Aircraft Support Industries Pty Ltd v William Hare UAE LLC

BATHURST CJ: This is an appeal from orders made by a judge of the Equity Division of the Court enforcing in part an arbitral award made against the appellant, Aircraft Support Industries Pty Ltd (Aircraft Support), an Australian corporation, in favour of the respondent, William Hare UAE LLC (Hare), a company incorporated under the laws of Abu Dhabi in the United Arab Emirates. The primary judge ordered that judgment be entered in favour of Hare in the sum of US $1,481,678.42, with interest payable at 9% per annum on so much of the judgment as from time to time remained unpaid.

On 18 December 2009, Aircraft Support entered into a subcontract with Hare for Hare to perform certain construction work at Abu Dhabi International Airport (the subcontract). The subcontract was stated to be governed by the laws of the United Arab Emirates.

A dispute arose between the parties as to the final amount due and the payment of retention monies. Ultimately, on 10 May 2011, an officer of Aircraft Support executed a letter which was provided to Hare (the 2011 letter). The primary judge found, and it was not disputed that, the 2011 letter was a corrected version of a letter of the same date executed on behalf of both parties. The 2011 letter was in the following terms:

The first retention amount of $797,500 was in fact paid on 29 May 2012. The second amount of $797,500 was not paid.

On 24 October 2012, Hare referred the matter to arbitration, claiming the second retention release of $797,500 together with a further $50,000 said to be in respect of a discount granted by it in its final account. On 1 May 2014, an arbitral tribunal awarded a final arbitration award in respect of each of these amounts to Hare, together with interest and costs.

Hare applied to the Supreme Court for an order enforcing the award pursuant to s 8(2) of the International Arbitration Act 1974 (Cth) (the Act).

The primary judge, in William Hare UAE LLC v Aircraft Support Industries Pty Ltd [2014] NSWSC 1403 (Trial Judgment), ordered that the award be enforced to the extent that it related to the retention monies and interest payable thereon. However, he declined to enforce the award so far as it related to the discount of $50,000. The trial judge, referring to the pleadings, said that the claim for this amount ought reasonably to have been treated as no longer pressed and that if the Tribunal proposed to make an order for payment of that amount, it should have given notice to the parties and invited them to address the issue. He held that a failure to do so constituted a failure to provide natural justice to Aircraft Support. However, he held that the balance of the award could be severed and enforced.

Aircraft Support appealed against the orders made by the primary judge, raising two issues. The first was whether there was a denial of natural justice in the making of the award of the retention monies, such that even if severance was possible, that part of the award should not have been enforced. This issue was the subject of the following grounds of appeal:

The second issue was whether, even assuming that there was no denial of natural justice in the making of the award for the retention monies, this part of the award was incapable of severance, with the consequence that no part of it should be enforced because of the denial of natural justice in respect of the $50,000 claim. This issue was the subject of the following grounds of appeal:

To understand the reasoning of the primary judge and the submissions of the parties, it is necessary to consider the course of the arbitration and the award in more detail.

Clause 19.1 of the subcontract provided for disputes to be settled by arbitration. It was in the following terms:

On 8 May 2013, the parties agreed, pursuant to article 36 of the Charter and Regulation of Abu Dhabi Commercial Conciliation and Arbitration Centre, to the Terms of Reference and Arbitration Agreement for the arbitration (terms of reference). Relevantly, cl 4.20.3 of the terms of reference provided for the arbitral tribunal to state the facts, legal grounds and the evidence upon which any award made by it was based.

Schedule 4 of the terms of reference contained a summary of the claim made by Hare. Relevantly, it was in the following terms:

Schedule 5 of the terms of reference contained a summary of Aircraft Support’s defence. In relation to the 2011 letter, it stated as follows:

The parties filed pleadings in the arbitration. Paragraphs 8.1 to 8.5 of the Statement of Claim filed by Hare pleaded an oral agreement reached at a meeting of 10 May 2011. Paragraphs 8.6 to 9.0 pleaded what was described as the letter agreements. These paragraphs were in the following terms:

In its defence, Aircraft Support effectively pleaded that what took place could not amount to an agreement varying the subcontract. This appears from par 15 of the Defence, which relevantly pleaded as follows:

The reference to cl 16.5 was a reference to cl 16.5 of the subcontract, which provided for the payment of the subcontract price. It was in the following terms:

The proposition thus seems to be that it was a precondition to payment that Aircraft Support prepare a valuation of the work which was to be mutually agreed upon. It is by no means clear from the Defence why Aircraft Support asserted that this prevented the parties from separately agreeing to settle their outstanding claims.

