New South Wales Court of Appeal CITATION: Leveraged Equities Pty Ltd v Huxley [2010] NSWCA 179 HEARING DATE(S): 19 July 2010 JUDGMENT DATE: 19 July 2010 JUDGMENT OF: Allsop ACJ at 1; Macfarlan JA at 18; Handley AJA at 19 EX TEMPORE JUDGMENT DATE: 19 July 2010 2008/281448 (the application for leave to appeal and appeal from equity suit 5497/2008) 1. Application for leave to appeal granted. 2. The notice of appeal to be filed within 14 days. 3. Appeal allowed. 4. Judgment and orders made in the Equity Division on 21 September 2009 be set aside and in lieu therefore it be ordered as follows: (a) The appellant have leave to enforce the following arbitral awards made in its favour against each of the first to fifth respondents in the same manner as a judgment or order of the Court: (i) awards made in favour of the appellant against Gregory John Huxley in the amounts of $868,710.56 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 18 August 2008 and $15,472.56 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 13 October 2008; (ii) awards made in favour of the appellant against Prudence Anne Wilkinson in the amounts of $886,887.69 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 18 August 2008 and $19,713.66 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 13 October 2008; (iii) awards made in favour of the appellant against Jason Wilkinson in the amounts of $891,885.50 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 18 August 2008 and $15,615.46 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 13 October 2008; (iv) awards made in favour of the appellant against Jeffrey Douglas Dawson in the amounts of $367,292.62 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 18 August 2008 and $14,192.66 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 13 October 2008; and (v) awards made in favour of the appellant against Nicholas Edward Hamilton in the amounts of $84,774.89 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 18 August 2008 and $14,925.50 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 13 October 2008. DECISION: (b) Judgment in favour of the appellant against Gregory John Huxley in the amount of $1,026,144.78 plus interest from 19 July 2010. (c) Judgment in favour of the appellant against Prudence Anne Wilkinson in the amount of $1,052,096.16 plus interest from 19 July 2010. (d) Judgment in favour of the appellant against Jason Wilkinson in the amount of $1,053,211.03 plus interest from 19 July 2010. (e) Judgment in favour of the appellant against Jeffrey Douglas Dawson in the amount of $442,605.97 plus interest from 19 July 2010. (f) Judgment in favour of the appellant against Nicholas Edward Hamilton in the amount of $115,481.09 plus interest from 19 July 2010. 5. The respondents pay the appellant's costs of this application for leave to appeal and appeal and at first instance. 6. The respondents to have a certificate under the Suitors' Fund Act 1951 (NSW) if otherwise qualified for the costs of the appeal. 2008/279972 (the appeal from equity suit 4032/2008) 1. Appeal allowed. 2. Judgment and orders made in the Equity Division on 21 September 2009 be set aside and in lieu thereof dismiss the summons 4032/2008. 3. The respondents pay the appellant's costs of this appeal and at first instance. 4. The respondents to have a certificate under the Suitors' Fund Act if otherwise qualified for the costs of the appeal. CATCHWORDS: CONTRACT - construction - dispute resolution clause - ARBITRATION - enforcement of award - the phrase "first try to settle" did not express intention that award would not be final and binding LEGISLATION CITED: Commercial Arbitration Act 1984 (NSW) ss 10, 28, 33, 36, 38 Suitors' Fund Act 1951 (NSW) CATEGORY: Principal judgment Leveraged Equities Pty Ltd (Appellant) Gregory John Huxley (First Respondent) PARTIES: Prudence Anne Wilkinson (Second Respondent) Jason Wilkinson (Third Respondent) Jeffrey Douglas Dawson (Fourth Respondent) Nicholas Edward Hamilton (Fifth Respondent) FILE NUMBER(S): CA 2008/27992; 2008/281448 COUNSEL: Mr P Brereton SC, Ms B Tronson (Appellant) Mr G McDonald (Respondents) SOLICITORS: Allens Arthur Robinson (Appellant) Licardy & Company (Respondents) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): 2008/4032 2008/5497 LOWER COURT JUDICIAL OFFICER: Nicholas J LOWER COURT DATE OF DECISION: 21 September 2009 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2008/27992 2008/281448 ALLSOP ACJ MACFARLAN JA HANDLEY AJA Monday 19 July 2010 LEVERAGED EQUITIES PTY LTD v HUXLEY Judgment 1 ALLSOP ACJ: This is an application for leave to appeal and appeal in two matters heard in the Equity Division. 2 There is one issue only, the proper construction of a dispute resolution clause in a commercial agreement. 3 Individuals, some of whom were the plaintiffs in equity suit 4032/2008, and some of whom are the respondents to the application and appeal, were parties to a margin loan agreement with Leveraged Equities Pty Ltd, which was the plaintiff in equity suit 5497/2008, and is the applicant and appellant in this Court. 4 The agreement concerned the borrowing of funds to buy stocks and equities. By 2008, or thereabouts, the respondents were said by Leveraged Equities to owe it sums of money under the various agreements which they had signed, either as principals, or in one case, as guarantor. Clause 78 of the agreement was in the following terms: "All the people who are involved in this Agreement and the Mortgage agree that they will first try to settle any dispute they have by arbitration. The arbitration will occur in Sydney, in accordance with the laws of New South Wales. The Australian Commercial Disputes Centre Limited ( ACDC ) is to be used, and all parties must agree on the choice of arbitrator from the panel of choices the ACDC gives. If agreement is not reached, then after 10 Business Days the ACDC is to be asked to appoint the arbitrator." 