Supreme Court New South Wales Medium Neutral Citation: Ringwood Agricultural Company Pty Ltd -v- Grain Link (NSW) Pty Limited [2013] NSWSC 191 Hearing dates: 21 February 2013 Decision date: 21 February 2013 Jurisdiction: Equity Division - Commercial Arbitration List Before: Hammerschlag J Decision: Proceedings dismissed. Plaintiff to pay defendant's costs of the proceedings Catchwords: COMMERCIAL ARBITRATION - Commercial Arbitration Act 1984 (NSW) ss 18, 34(2)(a)(iv) - claim for an order setting aside an arbitral award on the grounds that the arbitral procedure was not in accordance with the agreement and was not in accordance with the Act because the tribunal declined to give it an oral hearing which it claimed it was entitled to require and that it was not given a reasonable opportunity of presenting its case Legislation Cited: Commercial Arbitration Act 2010 (NSW) Cases Cited: Grand Pacific Holdings Limited v Pacific China Holdings Limited (in Liq) (No.1) [2012] 4 HKLRD 1 Stead v State Government Insurance Commission (1986) 161 CLR 141 Texts Cited: Grain Trade Australia (GTA) Dispute Resolution Rules Category: Principal judgment Parties: Ringwood Agricultural Company Pty Ltd - Plaintiff Grain Link (NSW) Pty Ltd - Defendant Representation: Counsel: J.S. Van Aalst - Plaintiff D.A.McLure with B.D. Phillips - Defendant Solicitors: Cater & Blumer - Plaintiff O'Halloran Deal Lawyers - Defendant File Number(s): 2012/382958 Judgment INTRODUCTION 1HIS HONOUR: These are proceedings to set aside an arbitral award ("the Final Award") published by three arbitrators ("the tribunal") on 8 October 2012 awarding the defendant damages in the amount of $359,413.60. They are brought pursuant to s 34(2)(a)(iv) of the Commercial Arbitration Act 2010 (NSW) ("the Act"), which provides that: (2) An arbitral award may be set aside by the Court only if: (a) the party making the application furnishes proof that: (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Act 2The Final Award was preceded by an interim award, described by the tribunal as a Partial Award, published on 20 June 2012, in which the tribunal ruled that they had jurisdiction and that the plaintiff was liable to the defendant for damages for breach of contract. The tribunal did not determine quantum in the Partial Award but in it directed the parties to make submissions in relation to quantum. 3On 17 August 2012 the tribunal published procedural orders ("the Procedural Orders") to facilitate that process. 4Sections 24(1) and (2) of the Act provide: (1) Subject to any contrary agreement by the parties, the arbitral tribunal is to decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings are to be conducted on the basis of documents and other materials. (2) However, unless the parties have agreed that no hearings are to be held, the arbitral tribunal must hold such hearings at an appropriate stage of the proceedings, if so requested by a party. 5Section 18 of the Act provides: The parties must be treated with equality and each party must be given a reasonable opportunity of presenting the party's case. 6The plaintiff's complaint is that in breach of ss 18 and 24(2) the tribunal failed to hold an oral hearing with respect to the determination of quantum, despite the plaintiff's request to do so. 7References to sections are references to sections of the Act. FACTUAL BACKGROUND The initial dispute 8On 28 September 2011 the defendant (as claimant) initiated arbitration proceedings against the plaintiff (as respondent) to resolve a dispute arising out of a written contract between them dated 24 July 2010 for the supply by the plaintiff, as seller, to the defendant, as buyer, of 6,000 metric tonnes of Australian wheat between 1 November and 31 December 2010 at Coleambally or Carrathool, at seller's option. The plaintiff asserted that the place for delivery had been changed by agreement to a bunker at Kerarbury, to which it appears the plaintiff delivered 2,544.10 metric tonnes of grain. 9The parties had apparently agreed a protocol for delivery at Kerarbury which required the defendant to have present at deliveries an operative who was to monitor quantity and quality. The parties fell into dispute about whether the protocol had been breached by the plaintiff and the defendant declined to take any further deliveries there. 10The plaintiff apparently took the position that the place for delivery under the contract had been changed to Kerarbury and asserted that the defendant's failure to accept delivery there was a breach of contract. The defendant took the position that the plaintiff's failure to deliver at Coleambally or Carrathool, at its option, was a breach and repudiation of the contract. 11The defendant asserted that the plaintiff had failed to deliver 3,455.90 metric tonnes and, notwithstanding that 2,544.10 metric tonnes had been delivered, claimed a 'washout value' of $104.00 per tonne as representing the fair market price on the full 6,000 metric tonnes totalling $624,000.00. The GTA Rules and the Arbitration 12The contract expressly incorporated the Grain Trade Australia ("GTA") Dispute Resolution Rules ("the GTA Rules"), which contemplate different forms of arbitration including fast track arbitration and full arbitration. The GTA provides this arbitration service and has a list of accredited arbitrators. The GTA Rules include the following: Article 20: Conduct of Proceedings 1. All communications between the Tribunal and the parties shall be made through GTA and shall be in writing (see Article 3). All communications between a party and GTA must be copied to all other parties. Any communications sent by GTA will be copied to all parties and the appointed Arbitrators. 2. Unless otherwise agreed by the parties, the Tribunal shall have the widest discretion to discharge its duties allowed under the applicable laws and at all times the parties shall do everything necessary for the fair, efficient and expeditious conduct of the arbitration. 3. Unless otherwise agreed by the parties, following notice of the constitution of the Tribunal, submissions will be exchanged in accordance with the following timetable and Article 20.4: a. Claimant to submit Points of Claim within 21 days of said notice; b. Respondent to submit Points of Defence within 21 days of receipt of Points of Claim; c. Claimant to submit any Points of Reply within 14 days of receipt of Points of Defence; d. Respondent to lodge any Points of Reply within 14 days of receipt of the Claimant's Points of Reply. 4. Each party shall provide 7 copies of each submission to GTA. 5. GTA will distribute each submission and annexed documents within 5 business days of receipt, to each party and the Arbitrators. 6. No party is obliged to lodge a Reply. If a party decides not to lodge a Reply it must notify GTA within the above time limit. 7. If the Arbitrator decides that further information or documentation is required to reasonably reach a decision, the Arbitrator may request further submissions or documentation from either or both parties, giving each party a reasonable opportunity to respond. 