In par 2 of the Statement of Reply filed by Hare, Hare emphasised that it was relying on a standalone agreement, rather than a variation to the subcontract. Relevantly, this paragraph was as follows:

Aircraft Support filed a Statement of Rejoinder which made the following assertions:

The position of the parties as it emerged from the pleadings thus seem to be that Hare asserted that liability arose as a result of an agreement reached on 11 May 2011, while Aircraft Support asserted that any subsequent agreement could only arise as a result of a formal variation of cl 16.5 of the subcontract.

In its opening submissions, Hare again expressly relied on the 2011 letter as a standalone agreement. Paragraphs 11-13 of these submissions were as follows:

In its opening submissions to the arbitration, Aircraft Support raised the following issues:

In its closing submissions to the arbitration, filed on 9 January 2014, Aircraft Support challenged the 2011 letter on a number of grounds. First, it submitted that the person who signed the letter on its behalf, a Mr Robert Haslam, had no authority to do so. Second, it submitted that the 2011 letter was not binding due to the absence of writing. Of particular relevance were pars 110 to 115 of the submissions, which were in the following terms:

Thus, the closing submissions did not contend that a formal variation of cl 16.5 of the subcontract was necessary, but rather, that in the circumstances of the present case, it was necessary for the agreement to be in writing.

The final arbitration award was in writing. It set out Hare’s contentions in the following terms:

The arbitrators summarised the contentions of Aircraft Support in some detail:

It should be noted that in dealing with the position of Aircraft Support, the arbitrators particularly referred to the reliance on cl 16.5 in the pleadings, notwithstanding that no reliance was placed on this provision in the closing submissions.

The arbitrators expressed their conclusions as follows:

There was no issue that the award was a foreign award or that the United Arab Emirates was a convention country. The Act thus had application and the following provisions were relevant:

By virtue of s 16 of the Act, the UNCITRAL Model Law (Model Law), which is Schedule 2 to the Act, has the force of law in Australia. Article 36 of the Model Law, so far as relevant, provides as follows:

Section 8(7A) was inserted by an amendment to the Act in 2010, the International Arbitration Amendment Bill 2010 (Cth). The Explanatory Memorandum to the Bill, which introduced the section, stated that s 19 of the Act was passed for the purpose of clarifying the meaning of public policy under articles 34 and 36 of the Model Law. The Explanatory Memorandum went on to say as follows:

The primary judge summarised the pleadings and the decision of the arbitrators, to which I have referred above. Applying the decision of the Full Court of the Federal Court in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83; 311 ALR 307 (TCL Air Conditioner) at [111], he accepted the statement in that case that “no international award should be set aside unless, by reference to accepted principles of natural justice, real unfairness and real practical injustice has been shown to have been suffered … in the conduct and disposition of a dispute in an award”.

In dealing with the submission of Aircraft Support that the arbitrator did not deal with its contention that unless the 2011 letter was a formally executed variation to the subcontract, then it was of no legal effect, as there could not be two inconsistent contracts in existence, the primary judge reviewed the pleadings and submissions to which I have referred above. The primary judge concluded that the contention was not clearly articulated in the course of the arbitration, nor developed in any detail and not given prominence in the opening or closing submissions: Trial Judgment at [80].

In these circumstances, the primary judge concluded, at [81], that he was “unable to discern any unfairness or practical injustice” to Aircraft Support or any deficiency in reasoning. He concluded that it was implicit in the Tribunal’s conclusion that it rejected the arguments put forward by Aircraft Support that there was no binding agreement because of the absence of formalities. He concluded that the Tribunal essentially found that the 2011 letter was a settlement with respect to the final account.

The primary judge also concluded that the reasons given were adequate. This conclusion was as follows:

In these circumstances, the primary judge rejected the claim that there was a denial of natural justice to Aircraft Support in respect of the claim for the retention monies.

