Holland Stolte Pty Ltd v Murbay Pty Ltd [1991] ACTSC 89; (1991) 105 FLR 304 (22 October 1991)

SUPREME COURT OF THE ACT

HOLLAND STOLTE PTY. LTD. v. MURBAY PTY. LTD.
S.C. No. 535 of 1991
Arbitration
[1991] ACTSC 89; (1991) 105 FLR 304

COURT

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

CATCHWORDS

Arbitration - the award - judicial review - application for order to set aside on ground that arbitrator misconducted proceedings - relationship between misconduct justifying removal of arbitrator and misconduct justifying setting aside of award - whether arbitrator failed to determine an issue referred to him in the proceedings - whether failure to decide such an issue constitutes misconduct - discretion to allow relief.

Commercial Arbitration Act 1986 (ACT), s.42(1)

Halsbury, 4th ed Vol 2 p 330 para.622

Harwood v. Civic Constructions Pty. Ltd. (unreported,

Supreme Court of New South Wales, 1 June 1990)

Bowes v. Fernie (1838) 4 My and Cr 150

Ross v. Boards (1838) 8 Ad and E 290

In re O'Conor and Whitlaw's Arbitration (1919) 88 LJKB 1242

Multiplex Constructions Pty. Ltd. v. International Golf Services Pty. Ltd. (1988) 4 BCL 320

HEARING

CANBERRA
22:10:1991

Counsel for the plaintiff: Mr G. Lunney

Solicitors for the plaintiff: Freehill Hollingdale and Page

Counsel for the defendant: Mr F.J. Purnell

Solicitors for the defendant: Wood Fussell

ORDER

The application by the plaintiff be refused.

DECISION

This is an application commenced by way of originating summons dated 30 July 1991 for an order that an award of an arbitrator made on 15 July 1991 be set aside pursuant to the provisions of paragraph 42(1)(a) of the Commercial Arbitration Act 1986 (ACT) (the Act) on the ground that the arbitrator misconducted the proceedings.

2. There is a voluminous amount of documentary and factual material before the Court, but the submissions of counsel were succinct and reliance was placed on only a very small proportion of the material before the Court. The matters to be determined by the Court are in the end within a narrow compass. They are, first, whether the arbitrator failed to determine an issue that was referred to him in the proceedings and secondly, if he did so fail, whether that failure constituted misconduct on his part. There is a further question which may or may not need to be determined and that is, if the two questions just posed are to be answered in the affirmative, whether the discretion of the Court should be exercised to grant the relief sought.
The Dispute, the Arbitration and the Award

3. The plaintiff, Holland Stolte Pty. Limited (Holland Stolte), contracted with the then National Capital Development Commission (NCDC) to carry out certain extensions and renovations to the School of Hospitality Studies at the Canberra College of TAFE, Reid. By an undated written agreement entitled "Sub-contract", the defendant, Murbay Pty. Limited (Murbay), agreed with Holland Stolte to carry out some of the work. That work was concerned with the installation of aluminium framed windows, doors and external walling system. In about January 1991 (by which time the work or most of it had been completed) a number of matters relating to the performance of the contract by each party were in dispute. Accordingly, there was a reference to arbitration in accordance with Clause 44 of the sub-contract. That clause is lengthy. There is no need to set it out in this judgment. The parties accept for the purpose of these proceedings that there was a reference to arbitration under the Act.

4. The arbitrator appointed was Mr K.J. Rodda. If there was a written reference, it is not in evidence in these proceedings, or if it is in evidence, I was not told where to find it and I have not seen it. However, the arbitrator stated at the commencement of the reasons for his final award, and I accept, that at a preliminary conference the parties agreed that the arbitrator could determine any question that arose for determination in the course of the proceedings under the agreement by reference to considerations of general justice and fairness in accordance with sub-s.22(2) of the Act.

5. Among the many obligations cast upon Murbay by the documents comprising the sub-contract, was the obligation to provide certain certificates on practical completion of the works. Two such certificates related to the glass and to the windows respectively. The obligation to provide what became known as the "glass certificate" arose from the following clause in one of the documents:
"SUBSECTION 020 DESIGN

.....
CERTIFICATE: Submit a structural engineer's
certificate scheduling the glass types, locations
and proposed thicknesses, and certifying that the
thicknesses so determined comply with AS 1288."

