Wilmoth Field Warne (a firm) v Equuscorp Pty Ltd [2007] VSCA 28

1 By summons filed 5 December 2006, the applicant, Wilmoth Field Warne, seeks leave under s 17A(4)(b) of the Supreme Court Act 1986 to appeal against a decision of a judge of the Supreme Court sitting in the Practice Court made on 23 November 2006, wherein his Honour dismissed the applicant's application for leave to appeal brought pursuant to s 38(4)(b) of the Commercial Arbitration Act 1986 ("the Act") from the award of an arbitrator made on 31 August 2006. Should leave be granted by us, the applicant also seeks that the appeal be taken as having been instituted and heard instanter. The latter claim was not opposed by the respondent, although it argued that leave should be refused.

2 On 23 May 2006, the arbitrator published his interim award in relation to the majority of issues that were referred to him for arbitration and dismissed the respondent's claim on all issues that were decided. Thereafter, following submissions from the parties, the arbitrator determined, by the impugned award, that each party should bear its own costs of the arbitration. The applicant unsuccessfully sought leave to appeal against the latter award to a judge in the Trial Division, as I have noted, on the ground that there was a manifest error of law on the face of the award, more particularly, that the arbitrator impermissibly took into account in arriving at the impugned decision matters that included the following.

3 The first was that he impermissibly had regard to Clause 24 of the deed of agreement that provided that each party should bear its own costs of the arbitration, notwithstanding that the deed was held to be void by Byrne J and that s 34(3)of the Act rendered the clause void in any event. The second matter that was impermissibly taken into account by the arbitrator, so it was said, was the history of the disputes between the parties and their conduct in attempting to establish a dispute resolution process. It seems that the arbitrator considered that this material showed that it was the common intention of the parties that each should bear its own costs of any arbitration. It was said for the applicant that these matters do not establish such a common intention.

4 The background to the present dispute can be summarised as follows. The respondent is a general financier. Since 1992 its business included recovering debts and enforcing rights under other choses in action stemming from its lending activities. Unsurprisingly, this involved it in a considerable amount of litigation and, until July 1999, this was conducted on its behalf by its in-house litigation department. From about 1998 it also retained outside legal assistance, including the services of the applicant. In the course of their professional relationship, the parties entered into three retainer agreements whereby the applicant in some way shared with its client the risks of the litigation it was conducting on the client's behalf.

5 The third such agreement was a deed of costs ("the deed"), which is dated 25 September 2002, but was executed on 16 December 2002. It sets out the terms of the applicant's retainer and deals with the payment of its professional fees and disbursements. The deed also provides for termination of the agreement on the basis, inter alia, of an unremedied default in circumstances where relevant notice and time for remedy has been given. Importantly for present purposes, Clause 24 of the deed is a dispute resolution clause, which relevantly provides, as has been noted, that each party is to bear its own costs of any arbitration proceeding in relation to their disputes.

6 It appears that when the deed was executed there were already a number of disputes between the parties in respect of certain proceedings. Further disputes subsequently arose and, in the result, in May and July 2003 the parties served on each other respective notices of default. At about that time the respondent instituted two proceedings against the applicant. First, on 12 June 2003, it commenced an action against the applicant alleging, inter alia, that it was not entitled to payment under the deed because it had been terminated on 27 May 2003. And on 10 July 2003 the respondent served on the applicant a notice of dispute, setting out five defaults alleged to have been committed by the applicant, for resolution at arbitration.

7 In the action the applicant counter-claimed for certain relief on the basis of alleged defaults by the respondent. Other like complaints by the applicant formed part of the reference to the arbitrator. The majority of the claims that were the subject of the action were decided by Byrne J on 24 June 2004.[1] The remaining issues were the subject of his Honour's decision of 10 February 2006.[2] In the context of the latter determination his Honour held that the deed was void, given that it made provision for the uplifting of legal fees, that is, for greater legal costs to be paid upon success of the litigation, contrary to s 98(3) of the Legal Practice Act 1996. It followed, said his Honour, that the applicant could not recover its fees. The applicant has appealed against this decision.

8 Before the decision of Byrne J of 10 February 2006 was handed down, the arbitration of the respondent's claims against the applicant was heard by the arbitrator between November 2005 and February 2006. As already indicated, on 23 May 2006 he published his interim award, dismissing the respondent's claims, and on 31 August 2006 determined, as I have said, that each party should bear its own costs of the arbitration.

9 It was the respondent's principal case before the arbitrator in relation to the question of costs that, notwithstanding the general rule that costs follow the event, the arbitrator, like the court, had a discretion on the matter and should depart from the general rule given that, amongst other matters, it was the common intention of the parties that each should bear its own costs of the arbitration. It was argued that, although the deed was void and the agreement as to cost had no legal effect, its provisions, and the general relationship between the parties leading up to its execution, could be taken into account in identifying the intention of the parties as to how the relevant costs were to be borne. Although that intention could not be enforced for the reasons mentioned, the fact of it, so it was said, was relevant to the exercise of the discretion on costs.