The primary judge also rejected the argument that s 8(7A) of the Act posed any restriction on circumstances in which foreign arbitral awards could be enforced in part. He pointed out, at [125], that “principles of severance have been applied to arbitral awards for centuries” and permitting severance in cases where there was no injustice was consistent with the approach taken in other jurisdictions. He concluded that in the circumstances of the present case, no injustice would be caused by severance.

Aircraft Support submitted that its principal defence was that the 2011 letter had to be a variation to the subcontract, or it had no legal effect, and that it was not a variation because of its terms and manner of execution. It submitted that the arbitrators did not deal with this issue.

Senior counsel for Aircraft Support submitted that it was his client’s case at trial that, as a matter of law, the only form of agreement which could bind the parties was a formal variation of the subcontract. He submitted that this issue was ignored.

Aircraft Support relied on the statement by Gummow and Callinan JJ in Dranichnikov v Minister for Immigration & Multicultural Affairs [2003] HCA 26; 177 ALR 389 at [24] that “To fail to respond to a substantial, clearly articulated argument relying upon established facts was at least to fail to accord … natural justice”.

There are a number of difficulties with this argument. The first is that it does not deal with the fact that, as the Full Court of the Federal Court held in TCL Air Conditioner, it is necessary, in the context of an international arbitration, to show real practical unfairness and real practical injustice to the party resisting enforcement in order to decline to enforce an award under s 8(7A) of the Act or article 36 of the Model Law by reason of a breach of the rules of natural justice: at [55], [110], [111].

Further, even outside of the context of international arbitration, it has been stated that in this area, “the concern of the law is to avoid practical injustice”: Rodger v De Gelder [2015] NSWCA 211 at [93] per Gleeson JA, Macfarlan and Leeming JJA agreeing.

In the present case, no attempt was made to demonstrate practical unfairness or injustice. Apart from asserting that the argument was raised, but not dealt with, no submissions were made as to its merits or the reason why the law in question prohibited the making of a compromise agreement.

More fundamentally, the principle to be derived from Dranichnikov applies in the case of a substantial, clearly articulated argument. I have set out the pleadings so far as relevant and Aircraft Support’s opening and closing submissions. They demonstrate that the issue of whether a binding agreement was needed to amount to a variation of cl 16.5 was raised. However, apart from asserting that this was the case, neither the pleadings, nor the opening submissions, provided any argument in support of the proposition. The closing submissions did not raise the issue at all.

In these circumstances, there was no failure by the arbitrators to respond to a clearly articulated argument. The obligation to give reasons does not extend to require arbitrators to deal with mere assertions which are unsupported by argument and apparently abandoned at the close of the case.

Aligned to the submission that there was a failure to deal with the argument based on cl 16.5 was an argument that the arbitrators failed to give adequate reasons for their award, as a result of which Aircraft Support was not accorded natural justice.

In Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2) (1981) 2 Lloyd’s LR 130, Donaldson LJ (as his Lordship then was) with whom Shaw and Stephenson LLJ agreed, summarised the obligation to give reasons in the following terms (at 132-133):

That summary was described by Allsop P (as his Honour then was) in Gordian Runoff Ltd v Westport Insurance Corporation [2010] NSWCA 57; 267 ALR 74 at [220] as a “crisp summary” of the principle. On appeal in that case, the plurality stated that there was no wholly satisfactory formula to flesh out the requirement to give reasons (for the purpose of s 29(1)(c) of the Commercial Arbitration Act 1984 (NSW)): Westport Insurance Corporation v Gordian Runoff Ltd [2011] HCA 37; 244 CLR 239 at [54]. However, it was not argued in the present case that the primary judge was incorrect in concluding, at [103] of the Trial Judgment, that the standard enunciated by Donaldson LJ was the appropriate standard.

The primary judge was correct in concluding that the reasons met that standard. I have already set out why the arbitrators were not required to deal any further with the cl 16.5 issue. The arbitrators set out the competing contentions. They dealt with the oral evidence, giving reasons why an agreement was reached on 11 May and how subsequent conduct supported that conclusion. Their reasons, having regard to the issues ultimately raised by the submissions, met the standard laid down by Donaldson LJ.

