so leads to any procedural unfairness. It is not uncommon in Courts of Appeal where traditionally three or more judges constitute the bench, for the majority to expressly refer to the dissentient view but it is far from universal. Provided the majority has considered the argument which found favour with the dissentient (assuming that argument to have been put), there is no procedural unfairness or manifest error in that respect. 91 I reject entirely the assertion that any improper motive can be or ought be attributed to Mr Dubler or the Board by publishing Mr Dubler's dissent in the way that he and the Board did, or that he or the Board "descended into the arena". I regard the practice adopted here as entirely appropriate, but in any event, whether or not it is preferable for the dissentient view to be contained within the Award, its non-inclusion can make no difference to the result. Section 15(b) of the CAA provides that the decision of the Board may be made by a majority. SCL's rights were not cut back by the manner in which the dissenting view was presented. 92 I do not think any procedural unfairness has been demonstrated.

Sea Containers Ltd v ICT Pty Ltd

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Judgment (48 paragraphs)

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Cases Cited (22)

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