Houstone and Windmaze Pty Ltd v Singh and Bondcask Pty Ltd [2006] ACTSC 33 (24 April 2006)

Last Updated: 22 May 2006

ANGUS BAYLEY HOUSTONE and WINDMAZE PTY LTD v

PAWAN SINGH and BONDCASK PTY LTD

[2006] ACTSC 33 (24 April 2006)

APPEAL - leave to appeal from Arbitrator's award - application out of time - extension of time to appeal - relevant considerations - Commercial Arbitration Act 1986.

Commercial Arbitration Act 1986, s 38(4)(b)

Rules of Court, O 88 r 6(2)

Nelson Tobacco Company Pty Ltd v Commissioner for ACT Revenue (No2) [1992] ACTSC 75; (1992) 109 FLR 323

Peter Schwartz (Overseas) Pty Ltd v Morton [2003] VSC 144

Chadwick Industries (ACT) Pty Limited v Concrete Constructions Group Pty Limited [1999] ACTSC 108

Morgan Belle Pty Ltd v API Services (Vic) Pty Ltd [2005] SASC 488

No SC 943 of 2005

Judge: Connolly J

Supreme Court of the ACT

Date: 24 April 2006

IN THE SUPREME COURT OF THE )

) No SC 943 of 2005

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: ANGUS BAYLEY HOUSTONE

First Applicant

AND: WINDMAZE PTY LTD

Second Applicant

AND: PAWAN SINGH

First Respondent

AND: BONDCASK PTY LTD

Second Respondent

ORDER

Judge: Connolly J

Date: 24 April 2006

Place: Canberra

THE COURT ORDERS THAT:

1. The application to extend time be dismissed.

2. The applicants pay the respondents' costs of the notice of motion.

1. This is an application for an extension of time in which to seek leave to bring an appeal to this Court from a decision of an arbitrator handed down on 10 August 2005. The Commercial Arbitration Act 1986 (the Act) provides that an application for leave to appeal must be made not later than 21 days after the day notice of the award is given to the applicant (s 38(4)(b)), or within such extended time as the Court allows (O 88 r 6(2)). This application was brought on 16 December 2005, which is some three and a half months after the 21 day appeal period expired.

2. A statutory time limit for an appeal is a matter of significance, because of the importance of finality in litigation. A successful party is generally entitled to assume that, after an appeal period has run, the matter is concluded and they are free to arrange their affairs on the basis that the litigation is concluded. However, there is generally a discretion to extend time and, in the general run of civil appeals, the guiding factors to the exercise of that discretion are well summarised by the remarks of Miles CJ in Nelson Tobacco Company Pty Ltd v Commissioner for ACT Revenue (No2) [1992] ACTSC 75; (1992) 109 FLR 323 at 325 where his Honour said -

Overall, however, there is the need to do justice to the parties. An ancillary question which is particularly relevant to the present case is the length of the delay and the effect of delay on the parties. Another question relevant to the present case relates to the prospects of success of the proposed appeal.

3. It seems to me, however, that an application to extend time in which to bring an appeal from a commercial arbitration raises further issues. In Peter Schwartz (Overseas) Pty Ltd v Morton [2003] VSC 144, Byrne J said (at [53]) -

An extension of time is an indulgence which may, as a matter of discretion, be granted where the justice of the case demands it. In the context of a challenge to an arbitral award, the Court will normally scrutinise such an application with particular care, if only because the right of challenge is one which is limited and because of the policy which demands speedy finality to arbitral awards.

I would respectfully endorse these remarks.

4. It must be borne in mind that, under the Act, there is no automatic right to appeal from an arbitrator's ruling. On the contrary, the Act establishes a regime that encourages finality and speedy resolution to commercial arbitration. In Chadwick Industries (ACT) Pty Limited v Concrete Constructions Group Pty Limited [1999] ACTSC 108, I set out, as Master, what I took to be the appropriate approach to an application for leave to bring an appeal from an arbitrator's ruling, in terms which I would not depart from today. I said at [9]-

The approach to granting leave to appeal

The Act is quite specific in setting out the basis on which leave to appeal from an award of an arbitrator may be made. Section 38(4)(b) states that an appeal may only be brought without consent by leave of the Supreme Court, and s 38(5) states -

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.

The Act is part of a uniform national legislative scheme, and the provisions of s 38 are mirrored in the equivalent legislation in other States.