6. The obligation to provide what was later called the "window certificate" arose from the following:

SUBSECTION 074 TESTS
.....
TYPE TESTS: Provide satisfactory evidence in
the form of a report from an independent testing
authority that windows of each type specified:
- Have passed the tests applicable to that type specified in AS 2047
Section 5 or AS 2 146 Section 3;
- Comply with the requirements of the specified window rating;
- Are finished with specified coatings of not less than the specified
thickness."

7. By an oral variation or addition to the written sub-contract prior to completion of the works it was also agreed between Holland Stolte and Murbay that Murbay would supply what became known as the "panel fixing certificate". That certificate was to be provided by 3M Australia Pty. Ltd.

8. By the time the arbitrator conducted the preliminary conference on 18 January 1991 none of the three certificates had been furnished by Murbay. The arbitrator noted that the parties agreed that he then formally enter on the reference. He also noted the general nature of the claims and counter-claiMs His notes do not mention any of the three certificates.

9. Points of claim, points of defence and counter-claim and points of defence to counter-claim were delivered. Further and better particulars were requested by each side of the other and supplied. In its points of claim Murbay claimed in essence the balance owing on the contract price together with extra costs to which it claimed it was entitled. Holland Stolte made a counter-claim whereby it claims that it had overpaid Murbay in respect of certain matters and that it had incurred damage and extra costs by reason of the failure of Murbay to carry out the work properly and within time. The total amount claimed by Murbay was $247,331.00 and the amount of the counter-claim by Holland Stolte was $474,127.31.

10. Although there was no reference to the three certificates in the points of counter-claim, the fact that none of them had been furnished by Murbay was a matter raised on behalf of Holland Stolte during the course of the hearing before the arbitrator. In particular there was evidence from a Mr Louis Serafin, a glazier of Queanbeyan, to the effect that he had carried out work on behalf of Holland Stolte to rectify faulty work carried out by Murbay at a cost of some $10,000. In addition, he gave evidence that the cost of furnishing the three certificates was $146,000.

11. On 21 June 1991 the arbitrator brought down his interim award, which was that "provided there are no further contra charges against the claimant, the claimant is entitled to payment of $43,559.42". The arbitrator stated in a letter accompanying his interim award that he was unable to bring down a final award pending:

"(a) resolution of the impasse over the handover of three certificates
by the claimant to the respondent.
(b) agreement between the parties that all other work under the
contract has been comp leted.
(c) further argument on the amount of money to which interest should
apply and the per iod over which it should apply."

12. On 3 July 1991 the solicitors acting for Murbay forwarded to the representatives of Holland Stolte two certificates each dated 25 June 1991 and purporting to be the glass certificate and the window certificate respectively. They were each signed by Mr John Murdoch on behalf of Murbay. It is common ground that Mr Murdoch is not a structural engineer nor an independent testing authority. There was also forwarded with the same letter a certificate purporting to be the panel fixing certificate, but it was in truth only a warranty from the manufacturers as to the quality of the adhesive tape which had been used to fix the glazing panels. It was not argued before me that any of the documents supplied met the requirements for a valid certificate within the terms of the sub-contract as varied and if the matter needs to be decided, I have little hesitation in concluding that Holland Stolte was quite entitled to reject these three documents as it subsequently did.

13. The hearing before the arbitrator resumed subsequent to the interim award. At the resumed hearing the point was taken on behalf of Holland Stolte that the three certificates "were part of the works to be carried out by the sub-contractor" and that "the cost of furnishing the certificates by persons other than the claimant is $146,000.00". The arbitrator brought down his final award on 15 July 1991. He found that the amount due on practical completion from Holland Stolte to Murbay was $32,494.53 and, after other allowances, the total due to Murbay in its claim was $50,789.61. In relation to the counter-claim by Holland Stolte the arbitrator found that Holland Stolte was entitled to payment by Murbay of $23,363.12 leaving a net amount due to Murbay of $27,426.49, which after allowing for further adjustments including interests led to a total net amount due to Murbay from Holland Stolte of $30,792.57. The arbitrator did not award any sum in the counter-claim to Holland Stolte in respect of the failure to furnish the three certificates. In relation to these certificates the arbitrator stated as follows:

"I have considered the areas of concern and am satisfied that they
have been adequately dealt with and do not intend to vary the
interim award however the reasons for rejection of the counter-claim
in respect to the three certificates require amplification.
The competence of Serafin and Co. to provide at least one of the
certificates was challenged at the hearing. An affidavit by Mr J.
Padgett, Technical Product Specialist, for 3M Australia Pty. Ltd.
was accepted into the evidence of the parties although Mr Padgett
was by agreement between the parties not called for examination.
This affidavit makes it clear that the Aluminium Panel Fixing
Statement could not be provided by Serafin and Co. and would be
provided by 3M.
The evidence does not enable me to put a value on the certificates
if not provided by claimant however I accept the claimant's evidence
that they are available and will be provided."