5 After a failed attempt to stay the arbitrations brought by the respondents, arbitrations took place and awards were published making the eight respondents liable for significant sums of money. 6 In equity proceeding 5497/2008, Leveraged Equities sought to the enforce the awards under the Commercial Arbitration Act 1984 (NSW), s 33, which is in the following terms: "33 Enforcement of award (1) An award made under an arbitration agreement may, by leave of the Court, be enforced in the same manner as a judgment or order of the Court to the same effect, and where leave is so given, judgment may be entered in terms of the award. (2) (Repealed)" 7 The only ground brought forward in that application in the Equity Division by the respondents, was the same matter raised in the summons brought by the individuals. That summons sought a declaration that the arbitration, under clause 78, was not final and binding within the meaning of the Commercial Arbitration Act, s 28, which provision was in the following terms: "Unless a contrary intention is expressed in the arbitration agreement, the award made by the arbitrator or umpire shall, subject to this Act, be final and binding on the parties to the agreement." The sole ground of dispute in the Equity Division and on appeal is whether clause 78 of the agreement, and in particular the words and phrase "first try to settle", meant that there was a contrary intention expressed in the arbitration agreement for the purposes of s 28 such that the award would not be final and binding. 8 The primary judge in the Equity Division agreed with the arguments put forward by the respondents. In a short and succinct judgment the primary judge said the following at paragraphs 9 to 18: "[9] For the defendants it was submitted that, by use of the words 'first try to settle' in the first sentence of cl 78, the parties expressed their agreement that, in an attempt to resolve any dispute, they would first turn to arbitration as the process, or means of doing so. It was put that these words, in context, should be given their natural and ordinary meaning. So understood, the word 'try' would be ordinarily understood to mean 'to attempt to do or accomplish', or 'to make an attempt or effort' (Macquarie Dictionary, Fourth Edition). [10] It was put that the use of the word 'first' indicated that if the attempt through arbitration failed to settle the dispute, or to achieve an outcome acceptable to the parties, another step for the resolution of the dispute may be necessary. It was also put, in effect, that the omission of words that an award would be final and binding indicated that it was not the parties' intention that it should be so. [11] In other words, as I understood the submissions, it was put that cl 78 evinces a contrary intention within s 28, in that the language reflects the intention that the arbitration process is to be undertaken as the first step in the resolution of the dispute but, implicitly accepts that such attempt might fail, which tells strongly against an intention to agree that an award be final and binding. [12] The plaintiff accepted that the clause contemplates that events may take place after an arbitration, but consistent with the intention that the award be final and binding. The processes of judicial review under s 38 were referred to as examples. However, it was put that it would not be a reasonable construction of cl 78 to conclude that the arbitration process was not intended to be final. [13] It was put that it would be commercially absurd and unrealistic to conclude that if, having gone through an arbitration process, which failed to produce a result acceptable to the parties, the parties agreed that the aware may be disregarded and they be free to litigate the dispute afresh. [14] In my opinion the construction for which the defendants contended is correct. I accept, generally, their submissions. [15] It is plain that the agreement is a carefully drafted commercial instrument and its language may be taken to have been carefully chosen to record the intention for the parties. In my opinion the words 'first try to settle' unambiguously show that the outcome fo the arbitration process was not, under this agreement, intended to be final and binding. These words do not support the conclusion, objectively, that it was agreed that the arbitration process was to be, not only the first, but the only step in the process for the settlement of disputes. [16] Acceptance of the plaintiff's construction would render these words otiose and, effectively, meaningless and without work to do. As a matter of principle, it is the Court's task to endeavour to give effect to the language used by the parties and, in this case, it would be wrong not to do so. [17] In my opinion, it also accords with commercial commonsense that the parties would agree to attempt to settle a dispute through arbitration in the reasonable contemplation that the resulting award would be accepted by all concerned. However, it would not be inconsistent with the stated notion of settlement to be found in cl 78 that, if the award was not accepted, then it was left open to the parties to pursue other means for the determination of the dispute. [18] Accordingly, in my opinion, by cl 78, the agreement is to be taken as having expressed an intention not to accept the arbitrator's award as final and binding. Respectfully, I cannot agree with his Honour's reasoning. The words "first try to settle ... by arbitration" do not lead to the conclusion that the arbitration was not to be final and binding and was to be merely a voluntary and non-binding mechanism for informal agreement to be accepted or not, as the parties chose. 9 The parties agreed that they would arbitrate disputes under the laws in New South Wales. The words "first try to settle" are not otiose if the arbitration is final and binding. The parties have in fact not accepted the award and have not paid under it. A second step is necessary: to enforce the award as a judgment of the Court. 