The history of judicial approaches to applicants to appeals from decisions of commercial arbitrators has been set out by Sheller J in Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 203 at 216ff. It seems that, from the 19^th century, English law had developed in such a way that applications from a party to an arbitration for judicial intervention in the proceedings, either by way of a stated case or appeal, were relatively easy to obtain, in contrast to the position in other jurisdictions. This was felt to be to the detriment of English commerce, as it was harder to obtain finality in arbitrations conducted in England as compared to other European commercial centres. As a consequence, the Arbitration Act 1979 (UK) sought to limit the number of ways a court could interfere in and control arbitral awards. The House of Lords in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 laid down a cautious approach to intervention based on these amendments. Lord Diplock considered that the judicial discretion to allow an appeal from an award should be exercised by applying strict criteria. He said (at 742) that, where a question of law was particular to an individual contract -

leave should not normally be given unless it is apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong.

Where an error is claimed in respect of a matter regarding a general point which "... would add significantly to the clarity and certainty of English commercial law", his Lordship (at 743) was of the view that leave should only be given where

the judge considered that a strong prima facie case had been made out that the arbitrator had been wrong in his construction.

Although the uniform 1984 Australian Commercial Arbitration Acts contained provisions relating to appeals broadly similar to the United Kingdom legislation, the approach of the House of Lords did not find favour with Australian appellate courts. In Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327, McHugh JA said (at 333) that he was not persuaded that Lord Diplock's approach should be followed, and that the discretion to grant leave should be "exercised after considering all the circumstances of the case".

The present test contained in s 38(5) of the Act was inserted by way of common amendments to the uniform Acts in 1990. In Promenade Investments, Sheller JA in referring to the equivalent New South Wales amendment said (at 221) -

In his second reading speech the then Attorney General said that one of the major objectives of this uniform legislation was to minimise judicial supervision and review (New South Wales Parliamentary Debates 22 November 1990 at 10378). If arbitration is to be encouraged as a settlement procedure and not as a dry run before litigation, a more restrictive criterion for the granting of leave is desirable and the parties should be left to accept the decision of the arbitrator whom they have chosen to decide the matter in the first place.

His Honour continued (at 222) -

The added requirement of manifest error of law on the face of the award or strong evidence that the arbitrator made an error of law and that the determination of the question might add substantially to the certainty of commercial law suggest that the draftsman was seeking to constrain the exercise of court control over arbitral awards in the manner described by the House of Lords in The Nema.

This approach has been endorsed by a decision of the Full Court of the Federal Court on appeal, and so binding upon this Court. In Commonwealth of Australia v Rian Financial Services [1992] FCA 239; (1992) 36 FCR 101, each member of the Court endorsed Promenade Investments, although Davies and Neaves JJ differed from Higgins J on its application to the facts of the case in point. Higgins J observed in his judgment (at 110) -

As Hilary Astor points out in her book Dispute Resolution in Australia, p 116, the development of arbitral expertise free from restrictive judicial interference was a deliberate objective of the commercial community. It was also an objective of the legislature in enacting the current form of s 38(5).

5. It seems to me that it is appropriate to restate these propositions because, in considering an extension of time to bring an application for leave to appeal an arbitrator's award, the concept of "prospects of success" has a very different meaning from the case of an ordinary civil appeal. A party wishing to bring an appeal within time from an arbitrator's award will only succeed if it can demonstrate a manifest error, or that the appeal will add substantially to the certainty of commercial law.

6. I am far from satisfied that these criteria would be met in the present case. The arbitration arose as a consequence of a disagreement following the dissolution of a partnership arrangement in relation to a suburban pharmacy business. The arrangement involved a personal partnership between the first applicant and the first respondent in respect of the pharmacy aspect of the business (due to Commonwealth requirements that a pharmacy may only be run as a personal business or partnership by a qualified pharmacist) and an arrangement between the first applicant's company, Windmaze Pty Ltd and the first respondent's company Bondcask Pty Ltd in respect of the non-pharmacy aspects of the business. The first applicant sought to retire from the business. Pursuant to the contractual arrangements for the sale, the former accountant to the partnership made certain calculations as to monies payable to the retiring partner pursuant to clause 9 of the sale agreement. It is common ground that certain monies were paid by the first respondent and his company, but a dispute arose as to the valuation of stock on hand and profit share. The contract of sale provided for arbitration in the case of disputes.

7. The parties agreed to appoint an arbitrator to determine these questions and settled upon Mr H Bluhm, a partner in the firm of Marlow Bluhm Chartered Accountants, as the arbitrator. In an agreed statement of facts the parties agreed that -

The issue for arbitration between the parties is the correct calculation of profit share payable to Houstone and whether the calculations made by the accountant pursuant to Clause 9 were properly and correctly prepared.

