Vodafone Pty Ltd v Supercall Pty Ltd & Anor

Supreme Court of NSW|2003-04-23|Before: Nicholas J

CITATION : Vodafone Pty Ltd v Supercall Pty Ltd & Anor [2003] NSWSC 302 revised - 05/09/2005 HEARING DATE(S) : 23 April 2003 JUDGMENT DATE : 21 May 2003

JURISDICTION: Equity Division Commercial List JUDGMENT OF : Nicholas J DECISION : Leave to appeal refused

CATCHWORDS : PRACTICE & PROCEDURE - COMMERCIAL ARBITRATION - JUDICIAL DISCRETION - whether leave to appeal Arbitrator's Award should be granted pursuant to s 38(4)(b) of Commercial Arbitration Act 1984 (NSW) - whether Arbitrator failed to properly construe terms of Award - whether Arbitrator erred in law - whether Arbitrator failed to give any or adequate reasons - whether manifest error on face of Award under s 38(5)(b)(i) - whether leave should be refused on discretionary grounds - HELD - leave to appeal refused LEGISLATION CITED : Commercial Arbitration Act 1984 (NSW) s 38(4)(b), s 38(5)(a), s 38(5)(b)(i) Horizons Corporation Pty Ltd v Lahey Construction Pty Ltd (Unreported, NSWSC, 27 November 1998) Natoli v Walker (Unreported, NSWCA, 26 May 1994) CASES CITED : New South Wales v Coya (Constructions) Pty Ltd (Unreported, NSWCA, 4 August 1995) Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (1978) 139 CLR 231 Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 Vodafone Pty Ltd - Plaintiff PARTIES : Supercall Pty Ltd - First Defendant Advanced Communications Pty Ltd - Second Defendant FILE NUMBER(S) : SC 50211/02 COUNSEL : G C Lindsay SC/M Dicker - Plaintiff J Kelly SC/G M McGrath - Defendants SOLICITORS : Acuiti Legal - Plaintiff Dominic David Stamfords - Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50211/02 Vodafone Pty Ltd v Supercall Pty Ltd & Anor JUDGMENT 1 HIS HONOUR: By its summons the Plaintiff (Vodafone) seeks leave to appeal pursuant to s 38(4)(b) of the Commercial Arbitration Act 1984 (NSW) (the Act) against the award of Arbitrator Mr Graham Molloy styled "Seventh Interim Award" (the Award) dated 18 November 2002. The Defendants oppose the application. 2 The courts power to grant leave is governed by the provisions of s 38(5) of the Act which provides: "(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". 3 Vodafone's case is that it meets the requirements of s 38(5)(a) and (b)(i). It does not seek to demonstrate the matters required under s 38(5)(b)(ii). Background 4 The dispute before the Arbitrator arose from an agreement dated 30 September 1997 described as an Asset Sale Agreement (the Agreement) the parties to which were, the Plaintiff (Vodafone), Vodacall Pty Ltd, and the First Defendant (Supercall) and the Second Defendant (Advanced). 5 At the time the Agreement was made, Vodafone and Supercall were parties to an earlier contract, the Advanced Service Provider Agreement, pursuant to which Supercall was a service provider of Vodafone for a defined term. Under the Agreement Vodafone bought out the business of Supercall as a service provider. It purchased Vodafone mobile telecommunication services and re-sold these services to telephone subscribers. Clause 10 of the Agreement provided for the suspension of the rights and obligations of Vodafone and of "the Vendor" (taken to be Supercall) under the Advanced Service Provider Agreement apparently on and from the date of the Agreement. 6 Clause 10.3(a) provided for the cessation of the suspension in the following terms: "(a) Subject to clauses 10.3(b) and 10.6, the rights and obligations of the Vendor and Vodafone under the Advanced Service Provider Agreement will cease to be suspended on and from the date on which Vodafone notifies the Vendor in writing that Vodafone considers that the Vendor has satisfied each of the following criteria: (i) the Vendor has established and implemented a fully functional and error-free billing system for use in the Business which has been tested by the Vendor for a continuous period of at least 3 months and which is substantially similar in function and effect to Vodafone's billing system; (i)(sic) vendor has established and implemented a suitable and complete accounting system for use in the Business, together with suitable procedures for all critical business controls; and (ii)(sic) the Vendor has a minimum of $1,000,000 in working capital immediately available for use by the Vendor in the Business". 7 On 18 November 2002 the Arbitrator made the Award the subject of these proceedings in the following terms: "I determine that Supercall had a minimum of $1,000,000 in working capital immediately available for use by it in the Business within the terms of Clause 10.3(a)(ii) of the Asset Sale Agreement dated 30 September 1997". 8 As the parties have raised issues as to the proper construction and effect of cl 10.3(a) the Arbitrator had made a number of interim awards by way of determination of them. Prior to determining the Seventh Interim Award the Arbitrator determined that the relevant date for the purpose of the clause was 13 May 1998. 9 It is relevant to note that the Arbitrator found, without objection, that the entity "the Vendor" referred to in cl 10.3(a)(ii) means Supercall to the exclusion of Advanced, and that "the Business" was the business carried on by Supercall as a Vodafone service provider. In his reasons it is apparent that the Arbitrator refers to Advanced from time to time. It seems that nothing turns on any distinction between Advanced and Supercall. No point was taken in these proceedings about his usage of the names. In substance he treated them as one and the same. 10 The Court has had the benefit of detailed oral and written submissions from the parties. Vodafone alleges that there are a number of manifest errors on the face of the Award consequential upon the Arbitrator's failure to properly construe cl 10.3(a)(ii) according to its terms. It also alleges the Arbitrator erred in law when, in assessing "working capital immediately available" within the meaning of the clause, he failed to take into account as a relevant consideration any liabilities of Supercall, and wrongly took into account a number of irrelevant considerations and, further, he failed to give any, or any adequate, reasons in respect of a number of matters. The Award 11 It is convenient to first consider relevant matters arising out of the Award. 