ADR Update - Court refuses to enforce part of arbitration award where reasons inadequate and amount uncertain

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Tayar v Feldman [2020] VSC 66

In Tayar v Feldman [2020] VSC 66, the applicant sought recognition and enforcement of an arbitral award in the Supreme Court of Victoria.  The award was published on 9 May 2013 by a three-person arbitral panel.  The award  addressed 5 separate claims, 3 of which the applicant sought to enforce.  Claim 1 concerned a claim for the repayment of a loan for $1.6M (less $120,000 already paid); Claim 2 was said to be for outstanding rental payments totalling $320,000; and Claim 4 was in relation to $14,000 said to be owed for outstanding salary payments.[1]

The respondents sought orders refusing recognition and enforcement of the award on a number of bases: [5]-[9].  First, they said that the arbitration agreement did not sufficiently identify in writing the matters referred to the arbitral tribunal – the Agreement expressly provided that the “Disputed Matters” were to be set out in written points of claim but these were never provided. As a result, the respondents argued there was no valid or enforceable arbitration agreement that could be enforced under s 35 of the Commercial Arbitration Act 2011 (Vic) (“CAA”) because:

(a)  there was no “domestic commercial arbitration” to which the CAA could apply;[2] and

(b)  there was no valid arbitration agreement submitting the parties’ dispute to arbitration.[3]

Second, the respondents submitted that, given the applicant claimed an interest in 5 properties (the applicant said those properties secured the amount claimed in Claim 1), and not all the owners of those properties were parties to the Agreement, the Court should refuse to enforce the Award.  Third, the respondents said that there were no reasons given in the award and so, for this reason, recognition and enforcement should be refused. Finally, in relation to claims 2 and 4, the respondents alleged that the award did not provide for the payment of a sum certain and so for this reason enforcement should be refused.

The Court noted that, where part only of an award is sought to be enforced, principles of severance apply to enable the Court to enforce part of the award, provided it is separate and divisible (which was the case here).  Accordingly, if, for example, one (separate and divisible) part of the Award was bad in law, then, provided there was no prejudice, that part could be severed while enforcing other parts of the Award: [63], [64].

The Court then considered the first basis of objection to enforcement – no written points of claim.  The respondent contended two issues arose from this.  First, there was a question as to whether there was in fact a “domestic commercial arbitration” which could be enforced under s 35 of the CAA.  This issue arose because s 1(1) of the CAA says that it (the CAA) applies to “domestic commercial arbitrations”.

In relation to this first issue, the Court agreed with the respondent that, prior to enforcement, the applicant had to prove there was in fact a “domestic commercial arbitration” because the CAA only applies to “domestic commercial arbitrations”: [108].  Importantly, the Court found this was a threshold issue to be determined before it could be said that the CAA applied.  Section 1(3) of the CAA sets out the criteria that must be met for an arbitration to be “domestic”.  These are, in summary:

(a)  the parties’ places of business are in Australia; and

(b)  the parties have agreed in writing to settle any dispute between them by arbitration; and

(c)   the arbitration is not one to which the Model Law and the International Arbitration Act 1974 (Cth) apply.

The Court found as a matter of fact that each of these criteria were satisfied [112]-[114]. The Court then considered if the arbitration was “commercial”, noting that the word “commercial” is not defined in the CAA but also observed  that the note to s 1 of the CAA says that the word should be given a wide interpretation and that the note provides a number of examples of commercial transactions: [48], [117]. In considering whether the arbitration was commercial, the Court considered each of claims 1, 2 and 4 separately.  The Court held that Claim 1 – non-repayment of a loan – was commercial for the purposes of the CAA: [119].  Similarly, the Court found that Claim 2, a claim for outstanding rental payments, was bound up with Claim 1 and was also commercial in nature: [120].  However, the Court held that Claim 4, a claim for unpaid wages, was not commercial: [121].  It made this finding having regard to the UNCITRAL commentary on the Model Law (upon which the CAA is based) and international case law which suggests that employment relationships (that is, master and servant relationships) are not considered “commercial” relationships.

The next issue was whether there was a valid arbitration agreement submitting the parties’ dispute to arbitration.  The Court determined that the Agreement: contains the parties’ details; identifies the arbitral panel; says how the arbitration should be conducted; and provides that disputes have arisen between the parties concerning certain transactions and that the Disputed Matters were to be identified by a statement of claim and defence: [82].  The Court held that while the Disputed Matters were not yet identified when the Agreement was executed, that did not matter because there was an agreed mechanism by which those matters would be identified (that is, by statement of claim, followed by defence).  The Court held that many arbitration agreements provide a mechanism for defining disputes which ‘may arise’ between the parties and that these types of agreements are valid and binding ([83]) even when those disputes were not yet identified.

In relation to the fact that Arbitration agreement required the Disputed Matters to be identified in a statement of claim, (which did not occur), the Court reiterated that the CAA does not require the arbitration agreement to identify the matters to be referred to arbitration in writing: [104].  The Court then noted that s 4 of the CAA provides for a party to waive its rights as follows:

“A party who knows that any provision of this Act from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating the party’s objection to such non-compliance […] is taken to have waived the party’s right to object.”

The Court held that the Respondents had failed to object during the course of the arbitration to the fact that no statement of claim was filed and had therefore waived their right to do so: [106].

The next issue was that the Award in respect of Claim 1 related to both monetary and proprietary relief, and that the proprietary relief was in the form of a lien over 5 parcels of land; and some of the owners of that land were not parties to the Agreement: [140].

The Court held that this fact did not render the Agreement invalid ([143]) because those owners were not parties to the Agreement (they were not bound by it); and because the application for enforcement did not relate to the lien over the properties owned by the non-parties, but only to the amount owed by the Respondents: [146].

The next issue was the adequacy of the reasons given in the Award.  The Court, after noting that the reasons were not easy to understand, said that the reasons for Claim 1 set out the relevant argument; the principles on which they rely and the conclusions arrived at consequent on the facts: [155]. Accordingly, for Claim 1, the reasons were adequate.

However, the reasons for Claim 2 did not state any facts for the conclusion reached and no reasons were given for Claim 4 at all.  Accordingly, the Court refused to enforce the Award in respect of Claims 2 and 4[4] because the reasons were not adequate.

The final issue was whether the Claims 2 and 4 identified a sum certain.  The Award in respect of Claim 2 identified an amount to be paid, based on an agreement to pay $17,815.47 per month, but it did not say over how many months this payment was to calculated (that is, the total payable was uncertain).  The Award in respect of Claim 4 did not refer to a period of employment or a rate of pay.  Accordingly, the Court held that the reasons in the Award did not provide a means for calculating the amounts payable in respect of Claims 2 and 4, and this was another reason why the Award in respect of claims 2 and 4 was not enforceable.

The Court considered that severance of the Award in respect of Claim 1 did not result in any injustice to the Respondents and so it enforced the Award in respect of that claim only.  The amount to be enforced was $1,515,402.02 (plus interest).

 

[1] Claims 3 and 5 were not sought to be enforced.

[2] As required by s 1(1) of the CAA.

[3] Section 7 of the CAA requires there to be an “arbitration agreement”, and in circumstances where the “disputed matters” were not identified in writing, the respondent said there was no arbitration agreement.

[4] The only other claims apart from Claim 1 sought to be enforced were Claims 2 and 4.

Adam Rollnik Headshot 2019
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Adam Rollnik practises in commercial law

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