8. The Chair is authorised to issue interlocutory directions and deal with preliminary issues for the efficient conduct of the arbitration. Article 27: Oral Hearing 1. A hearing may only be held upon application of either party or by joint application by the parties, unless the parties have agreed to arbitration on documents alone. The request shall be made on or before the submission of the Respondent's Points of Reply. The last reference to Respondent's should plainly be to Claimant's. 13In November 2011 the GTA proffered to the parties for signature a contract to provide services in the form of a full arbitration. The plaintiff declined to sign the agreement and informed the GTA by letter dated 5 December 2011 that it would not sign as it was its position that the GTA had no jurisdiction with respect to the dispute. 14References to Articles are references to the GTA Rules. 15By letter dated 15 December 2011 the GTA advised the parties that the tribunal would consist of Mr John Orr (nominated by the defendant), Mr Stephen Howells (nominated by the GTA in the absence of a nomination by the plaintiff), and Mr Leo Delahunty (nominated by the GTA). 16On 20 December 2011 the plaintiff confirmed its position that the GTA had no jurisdiction to determine the dispute and asserted that the dispute resolution rules did not bind it. 17On 23 April 2012 the defendant lodged claimant's Points of Claim pursuant to Article 20.3(a) of the GTA Rules. The plaintiff did not participate in the arbitration. Hence, no further 'submissions' (in the form of Points of Defence as contemplated in Article 20) were provided by the plaintiff nor were any Points of Reply from the defendant. The Partial Award 18In the Partial Award the tribunal determined that the Kerarbury variation had not been established and that there was no evidence that Kerarbury was in substitution of the delivery sites expressed under the contract. Further, they found that on the undisputed terms of the contract document itself, the plaintiff had an ongoing obligation to deliver against the contract at Coleambally or Carrathool and that in failing to deliver the contractual quantity of grain against the contract by 31 December 2010, the plaintiff was in default. The tribunal then proceeded to deal with quantum in the following terms: 4. Quantum While we have found unanimously that the Respondent is in default under the Contract and liable for damages, we do not feel at this stage that we can make an award of damages until we have heard further from the parties. We note that the Claimant claims damages based on the entire Contract tonnage of 6,000mt. However for the reasons we have given above, it appear [sic] to us that the Respondent has properly delivered 2,544.1mt under the Contract so damages should only be awarded on the balance of 3455.9mt. That said, we do not know what has become of the 2544.1mt at Kerarbury and we expect to hear from parties in respect of this. We further note that the Claimant claims a washout value of $104mt, though there is no explanation of how this figure has been arrived at. We would like the parties to address us specifically on the calculation of damages. We therefore make our Partial Award as follows; 1. For the reasons given above we find that this Tribunal is properly constituted and has jurisdiction to determine the dispute arising between the parties. 2. For the reasons given above we find that the Respondent is in default of the Contract and liable to compensate the Claimant. 3. We direct the partes to provide submissions in relation to quantum of damages within 14 days after which we shall make our Final Award which will also deal with interest and costs. 19On 20 June 2012 the tribunal published the Partial Award. 20A fairly lengthy exchange of correspondence between the parties followed which, although it will contribute to the prolixity of this judgment, is necessary to set out. Correspondence leading up to the Procedural Orders 21On 5 July 2012 the plaintiff's solicitors wrote to the Chairman of the tribunal, Mr Delahunty, in the following terms: We refer to your letter of 21 June which we received together with a copy of the partial award of the Tribunal which is dated June 2012 which our client has read and considered, in particular the issues concerning quantum. It seems apparent from the partial award the Tribunal only had before it for the purpose of that award the points of claim with the attached communications between the respective parties. It does not appear to have before it any sworn evidence on behalf of the applicant. The points of claim (even being dealt with ex parte) do not constitute evidence of the allegations in it, particularly as it is not verified. Furthermore, the only material which had evidentiary value upon which the Tribunal had was the purchase contract (annexure "A"), which is silent as to the Kerarbury collection site which invited speculation as to what were the terms and conditions which the parties agreed upon other than the two sites referred to. There is nothing in that document which would have entitled the Tribunal to draw any inferences from which it may have been concluded as to whether there was either a variation of the purchase contract or a separate independent contract, and if there was an independent contract was it subject to the arbitration clause. The only other material we suggest that was capable of being admitted as evidence was the correspondence between the parties in annexures "B" to "G" which are merely argumentative. Neither party made any useful admissions, they merely articulated their respective and different positions. The balance of the correspondence annexed to the points of claim were between the legal firms attempting to arrive at a settlement which means they are covered by legal professional privilege and ought not to have been included in the points of claim. We accept that the Tribunal may not necessarily agree with the above propositions but we have set them out to reserve our client's right to challenge the final award, should the need arise. Without prejudice to the above, we are instructed by our client to accept the Tribunal's invitation to participate in the balance of the matter concerning damages subject to the following: 1. The GTA rules governing a Full Arbitration be applied to the balance of the proceedings; 2. The following directions be made limited to the issue of damages: (a) The claimant submit to the Tribunal and serve its points of claim and any affidavits on which it shall rely by [such date as the Tribunal considers reasonable]; (b) The respondent submits and serve its points of defence and any affidavits on which it relies by [such date as the Tribunal considers reasonable]; (c) the parties provide to the Tribunal an agreed bundle of documents for each member by [such date as the Tribunal considers reasonable]; (d) That there be a hearing before the Tribunal limited to the issue of damages on such date as is convenient to the Tribunal and the members. We look forward to hearing from the Tribunal and confirm that we have sent a copy of this letter to O'Halloran Deal, solicitors for the applicant. 