12 The hearing was conducted on 19 March, 30 April, 8, 9 and 10 October 2002. As the relevant date had been determined before then, the Arbitrator at the hearing drew the parties' attention to obvious evidentiary difficulties relevant to the question then before him which he kept in mind in formulating the Award. 13 Vodafone disputed that as at 13 May 1998 Supercall had $1,000,000.00 working capital immediately available within the meaning of the clause, and the position for Supercall was to the contrary. 14 Evidence was both written and oral, and included experts called by both sides. Witnesses were cross-examined. Detailed oral and written submissions were presented to the Arbitrator. 15 In para 15 he stated his approach thus: "What I now propose to do is analyse various aspects of the evidence, ie the factual evidence, that was put before me and specifically argued as constituting either "working capital", alternatively an aspect of the affairs of Advanced that should be taken into account when interpreting the words "working capital" in Clause 10.3(a)(ii). Both parties, but Vodafone in particular, urged upon me a particular interpretation of the accounts of Advanced and Supercall and other financial material and a considerable amount of time was spent analysing various lease assignment documentation with a view to agitating an argument that Advanced/Supercall was either entitled to or not entitled to various payments as at 13 May 1998 such that Advanced/Supercall was either entitled to bring those entitlements into account, or not so entitled, as moneys properly payable as at 13 May 1998 such that that factor should or should not be brought into account in interpreting "working capital" as at 13 May 1998. In my view it is appropriate firstly to look at the evidentiary material relating to the financial status of Advanced/Supercall, make relevant findings in relation to that evidence and then, with the benefit of those findings, examine the contract and the expert evidence to see whether at the relevant date the "Vendor" had $1m in working capital immediately available for use in the Business". 16 Mr Charbel Demian was the owner of 99% of the issued share capital of both Advanced and Supercall. 17 As previously noted, the Arbitrator took the term "Vendor" in cl 10.3(a)(ii) to refer to Supercall. 18 In para 28 (and in para 37) it was noted that as a consequence of a concession made by Vodafone it was plain that as at 13 May 1998, as a result of the assignment or transfer of seven leases to Vodacall, Vodafone was obliged to pay Supercall $525,000.00. He said: "28. ….As Mr Harris for Advance properly submitted, that was almost one-half of the $1.m that Supercall was required to have as "working capital" and, on one view of that amount, Advanced would have been entitled to summary Judgment simply because there was in reality no argument that as at 13 May 1998 Vodafone owed Advanced (or Supercall) $525,000.00. 29. Whether this unarguable debt should be included in "working capital" was the subject of legal argument, although it was tolerably plain from the quoted passage at T.97 above that Vodafone conceded that it should be, and that issue I shall deal with below". 19 The Arbitrator proceeded to determine the entitlement as at 13 May 1998 of Advanced/Supercall to amounts of $75,000.00 additional to the conceded $525,000.00 in respect of assigned leases of sites otherwise described in cl 5 of the Agreement as Transferring Sites. Vodafone denied any such entitlement. He considered the issues separately in respect of 13 sites. In para 93 he expressed the view that the evidence proved that Vodafone, as at 13 May 1998, was obligated to pay Advanced the sum of $75,000.00 for each of 11 Transferring Sites pursuant to cl 5.7 of the Agreement. The total sum for these sites was $825,000.00 which, when added to the conceded sum of $525,000.00, led to the finding that at the relevant date Advanced was entitled under cl 5.7 to $1,350,000.00. In para 94 he stated his finding that Vodafone should have paid that money to Advanced, alternatively that Advanced was then entitled to that money. 20 He went on to say: "96. So, and perhaps with the benefit of hindsight, it is now necessary to travel back in time to 13 May 1998 and reconstruct the situation from the evidence available to determine, admittedly many years after the event, the situation on that date as if the parties had applied their minds to the position on 13 May 1998. 97. On that basis it seems to me that had they applied their minds on that date to clause 5.7, properly advised they would have formed the view that Vodafone was indebted to Advanced in $1,350,000.00 and that such payment should have been deposited into the account of Advanced as at 13 May 1998, or even at an earlier date upon satisfaction of the requirements. For the purposes of this Award there is no need to determine any earlier date(s) simply because the money was at least due and payable as at 13 May 1998". 21 The Arbitrator, in due course, made a number of findings as to working capital/cash available to Supercall as at 13 May 1998. In summary they were:

