the Commonwealth of Australia and the Australian Capital Territory v Rian Financial Services and Developments Pty Ltd Sca [1991] ACTSC 106; (1991) 105 FLR 239 (4 December 1991)

SUPREME COURT OF THE ACT

THE COMMONWEALTH OF AUSTRALIA AND THE AUSTRALIAN CAPITAL TERRITORY v. RIAN
FINANCIAL SERVICES AND DEVELOPMENTS PTY. LTD.
S.C.A. No. 119 of 1991
Arbitration
[1991] ACTSC 106; (1991) 105 FLR 239

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Arbitration - The award - judicial review - application for leave to appeal - grounds for remitting or setting aside - manifest error of law on face of award - whether manifest error to assert that if there had been no delegation of powers under a particular Act, then the person who signed a notice of cancellation of contract lacked authority to do so.

Arbitration - The award - judicial review - application for leave to appeal - grounds for remitting or setting aside - "strong evidence that the arbitrator or umpire made an error of law" - whether entitled to go beyond face of record - whether strong evidence.

Arbitration - The award - judicial review - application for leave to appeal - grounds for remitting or setting aside - whether "the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law" - whether strong evidence to that effect.

Commercial Arbitration Act 1986

Australian Capital Territory (Planning and Land Management) Act 1988

Australian Capital Territory Self-Government (Consequential Provisions) Regulations

Australian Capital Territory (Self-Government) Act 1988

Parliament House Construction Authority v Citra Constructions Ltd. (1989) 93 ACTR 1

Qantas Airways Ltd. v Joseland and Gilling and Another (1986) 6 NSWLR 327

Pioneer Shipping Ltd and Others v B.T.P. Tioxide Ltd. (1982) AC 724

Imperial Leatherware Co Pty Ltd v Macri and Anor (1991) 22 NSWR 653

Promenade Investments Pty. Ltd. v State of New South Wales (unreported, 20 June 1991, Supreme Court of New South Wales)

The State of New South Wales v Bardolph [1934] HCA 68; (1934) 52 CLR 455

HEARING

CANBERRA
4:12:1991

Counsel for the Applicants: Mr Robertson

Solicitors for the Applicants: ACT Government Solicitor

Counsel for the Respondent: Mr B. Meagher

Solicitors for the Respondent: Colquhoun Murphy

ORDER

The application be refused with costs.

DECISION

The applicants seek leave to appeal from a decision of an arbitrator pursuant to sub-s.38(2) of the Commercial Arbitration Act 1986 (ACT) (the Act). By written contract dated 8 September 1988, between the National Capital Development Commission (NCDC) and the respondent, it was agreed that the respondent would carry out certain renovations and extensions to the Phillip Motor Registry. By operation of the legislation which brought self-government to the Australian Capital Territory (the Territory), the Commonwealth of Australia was substituted for the NCDC as a party to the contract and the Territory was subsequently substituted for the Commonwealth as a party to the contract and any liability of the Commonwealth under the contract which accrued immediately before Self-Government Day continued to be a liability of the Commonwealth: see s.82 Australian Capital Territory (Planning and Land Management) Act 1988; Regulation 3, A.C.T. Self-Government (Consequential Provisions) Regulations as inserted by Regulation 5 Statutory Rules 1989, No. 88.

2. Prior to Self-Government Day, 11 May 1989, disputes and differences arose between the parties and on 25 May 1989, after Self-Government Day, the Territory caused to be sent to the respondent a notice to show cause under clause 44 of the contract relating to alleged default on the part of the respondent. The notice was signed by K.H. Alexander, Manager (Finance).

3. By letter dated 8 June 1989 the Territory caused to be served on the respondent a notice purporting to be a notice of cancellation under sub-clause 44.6 of the Contract. The notice of cancellation bears the signature of John Price, Acting Senior Contracts Officer.

4. The relevant provisions of the contract are as follows:
"44.1 Procedure on Default of Contractor

If the Contractor defaults in the performance
or observance of any covenant, condition or stipulation in
the Contract or refuses or neglects to comply with any
direction as defined in clause 23 but being one which either
the Principal or the Superintendent is empowered to give,
make, issue or serve under the Contract and which is issued
or given to or served or made upon the Contractor by the
Principal in writing or by the Superintendent in accordance
with clause 23, the Principal may suspend payment under the
Contract and may call upon the Contractor, by notice in
writing, to show cause within a period specified in the
notice why the powers hereinafter contained in this clause
should not be exercised.
.....
44.6 Cancellation of Contract
If the Contract is cancelled under sub-clause
44.1 or under any other provision of the Contract it shall
be deemed cancelled as from the date when notice of
cancellation in writing under the hand of the Principal is
served upon the Contractor ...."