It follows that, in making the order in respect of the retention monies, there was no failure to accord Aircraft Support natural justice.

In submitting that the whole of the award should not be enforced because of the failure to accord natural justice to Aircraft Support in respect of the $50,000 claim, primary reliance was placed on the fact that s 8(6) of the Act dealt with the particular circumstances in which an award can be severed. It was suggested that, at least by implication, that precluded a severance in any other circumstances.

Aircraft Support also pointed to the fact that s 8(7) of the Act, which dealt with the circumstances in which a court may refuse to enforce an award, made no provision for partial enforcement. It was submitted that the absence of any provision corresponding to s 8(6) in s 8(7) led to the conclusion that partial severance was unavailable in the circumstances contemplated by s 8(7).

Aircraft Support accepted that the decision of the English Court of Appeal in Nigerian National Petroleum Corporation v IPCO (Nigeria) Ltd (No 2) (2009) 1 Lloyd’s Rep 89 (Nigerian National) was to the contrary. However, it submitted that this decision was distinguishable because of the provisions of s 8(7A) of the Act.

In that context, Aircraft Support submitted that the language of s 8(7A) was “perfectly general”. Pointing to the present case, it submitted that a breach of the rules of natural justice occurred in the making of the award. It submitted that, read in conjunction s 8(7)(b), s 8(7A) contained a legislative declaration that where a denial of natural justice occurs in connection with the making of an award, the enforcement of the award would be contrary to public policy.

At the hearing, senior counsel for Aircraft Support submitted that in those circumstances, there was no discretion to enforce part of the award.

If the argument promoted by Aircraft Support is correct, the result would be surprising. In Evans v National Pool Equipment (1972) 2 NSWLR 410, Jacobs JA (as his Honour then was) pointed out that not since before the time of King James I had an award which was void in part been considered to be void altogether. His Honour cited with approval the statement in the 8th ed of Russell on Arbitration (Francis Russell, Edward Pollock and Herbert Russell, A Treatise on the Power and Duty of an Arbitrator: and The Law of Submissions and Awards (8th ed 1900, Stevens)) to the effect that, provided the bad portion is clearly separate and divisible, the residue can be enforced: see also ACN 006 397 413 Pty Ltd v International Movie Group (Canada) Inc [1997] 2 VR 31 (International Movie Group) at 38 following.

A similar approach has been adopted in overseas jurisdictions, including in cases involving the enforcement of awards under the New York Convention: J.J. Agro Industries (P) Ltd (a firm) v Texuna International Ltd [1992] 2 HKLR 391 (cited with approval by the Court of Appeal of Victoria in International Movie Group at 45); Nigerian National. The latter case involved the enforcement of an award under the Arbitration Act 1996 (UK). That legislation, like the Act, made provision for a foreign award, to which the New York Convention applied, to be enforced. It also contained provisions in identical terms to those contained in s 8(6) and s 8(7) of the Act (s 103(4) and s 103(3) of the Arbitration Act 1996, respectively). In rejecting an argument similar to the one advanced in the present case, Tuckey LJ, with whom the other members of the Court agreed, made the following remarks (at [16]):

As was pointed out in TCL Air Conditioner at [75], it is essential to “pay due regard” to decisions in other countries “where their laws are either based on, or take their content from, international conventions or instruments such as the New York Convention and the Model Law”. Further, it would be surprising, to say the least, if an Act designed to assist international trade and commerce by enforcement of foreign awards was required to be construed to take away a centuries old power to partially enforce awards where no injustice flows as a result.

Section 8(7A) neither expressly, nor by necessary implication, imposes such a restriction. The section, in its terms, simply clarifies the circumstances in which an award can be said to be contrary to public policy. To the extent that reference needs to be made to it, this construction is consistent with the Explanatory Memorandum.

It follows that the Court had power to partially enforce the award.

In the present case, it was not suggested that any injustice would flow from partial enforcement. The conclusion of the primary judge on this issue was correct.

In the result, the following orders should be made:

BEAZLEY P: I have had the advantage of reading in draft the reasons of the Chief Justice. I agree with his Honour's reasons and with the orders he proposes.

SACKVILLE AJA: I agree with Bathurst CJ.