(i) Para 117. In respect of the Transferring Sites there was a sum of $250,000.00 which Vodafone should have paid to Advanced.

(ii) Para 118. The Westpac deposit in the sum of $500,000.00 was available to Supercall.

(iii) Para 119. Supercall had available cash in its business cheque account in the sum of $136,791.52.

(iv) Para 120. There were loyalty payments, loan redemptions and adjustments due and payable by Vodafone to Advanced in the total sum of $570,134.49.

(v) Para 121. Vodafone was indebted to Advanced in respect of the item described as "Vodafone receivable" in the sum of $741,190.91.

22 There was no issue that Mr Demian owned 99% of the issued capital of a number of corporations the accounts of which were in evidence including those of Shimden Pty Ltd (Shimden). He noted (para 126) that Shimden owed Supercall $917,415.00. It was found (para 129) that the nett value of Shimden as at 30 June 1998 exceeded $7,000,000.00 (para 130). He also found that by reason of his ownership of 99% of Shimden, Mr Demian could have, at any time he wished, sold any or all of its property, buildings, plant and equipment which would have unarguably realised in excess of $7,000,000.00. 23 The Arbitrator then turned to consider the situation of Supercall. At para 131 he said: "Harking back now to Supercall (important because Mr Dicker has made the point that "the Vendor" in the Agreement is Supercall for the purposes of clause 10.3.(a)(ii)) the material shows that as at 13 May 1998 it had available to it $636,791.52 (the discount securities and the business cheque account), it was owed $917,415.00 by Shimden and there can be no reasonable argument (in my view) that Shimden could have paid one way or the other that amount to Supercall at very, very short notice. So, in order to make up the difference between the amount held in Bank accounts ($636,791.52) and the amount required for "working capital", the difference being only $363,208.48, I have no difficulty in concluding that money would be available and could be easily made available at very short notice. The overdraft facility itself was available such that Supercall could have called upon it; alternatively Shimden could have easily raised that sort of money at the blink of an eye had the parties applied their mind to the position prior to 13 May 1998 such that Supercall/Advanced would have recognised the need to provide "working capital" in $1m as at 13 May 1998". 24 It is clear enough from para 131 that the Arbitrator made a finding that as at 13 May 1998 Supercall had immediately available to it within the meaning of the clause the sum of $636,791.52. He also found that Shimden could have paid its debt to Supercall in the sum of $917,415.00 at very very short notice which, reasonably understood, means immediately. Recognising that in order to meet the requirement of the clause it was only necessary for Supercall to have immediately available the sum of $363,208.48 in addition to the amount held in its bank account, he found that such sum would and could be easily made available at very short notice. He also made findings that the overdraft facility was available, alternatively that Shimden could have raised funds necessary to provide the required amount of working capital "at the blink of an eye". 25 These findings may properly be understood as findings that Shimden had sufficient funds immediately available to it which, in turn, would be made available immediately to Supercall, thus supporting the conclusion that at the relevant date Supercall had a minimum of $1,000,000.00 in working capital immediately available from its own resources and from Shimden for use by it in the business. This finding is reinforced by the finding (para 140) that Mr Demian was able to raise at very short notice considerable amounts of money for use in the business. The issues under s 38(5)(b)(i) 26 In my opinion the only question raised in this application which attracts consideration of s 38(5)(b)(i) of the Act is whether the meaning given by the Arbitrator to the phrase "working capital immediately available" in cl 10.3(a)(ii) of the Agreement demonstrates the existence of a manifest error of law on the face of the Award. 27 A manifest error of law is one that is evident or obvious rather than merely arguable. (Promenade Investments Pty Ltd v State of NSW (1992) 26 NSWLR 203 at 225). In dealing with an application for leave such as this the Court is bound to have regard to the observations of Priestly JA in NSW v Coya (Constructions) Pty Ltd (Unreported, NSWCA, 4 August 1995). His Honour said: "... the New South Wales Parliament has taken note of the excesses that can grow out of commercial arbitration and passed laws intended to keep it within acceptable bounds. These laws have been directed in particular at narrowing very sharply the ways in which arbitrator's decisions can be challenged in the courts.