Misconduct of an Arbitrator

14. What appears to have been regarded as a classic statement on the subject of misconduct of an arbitrator is to be found in Halsbury, 4th ed Vol 2 p 330 paragraph 622:

"It is difficult to give an exhaustive definition of what may amount
to misconduct on the part of an arbitrator or umpire.

15. The expression is of wide import, for an arbitrator's award, unless set aside, entitles the beneficiary to call on the executive power of the state to enforce it, and it is the court's function to ensure that the executive power of the court is not abused. It is accordingly misconduct for an arbitrator to fail to comply with the terms, express or implied, of the arbitration agreement. But even if the arbitrator fully complies with those terms, he will be guilty of misconduct if he makes an award which on grounds of public policy ought not to be enforced. Much confusion has been caused by the fact that the expression "misconduct" is used to describe both these quite separate grounds for setting aside an award, and it is not wholly clear in some of the decided cases on which of these two grounds the award has been set aside. However, on one or other of these grounds the expression includes on the one hand that which is misconduct by any standard, such as being bribed or corrupted, and on the other hand mere "technical" misconduct, such as making a mere mistake as to the scope of the authority conferred by the agreement of reference. That does not mean that every irregularity of procedure amounts to misconduct."

16. The statement in Halsbury predates the Act. The definition of "misconduct" in the Act makes it clear that for the purposes of the Act the term includes at least the first of the two grounds mentioned in Halsbury. Section 4 provides that "misconduct" includes corruption, fraud, partiality, bias and a breach of the rules of natural justice. However, the definition is not exhaustive and how far it encompasses "technical" misconduct in the sense of irregularity of procedure and the like is not clear. It may be that "even a mistake in procedure" will still be held to be misconduct if it results in a clear injustice: see Cole J. in Harwood v. Civic Constructions Pty. Ltd. (unreported, Supreme Court of New South Wales, 1 June 1990). In any event the concept of misconduct under the Act has to be seen in the light of the Act read as a whole. Judicial review of an award is circumscribed by the provisions of s.38. In particular there is an express denial of jurisdiction in the Court to set aside or remit an award on the ground of error of fact or law on the face of the award. The only exception is where leave is granted to appeal on a question of law arising out of an award where the determination of the question of law could substantially affect the rights of one or more of the parties to the arbitration agreement.

17. The power to set aside an award for misconduct is quite different from the power of judicial review. It is conferred by sub-s.42(1), which limits the exercise of the power to one or other of two situations. The first is where there has been misconduct on the part of the arbitrator. The second is where the arbitration or the award has been "improperly procured", that is to say, the arbitration or the award has been contaminated by improper behaviour on the part of someone other than the arbitrator, for instance, where there has been suborning of a witness. Furthermore, s.44 provides that the Court may remove an arbitrator where "there has been misconduct on the part of an arbitrator or umpire or an arbitrator or umpire has misconducted the proceedings". I am unable to see any reason why misconduct in s.44 is to be given a substantially different meaning from that in paragraph 42(1)(a). It could hardly have been the intention of the legislation that an arbitrator could be removed for so-called "technical misconduct" for procedural errors or indeed even for errors of law. To remove an arbitrator from office for such errors which must inevitably occur from time to time would render the position of an arbitrator too precarious and deprive the arbitration system of the regularity and stability necessary for an efficacious dispute resolution system which might be a proper alternative to judicial resolution.

