SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: / Kai Design & Constructions Pty Ltd v MiCitation: / [2016] ACTSC 269
Hearing Dates: / 16, 18 August 2016
Decision Date: / 19 August 2016
Before: / Mossop AsJ
Decision: / See [51]
Catchwords: / PRACTICE AND PROCEDURE – Application for a freezing order – Ancillary to arbitration proceedings – Awaiting delivery of awards – A good arguable case – Whether there is a risk of dissipation of the assets – Evidence insufficient to warrant freezing order – No ancillary orders
Legislation Cited: / Building Act 2004 (ACT)
Commercial Arbitration Act 1986 (ACT), ss 35, 36, 37, 46, 47, 49
Court Procedures Rules 2006 (ACT), rr 741-743
Cases Cited: / Chan v Kai Design and Construction Pty Ltd [2014] ACTSC 86
Chan v Wood [2013] ACTSC 228
Finn v Carelli [2007] NSWSC 261
Lock International Plc v Beswick [1989] 1 WLR 1268
Maples Winterview Pty Ltd v Liu [2015] ACTSC 58
Ninemia Maritme Corp v Trave Schiffahrtsgesellschaft [1984] 1 All ER 398
Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319
Raukura Moana Fisheries Ltd v The Ship Irina Zharkikh [2001] 2 NZLR 801
Ryder v Frohlich (No 2) [2006] NSWSC 1325
Supabarn Supermarkets Pty Ltd v Cotrell Pty Ltd [2016] ACTSC 49
Parties: / Kai Design & Constructions Pty Ltd (First Plaintiff)
Zheng Kai Li (Second Plaintiff)
Wai Man Mi (First Defendant)
Ling Chan (Second Defendant)
William Timothy Sullivan (Third Defendant)
Representation: / Counsel
Mr W Sharwood (Plaintiffs)
Self-represented (First and Second Defendants)
Self-represented (Third Defendant)
Solicitors
Baker Deane & Nutt (Plaintiffs)
Self-represented (First and Second Defendants)
Self-represented (Third Defendant)
File Number: / SC 346 of 2016
MOSSOP AsJ:
Background
1. These proceedings arise out of the construction of two residential dwellings, one in Franklin and one in Harrison. The construction of those dwellings has given rise to two previous decisions of the Court: Chan v Wood [2013] ACTSC 228 and Chan v Kai Design and Construction Pty Ltd [2014] ACTSC 86. At the commencement of the reasons given in the latter case I made the following observation:
This is an unfortunate case in that it involves two arbitrations relating to construction contracts for two single residential dwellings. A different aspect of the case has previously been subject of a decision of this Court: see Chan v Wood [2013] ACTSC 228. While the amount at stake in the arbitration proceedings is significant for the parties and significant in terms of the quantum of the original building contracts, the amount at stake are not such as to be able to support protracted litigation between the parties. Notwithstanding some considerable encouragement from me, the parties have been, as yet, unable to reach any settlement of the proceedings. In those circumstances, the parties are entitled to have their disputes resolved by arbitration and, to the extent necessary, by decisions of the Court. That is a course which involves very significant risks for the parties, not the least of which is the fact that the quantum of legal fees incurred on both sides will very soon dwarf the amounts at stake and will render it even more difficult for the parties to achieve some reasonable settlement.
2. My pessimistic prediction has proved to be accurate. Upon the initiative of the builder, the parties referred their disputes under the two different contracts to arbitration. Arbitration was a permitted, but not mandated, form of dispute resolution under the relevant contracts. That arbitration has proceeded over 13 hearing-days. Costs incurred on both sides for lawyers and the arbitrator are well in excess of $560,000. If any economy in proceeding by way of arbitration rather than litigation was anticipated, it has proved illusory. The case illustrates the need for alternative means of resolving disputes over residential building contracts and the inadequacy of standard form contracts which, in the absence of legislative compulsion, do not provide for efficient dispute resolution procedures.