10 In reaching the impugned decision, the learned arbitrator said that he accepted that it is a settled rule of practice that a successful litigant should receive his or her costs and that this rule applied in arbitrations as well as court hearings.[3] The arbitrator then referred to the articulation of that rule by McHugh J in Oshlack v Richmond River Council.[4] The arbitrator considered that, in order to determine if the successful party should be deprived of its costs, it was necessary to establish whether there were "special circumstances in the arbitration which would have that effect".[5] The arbitrator took the view that such "special circumstances" are not limited to disentitling conduct on the part of the successful party but, in this case, could arise from "the relationship between the parties and the circumstances of the Deed ... including the agreement that ... each party should bear its own costs". Thus, he said that he examined "the history of the disputes between the parties in order to determine what was their intention in the event of a dispute between them" and concluded that, although such an intention would not be determinative of whether the "special circumstances exist", it would be "quite unfair to the parties not to have regard to the history of the disputes and the attempt to set up a procedure under the deed to resolve them". The arbitrator essentially concluded that, in light of the fact that the parties had made a serious attempt to provide an appropriate mechanism for settling future disputes which they sought to express in the deed, and intended that each party would bear its own costs of dealing with such disputes, it was appropriate to exercise the discretion to make the impugned order.

11 It was pointed out by Mr Tatarka, who appeared for the respondent, that the arbitrator's discretion as to costs was a very wide one, and the discretion to deny the successful party the benefit of the ordinary costs rule was not limited to disentitling conduct, notwithstanding the statement of McHugh J in Oshlack that there are "very few, if any, exceptions as to costs outside the area of disentitling conduct".[6]

12 It is plain, however, that in saying this his Honour did not thereby intend to lay down an absolute rule in that regard. It should be borne in mind that the arbitrator's discretion on the costs question was unfettered and was subject only to the obligation to exercise it judicially.[7] It is true that, in general terms, a successful party is justified in having a reasonable expectation that its proper costs of the proceeding would be paid by the unsuccessful party, but clearly there is no such right and the court may, depending on the circumstances, make a costs order in other terms, as was made plain by Viscount Cave LC in Donald Campbell & Co v Pollak:[8]

And although in Latoudis, Dawson J[9] and McHugh J[10] said that, generally, a successful litigant is entitled to have a reasonable expectation of obtaining an order for costs in its favour unless its conduct relating to the case was such that it would be unjust for the order to apply, it is plain enough that their Honours considered that this was a rule of general application and they did not suggest that it fettered the court's overall discretion in the matter. As I have noted in Board of Examiners v XY,[11] in Oshlack the majority[12] emphasised, consistently with the views of Viscount Cave LC in Pollak, that the court's discretion is unfettered by any such general rule, and that in the circumstances of that case the trial judge did not err in declining to order costs in favour of the successful council against the plaintiff who had brought the proceeding, essentially in the public interest, seeking a declaration that the council's consent to the proposed development was void. Their Honours impliedly recognised that, in refusing to order costs against the unsuccessful plaintiff, the trial judge exercised his discretion judicially by reference to a number of considerations that did not relate to the conduct of the successful party. They included the policy of the legislation and the public interest in the proceeding. Gaudron and Gummow JJ said[13] that there was no absolute rule with respect to the exercise of the costs discretionary power that, in the absence of disentitling conduct, a successful party is to be compensated by the unsuccessful party. Their Honours went on to note that "[n]or is there any rule that there is no jurisdiction to order a successful party to bear the costs of the unsuccessful party".

13 But it is plain enough from the authorities to which I have referred that, in order to disentitle the successful party from the usual costs order, the reason for the disentitlement must be sufficiently connected with the proceeding. Here, the arbitrator's reason for departing from the general costs rule was that, at all relevant times, it was the parties' common intention that each should bear its own costs of the arbitration. In the circumstances, I think that this is another way of saying that effect is to be given to the agreement that is embodied in Clause 24, which the legislation and the decision of Byrne J renders void. It is true, as Mr Tatarka pointed out, that the arbitrator said that Clause 24 was unenforceable. Counsel argued that the arbitrator came to the impugned conclusion, namely, that the parties had the common intention that each should bear its own costs of the arbitration, from examining the relationship between them, more particularly their endeavours to construct a mechanism for resolving their disputes in the future, and from the fact that they had entered into the deed that contained Clause 24.

14 But the history of the disputes and the attempts to resolve them to which the arbitrator referred in his reasons do not demonstrate that there was a common intention between the parties to the effect contended for by the respondent. The draft agreements, even if admissible, would not establish this, and the agreements prior to the deed did not seem to have contained a provision such as Clause 24. In any event, I consider that, to use the term used by Viscount Cave LC, these matters were, not sufficiently "connected with" the circumstances of the arbitration so as not to make them extraneous or irrelevant to the exercise of the discretion. They were not circumstances that were in the arbitration as the arbitrator claimed. And it seems to me that, as a matter of characterisation of what the arbitrator did, he impermissibly gave effect to Clause 24 of the deed [notwithstanding that it was void]. Thus, although the arbitrator took the parties' abovementioned conduct into account as part of a deliberate exercise of his discretionary powers, in the circumstances, I consider that he erred in that regard and the judge below also erred in rejecting the applicant's contention that the arbitrator impermissibly had regard to them.

15 It follows that, for the reasons I have given, I would order that the leave to appeal that is sought should be granted, that the appeal be treated as having been instituted and heard instanter and allowed. I would set aside the arbitrator's award of 31 August 2006 and remit the matter to him for determination according to law.

At a glance

Court

Decision date

Before

Source

Judgment (11 paragraphs)

Parties

Cases Cited (2)