22By letter dated 12 July 2012 the defendant's solicitors responded to the 5 July 2012 letter as follows: We refer to your letter dated 5 July 2012 addressed to the Grain Trade Australia Tribunal ("GTA Tribunal") Chairman, Mr Leo Delahunty. The purpose of this letter is to disclose the Claimant's position to the Respondent and to the GTA Tribunal. We confirm, however, that the Respondent, by implication, accepts the jurisdiction of the GTA Tribunal and wishes to be heard in relation to the balance of the matter concerning damages. Before we address the appropriateness of the proposed timetable, we wish to respond to the four aspects in respect of which the Respondent appears to take issue with the Partial Award. These are (to paraphrase): (1) The GTA Tribunal considered inadmissible evidence (2) The GTA Tribunal somehow erred in finding that the parties had agreed to vary the Purchase Contract 12020 or that there was a separate contract because there was nothing on the face of the Purchase Contract that could support such inferences; (3) The correspondence between the parties was merely argumentative and ought not to have been considered by the GTA Tribunal; and (4) Some of the correspondence between the parties' legal representatives was covered by legal professional privilege and ought not to have been considered by the GTA Tribunal. The Claimant's position is that all of these issues are irrelevant and do not affect the validity of the Partial Award. The GTA Tribunal is entitled to determine the method by which evidence is received. It chose to accept evidence by way of unverified Points of Claim with supporting documents annexed. This is the standard method of receiving evidence in GTA Arbitrations. The Respondent's argument that there was nothing on the face of the Purchase Contract to support an inference that same was varied or that there existed a separate contract presupposes that there was no other admissible evidence before the GTA Tribunal as to the parties' intentions. That supposition is clearly wrong for the reason ventilated in the preceding paragraph. The parties' respective positions are clearly articulated in the correspondence between the parties and their legal representatives as annexed to the Points of Claim (Annexures B to G). Labelling them as merely argumentative does not detract from their import as effective submissions as to the parties' respective contemporaneous positions. The concern expressed by the Respondent about the inclusion of communications covered by legal professional privilege is unfounded. There were no documents included in the submissions which were the subject of legal professional privilege. Correspondence made on a "without prejudice" basis was included, however, those parts of the correspondence which constituted the without prejudice communication were redacted. We note that labelling an entire communication "without prejudice" does not render the entire communication inadmissible. We iterate that the GTA Tribunal gave the Respondent the opportunity to respond to the Points of Claim and documents annexed thereto; but the Respondent expressly rejected the GTA Tribunal's jurisdiction to determine the matter by letter dated 21 May 2012 and chose not to participate. If the Respondent did not agree with the admissibility, or otherwise, of the evidence and submissions made by the Claimant, then it ought to have taken issue at that point. The Claimant does not consider the Respondent's proposed timetable appropriate. The GTA Tribunal has asked for clarification on how damages were calculated and has asked the Claimant to indicate whether it took delivery of the ~2500MT of grain deposited at the Kerarbury site. The attached submission to the GTA Tribunal addresses those two discreet issues. In relation to the first issue, there was evidence before the Tribunal by way of a contract confirmation between the Claimant and Woodside Rural Brokers as to the fair market price of the wheat at the relevant date included as an annexure to the Points of Claim, but which required clarification as to deduction of freight costs etc. In relation to the second issue, the Claimant's position is that it has not received any benefit from the ~2500MT grain deposited at Kerarbury. If the Respondent disagrees that the Woodside Rural Brokers contract confirmation is correct as to evidence of fair market value, then the Claimant has no objection to the Respondent producing alternative evidence as to the market position on the day after termination. If the Respondent denies that the Claimant has not received the benefit of the ~2500MT of grain deposited at Kerarbury, then the Respondent may make submissions to that effect. 23On 29 July 2012 the GTA sent an email to the parties in the following terms: Parties, The Tribunal will convene and reach a final determination based on the attached correspondence. The attached correspondence referred to was apparently the two letters referred to earlier. 24On 31 July 2012 the plaintiff's solicitors wrote to the Chairman of the tribunal as follows: We refer to the above matter. We acknowledge receipt of the electronic mail communication from the Tribunal received by our offices on 29 July 2012, which came to our attention on 30 July 2012. We note that it has been indicated that the Tribunal will convene to reach a "final" determination based on the following materials; 1. Letter from Cater & Blumer dated 5 July 2012; 2. Letter from O'Halloran Deal dated 12 July 2012. We assume that this means that the issues are to be determined to finality by the Tribunal, based on the items listed above. In this respect, we respectfully note that ss.24 of the Commercial Arbitration Act 2010 (NSW) provides as follows; 24 Hearings and written proceedings (1) Subject to any contrary agreement by the parties, the arbitral tribunal is to decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings are to be conducted on the basis of documents and other materials. (2) However, unless the parties have agreed that no hearings are to be held, the arbitral tribunal must hold such hearings at an appropriate stage of the proceedings, if so requested by a party. (3) The parties must be given sufficient advance notice of any hearing and of any meeting of the arbitral tribunal for the purposes of inspection of goods, other property or documents. (4) All statements, documents or other information supplied to the arbitral tribunal by one party must be communicated to the other party. (5) Also, any expert report or evidentiary document on which the arbitral tribunal may rely in making its decision must be communicated to the parties. We make specific reference to ss.24(2), which we respectfully submit requires a hearing to be held in any proceedings governed by the Act in the event that a party requests a hearing. Our position is that our correspondence of 5 July 2012 is one such request, and accordingly we submit that a Hearing ought therefore be held in the circumstances, limited to the outstanding issue of quantum, with a determination made in the meantime as to a timetable for the filing and service of evidence upon which the parties seek to rely at the Hearing. We look forward to hearing from the Tribunal in due course, and confirm that we have forwarded a copy of this correspondence to the solicitors for the Applicant. 