3. In the reasons that follow I will identify the plaintiffs collectively as the Builder and the first and second defendants as the Owners. That is inaccurate because the contracts for the construction of the two dwellings were with the first and second defendants, separately. The dwelling in Franklin involved a contract between the second plaintiff, Mr Li, and the first defendant, Mr Mi. The dwelling in Harrison involved a contract between the first plaintiff, Kai Design & Constructions Pty Ltd (KDC Pty Ltd), and the second defendant, Ms Chan. The identity of the contracting party on the Builder’s side for the Franklin contract was the subject of substantial dispute during the course of the arbitration, which was initially commenced on the basis that the first plaintiff was the contracting party but subsequently amended so that the claim was made by Mr Li. Having said that, for most purposes it will be sufficient to refer to the parties collectively as the Builder and the Owners.
Application made
4. The present position is as follows. On 19 November 2015 the arbitrator directed the parties to provide an additional $36,000 each in order to cover his anticipated fees up until the conclusion of the arbitration. The arbitration was anticipated to include an interim award dealing with the substantive issues in both arbitrations and then final awards addressing matters including costs in the light of the terms of the interim awards.
5. While the Builder has paid the amount that it was directed to pay, the Owners have failed to pay the amount that they were directed to pay. The arbitrator has declined to deliver the awards until his fees are secured. The Builder has applied for orders so as to break this impasse. The Builder has also applied for a freezing order, preventing the Owners from diminishing their assets below $925,000. That amount is calculated to accommodate the full scope of the Builder’s claim against the Owners including interest and costs.
6. The arbitrator was joined as a party to the proceedings, made some short submissions and then was excused. He indicated that he was in a position to finalise the interim awards within a few days if his fees were secured or if he was ordered to produce the award.
Statutory provisions
7. The provisions of the Commercial Arbitration Act 1986 (ACT) (CA Act) most relevant to the present application are ss 35, 37 and 47. Those sections provide:
35 Assessment of arbitrator’s or umpire’s fees or expenses
(1) If an arbitrator or umpire refuses to deliver an award except on payment of the fees and expenses demanded by the arbitrator or umpire, the court may, on application made by a party to the arbitration agreement, order that—
(a) the arbitrator or umpire deliver the award to the applicant on such terms as to the payment of the fees and expenses of the arbitrator or umpire as the court considers appropriate; and
(b) the fees and expenses demanded by the arbitrator or umpire be assessed by the court.
(2) Notwithstanding that the amount of the fees or expenses of an arbitrator or umpire may be fixed by the award, those fees or expenses may, on the application of a party to the arbitration agreement or of the arbitrator or umpire, be assessed by the court.
(3) The arbitrator or umpire and any party to the arbitration agreement shall be entitled to appear and be heard on any assessment under this section.
(4) Where the fees and expenses of an arbitrator or umpire are assessed in the court, the arbitrator or umpire shall be entitled to be paid by way of fees and expenses only such sum as is found reasonable by the assessment.
37 Duties of parties
The parties to an arbitration agreement shall at all times do all things which the arbitrator or umpire requires to enable a just award to be made and no party shall wilfully do or cause to be done any act to delay or prevent an award being made.
47 General power of court to make interlocutory orders
The court shall have the same power of making interlocutory orders for the purposes of and in relation to arbitration proceedings as it has for the purposes of and in relation to proceedings in the court.
8. The plaintiffs also made specific reference to ss 47 and 49 in support of their application for an order directing the first and second defendants to pay the arbitrator’s fees.
9. The making of freezing orders is addressed by rr 741-743 of the Court Procedures Rules 2006 (ACT) (CPR).
Payment of arbitrator’s fees and delivery of decision
Orders sought
10. In relation to payment of the arbitrator’s fees and the delivery of his decisions the Builder sought a number of orders including orders in the alternative.