ARBITRATIONS AND APPEALS UNDER THE ACT. One object of the Act is to promote the private, prompt and speedy hearing of contractual disputes which the parties to the contract have agreed should be decided by arbitration.

To help achieve this object an appeal against an Arbitrator's award is allowed to the Supreme Court only in restricted circumstances. If all parties to the arbitration consent an appeal is permitted limited to questions of law arising out of the award, (s38(2) and s38(4)(a)). In the absence of such consent, if the Supreme Court grants leave to a party to appeal, then that party may appeal on any question of law arising out of the award, (s38(2) and s38(4)(b)). S38(5) says that the Supreme Court shall not grant leave unless the court considers that one of two sets of two conditions is fulfilled. The first condition is the same in each of the two sets of conditions: that the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement. The second condition of the first set of two conditions is that there is a manifest error of law on the face of the award. The second condition of the second set of two conditions is that there is strong evidence that the Arbitrator made an error of law and that the determination of the question may add or may be likely to add substantially to the certainty of commercial law.

S38(5) took its present form by an amendment to the Act made in 1990. Since then this court has indicated that the restrictions on appeals on questions of law arising out of awards of Arbitrators to the Supreme Court must be adhered to: Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 203; Natoli v Walker, 26 May 1994, unreported, Kirby P and Mahoney and Meagher JJA." 28 The Plaintiff contended that the Arbitrator erred in law in that he misconstrued cl 10.3(a)(ii) and thus failed to correctly determine the dispute between the parties. It was submitted that upon the proper construction of the clause, he was required to determine whether Supercall, at the relevant date, had a minimum of $1,000,000.00 in nett assets in liquid form realisable within a matter of days. 29 In support it was put that the proper meaning of "working capital" was "the amount by which the current assets (of Supercall) exceeded its current liabilities", a meaning commonly applied by the accounting profession. As "the Vendor" was taken to be Supercall, it followed that the Arbitrator was bound to enquire as to the nett asset position of Supercall after taking into account its liabilities, and this he failed to do. Accordingly it was said he was wrong to enquire as to, and to take into account, the ability of associated entities to raise funds from various sources without regard to their liabilities. 30 Further, it was submitted that the Arbitrator erred in the construction of the clause by taking into account what he described as an on-going commercial relationship between the parties to the Agreement (Award para 141), and failed to have regard to the object of cl 10 which was predicated on the suspension of Supercall as a service provider. 31 It was also submitted that he compounded the errors by investigating whether Mr Demian had the ability to raise funds to the amount required "as soon as conveniently may be". The issues considered 32 There was expert evidence before the Arbitrator of the meaning of the term "working capital", and of the phrase "working capital immediately available". The witnesses were chartered accountants, highly experienced and well qualified. Mr Paul Mentzalis gave evidence for Vodafone, and Mr David Robinson for Advanced. It was noted (para 135) that both experts expressed the view that the term "working capital" is commonly applied to the amount by which the current assets of an entity exceed its current liabilities, ie nett current assets of a business that can be applied to fund its day-to-day operations. 33 The experts differed in the meaning to be attributed to the phrase "working capital immediately available". The Arbitrator's analysis of their evidence was as follows: "136. The primary difference in professional opinion between the two experts is that Mr Mentzalis, in examining the phrase "working capital immediately available" states that (sic) his opinion it appears "to indicate the amount by which liquid assets of an entity exceed its current liabilities" and that in the context of the Agreement "… it would not be unreasonable to conclude that (the phrase) … referred to the excess of liquid current assets to current liabilities of Advanced and/or Supercall" (Report 15 January 2002, paragraphs 5.5.2 and 5.6); whereas Mr Robinson's opinion is that the phrase in the context of the Agreement "means assets available to the Vendor which can be realised within the timeframe commensurate with the current liabilities of the Business becoming due and payable" (paragraph 7.11) and he considers "that the imposition of a liquidity restriction on current assets but not current liabilities is inconsistent with the usual matching principles of accounting and is neither explicitly or implicitly supported by the wording of the Asset Sale Agreement" (7.8). 137. It seems to me the difference of opinion is that Mr Mentzalis views the term "working capital immediately available" as restricted by the general use of the words "working capital" in the context of the accounting profession, Australian Accounting Standards and Australian Auditing, whereas Mr Robinson, although accepting that "working capital" means excess of current assets over current liabilities (7.10) views the term "working capital immediately available" as being a term relative to the Agreement and the operations of the business being conducted by Advanced/Supercall". 