25On 3 August 2012 the defendant's solicitors responded as follows: We refer to your letter of 31 July 2012, copied to the Tribunal. We agree with your interpretation of the email from the Tribunal received 29 July 2012, advising that the Tribunal will now proceed to final determination. However, we must respectfully disagree with your reference to section 24(2) of the Commercial Arbitration Act 2010 (NSW) as grounds to compel the Tribunal to conduct an oral hearing on the issue of quantum. Article 13.1 of the applicable GTA Dispute Resolution Rules provides that: "...the provisions of the Commercial Arbitration Act 1984 (NSW) and any statutory amendments in force, shall apply, save insofar as such provisions are expressly modified by, or inconsistent with these Rules." Article 27.1 of the Dispute Resolution Rules provides: "A hearing may only be held upon application of either party or by joint application by the parties, unless the parties have agreed to arbitration on documents alone. The request shall be made on or before the submission of the Respondent's Points of Reply." Your client chose not to participate in the Arbitration and did not submit Points of Reply. In our view, therefore, your client's current request for a hearing on the issue of quantum is null and void. 26On 3 August 2012 an email was sent from the tribunal to the parties' solicitors: In the event that a hearing is granted, could you please indicate the likely time required for such a hearing. Attached is an estimate for an oral hearing. 27On 14 August 2012 the plaintiff's solicitors wrote to the Chairman of the tribunal as follows: We refer to the telephone conference between Tom Gallagher of this office, Ms Mews for the Claimant and your Geoff Farnsworth, concerning Ringwood's position in respect of the outstanding issue of "quantum of damages" set out in paragraph 4 of the "Partial Award", and in particular the direction in paragraph 3 for the parties to provide submissions in relation to quantum of damages. The summary of Ringwood's position in relation to damages as outlined below is not intended to be complete or final but it is intended to demonstrate to the Tribunal that there should be a hearing on the question of damages. In the last sentence in paragraph 4 of the Partial Award, the Tribunal observed (in effect) that the Grain Link did not adduce evidence concerning the delivery of 2544.1 MT of the wheat (the quantity is referred to as 2544.9 MT by Grain Link, see paragraph 32 in its solicitors letter to this firm dated 25 January 2011). In paragraph 18 of its Points of Claim, Grain Link alleges that the "received no benefit from the bargain" and it has pleaded its damages claim as the "wash out" value of the contract asserted as being $624,000. Our client seeks to be heard on the issue of damages, and for that reason we are instructed to request a Full Arbitration to enable both parties to address the issues of quantum of damages and mitigation. On our instructions, there is a factual and legal contest which will require both oral and documentary evidence in support of each of the competing claims and for that reason our client has requested to have a Full Arbitration pursuant to article 17 of the GTA Dispute Resolution Rules. The principle issue for determination will be the competing claims by the parties as to which of them failed to mitigate and what consequence flowed from that failure. We anticipate that Ringwood shall adduce both oral and documentary evidence to demonstrate circumstances surrounding the delivery of the 2544.9 MT at the Kerarbury site, and about refusal and failure of Grain Link to accept and pay for that wheat. It shall also be part of Ringwood's case on damages that it was prior to the termination of the varied contract that the above issue of failure to mitigate arose. Furthermore, it will be our client's case that it performed its part of the Kerarbury contract at the time when the 2544.9 MT was delivered to the bunker under the supervision of the agent of Grain Link (that is, Grain Link Storage Pty Limited). This is conceded in paragraphs 32 and 33 of the letter from Grain Link's solicitor to this firm dated 25 January 2011. Ringwood shall contend (among other things) that it was the conduct of Grain Link by failing to pay for that delivery that title to that wheat did not pass to it. That is, it was not lawfully entitled to possession of that wheat unless and until it was paid for by Grain Link. That conduct will give rise to the legal contention that by failing to accept and pay for that delivery, Grain Link thereby failed to mitigate, contrary to its assertion in its points of claim. Ringwood does not concede that Grain Link is entitled to any damages in respect of the balance of the proposed 3455.1 MT which is referred to as not being delivered. The issue for determination in effect will be that prior to the termination of the Kerarbury contract, Ringwood was ready willing and able to perform its part of the contract, but the cause of the cessation of delivery was caught up with the refusal and failure of Grain Link to pay for the 2544.9 MT already delivered to the bunker. Assuming that as the evidence unfolds Ringwood satisfies the Tribunal that it was the conduct of Grain Link which caused the impasse between the parties, then our client will contend that the failure to pay by Grain Link constituted a failure by it to mitigate, which had a repercussion on the performance of the balance of the contract and its entitlement to damages. We request that due process be followed to avoid the situation where there could be a denial of natural justice in the event the Tribunal rejects our client's application for a hearing and proceeds to determine quantum in the absence of the parties, notwithstanding the evidentiary uncertainties which are acknowledged and referred to in paragraph 4 of the Partial Award. Should this application for a hearing on damages not be accepted, would you please inform us (as soon as possible), as to the procedure which the Tribunal intends to adopt to determine the issue of damages, so that we can advise our client as to the steps it may take to protect its interests, which may require an urgent application to the Supreme Court. 