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A “final” decision: can a written consent technicality, and no avenue to appeal, derail an arbitration?

Ku-ring-gai Council v Ichor Constructions Pty Ltd [2019] NSWCA 2

In Ku-ring-gai Council v Ichor Constructions Pty Ltd [2019] NSWCA 2, the NSW Court of Appeal dismissed an appeal because the Commercial Arbitration Act 2010 (NSW) precluded an appeal in circumstances where a “final” decision had already been made. The Court of Appeal held that the NSW Supreme Court decision relating to the termination of an arbitrator’s mandate after the arbitrator acted as a mediator was “final”. This decision highlights the importance of being aware of the provisions of the NSW Commercial Arbitration Act 2010, especially those that specifically require written consent.

Background and judgment
Ku-ring-gai Council (the Council) and Ichor Constructions Pty Ltd (Ichor Constructions) entered into a construction contract. Disputes arose under the contract and were referred to an arbitrator in accordance with an arbitration agreement.

On the last day of the arbitration, the arbitrator asked if both the Council and Ichor Constructions would consent to a brief mediation run by the arbitrator, where he would act as mediator and present a settlement proposal.

Written consent was provided to commence the mediation and the arbitrator put forward a settlement proposal that the Council and Ichor Constructions did not accept. The arbitration then resumed following the mediation, however the arbitrator did not seek both parties’ consent to continue with the arbitration following the mediation.

The Commercial Arbitration Act 2010 (NSW)
In New South Wales, the Commercial Arbitration Act 2010 (NSW) (the Act) applies to domestic commercial arbitrations. This case demonstrates that a careful reading of the Act’s provisions can be crucial to the outcome of a dispute.

For the arbitrator to act as mediator and then continue the arbitration proceedings, the Act requires the following:

  1. To conduct a mediation during arbitration proceedings - either the arbitration agreement must allow the arbitrator to act as a mediator, or written consent must be obtained from parties to allow the arbitrator to act as mediator (s 27D(1) of the Act).
  2. To conduct subsequent arbitration proceedings following the termination of the mediation proceedings - written consent of all arbitration parties must be given on or after the termination of the mediation proceedings (s 27D(4) of the Act).

If an arbitrator does not seek the written consent required by s 27D(4) of the Act, the arbitrator’s mandate is taken to have been terminated and a substitute arbitrator needs to be appointed.

In this case, as the arbitrator had acted as a mediator and failed to seek consent to resume arbitration proceedings, the arbitrator’s mandate was taken to have been terminated under the Act and a substitute arbitrator should have been appointed.

McDougall J found this was the case at first instance and dismissed the Council’s claim for a declaration that the arbitrator’s mandate had not been terminated following the mediation.

What if the parties knew about the written consent failure during the arbitration and did not raise the issue?
Section 4 of the Act also prevents a party from objecting to a breach of the Act or arbitration agreement later down the track. This section applies if the party has knowledge of that provision and breach, and chooses not to raise the breach and instead proceed with the arbitration.

The Council attempted to raise this argument but the evidence showed that Ichor Constructions did not have knowledge of the relevant provision of the Act during the arbitration. This meant the Council could not rely on this section of the Act.

The incompetent appeal application
The Council appealed the initial decision and Ichor Constructions filed an application to dismiss the Council’s appeal as incompetent. This application argued that the Act precluded an appeal on a decision related to an arbitrator’s inability to perform their functions, as the decision by the Supreme Court at first instance in these circumstances operated to be a “final” decision (s 14 of the Act).

There was an argument over the meaning of the word “final” and whether the previous judgment dealt with an “interim measure” or was a request for a decision. Interestingly the Court referred to the UNCITRAL Model Law on International Commercial Arbitration (Model Law). The Act authorised the Court to have regard to the Model Law and the need to promote uniformity between the Act’s application to domestic commercial arbitrations and the application of the provisions of the Model Law. The Court of Appeal referred to analytical and drafting commentary relating to the Model Law provisions in their judgment to decide this issue.

Ultimately, the Court of Appeal concluded:

  • the Supreme Court’s decision did not involve an “interim measure” and was a “final” decision,
  • the Council’s appeal should be dismissed,
  • McDougall J’s initial decisions and reasons were correct, and
  • ordered the Council to pay Ichor Constructions’ costs.

Conclusion
This decision highlights the importance of understanding the regulatory environment which affects alternate dispute resolution proceedings. Parties dealing with an arbitration, should become familiar with the applicable legislation and regulations to avoid losing on what may seem like a procedural technicality with no avenue to appeal.

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 Karen Ingram (Partner) and Jake Giordano from the Clayton Utz Litigation and Dispute Resolution team for their contribution to Pulse.