34 The Arbitrator concluded that Mr Robinson's opinion as to the meaning of the phrase was, in the context of the Agreement, correct. He rejected Mr Mentzalis' view that the term "working capital" as understood in an accounting sense required a more restricted meaning to be given to the phrase read as a whole. 35 He stated his reasons as follows: "141. It is important to remember that at the time the parties entered into the Agreement Supercall was carrying on business as a Vodafone service provider. There was already a contract between the parties described as the "Advanced Service Provider Agreement" dated 22 March 1996. Consequently, it can be seen that there was an on-going commercial relationship between the parties and an on-going requirement by both parties to conduct their operations (as between themselves) as a business. It is my opinion that those circumstances are an essential part of "the factual background and matrix" (Vodafone Written Submissions, paragraph 9) such that to avoid addressing that aspect would lead one into error. In the context of the ongoing commercial relationship between the disputants it seems to me that one cannot in justice interpret words in a contract between them in isolation, even if in other circumstances, perhaps in particular where there is not an on-going commercial relationship at the time of the contract, words used have, or may have, some particular meaning in a particular field. The fact that the words "working capital" may have a particular accepted meaning in the accounting profession does not mean that they have that particular meaning in another field of human endeavour. 142. Consequently, it seems to me that the opinion expressed by Mr Robinson at 7.11 that the expression "working capital immediately available for use by the Vendor in the Business" means, in the context of the Agreement "assets available to the Vendor which can be realised within a time frame commensurate with the current liabilities of the Business becoming due and payable" is correct. In the Agreement "Business" is defined as meaning "the business carried on by the Vendor as a Vodafone service provider" and that definition itself indicates that the parties understood as at 30 September 1997 there was an on-going commercial relationship, that Supercall carried on business as a Vodafone service provider, was actually conducting that business and in those circumstances both parties understood that under clause 10.1 of the Agreement the rights and obligations of the parties under the Service Provider Agreement were to be suspended form the Completion Date (30 September 1997), that clause 10.3 of the Agreement related to the duration of the suspension and that the suspension would be terminated upon the criteria in clause 10.3(a) being satisfied". 36 The Arbitrator then proceeded to address the factual question which he had been called upon to decide, namely whether Supercall had a minimum of $1,000,000.00 in working capital immediately available for use by it in the business. 37 In para 145 he found (whether or not "Vendor" meant exclusively Supercall), having regard to Mr Demian's absolute control of the relevant companies, that Supercall had "… more than sufficient assets and ability to raise monies such that it could (if required) satisfy this criteria at the 13 May 1998". That is plainly a finding of fact that Supercall had the required amount available for use by it in the business. 38 In paras 146 and 147 the Arbitrator addressed the meaning, and fulfilment, of the adverb "immediately" within cl 10(a)(ii). He found the appropriate meaning to be "… as soon as conveniently may be". As for fulfilment, he expressed his finding in para 147, thus: "… In my view there was nothing thrown up by the cross-examination that would put in doubt at all the ability of Mr Demian and his companies to find money as and when required and I have absolutely no doubt at all, and I wish to make this perfectly plain, that had the parties dispassionately put their minds to the satisfaction of clause 10.3(a)(ii) at or shortly prior to 13 May 1998 Mr Demian would have made absolutely sure that he had in place sufficient capital in order to meet this particular criterion". 39 In paras 148, 149 and 150 he in effect confirmed the findings summarised in para 21 above, namely that all of those amounts were available to Supercall as at 13 May 1998. 40 In para 153 the Arbitrator recorded his determination that Supercall fulfilled the criteria in cl 10.3(a)(ii) of the Agreement. 41 The analysis and reasons for the Arbitrator's adoption of Mr Robinson's approach is evident from the passages of the Award quoted in para 35 above. He accepted that the term, in its context, was relative to the Agreement and the operations of the business being conducted by Advanced/Supercall (Award para 137). In para 141 he indicated that it was relevant to take into account as part of the factual background and matrix what he found to be the on-going commercial relationship as at the date of the Agreement. He expressed the view that the fact "… the words "working capital" may have a particular accepted meaning in the accounting profession does not mean that they have that particular meaning in another field of human endeavour". 