28On 16 August 2012 the defendant's solicitors wrote to the tribunal as follows: We refer to the above and to the Respondent's solicitors letter to you dated 14 August 2012. Matters are raised in that letter, apparently by way of submission, which were not raised in the telephone conference between the parties and Mr Farnsworth on 13 August 2012. We wish to be heard in relation to same. We are concerned that the letter may obfuscate the relevant issues now to be considered by the Tribunal. The Tribunal has asked for submissions on "quantum of damages" limited to clarification of issues raised in Part 4 of the Partial Award. The Respondent has taken that as an invitation to make submissions on "damages" generally; and more specifically whether damages should be awarded at all, which reopens the heart of the case. The Respondent submits that damages should not be awarded because of the Claimant's conduct and it expects a full oral hearing to be conducted to allow that question to be determined. In other words, the Respondent wants to restart the arbitration process from the beginning. That is not what we believe the Tribunal has called for. The call for clarification of quantum is very discrete and has been answered by the Claimant in a very short submission. The Respondent's use of the term "mitigation" is confusing and, with respect, has no place in this arbitration. The calculation of damages is determined by clause 17.5 of the Trade Rules. This Rule stipulates that: "In the case of Default, the party in default must pay within 7 business days of demand by the non defaulting party, by way of liquidated damages, an amount equal to the undelivered contract quantity of the commodity multiplied by the difference between the contract price and the Fair Market Value." To be clear, there is no obligation to mitigate where there is an agreed liquidated damages clause. The Respondent contends that the claimant failed to accept and pay for the delivery of grain and therefore "failed to mitigate" its loss. With all due respect, that is utter nonsense and would, we suspect, never be seriously ventilated in a Court (at least in Australia). In reality this is an attempt to reopen the case from the beginning, not an application to have a full hearing on the issue of damages, and should be framed as such. If the Respondent wishes to apply to reopen the case, then it should make proper application and not confuse the issues by employing fabianesque submissions. It should explain why it chose not to take part in the arbitration on the basis of lack of jurisdiction. It should explain why it then chose not to have the arbitration stayed or dispute transferred to a court of competent jurisdiction. It should also explain why it did not avail itself of a request for oral hearing when it chose not to take steps to have the arbitration stayed or dispute transferred to a court of competent jurisdiction. The Claimant of course would want to make submissions in opposition to any such application. The Tribunal should not be bullied into reopening the substantive case via the issue of quantum of damages by threats of denial of natural justice and evidentiary inconsistencies (which have been addressed in previous correspondence from this firm). The Tribunal has afforded the Respondent every opportunity to be heard on the substantive issues of the matter, but the Respondent has chosen not to avail itself of those opportunities. The Tribunal has sought clarification of two simple and discrete issues in respect of which brief submissions have been made by the Claimant. The Respondent has the opportunity to make submissions in relation to those issues. That should be the end of it. The Procedural Orders 29On 17 August 2012 the tribunal published Procedural Orders. It is necessary to set them out in full. IN THE MATTER OF THE COMMERCIAL ARBITRATION ACT 2010 (NSW) AND IN THE MATTER OF AN ARBITRATION UNDER THE RULES OF GRAIN TRADE AUSTRALIA LTD GTA Arbitration No. 171 Grain Link (NSW) Pty Ltd ACN 094 464 516 Claimant and Ringwood Agricultural Company Pty Ltd ACN 096 921 667 Respondent Procedural Orders 1. Introduction These are Procedural Orders made in an arbitration conducted under the Grain Trade Australia Ltd ("GTA") Dispute Resolution Rules ("Rules"). Our first Partial Award was published to the parties by email on XXYY 2012. 2. Commentary As mentioned in our Partial Award, the Respondent had chosen not to participate in the arbitration, that is until it was provided with a copy of our Partial Award. At that stage, its solicitors, Cater & Blumer, wrote to GTA and advised that their client wished to be heard in relation to the outstanding matters, and requested an oral hearing. At the same time the Respondent was critical of the fact that we had proceeded to publish our Partial Award based only on the submissions tendered by the Claimant. It is worth reminding the parties that; 1. The Tribunal is authorised to make its own determination in relation to evidence before it (section 19(3) of the Commercial Arbitration Act 2010 (NSW)("CAA")); 2. Where a party fails to appear the Tribunal may continue the proceedings and make the award on the evidence before it (section 25(c) of the CAA); 3. Natural justice and procedural fairness was afforded to the Respondent who for reasons it chose not to share with the Tribunal, elected not to participate. The wisdom (or otherwise) of that decision is perhaps now reflected in its change of position and desire to be heard; 4. In those circumstances, the Tribunal was perfectly within its rights to proceed on the material before it (keeping the Respondent fully informed of the proceedings); 5. The Paramount object of the Commercial Arbitration Act is to "facilitate the fair and final resolution of commercial disputes by impartial arbitral Tribunals without unnecessary delay or expense" by "providing arbitration procedures that enable commercial disputes to be resolved in a cost effective manner, informally and quickly"; 6. Section 24B of the Commercial Arbitration Act places a general duty on the parties to arbitration "to do all things necessary for the proper and expeditious conduct of the arbitral proceedings" including to "comply without undue delay with any order or direction of the arbitral Tribunal with respect to any procedural, evidentiary or other matter" and "not wilfully do or cause to be done any act to delay or prevent an award being made"; 7. To the extent that the Respondent's conduct to date has protracted this dispute and caused additional costs to be incurred, there must be a real question as to whether that conduct is in breach of the "Paramount object", and section 24B. The Respondent's conduct has placed us in a very difficult position, given that we need to respect and balance the right of the Respondent on the one hand to be heard, and the Claimant on the other hand to a resolution without unnecessary delay or expense. We have reached the view that, particularly in light of the significant amount in issue, that both parties should now be heard in relation to quantum, as we indicated in our Partial Award. We are also of the view that it is important that our final determination be soundly based on submissions from both parties, not just one. It remains to be seen whether an oral hearing is required. This may be a matter for further submissions, in due course. 