5. The parties agreed upon the appointment of an arbitrator, Mr Ronald Fitch. The arbitrator entered on the reference at a conference between the parties on 24 September 1990. The arbitrator subsequently received submissions on what he called "the technical legal issue", namely "whether the person executing the notice to show cause and notice of determination was properly authorised so to do and, accordingly, whether the notices were valid".

6. In his interim award dated 9 September 1991 the arbitrator determined that the notice to show cause under sub-clause 44.1 was not required to be signed. With regard to the notice of cancellation under sub-clause 44.6 the arbitrator determined that the notice was required to be served under the hand of the principal, but that the person who signed the notice of cancellation did not have the authority to do so.

7. The arbitrator's interim award sets out in some detail the submissions put on behalf of the parties and subjects to analysis the Australian Capital Territory (Self-Government) Act 1988 (the Self-Government Act). Ultimately, however, the arbitrator's reason for his decision was shortly stated. It was that the "respondent had not established that the Legislative Assembly had, at the relevant times, made any law under s.55 providing for the delegation of powers of City Manager". (The reference is to s.55 of the Self-Government Act.)

8. This is, as I understand it, the first case to come before the Court on an application for leave to appeal under paragraph 38(4)(b) of the Act since the amendment of sub-s.38(5) which took effect when notified in the ACT Gazette on 26 August 1991. It may be convenient to set out the present provisions of s.38 so far as they are relevant:
"38 (1) Without prejudice to the right of appeal

conferred by sub-section (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 sub-section (4), an appeal
shall lie to the Supreme Court on any question of law
arising out of an award.
.....
(4) An appeal under sub-section (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 paragraph (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.
....."

9. In Parliament House Construction Authority v Citra Constructions Ltd. (1989) 93 ACTR 1, I expressed a view, in accordance with the decision of the Court of Appeal of New South Wales in Qantas Airways Ltd v Joseland and Gilling and Another (1986) 6 NSWLR 327 that sub-s.38(5) as it then stood did not require an applicant for leave to appeal to show a strong prima facie case that the arbitrator's decision was wrong in law. I thought that the so-called "Nema" guidelines laid down in England (Pioneer Shipping Ltd and Others v B.T.P. Tioxide Ltd. (1982) AC 724) were not required to be applied under the uniform legislation.

10. Since my earlier decision, sub-s.38(5) has been amended in such a way as to suggest that the legislature intended to restrict the circumstances in which it was appropriate to grant leave to appeal from the award of an arbitrator upon a ground of law. The Act is part of a scheme of uniform legislation in Australia. The sequence of events leading up to the 1991 amendments was outlined by Rogers C.J. Comm. D. in Imperial Leatherware Co Pty Ltd v Macri and Anor (1991) 22 NSWR 653 and in Promenade Investments Pty. Ltd. v State of New South Wales (unreported, 20 June 1991, Supreme Court of New South Wales) and it is not necessary to repeat it here. In both cases his Honour held that the amendments applied to an application for leave to appeal brought subsequent to the amendments in respect of an arbitration commenced and an award made prior to the amendments. By the silence of the parties on this point, I take it that they accept that sub-s.38(5) applies to the present application for leave to appeal and I hold, for the reasons advanced by Rogers C.J. Comm. D., that it does so apply.

11. In Imperial Leatherware his Honour stated at p 660:

"It became evident that the New South Wales Parliament did not
consider the apparently wide opportunity for the exercise of
discretion in applications for leave to appeal, made available by
the decision of the Court of Appeal, to be the appropriate standard
because, following on a report from a working party, established by
the Standing Committee of Attorneys-General, the Act was amended in
1990. The requirements for qualifying for leave to appeal were made
substantially more onerous (cf s 38(4)). It is sufficient, for the
purposes of this judgment, to highlight the fact that the Parliament
of New South Wales, as part of uniform legislation and uniformity of
approach, reinforced the direction to the courts that they should
play only a supportive and auxiliary rather than supervisory, or
controlling, role in arbitral awards."