42 Thus the Arbitrator explained why he rejected the proposition that, in accordance with Mr Mentzalis' view (Award para 136), the question called upon him to determine the amount of Supercall's available working capital with regard to the extent by which its liquid assets exceeded its current liabilities at the relevant date. 43 It seems clear that the case before him was conducted on the basis that it was open for the Arbitrator to adopt and act upon the approach suggested by Mr Robinson, and I am not persuaded that he was in error in doing so. Furthermore, I find no error in taking into account the on-going commercial relationship as a relevant factor in the interpretation of the clause. As explained, he seems to be saying no more than that the meaning which he favoured was consistent with the commercial expectation of the parties to the Agreement (cf eg Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1978) 139 CLR 231 at p 252). 44 In my opinion the interpretation of the phrase "working capital immediately available" adopted by the Arbitrator does no violence to the language of the clause. If the parties had intended for it to be read according to Vodafone's contention it might be expected that the draftsman would have used words which made clear that it was the liquid nett asset position of Supercall which was relevant. It was properly open to the Arbitrator, having had regard to what he found to be the ongoing commercial relationship of the parties, to hold that they intended that satisfaction of the criteria at the relevant date required proof only that Supercall had funds immediately available to it for working capital for use by it in the business. In my opinion the language of the clause does not require that the criteria would only be met by proof that Supercall's liquid nett assets immediately available amounted to a minimum of $1,000,000.00 and/or that the term "working capital" was intended to be applied in a technical accounting sense. 45 It follows, therefore, that in my opinion the Arbitrator was not required, as a matter of law, to confine the investigation to the question whether Supercall had immediately available a minimum of $1,000,000.00 in nett assets, after taking into account its liabilities, at the relevant date. Thus I am satisfied that the Arbitrator posed for himself the right question. 46 For the above reasons I am of the opinion that the Arbitrator made no error of law in his interpretation of cl 10.3(a)(ii) of the Agreement, or in making the determination in accordance with that interpretation. The conclusion to which he came as to the proper meaning to be given to the clause in the circumstances is explained in his reasons which, in my view, disclose no error of law. 47 The Arbitrator was criticised because he apparently failed to analyse or refer to the liabilities of Supercall and this failure was relied upon as indicative of error. I note, however, that reference was made (Award para 127) to Supercall's creditors. In these proceedings it was not put that the Arbitrator had ignored evidence as to Supercall's liabilities, and had its liabilities been a real issue before him I assume they would have been addressed. Failure to refer further to these liabilities in his reasons does not, of itself, suggest error and, indeed, in the light of his findings as to funds available in the circumstances I do not infer that he failed to take them into account if it was relevant for him to do so. 48 The Plaintiff also submitted that the Arbitrator erred in law in considering the capacity of the companies controlled by Mr Demian to raise the funds at very short notice when the true issue was Supercall's available working capital. In my opinion, the submission must be rejected, at least for the reasons stated in para 25 above. I add that it was properly open to the Arbitrator to take into account the resources of Mr Demian and the companies under his control on the issue of funds immediately available to Supercall for working capital. 49 Such an enquiry was but part and parcel of the Arbitrator's task to determine the extent and immediacy of working capital available to Supercall. Furthermore, when it is understood that he was concerned to identify the sources from which funds could be made available to Supercall, and the amounts thereof which were available from them, the criticism that he took into account only assets and not liabilities has no force. It was the capacity of the companies controlled by Mr Demian to make available to Supercall the required funds which was a relevant issue rather than their nett asset positions. He found that the necessary funds were available, and made no error of law in doing so. 50 It was also submitted that the Arbitrator erred in law in his interpretation of "immediately" (Award para 146) as meaning "… as soon as conveniently may be". The submission is without substance. His reasons make it clear that he used expressions such as "at very very short notice", "at the blink of an eye", and "as soon as conveniently may be" as synonymous with "immediately" in its context in cl 10.3(a)(ii). In my view his interpretation seems entirely consistent with the Plaintiff's oral submissions to this Court (eg Transcript p 12) that "immediately" means "to be able to be obtained very quickly", and "within a matter of days, at the most". 51 Finally, I turn to particular submissions that the Arbitrator erred in law by taking into account considerations irrelevant to the proper construction of the clause, in that:

(i) Award para 152. He attached significance to the fact that it was not until quite late in the Arbitration that the Plaintiff alleged breach of the clause; and

(ii) Award para 151. He expressed the view that in the circumstances it was unjust for the Plaintiff to dispute the item "Vodafone receivable" as money available for working capital. 52 In my opinion these submissions should be rejected. I am satisfied that a fair reading of the reasons makes it plain that neither matter was taken into account on the question of construction. The statements complained of amount to no more than comments on the matters to which they referred, which played no part in the formulation of the Arbitrator's opinion as to the proper interpretation of the clause, or, subsequently, in making his determination. 53 As it is important to remember that this is an application for leave to which the remarks of Priestly JA in State of NSW v Coya (Constructions) Pty Ltd referred to in para 27 above apply, and with regard to the above reasons, it is unnecessary for me to deal expressly with Vodafone's remaining submissions as to errors of law. 54 In the result, I hold that the Plaintiff has failed to demonstrate an error of law, manifest or otherwise, on the face of the Award and, accordingly that it has not met the requirement of s 38(5)(b)(i) of the Act. The issue under s 38(5)(a) 55 Vodafone contends that a determination of the questions of law raised in this application substantially affects the rights of Supercall and/or Advanced and itself. The grounds for the contention are:

(a) Supercall and Advanced have foreshadowed proceedings claiming a substantial amount of damages in the event that they obtain determinations to the effect that the criteria for which cl 10.3(a) of the Asset Sale Agreement provides were satisfied;

(b) the Award under challenge constitutes a finding of a necessary element of that foreshadowed cause of action; and