3. Procedural Orders We make the following directions; 1. That on or before Monday 3 September 2012 the Respondent submit to GTA any submissions or evidence on which it wishes to rely in relation to the damages which should be awarded to the Claimant; 2. On or before Monday 24 September 2012 the Claimant submit to GTA any submissions or evidence on which it wishes to rely, responding to the submissions of the Respondent. Given that the Claimant's submissions will only be responsive to the Respondent's submissions we do not anticipate the Respondent needing to reply. Nevertheless, if the Respondent feels that a reply is necessary and/or seeks an oral hearing it can make that application in due course. Correspondence leading up to the Final Award 30On 21 August 2012 the plaintiff's solicitors wrote to the Chairman of the tribunal as follows: We have received a copy of the letter from O'Halloran Deal dated 16 August to your organisation and take issue with the following matters which it relies upon: 1. Our client is not making an application to re-open the arbitration; it accepted the invitation of the Tribunal to submit to its jurisdiction on the issue of quantum of damages, which it has done; 2. Rule 17.5 does not exclude the rules concerning mitigation of damage; in this case neither party has conceded default to which rules 17.1 and 17.2 relate, which is a prerequisite for them to apply. It is clearly arguable that the rules in 17.0 may have no application in the circumstances of this matter. 3. As to the issue of mitigation, it is clear from the response by the solicitor for Grain Link that there are issues of fact and law for the Tribunal to consider and determine on the issue of quantum. There is ample Australian and UK legal authority for the proposition that a failure to mitigate by a plaintiff in tort or contract, can avoid or limit the consequence a breach whether it is a liquidated or unliquidated amount. We do not intend to respond to the rhetoric on page 2 of O'Halloran's letter because it would not be helpful to the Tribunal to do so. Finally, we adhere to the contents of our letter dated 14 August 2012. 31On 3 September 2012 the plaintiff's solicitors wrote to the Chairman of the tribunal as follows: We refer to the above matter and hereby enclose the following, as per the most recent Orders made by the Tribunal; Submissions: 1. Outline of Preliminary Submissions, Cater & Blumer, dated 3 September 2012; 2. Outline of Submissions on Damages, Cater & Blumer, dated 3 September 2012; 3. Points of Defence on Damages, Cater & Blumer, dated 3 September 2012. Evidence: 4. Statement of Gerard Toscan, dated 3 September 2012; 5. Statement of Justin Walsh, dated 3 September 2012; 6. Statement of Larry Walsh, dated 3 September 2012. We confirm that a copy of same has also been forwarded to O'Halloran Deal, Solicitors for the Applicant. Please don't hesitate to telephone our Tom Gallagher on 02 69667700, if required. 32On 11 September 2012 the defendant's solicitors wrote to the tribunal as follows: We refer to the above and to our previous correspondence upon this matter. Our interpretation of the Procedural Directions issued by the Tribunal on 22 August 2012 was that the parties were to make submissions regarding the two following points raised on page 5 of the Partial Award issued 21 June 2012 being: 1. The calculation of the washout value; and 2. The Claimant's understanding of the status of the tonnage "delivered" to the Kerarbury bunker site. We enclose for your assistance, copy of our earlier submissions provided in response to the above two points. We reject the Respondent's apparent interpretation of the Procedural Directions; namely that the points for clarification (above) permit the Respondent to make submissions to effectively challenge findings of fact made in the Partial Award concerning what the terms of the Contract were and which party was at fault. If the Tribunal agrees with our interpretation of the Procedural Directions, then the Claimant's further submissions will be limited to the enclosed submissions (as previously submitted). If the Tribunal disagrees with our interpretation of the Procedural Directions, the Claimant asks that it be given the opportunity to respond in full to the matters raised by the Respondent in its submissions. We note that there are still approximately two weeks left for the Claimant to file its submissions in reply. The Final Award 33On 8 October 2012 the tribunal published its Final Award. It is necessary to set it out in full. IN THE MATTER OF THE COMMERCIAL ARBITRATION ACT 2010 (NSW) AND IN THE MATTER OF AN ARBITRATION UNDER THE RULES OF GRAIN TRADE AUSTRALIA LTD GTA Arbitration No. 171 Grain Link (NSW) Pty Ltd ACN 094 464 516 Claimant and Ringwood Agricultural Company Pty Ltd ACN 096 921 667 Respondent Final Award 1. Introduction This reference has some history and accordingly warrants some introductory comments. It concerns an alleged default under a contract between the parties No. 12020 dated 23 July 2010 ("the Contract") under which the Claimant agreed to buy from the Respondent 6000mt of Australian wheat, grade H2 with grade spreads, for delivery at Coleambly or Carrathool at Seller's option. By a subsequent unwritten variation the parties agreed that the grain could also be delivered at the Respondent's property Kerarbury. We have to-date published; 1. A Partial Award signed by the Chairman on 7 June 2012, and 2. Procedural Orders dated by the Chairman on 17 August 2012. By way of further background, and as observed in our Partial Award, the Respondent had chosen not to participate in the arbitration, that is until it was provided with a copy of our Partial Award. At that stage, its solicitors, Cater & Blumer, wrote to GTA and advised that their client wished to be heard in relation to the outstanding matters, and requested an oral hearing. At the same time the Respondent was critical of the fact that we had proceeded to publish our Partial Award based only on the submissions tendered by the Claimant. As we stated in our Procedural Orders, and wish to repeat here, 1. This Tribunal is authorised to make its own determination in relation to evidence before it (section 19(3) of the Commercial Arbitration Act 2010 (NSW)("CAA")); 2. Where a party fails to appear the Tribunal may continue the proceedings and make the award on the evidence before it (section 25(c) of the CAA); 3. Natural justice and procedural fairness was afforded to the Respondent who for reasons it chose not to share with the Tribunal, elected not to participate. The wisdom (or otherwise) of that decision is perhaps now reflected in its change of position and desire to be heard; 4. In those circumstances, the Tribunal was perfectly within its rights to proceed on the material before it (keeping the Respondent fully informed of the proceedings); 5. The Paramount object of the Commercial Arbitration Act is to "facilitate the fair and final resolution of commercial disputes by impartial arbitral Tribunals without unnecessary delay or expense" by "providing arbitration procedures that enable commercial disputes to be resolved in a cost effective manner, informally and quickly"; 6. Section 24B of the Commercial Arbitration Act places a general duty on the parties to arbitration "to do all things necessary for the proper and expeditious conduct of the arbitral proceedings" including to "comply without undue delay with any order or direction of the arbitral Tribunal with respect to any procedural, evidentiary or other matter" and "not wilfully do or cause to be done any act to delay or prevent an award being made"; 7. To the extent that the Respondent's conduct to date has protracted this