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It's going to cost how much? The need for care in appealing arbitration decisions

John Holland Pty Ltd v Adani Abbot Point Terminal Pty Ltd (No 2) [2018] QSC 48

An unsuccessful arbitrating party may well have a right to appeal the arbitral award, but at what point should that party draw the line between a legitimate appeal and an appeal that may be seen as oppressive? And if the appeal is considered to be oppressive, what are the potential costs consequences for the appealing party?

The Queensland Supreme Court's (the Court) recent decision of John Holland Pty Ltd v Adani Abbot Point Terminal Pty Ltd (No 2) [2018] QSC 48 sheds some light on these questions.

The Dispute
In 2009, John Holland (JH) entered into two contracts with a third party. The rights and obligations under these contracts were later transferred to Adani.

On 22 February 2012, disagreements between JH and Adani were referred to an arbitrator. After three arbitral awards were made, JH claimed that the third party had repudiated the original contracts and JH purported to terminate each contract.

On 12 February 2016, the arbitrator's fourth arbitral award (Fourth Award) ruled that JH did not properly terminate the original contracts.

Application for Leave to Appeal
In the preceding judgment (John Holland Pty Ltd v Adani Abbot Point Terminal Pty Ltd [2016] QSC 292) JH applied for leave to appeal the arbitrator's award on a question of law arising from the Fourth Award. Justice Jackson dismissed the appeal on two material grounds:

  1. JH did not specify a question of law to be the subject of the appeal. This was in circumstances where s38(2) of the Commercial Arbitration Act 1990 (QLD) requires that an appeal to the Court must be "on any question of law arising out of [an] Award"; and
  2. JH's written submissions were so wide and broad as to amount to a 'snow storm' of documents. This was considered by the Court to amount to an 'abuse of process'.

His Honour then heard submissions from the parties in respect of the costs orders that were to be made arising from the Court having dismissed JH's appeal.

Costs Hearing
Adani argued that JH should pay its costs on an indemnity basis. JH however submitted it should pay Adani's costs on the usual (party/party) basis. The practical difference between these two positions is that, as a rule of thumb, an indemnity costs order recovers for the successful party approximately 90% of its legal costs. The usual costs order (being a party/party costs recovery) usually recovers for the successful party between 50% and 60% of its legal costs.

His Honour affirmed the authority in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 that '[t]he circumstances of the case must be such as to warrant the Court in departing from the usual course'. This usually requires 'some special or unusual feature in the case to justify the Court in departing from the ordinary practice'. Justice Jackson drew on Hammercall Pty Ltd v Robertson [2011] QCA 380 as authority for the proposition that abuse of process by oppression is a sufficient ground for an indemnity costs order.

The Court found that, in this case, JH's actions in conducting the appeal were oppressive and were an abuse of process for three reasons:

  1. JH's application was so lengthy (35 principal pages, 97 annexure pages and 2,000 plus pages of affidavit material) that His Honour believed JH's intention was to increase its prospects of success by showing much of the appeal work was already completed.
  2. JH submitted that the arbitrator needed to consider roughly 140 communications between JH and the contract superintendent. This was a departure from JH's submissions to the arbitrator, where JH had submitted that the arbitrator could confine his consideration to the submissions.
  3. JH's application required the Court to consider such 'extensive and wide ranging' proposed grounds of appeal. This was oppressive because it was not possible to determine the questions of law which were properly the subject of the appeal.

JH argued that an order against it for indemnity costs was not appropriate, given Adani's failure to put JH on notice that it would seek a special costs order. However, His Honour stated that a 'lack of warning is a relevant consideration…but a warning is not a precondition to making an order for indemnity costs'.

Justice Jackson ruled that the abuse of process occasioned by JH conducting the appeal in the manner it did warranted an order that JH pay Adani's costs on an indemnity basis.

Implications
The decision highlights some key points for arbitrating parties, and parties considering whether to appeal an arbitral award, to bear in mind.

It is clear that the courts continue to respect and enforce, whenever possible, parties' agreements to arbitrate. The courts then also expect parties appealing arbitral awards to do so in a manner which conforms with court processes and which is not an attempt to litigate afresh matters which were resolved during arbitration.

Parties appealing arbitral awards must give genuine consideration to whether an appeal is appropriate, and the way in which that appeal is conducted. The appeal must be conducted in accordance with the relevant Arbitration Act and the relevant court's Rules.

A failure by an appealing party to adhere to the above requirements may lead to an indemnity cost order against that party; whether or not the other party has flagged its intention to seek such an order.

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.

Thanks

We thank the authors of this legal update to Karen Ingram and Josh Krechman from Clayton Utz Litigation and Dispute Resolution team for their contribution to Pulse.

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