(c) if (as Vodafone contends) the Award is affected by appellable errors it cannot stand, and an essential element of the foreshadowed cause of action must be held not to have been established against Vodafone. 56 On behalf of Supercall it is submitted that Vodafone's contention is without substance. It contends that damages is not an issue in the Award under consideration or, indeed, in the entirety of the arbitration. It is acknowledged that proceedings for damages may be commenced when the arbitration is complete, and that the determination of the present application will result in the determination of no rights but at most the existence of an issue of estoppel. It was submitted that there was no evidence as to whether any damages would be claimed in any future court proceedings. 57 Little, if any, guidance is available to the Court when it comes to consider the issue under s 38(5)(a) whether having regard to all the circumstances, the determination of the question of law raised on appeal could substantially affect the rights of one or more parties to the arbitration agreement. However, I understand by the use of the word "could" the Court's consideration is directed to the issue whether the determination, on appeal, of the question of law is capable of substantially affecting, or has the capacity to substantially affect, the rights of the parties. The issue, then, is "could", not "would". Thus the Court is not required to consider whether the determination would, as a matter of fact, substantially affect these rights. The ordinary words of the provision do not suggest that the Court's consideration should be narrowly confined. 58 The exercise may be fairly straight forward in cases in which the outcome affects an award which determines the liability of one party to pay a sum of money to another (eg Horizons Corporation Pty Ltd v Lahey Constructions Pty Ltd (Unreported, NSWSC, 27 November 1998 para 78); Natoli v Walker (Unreported, NSWCA, 26 May 1994, Mahoney JA, p 9). The present is not such a case, being one in which the Award affects the rights of the parties under the Agreement. The Court's consideration is not confined to cases in which the nature of the affectation is monetary. If the determination of the question of law concerned involves the construction of a provision of a contract between the parties to the arbitration agreement, the application of which provision was the subject of the arbitration, it may readily be seen to be capable of substantially affecting their rights or obligations. 59 In this case the Arbitrator has determined that as at the relevant date Supercall met the criteria under cl 10.3(a)(ii) relevant to the cessation of the suspension of the rights and obligations of Supercall and Vodafone under cl 10.1. The effect of satisfaction by Supercall of the several criteria under cl 10.3 is to attract the application of cl 10.5 so that the Advanced Service Provider Agreement will be reactivated on and from the relevant date. Thus, when regard is had to all the circumstances, the relevance of the Award to questions whether Vodafone had breached the Agreement and, if so, the nature and extent of any consequential liability, is clear. 60 In my view it is not necessary that Vodafone should show that litigation about the Agreement is imminent or on foot in order for the Court to consider whether relevant rights could be substantially affected by the determination of the question of law. 61 I am satisfied that, having regard to all the circumstances, the determination of the question of law concerned (being the proper construction of cl 10.3(a)(ii) of the Agreement) could substantially affect the rights of one or more parties to the arbitration agreement and that, therefore, Vodafone has met the requirement of s 38(5)(a) of the Act. Discretion 62 Even if the requirements of s 38(5) of the Act are satisfied, the question still remains as to whether as a matter of discretion leave to appeal should be granted (Promenade Investments Pty Ltd v State of New South Wales p 225-226; Natoli v Walker Mahoney JA, p 3-4; Horizons Corporation Pty Ltd v Lahey Constructions Pty Ltd para 21). 63 In my view, having regard to all the circumstances of the case, the proper exercise of discretion results in an order that leave to appeal be refused. 64 In coming to this conclusion I am guided by the well-settled view that the underlying legislative intention of Pt V of the Act is that leave to appeal against an award should not readily be given, and that the intervention of the Courts must be strictly limited (eg Natoli v Walker per Kirby p 28). 65 It is plain that the proceedings before the Arbitrator were not limited to the consideration of the question of law, namely the proper construction of cl 10.3(a)(ii), but involved an extensive and thorough investigation as to whether, as a matter of fact, Supercall met the criteria at the relevant date. The Arbitrator made findings of fact that the necessary working capital was immediately available for use by Supercall in the business. The findings, which are recorded in the Award paras 117-121, 131, 145, 147, 148-150, are unassailable and could not be disturbed. By way of illustration, it is unnecessary to go beyond the finding (Award para 131) that Supercall had available from its own sources the sum of $636,791.52, and that Shimden could have raised the balance, namely the sum of $363,208.48, at the blink of an eye if required as at 13 May 1998. I repeat the views expressed in paras 24 and 25 above. 66 Importantly, the findings concerning Mr Demian and his companies support the obvious inference that Mr Demian would have ensured that Supercall had sufficient working capital for use in the business for the purpose of cl 10.3(a)(ii) even if that working capital was made up of nett assets in liquid form after taking into account its liabilities. 67 I am not persuaded that it would be at all likely that there would be a different award if, following a successful appeal by the Plaintiff, the matter was remitted to the Arbitrator to proceed with an enquiry as to the liquid nett asset position of Supercall as at the relevant date. Conclusion 68 Although the Plaintiff has met the requirement for leave under s 38(5)(a) of the Act, in my opinion it has failed to demonstrate that there is an error of law on the face of the Award, manifest or otherwise, and has thus failed to meet the requirement for leave under s 38(5)(b)(i). Accordingly, leave to appeal under s 38(4)(b) is refused. 69 Alternatively, had the Plaintiff met the requirement for leave under s 38(5)(b)(i), in the exercise of my discretion I would refuse leave to appeal for the reasons stated above. 70 It follows that the order I propose is that the Summons be dismissed. In the circumstances it is appropriate that opportunity be afforded to the parties to address me in relation to costs. Arrangements should be made with my Associate by 28 May 2003 for the relisting of this matter. **********

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Commercial Arbitration Act 1984(NSW)s 38(4)(b), s

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