dispute and caused additional costs to be incurred, there must be a real question as to whether that conduct is in breach of the "Paramount object", and section 24B. 2. The Respondent's Preliminary Submissions Following the making of our Procedural Orders, the Respondent has made submissions served under cover of its solicitors letter dated 3 September 2012. The Preliminary Submission seeks to impeach our Partial Award on the basis that it is undated. We don't agree. It was signed by the Chairman and dated 7 June 2012. It was signed in counter-parts by each arbitrator, as the GTA Dispute Resolution Rules authorise. Accordingly we do not accept the Respondent's Preliminary Submissions and to the extent that this may be necessary, we confirm the findings and reasons in our Partial Award and find that it was signed by the arbitrators and dated 7 June 2012. We note that by virtue of the GTA Trade Rules and the Dispute Resolution Rules, the Contract and this arbitration are governed by the law of New South Wales. As is the usual case with respect to GTA arbitration, arbitrators are appointed from different parts of the country. In this case Mr Delahunty and Mr Howells reside in Victoria and Mr Orr resides in Western Australia. The parties send their submissions to the GTA office in Sydney. We meet for the purpose of deliberation by way of teleconference coordinated by the GTA office in Sydney. We consider that the arbitration is conducted, our decision and accordingly our award is made in Sydney, New South Wales. 3. The Respondent's Submissions on Damages In our Procedural Orders we invited the Respondent to "submit to GTA any submissions or evidence on which it wishes to rely in relation to the damages which should be awarded to the Claimant." The Order was expressed that way as we had found in favour of the Claimant on liability in our Partial Award. The Respondent's submissions go somewhat further than submissions in relation to damages. They include statements from Mr Toscan, and Messrs Larry and Justin Walsh. These statements recount the Respondent's recollection of events surrounding the conclusion of contract between the parties, and its early termination. While we did not ask for submissions concerning liability, we can say that having considered those statements and submissions, nothing in them would lead us to depart from the findings in our Partial Award. In particular, we note that the Respondent's submissions and statements amplify the evident breakdown in the relationship between the parties concerning deliveries to the Kerarbury site. So much was apparent in our Partial Award. However the Respondent's submissions do not address the obvious default position open to the parties which was to resume deliveries to Coleambally or Carrathool as the Contract originally contemplated. Nor do the Respondent's submissions address or challenge the washout amount of $104 per tonne claimed by the Claimant. 4. Damages The final issue we need to determine is damages. The Contract was for 6000mt. We found in our partial award that 2544.10mt of grain was delivered leaving a balance undelivered of 3455.9mt. We are now satisfied with the washout value claimed by the Claimant of $104.00 per tonne, and accordingly award the Claimant $359,413.60 in damages. We note that the Respondent had delivered 2544.10mt. Title may well have passed to the Claimant in respect of that grain [sic] We believe that the Claimant did not pay the Respondent for the delivered grain and that grain has subsequently been disposed of by the Respondent. Whether the Claimant or Respondent have further claims in respect of that portion of the grain may be the concern of another Tribunal, but not this one. 5. Final Award Having considered the submissions and evidence and for the reasons set out above and in our Partial Award we make the following Final Award at Sydney NSW; 1. That the Claim is allowed in part, namely in respect of the undelivered amount of 3455.9mt; 2. That the Respondent pay the Claimant damages in the amount of $359,413.60 (being 3455.9mt @ $104/mt) forthwith; 3. That the Respondent pay the Claimant interest on $359,413.60 at the rate of 7% per annum from 27 December 2010; 4. That the Respondent pay the Claimant's reasonable legal costs which, in default of agreement within 28 days from the date of this Award, shall be assessed by the Supreme Court of New South Wales on a party and party basis. 5. That the Respondent indemnify the Claimant in respect of arbitration fees paid by the Claimant to Grain Trade Australia in respect of this reference. And we so publish our Final Award. The Parties' contentions 34It is not in dispute that the plaintiff requested an oral hearing with respect to damages. 35Initially the plaintiff put that the period within which a request had to be made under Article 27 commenced when the respondent served Points of Reply and that it followed, given that no Points of Reply had been submitted, the period had never commenced let alone expired. This submission was correctly abandoned. The reason there were no Points of Reply was because there were no Points of Defence. 36Ultimately the plaintiff put that it was entitled to request an oral hearing pursuant to Article 27.1 (as read with Article 20.3) because Paragraph 3 of the Procedural Orders in effect required it to submit Points of Defence on damages and required the defendant to submit any Points of Reply thereafter. Article 27.1 provides that the request is to be made on or before the submission of the Respondent's Points of Reply. It put that the consequence was it was therefore given the option of making a request by dint of the fact that a reply had been ordered. 37It put that the parties had not agreed that no hearings were to be held, as contemplated by s 24(2), and that it followed that the tribunal was obliged to hold such hearings at an appropriate stage of the proceedings, the plaintiff having so requested. 38It put that by declining to hold or by not holding such an oral hearing, the arbitral procedure was not in accordance with either the agreement of the parties or the Act, as contemplated by s 34(2)(a)(iv), and that the Court should set the Final Award aside. 39Reliance was also placed on s 18 to found a submission that the plaintiff was denied a reasonable opportunity to present its case. A submission that if the Court did set aside the award the matter should not be remitted to the same tribunal was correctly abandoned. 40The defendant put that the right to request an oral hearing had not arisen under the GTA Rules because the procedure under Article 23 had exhausted itself by the time of the Partial Award and had not been re-enlivened by the Procedural Orders. It put that Article 23 contemplates the submission of pleadings and that because the plaintiff had not filed a defence, the occasion for a reply had never arisen. It followed, it put, that Article 27.1 had no application because the right to make a request for an oral hearing was conditional on their being an occasion for a reply. It put that the Procedural Orders and what followed amounted to the tribunal requiring further information or documentation pursuant to Article 27. Implicit in these submissions was that the machinery in Articles 23 and 27 respectively are inconsistent with each other. 