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A cautionary tale on the challenges of challenging an Arbitral Award

Mi v Li [2018] ACTCA 66

The Supreme Court of ACT Court of Appeal's decision in Mi v Li [2018] ACTCA 66 highlights the difficulties of challenging an arbitral award. In that case, the Court of Appeal dismissed an appeal against the enforcement of an interim arbitral award on the basis that:

  • the doctrine of Anshun estoppel (which prevents a party from raising in a subsequent proceeding an issue which should have been raised in earlier proceedings) applied to the key matters raised; and
  • the judicial review provisions available under the applicable arbitration regime, as set out in the Commercial Arbitration Act 1986 (ACT) (Act) [1] and the Court Procedure Rules 2006 (ACT) (Rules), had already been exercised.

Although the arbitration regime applicable to your arbitration will likely provide an avenue for challenging an arbitral award, it will typically be subject to very limited rights of appeal. This decision illustrates that challenges to arbitral awards should be carefully considered and approached with caution.

Background to the case

On 10 November 2011, Mr Wang Man Mi entered into a contract for the construction of a residential dwelling in Franklin, with an entity that gave its business name as "Kai Design and Construction" controlled by Mr Zheng Kai Li (Franklin Contract).

Some months later, Kai Design and Construction Pty Ltd became a registered company. Mr Li's interests in the construction business that he operated under "Kai Design and Construction" were assigned to Kai Design and Construction Pty Ltd, including Mr Li's rights and obligations under the Franklin Contract.

In March 2013, Mr Mi purported to terminate the Franklin Contract, following which Kai Design and Construction Pty Ltd (in liq) brought an arbitration claim against Mr Mi.

Subsequently, Mr Mi entered into a novated arbitration agreement, pursuant to which he agreed that the dispute being arbitrated included "the questions of what relief (if any) …Kai Design and Construction Pty Ltd… or …Zheng Kai Li… (as the case may be) is entitled to from …Wai Man Mi… by reason of [the Franklin Contract], the works purportedly performed under it and matters arising out of or incidental thereto;".

In February 2015, that arbitration claim was amended so that only Mr Li proceeded with the claim against Mr Mi.

The Interim Arbitral Award and Mr Mi's subsequent appeal

On 20 August 2016, Mr Sullivan, Arbitrator, made an interim award in favour of Mr Li, requiring Mr Mi to pay $205,121.75. The Arbitrator assessed Mr Li's entitlement on a quantum meruit basis (which allowed Mr Li to recover a reasonable sum of money for services rendered or work done, rather than the amount due being determined by reference to a legally enforceable contract), as ultimately, Mr Li elected to pursue the quantum meruit claim and not a claim for damages.

Mr Mi (who was self-represented at the time) subsequently filed an originating application in the Supreme Court of the ACT, seeking that the interim arbitral award be set aside pursuant to section 42 of the Act, on the basis that the arbitration and/or interim award had been improperly procured as the Arbitrator had misconducted himself and/or the arbitration. In the alternative, Mr Mi sought for leave to be appeal pursuant to section 38 of the Act on the basis that there was a manifest error of law on the face of the award. Mr Mi's challenge was unsuccessful.[2]

Mr Li's application to enforce the interim arbitral award and Mr Mi's related application

On 2 August 2017, Mr Li filed an originating application seeking an order that the award be registered as a judgment in his favour. Subsequently, Mr Mi filed an application seeking a declaration that Mr Li was not the contractual party to the Franklin Contract.

The applications were heard together. On 30 October 2017, Associate Justice McWilliam dismissed Mr Mi's application and ordered that the award be registered as a judgment in Mr Li's favour.[3]

Mr Mi's appeal

Mr Mi appealed on the following grounds:

  • the trial judge misconstrued Mr Mi's application in relation to the identity of the counterparty to the Franklin Contract. Mr Mi claimed that he had entered into the Franklin Contract with Comtal Pty Ltd (Comtal) on the basis that some 6 days before the Franklin Contract was entered into, Comtal became the proprietor of the business name "Kai Design and Construction";
  • Mr Mi was not estopped from arguing that the Arbitrator lacked jurisdiction to make an arbitral award as between Mr Mi and Mr Li (as Comtal, and not Mr Li, was the true counterparty to the Franklin Contract). Mr Mi submitted that the question was whether it was unreasonable for Mr Mi to have failed to raise this claim earlier. Mr Mi's evidence was that he discovered that Comtal was the true counterparty to the Franklin Contract late in proceedings; and
  • r3254 of the Rules did not impose a constraint on Mr Mi's claims. Mr Mi submitted that pursuant to section 33 of the Act, a person seeking the benefit of a purported award under that Act requires the leave of the Court to enforce the award as a judgment. Mr Mi submitted that he is entitled to oppose that leave, including on the basis that the condition prescribed in section 33 of the Act is not met, that is, the award was not made "under an arbitration agreement" as Comtal, and not Mr Li, was the true counterparty to the Franklin Contract.

Ultimately, their honours Elkaim, Loukas-Karlsson and Charlesworth found that Mr Mi failed on all three grounds of appeal.

Their Honours' dismissed the first ground on the basis that the question of who was the correct contractual party was otiose, given that:

  • the issue of who the builder was under the Franklin Contract was determined by the Arbitrator as being Mr Li and on appeal, his Honour Justice Mossop found no error in the Arbitrator's reasoning;
  • Mr Mi entered into a novated arbitration agreement which conferred upon the Arbitrator jurisdiction to determine entitlement to relief, including a claim based on quantum meruit; and
  • Mr Li elected to seek relief on the basis of a quantum meruit claim (rather than on a contractual basis) and relief was granted by the Arbitrator on that basis. Accordingly, the question of which entity incurred the cost of the construction work under the contract was an issue of "diminished significance".

The second ground was also dismissed. Their Honours found that the trial judge was correct in finding that the doctrine of Anshun estoppel applied to the Comtal issue. Their Honours' found that Mr Mi's argument relating to Comtal could have been agitated in the previous proceedings and it was unreasonable for Mr Mi to fail to raise it then. Their Honours pointed out that Comtal was referred to in the original arbitration award (so the existence of that entity was well known to the parties) and that Mr Mi gave no explanation as to why he did not seek out information about Comtal at an earlier point in time, given that this information was publicly available. Their Honours also reiterated that Mr Mi entered into an arbitration agreement with Mr Li and that the arbitration award, assessed on a quantum meruit basis, did not depend on the identification of Mr Li as the original contracting party.

Mr Mi's third ground of appeal was dismissed on the basis that:

  • section 33 of the Act does not confer a right of review of an award. Sections 38 and 42 of the Act confer limited rights of review of an award and Rule 3254 provides that such a review must be instigated within 28 days of the delivery of the award;
  • Mr Mi had already exercised his rights of review under sections 38 and 42 of the Act before his Honour Justice Mossop; and
  • Anshun estoppel precluded Mr Mi from agitating an issue that he should have raised at the time that Mr Mi sought a review of the award before his honour Justice Mossop.

Conclusion

This case illustrates the limitations on a party's ability to challenge an arbitral award as well as the Court's general reluctance to interfere with such awards; preferring to honour the parties' agreement to arbitrate and to treat the arbitral award as final and binding on the parties, unless justice requires otherwise. Careful consideration of the limitations under the relevant arbitration regime applicable to your arbitration is crucial to give the best possible chance for success.

Note: The above material provides a summary only of the subject matter covered, without an assumption of a duty of care by Resolution Institute or Clayton Utz. The material is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Copyright in the material is owned by Clayton Utz.


[1] In Australia, domestic commercial arbitrations are governed by the Uniform Commercial Arbitration Acts modelled on the 2006 UNCITRAL Model Law on International Commercial Arbitration, introduced by Australian States and Territories over time since 2010. The Australian Capital Territory was the last Territory to enact the regime with the introduction of the Commercial Arbitration Act 2017 (ACT) which commenced on 1 July 2017. As the arbitration in this matter commenced before 1 July 2017, the applicable arbitration regime is the regime set out in the Commercial Arbitration Act 1986 (ACT).

[2] On 16 March 2017, his Honour Justice Mossop dismissed those proceedings; See Mi v Li [2017] ACTSC 54.

[3] See Li v Mi (No 2) [2017] ACTSC 318.

Thanks

We thank the authors of this legal update Karen Ingram (Partner) and Roxana Carrion for their contribution to Pulse.

Tags: Arbitration, Legal practice, Building and construction, Dispute handling administration