10 Further, for any number of reasons, the arbitration may fail. These reasons may be procedural. The possibility of failure of an arbitration is contemplated expressly by the Commercial Arbitration Act, s 36. It should be recognised, of course, that the Court has powers under s 10 of the Commercial Arbitration Act to fill a vacancy in the office of an arbitrator. Nevertheless, arbitrations can and do fail, and the phrase "first try to settle" can be seen to pick up this kind of eventuality. 11 Further, clause 78 is a clear agreement not to proceed to court litigation "first". This does not, however, imply a freedom to litigate in court afterwards. Arbitration was to be undertaken. It is unlikely that the parties were requiring a mechanism of dispute resolution that required them to expend money in an mechanism which would be voluntary only. 12 Any such interpretation would require the parties to expend possibly large amounts of money in an arbitration to be duplicated in court proceedings if there was an unwillingness of one side to pay, or an unwillingness of the other side to accept the view that money did not have to be paid, or in some lesser sum than was claimed. If one views this at the time of contracting, it could potentially lead to oppressive results to investors who were agreeing to contract with Leveraged Equities. 13 A similar argument was put on appeal, concentrating on the word "settle". It was said that the word did not mean resolve, but really meant something in the nature of helping the parties reach a consensus. I do not think that this is the right meaning to give to the word "settle". Its natural and ordinary meaning is "to resolve". For reasons I have given, there is work to do in the words "first try", and I think the word "settle" means resolved. 14 For these reasons I do not agree with the approach of the learned primary judge and I respectfully disagree with the orders that he made. 15 No other reason was shown, or was relied on below or in this Court, why Leveraged Equities should not have its relief under s 33. In particular, there has been no attack on the arbitration award under s 38. 16 The orders that I would make are as follows: 2008/281448 (the application for leave to appeal and appeal from equity suit 5497/2008) 1. Application for leave to appeal granted. 2. The notice of appeal to be filed within 14 days. 3. Appeal allowed. 4. Judgment and orders made in the Equity Division on 21 September 2009 be set aside and in lieu therefore it be ordered as follows: (a) The appellant have leave to enforce the following arbitral awards made in its favour against each of the first to fifth respondents in the same manner as a judgment or order of the Court: (i) awards made in favour of the appellant against Gregory John Huxley in the amounts of $868,710.56 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 18 August 2008 and $15,472.56 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 13 October 2008; (ii) awards made in favour of the appellant against Prudence Anne Wilkinson in the amounts of $886,887.69 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 18 August 2008 and $19,713.66 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 13 October 2008; (iii) awards made in favour of the appellant against Jason Wilkinson in the amounts of $891,885.50 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 18 August 2008 and $15,615.46 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 13 October 2008; (iv) awards made in favour of the appellant against Jeffrey Douglas Dawson in the amounts of $367,292.62 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 18 August 2008 and $14,192.66 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 13 October 2008; and (v) awards made in favour of the appellant against Nicholas Edward Hamilton in the amounts of $84,774.89 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 18 August 2008 and $14,925.50 plus interest at the rate payable on a judgment debt of the Supreme Court of New South Wales from 13 October 2008. (b) Judgment in favour of the appellant against Gregory John Huxley in the amount of $1,026,144.78 plus interest from 19 July 2010. (c) Judgment in favour of the appellant against Prudence Anne Wilkinson in the amount of $1,052,096.16 plus interest from 19 July 2010. (d) Judgment in favour of the appellant against Jason Wilkinson in the amount of $1,053,211.03 plus interest from 19 July 2010. (e) Judgment in favour of the appellant against Jeffrey Douglas Dawson in the amount of $442,605.97 plus interest from 19 July 2010. (f) Judgment in favour of the appellant against Nicholas Edward Hamilton in the amount of $115,481.09 plus interest from 19 July 2010. 5. The respondents pay the appellant's costs of this application for leave to appeal and appeal and at first instance. 6. The respondents to have a certificate under the Suitors' Fund Act 1951 (NSW) if otherwise qualified for the costs of the appeal. 2008/279972 (the appeal from equity suit 4032/2008) 1. Appeal allowed. 2. Judgment and orders made in the Equity Division on 21 September 2009 be set aside and in lieu thereof dismiss the summons 4032/2008. 3. The respondents pay the appellant's costs of this appeal and at first instance. 4. The respondents to have a certificate under the Suitors' Fund Act if otherwise qualified for the costs of the appeal. 17 In both matters the respondents should have a certificate under the Suitors' Fund, if otherwise appropriate, but they are the orders that I would make. 18 MACFARLAN JA: I agree. 19 HANDLEY AJA: I also agree. I will just add a short comment, that cl 78 in the margin lending agreements which provided that the parties "will first try to settle any dispute they have by arbitration" did not provide for an arbitration that would be a mere dress rehearsal before litigation. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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