41The defendant put that if the plaintiff was entitled to request an oral hearing, its entitlement was restricted to a hearing in respect only of the matters which the tribunal left open in the Partial Award, being whether damages should be calculated on the full contract tonnage or only on the delivery shortfall and whether the "washout value" should be $104.00 per tonne or some other figure. It put that the plaintiff's submissions following the Procedural Orders did not deal with either of these questions but sought to traverse matters which had already been determined and which were no longer open to challenge. 42It put that the power of the Court under s 34(2) is discretionary, that the discretion should only be exercised when the conduct complained of is serious or egregious, that the plaintiff bore an onus of persuading the Court that it had or might have been prejudiced by the failure of the tribunal, and that the plaintiff bore the onus of persuading the Court that it had or might have been prejudiced by the failure of the tribunal complained of. It put that even if there had been a defect in the arbitral procedure, it was not a serious one, and even then, that it was obvious that the outcome would be no different if an oral hearing took place. 43Recently, in Grand Pacific Holdings Limited v Pacific China Holdings Limited (in Liq) (No.1) [2012] 4 HKLRD 1 the Hong Kong Court of Appeal considered the Hong Kong equivalent to s 34(2)(a)(ii) which provides that an arbitral award may be set aside by the Court if the party making the application was not given proper notice of the appointment of an arbitral tribunal, or of the arbitral proceedings, or was otherwise unable to present the party's case. In the context of that section the Court at 35 [94] held that the conduct complained of must be serious, even egregious, before the Court could find that a party was otherwise unable to present his case. At 38 [106] the Court held that the burden is on an applicant to show that he had or might have been prejudiced. The Court observed that in some case the prejudice is obvious and it matters little who has the burden. 44Counsel for the plaintiff accepted that there was no challenge to the determination of the tribunal that the washout value was $104.00 per tonne. As appears from the Final Award, the tribunal determined in favour of the plaintiff (correctly) that only the delivery shortfall was to be taken into account. 45Counsel for the plaintiff submitted that the plaintiff proposed to challenge the damages finding against it on a different basis at a further oral hearing. Counsel described the basis of the foreshadowed challenge to be combination of causation and mitigation which he articulated as follows: The parties had selected Kerarbury as an alternative place for delivery and the defendant had suffered no damages because it could and should have taken delivery there and/or by not doing so had failed to mitigate its damage. REASONS 46For the following reasons, in my view, the plaintiff's challenge must fail. 47The defendant's submission that Article 27.1 was not enlivened is untenable. 48Where Article 20.3 refers to Points of Claim, Points of Defence and Points of Reply, it clearly has in mind more than what would traditionally be viewed as court pleadings. The rule elsewhere refers to those documents as submissions and contemplates documents being annexed. In practical terms what it has in mind is a combination of pleadings, submissions and evidence to achieve an expeditious and informal procedure. 49When in the Procedural Orders the tribunal called for submissions on quantum, Article 23 was re-enlivened by the tribunal utilising Article 20.7 of the GTA Rules. There is no inconsistency between the rules. The tribunal called for submissions within a limited ambit. This did not give the plaintiff open slather to re-litigate all or any questions it wished to raise in connection with damages. 50Article 27.1 and s 24 contemplate hearings to facilitate the tribunal determining issues truly before it. The plaintiff had eschewed an oral hearing on all issues (liability and damages) by declining to participate in proceedings up to and including the Partial Award. All that was left for determination after the Partial Award was resolution of the two issues described in the Partial Award and in respect of which the plaintiff accepts it now has no challenge. A reading of the Final Award makes it clear that this is how, in my view correctly, the tribunal saw the position. 51The plaintiff was undoubtedly entitled to an oral hearing on those issues, but it did not then, and does not now, seek that. Not only was it given that opportunity, from the outset it was given the opportunity to present its case in full, a course which did not commend itself to it. 52It follows that the arbitral procedure was not otherwise than in accordance with the agreement of the parties, nor was it otherwise than in accordance with the Act. 53It also cannot be said that the plaintiff was not given a reasonable opportunity to present its case. 54It does not seem to me that the standard to be applied for the Court to intervene under s 34(2)(a)(iv) is any different from that to be applied for intervention under s 34(2)(a)(ii). I propose to follow the approach taken by the Hong Kong Court of Appeal that the plaintiff has the burden of showing that any departure from any requirement under the Act, or the parties' agreement, did or might have prejudiced it. The principle that where there is a departure from rules of natural justice at a trial an aggrieved party will not get a new trial if it would inevitably result in the same result was affirmed by the High Court in Stead v State Government Insurance (1986) 161 CLR 141. 55The tribunal determined that the place for delivery was that specified in the written contract and that the plaintiff had breached by failing to deliver there. On any view, the plaintiff is bound by those findings. 56The plaintiff proposes to contend that the defendant suffered no damage because it failed to take delivery at the place where the plaintiff unlawfully claimed it was entitled to deliver, alternatively that the defendant had an obligation to mitigate by taking delivery in the very manner which was the breach complained of. These propositions are self evidently untenable. 57For these reasons I am unpersuaded by the plaintiff that there is any prospect that on an oral hearing the propositions which it intends to motivate have any prospect of success, and for that reason too the plaintiff's challenge fails. 58The proceedings are dismissed. 59The parties agreed that if the plaintiff failed there should be an order that it is to pay the defendant's costs of the proceedings in the amount of $23,220. I so order. ********** Amendments 13 March 2013 - deleted the word "it" from the last phrase and inserted at the end of the sentence Amended paragraphs: par 51 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 March 2013