12. In Promenade Investments Rogers C.J. Comm. D. said that it is clear the legislature intended to reject the broad discretionary approach prescribed by the judgment in Qantas. After discussing a number of English and New South Wales decisions, his Honour concluded at p 21:

"The foregoing demonstrates that on the one hand the
restriction to errors 'arising out of the award' may have
occasioned difficulties and perhaps injustice and on the
other that the discretion conferred by Qantas allowed too
many awards to come under scrutiny. It is in that setting
that the first gateway was constructed to require manifest
error on the face of the award. In other words, under this
limb attention is now to be focused on what appeared 'on the
face of' the award instead of 'arising out of the award'.
On the other hand, the error which was required to permit
leave to appeal to be granted was required to be of a
certain quality."

13. After referring to the speech of Lord Diplock in The Nema, his Honour continued:

"The immediate relevance of His Lordship's speech
lies in the concept of perceiving an error in the award on a
mere reading of the award even without the benefit of
adversarial argument. Although the benefit of such argument
cannot be discarded, under the first limb, it is necessary
that the error be so obvious or so perceptible to the judge
as to be manifest. That is the primary test required to be
satisfied in the present case. I recognise that there may
be some difficulties in the working out of this approach.
It is an odd situation where Judge A grants leave to appeal,
on the basis of a manifest error and yet, after full
argument, Judge B dismisses the appeal. However if the
principle in The Nema is applied rigorously, that
is the situation which has prevailed in England for a decade."

14. I express the view with respect that there is nothing in the judgments of Rogers C.J. Comm. D. with which I would disagree. However, they are not determinative of the approach to be made to the application for leave to appeal in the present case. The applicants rely not only on alleged manifest error on the face of the award under sub-paragraph 38(5)(b)(i) but on the alternative under sub-paragraph 38(5)(b)(ii), namely that there is "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".

15. I should make the observation that in the written application for leave to appeal dated 30 September 1991 and filed in this Court, the ground for seeking leave to appeal seems to be restricted to a manifest error of law on the face of the award under sub-paragraph 38(5)(b)(i). However, there is no requirement in the Act, the Rules of Court or otherwise that the application be restricted to the ground or grounds set out in the written application, nor indeed is there any requirement that grounds be set out at all. The issue of whether the applicants might be entitled to leave to appeal under sub-paragraph 38(5)(b)(ii) in the alternative was fully argued before me and it is necessary to deal with it.

16. I interpolate that there is no issue that the requirements of paragraph 38(5)(a) are satisfied and that in the circumstances the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement. However, it is necessary further that the applicants go on to establish one of the matters required to be established under paragraph 38(5)(b).

17. First it is necessary to consider whether there was a manifest error of law on the face of the award. I do not see that if there was an error, it was so obvious or perceptible, that it may be characterised as "manifest". That the person who signed the notice of cancellation of the contract required and lacked authority that derived from a law made pursuant to s.55 of the Self-Government Act are, in my view, not propositions that are shown without argument to be incorrect as a matter of law. It is not manifestly wrong to assert that unless the Legislative Assembly had, at the relevant time, made a law pursuant to s.55 providing for the delegation of powers of the City Manager, then the person signing the notice of cancellation was not authorised to do so. I therefore hold that the applicants are not entitled to be granted leave to appeal pursuant to sub-paragraph 38(5)(b)(i).

18. Turning to the alternative ground, I have to consider first, whether there is "strong evidence that the arbitrator or umpire made an error of law". The use of the term "strong evidence" in this context is unusual. Whether a tribunal made an error of law is not normally regarded as a matter which depends on the weight of evidence. It is possible that the term "strong evidence" should be read in the sense of a strong prima facie case. However, I think that probably more than this was intended. Looking at the paragraph as a whole, I think that it is likely that it was intended that an applicant relying upon sub-paragraph 38(5)(b)(i) should be restricted to showing that the manifest or clear error appears on the face of the record, and is not entitled to go beyond the face of the record itself and rely upon an error which is shown to have occurred, for example, by evidence of something that the arbitrator did or otherwise said. On the other hand, under sub-paragraph 38(5)(b)(ii) there appears to be no obstacle to the applicant seeking to rely upon evidentiary material to show error on the part of the arbitrator which is not apparent on the face of the award itself. Under sub-paragraph 38(5)(b)(i), unless a copy of the transcript of evidence or documentary exhibits or the like is annexed to the award, the applicant is denied the opportunity of referring to such material as indicating error of law on the part of the arbitrator, simply because it does not appear on the face of the award itself. An application under sub-paragraph 38(5)(b)(ii) is not so restricted.