8. It seems to me that this was a purely factual question appropriate to be determined by a qualified accountant, and that this is precisely what Mr Bluhm did. It is apparent that each party claimed to be owed money and sought that award with costs. Mr Bluhm determined that the first respondent had in fact overpaid the first applicant, and ordered that the first applicant repay the sum of $13,043. He ordered the first applicant, the losing party, to pay the costs of the first respondent, the successful party.

9. It seems to me that this was a purely factual accounting exercise, and that the substantive determination in the final award does not raise issues that, if the application for leave to appeal had been brought within time, it would satisfy the test for judicial intervention.

10. It was further argued that the arbitrator made a manifest error in law in that he did not adequately explain the basis for his costs order. I was referred to the decision of Morgan Belle Pty Ltd v API Services (Vic) Pty Ltd [2005] SASC 488, where Gray J permitted leave to appeal from a costs decision of an arbitrator on the basis that the arbitrator did not provide sufficient reasons for his decision on costs. His Honour said, at [57] -

The requirement for the provision of reasons is met when reasons are adequate to allow an appellate court to perform its function and when the requirements of procedural fairness are discharged. The reasons prepared by the arbitrators are not sufficient to permit an understanding of the reasoning underpinning their award of costs, and in particular the decision to order that the parties bear the fees and expenses of the arbitrators equally.

11. It seems to me that the latter phrase explains this decision well, in that the arbitrators found in favour of one party, but ordered, without further elaboration or reasons, that each party bear its own costs. In the present case, costs effectively followed the event. As Gray J remarked (at [22]) in Morgan Belle Pty Ltd v API Services (Vic) Pty Ltd -

An arbitrator's discretion to award costs is unfettered, and it cannot be exercised capriciously. Generally speaking, costs will follow the event. To award otherwise would suggest, in many cases, that the arbitrators had acted capriciously. However, circumstances may arise which arbitrators consider justify a departure from this general rule.

12. It seems to me that, where an award finds in favour of one party, and makes an award of costs other than for costs to follow the event, it may well be said that an award that does not adequately explain this exercise of the costs discretion would justify leave to appeal. That, it seems to me, is as far as Gray J has held in Morgan Belle Pty Ltd v API Services (Vic) Pty Ltd, and it seems to me to follow that, where the arbitrator simply orders that costs follow the event, as in this case, that there is no manifest error in a simple form of costs order without extensive reasons.

13. It seems to me therefore that there are limited prospects of success in this application, and I take that into account in considering the application to extend time.

14. The length of a delay in bringing an application is clearly a significant factor, and in this case the delay, of some three and a half months, is quite significant. There is an affidavit from the applicants' solicitor which asserts that immediately after the final ruling the applicants sought further legal and financial advice "which was time consuming".

15. While this may well be so, it is significant that, in an affidavit from the respondent, there is a letter to him from the first applicant dated 3 October 2005 which contains a cheque for the full balance of the arbitral award together with interest. There is no mention in this letter that an appeal is being actively considered. It is apparent from a letter attached to the applicants' solicitor's affidavit that this was in response to letters from the respondents' solicitor seeking payment. This letter questioned whether the first applicant was serious about meeting his obligations in respect of the award. In response to the letter of demand, the applicants' solicitor wrote on 15 September 2005 that -

In respect of your statements regarding the "seriousness" of our client "about meeting his obligations in respect of the determined amount" you make strange propositions.

It is not a question of whether our client is serious or otherwise, our client is bound by the award of the Arbitrator.

The letter concludes -

Rather than send accusatorial letters to each other, it would be better if we all agree that our client would pay Mr Singh his money immediately on his return and the costs, on the outcome of the taxed bill of costs since that is the course upon which you have set.

16. There is no mention in this letter about active consideration of an appeal, and indeed the final sentence clearly seems to accept that the matter is finalised. It seems to me that this letter does not sit well with an application to extend the time in which to bring an application for leave to appeal. While perhaps falling short of an estoppel point, it seriously undermines the proposition that the delay in bringing an appeal is due to ongoing and consistent consideration of the prospects of an appeal. Rather, it suggests that, after the award was paid and an agreement to go through a costs taxation was made, the applicant changed his mind. This is not a good basis for an application to extend time in which to bring leave to appeal.

17. For these reasons, I would dismiss the application to extend time to bring an application for leave to appeal from the arbitrator's final award of 10 August 2005. The applicants being wholly unsuccessful, they should pay the respondents' costs of the notice of motion.

I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Connolly.

Associate:

Date: 24 April 2006

Counsel for the applicants: Mr S Hausfeld

Solicitor for the applicants: Snedden Hall & Gallop

Counsel for the respondents: Mr C Whitelaw

Solicitor for the respondents: Tetlow Tigwell Watch

Date of hearing: 31 March 2006

Date of judgment: 24 April 2006