11. Order 3 in the further amended originating application sought an order under s 35(1)(a) of the CA Act that the arbitrator deliver his awards within seven days.
12. Orders 4, 4A and 5 sought in the further amended originating application were orders requiring the Owners to pay a total of $36,000 into the nominated trust account for the arbitrations (order 4). If they did not do so then they were required to pay that amount to the Builder upon the Builder undertaking to pay it to the arbitrator. In the event that the amount required to be paid by order 4 or 4A was not paid, then the Builder would be at liberty under order 5 to apply for an order that three identified properties be sold and that the proceeds be used to satisfy the requirement of the arbitrator for an additional payment of $36,000.
13. In the alternative to that regime, the Builder has sought an order (order 5A) permitting it to use some of the security which it was required to provide for the Owners’ costs of the arbitrations to the arbitrator. In my earlier decision in Chan v Kai Design and Construction Pty Ltd [2014] ACTSC 86 I had ordered that the Builder provide $80,000 by way of security for the costs of the Owners. That money is in an account maintained by the solicitors for the Builder. The effect of order 5A would be to have the Builder pay more than its fair share of the amount required to be paid for the arbitrator’s fees, but to do so in a manner which did not require it to find further funds.
Submissions
14. The arbitrator submitted that, of the overall amount that he had requested as security for his fees, only $26,000 per party, out of the $36,000 per party, was required as security up to the point where the interim awards would be delivered. The balance of the fees were fees which were anticipated to be required in order to make the final awards which were anticipated to require some argument in relation to the question of costs.
15. The Builder submitted that one or other of the orders it had proposed would be an appropriate means of resolving the impasse over the arbitrator’s fees. The Builder submitted that there was no evidence that the Owners were unable, as opposed to unwilling, to pay the additional amount pointing to evidence that Ms Chan had recently acquired a residential property which was apparently unencumbered. It also pointed to the evidence that the property owned by Mr Mi at Franklin and another residential property which he owned had both been mortgaged to the National Australia Bank were of substantial value and there was no evidence that funds were unavailable from him.
16. The Owners’ submissions raised a number of different points.
(a) They pointed to the very significant fees charged by the arbitrator for a hearing which extended over 13 days.
(b) They pointed to the arbitrator’s decision not to accept the submission that particular rules of the Institute of Arbitrators and Mediators Australia should be applied which would permit the capping of legal and arbitrators fees. The submission was made that this application was incorrectly refused.
(c) They submitted that Mr Mi had put forward a reasonable proposal that the arbitrator deliver one of the awards using the fees that had already been paid by the Builder.
(d) Mr Mi submitted that he would be making an application to terminate the arbitration because of inordinate delay under s 46 of the CA Act. He made an oral application for an order to that effect which I refused to allow him to pursue. I indicated that if he was to pursue such an order that he would need to proceed by way of originating application.
(e) Mr Mi also sought to make an application for an increase in the security provided by the Builder. Once again I did not permit that to be made by oral application, indicating that if he wished to seek an order under s 47 of the Act he needed to do so by originating application. He pointed to the fact that KDCPty Ltd had not produced financial records which he had requested.
Decision
17. Under the terms of the respective contracts the parties are obliged to comply with directions of the arbitrator in relation to providing security for the costs of the arbitration: cl 30(f). The present position is that the Owners have failed to pay an amount that they have been directed to pay for more than eight months. Having regard to the limited evidence of their financial circumstances and the absence of any evidence indicating an inability to pay I conclude that they have made a decision to not pay the amount required by the arbitrator.
18. The subparagraphs of s 35(1) are linked by the word “and”. That indicates that where an order is made under s 35(1)(a) then there is a requirement that the fees and expenses demanded by the arbitrator be assessed by the court. As a consequence, if the order sought by the plaintiff was made then there would need to be a further process involving an assessment of the arbitrator’s fees. That is distinct from the power in s 35(2) for a party to apply to have the arbitrator’s fees assessed by the Court.