19. In any event, under sub-paragraph 38(5)(b)(ii), the error does not have to be so obvious or perceptible that it is manifest in the sense necessary to fall under sub-paragraph 38(5)(b)(i).

20. In the present case, Mr Robertson for the applicants, put before me a number of arguments to support the submission that the arbitrator was in error. The application was supported by an affidavit from a solicitor acting for the applicants. The affidavit annexed the contract, the notice to show cause and the notice of cancellation, as well as other documents. Insofar as it was necessary to look at the annexures to the affidavit other than the award itself, I think that the applicants had to retreat from the proposition that there was a manifest error on the face of the award. In any event, the arguments in support of the submission that there was error were essentially that the Territory is taken to represent, or be subsumed to the position of the Crown pursuant to s.7 of the Self-Government Act, and that the Crown has the power to enter into contracts without statutory authorization through its officers with ostensible authority. It was submitted that neither under s.55 of the Self-Government Act nor by any other legislative provision was the power of the Territory to enter into and to terminate contracts circumscribed. Reliance was placed upon The State of New South Wales v Bardolph [1934] HCA 68; (1934) 52 CLR 455.

21. I do not think that it is necessary to enter further into this area of alleged error on the part of the arbitrator. It appears that there are substantial matters of law raised by these submissions and that the arguments advanced cannot be lightly dismissed. There are important general constitutional questions. One relates to the position of the Territory qua the Crown. Another relates to the capacity of the Crown to contract, or perhaps more precisely, the power of individual persons to bind the Crown in contract. There is a third general principle of law of importance relating to the extent to which the Self-Government Act may restrict the right of the Territory in contract. However, interesting and important as these questions may be, the issue at this stage is whether there is "strong evidence" that the arbitrator made an error of law. In my view, whilst it might be that at the end of full submissions from both sides on all relevant questions a court would come to a decision that the arbitrator fell into error, I am not at this stage, and in the light of the submissions already made, persuaded that the probability that the arbitrator fell into error is so high that it can be said that there is "strong evidence" that he did so.

22. In any event, it is necessary to go further and to consider whether "the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law". The area of law under contemplation by the legislature is not constitutional law, but commercial law. The term "commercial law" may no doubt be read broadly to include the law affecting trade, business, industry and the like. But it is not in accordance with the overall purpose of the Act as I understand it that it should be used for the determination of interesting but academic questions which have no real or direct impact upon the way in which commercial transactions are conducted in the community. The questions of law raised by the arbitrator's determination are not, in my view, questions of commercial law. Again, it is not to the point that the determination of the question may add a gloss upon the commercial law, or add a new principle. What is required is that the determination "may add, or may be likely to add, substantially to the certainty" of that area of law concerned with commerce. The words of the sub-paragraph seem to assume that certainty is not an absolute quality and that there are degrees of certainty in the law, to which the determination of a court may make a contribution.

23. Conversely, it may be said, I should think, that it is intended that the determination may reduce any uncertainty in the commercial law. In this respect no area of uncertainty was identified by counsel for the applicants. I am not able to see in relation to the questions of law to which I have referred that there is any lack of certainty. It may be that the questions may not be easy to determine in the sense that consideration may need to be given to many details of legislation and to a body of case law but it is at least possible that after due inquiry the principle or principles of law to be applied will emerge as not lacking in certainty.

24. Lastly, in relation to the matter just raised, the requirement that the determination add substantially to the certainty of commercial law is governed by the provision that there be "strong evidence" to that effect. There is simply no evidence before me on this aspect. It is not a matter, I think, for judicial guess-work. What I think the sub-paragraph contemplates is that there be evidentiary material before the Court on an application for leave to appeal which shows that there is some uncertainty in the commercial community on the question or questions of law in respect of which it is asserted that the arbitrator fell into error. The application before me is lacking in that respect.

25. For the foregoing reasons I am of the view that the applicants have not made out a case for the grant of leave and the application is refused with costs.