18. In the light of all this, I come to the conclusion that although the word "misconduct" in paragraph 42(1)(a) does not have to be read ejusdem generis with the categories of behaviour enumerated in the definition clause s.4 of the Act, there must nevertheless be some real dereliction of duty on the part of the arbitrator before it can be said that the arbitrator has been guilty of misconduct, or that the arbitrator has misconducted the proceedings.
Failure to decide an issue

19. According to the old cases it was misconduct on the part of an arbitrator to fail to decide an issue that was part of the reference to arbitration: see Bowes v. Fernie (1838) 4 My and Cr 150, Ross v. Boards (1838) 8 Ad and E 290, In re O'Conor and Whitlaw's Arbitration (1919) 88 LJKB 1242. Whilst I would not presume to declare that these cases should be regarded as bad law, I think that they should be looked at in the light of recent developments which secure the role of arbitration as a form of dispute resolution which will be supported by the courts and in which the courts will interfere less readily perhaps than they once did. In any event, the cases ought to be looked at to see exactly what it was that they decided. In Bowes v. Fernie Cottenham LC. said at p 162 that the award was bad because the arbitrators "declined to arbitrate upon some matters included in the reference". In re O'Conor and Whitlaw's Arbitration was an appeal under an Act which provided that "when an arbitrator has misconducted himself .... the County Court may set the award aside". There had been a clear claim in the arbitration by a tenant against a landlord in respect of certain fixtures as well as in respect of other matters. The arbitrator, however, did not deal with the claim for fixtures at all. In Ross v. Boards it was held that the award was not final because, instead of deciding the questions referred, the award set on foot new questions, and instead of ascertaining a right for the plaintiff, it gave him a new action for the recovery of damages. There is a general principle to be gleaned from the cases that if an arbitrator fails to decide a particular issue referred in the arbitration but sets upon a general enquiry, then that will be regarded as misconduct. More recently it has been said that there is misconduct where arbitrators fail to answer the issues which are pleaded and they themselves embark upon a general enquiry: Multiplex Construction Pty. Ltd. v. International Golf Services Pty. Ltd. (1988) 4 BCL 320.

20. In the arbitration now under consideration, the claim by Holland Stolte for the cost of obtaining the certificates was not pleaded in the counter-claim. The question of the cost of such certificates and the liability for that cost was sought to be raised as an issue during the hearing and to some extent the arbitrator allowed evidentiary material relating to that question to be received. He might properly have ruled that it should not have been allowed. Of course Murbay might have allowed the question to become an issue to be decided in the arbitration, but from what has been put to me about what occurred during the course of the hearing, Murbay was not a party to allowing the issue of the cost of the certificates and the liability for such cost to be raised for determination by the arbitrator. The fact that Murbay during the course of arbitration and subsequently made efforts to obtain and proffer such certificates as were acceptable to Holland Stolte does not contradict the proposition that the question of the certificates was not an issue for determination by the arbitrator. In my view, it was not necessary for the arbitrator to decide the issue of the cost of and liability for the three certificates, although as the arbitration progressed it may have appeared to the arbitrator that consideration of matters touching on those questions could not be dismissed immediately as totally irrelevant. It is obvious that when a tribunal is required to determine an ultimate issue, there will be several preliminary issues which will be raised during the adjudication process, which will appear at the time to be relevant to the ultimate issue but which in due course may be seen as not necessary for determination. Furthermore, in arbitration proceedings, it is likely that the tribunal will not look at the question of relevance with the same degree of strictness and particularity as is customary in a court of law.

21. I am therefore of the view that the arbitrator did not fail to decide an issue which required to be decided. As there is no other ground upon which it is alleged that the arbitrator misconducted the proceedings, the application to set aside the award must fail.
Discretion to allow relief

22. Before concluding, however, I should state that even if it were considered that the arbitrator misconducted the proceedings in failing to decide the issue relating to the certificates, there is still, in my view, a discretion in the Court whether or not it should grant relief by way of setting the award aside. In the present case the evidence is strongly suggestive of the acceptance by Holland Stolte, subsequent to the arbitrator's final award, of documents which are satisfactory to it as the certificates to which it was entitled under the sub-contract. It is understandable that this is a matter of some importance to Holland Stolte because, apparently, without such certificates, Holland Stolte is unable to obtain payment from its client, the NCDC. Now that satisfactory certificates have been furnished, there would appear to be nothing to stand in the way of Holland Stolte being entitled to payment by the NCDC. There would be no justification for Holland Stolte to engage a third party to incur what appears to be the considerable expense of investigating the various matters which need to be investigated before the certificates can be made available by a third party. Such an investigation would involve an extensive enquiry into matters which are already known to Murbay and in respect of which Murbay has been able to furnish satisfactory certificates at presumably much lower cost and, as I understand it, at no cost to Holland Stolte.

23. The application by the plaintiff is refused and unless the parties wish to be heard I propose that the plaintiff pay the defendant's costs.