Case Note: Spaseski v Mladenovski [2019] WASC 65

DOMESTIC ARBITRATION

Case Note: Spaseski v Mladenovski [2019] WASC 65

The Extent of the Reasonable Right to be Heard

Nick Longley
Partner, HFW, Melbourne, Australia and Hong Kong
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A perennial problem for an arbitrator is how far should a party be allowed to go when exercising a reasonable opportunity to be heard or alternatively when should a party be stopped.  The somewhat unfortunate case of Spaceski v Mladenovski [2019] WASC 65 provides useful guidance to arbitrators in these circumstances.

Background Facts

On 23 April 2014, the Speseskis (the Owners) appointed Mr Mladenovski (the Builder) to build a house in Dianella, Western Australia.  The Contract was initially a lump sum contract but later the parties agreed a new contract on a cost plus basis.  Construction work began in May 2014 and all proceeded happily.  However in August 2015, the Builder issued their nineteenth payment claim and the Owners refused to pay.  On 13 November 2015, the Builder issued another invoice. Again the Owners refused to pay.

On 1 December 2015, the Builder issued a notice of suspension and then commenced an arbitration, seeking moneys due under the progress claims. The Owners counterclaimed on the basis that they had overpaid the Builder. A four day arbitration took place in May and June 2018.

By the time of the arbitration hearing, the Builder represented himself.  The following took place

  1. The arbitration extended over four days, although on day 1, half a day was lost because the Builder failed to bring any witnesses with him.
  2. Initially the Builder said that he would not give evidence himself. Instead, he led evidence from an electrician and a building supervisor.
  3. However on day 2, the Builder "offered" to give evidence, but did not do so.
  4. After his case was closed and whilst the Owners were presenting their evidence, the Builder again offered to give evidence, although the scope of that evidence was not clear.
  5. On the final day of the arbitration hearing, the Builder unfortunately became ill and had to be taken to hospital. The hearing continued in his absence. 
  6. At the end of the hearing, the arbitrator gave directions for written closing submissions. However the Builder failed to provide its written closing submissions even by the extended date. Apparently the Builder missed the deadline because his pets became sick.
  7. Ultimately the arbitrator failed to consider Builder's late written closing submissions because they were received out of time.

The Arbitrator issued a partial award on 10 September 2018 and a final award on 6 October 2018, dismissing the Builder's claim.  The Arbitrator ordered the Builder to repay $103,560.43 plus interest.  The Arbitrator also awarded indemnity costs against the Builder. 

The Owners applied for the enforcement of the arbitral awards against the Builder pursuant to section 35 of the Commercial Arbitration Act 2012 (WA) (the "Act").  The Builder resisted enforcement on the basis of section 36(1) of the Act on three grounds.

Ground 1:        he was denied the opportunity to give evidence during the hearing of the arbitration;

Ground 2:        part of the arbitration was heard in the Builder's absence;

Ground 3:        he was denied a fair opportunity to cross-examine the Owner's witnesses,

and consequently the Builder alleged that he was entitled to resist enforcement of the arbitration award because:

  1. the Builder was unable to present its case (under s 36(1)(ii) of the Act); and
  2. the enforcement of the award would be contrary to public policy (under s 36(2)(b)(ii) of the Act).

Conversely, the Builder applied to have the arbitration awards set aside under section 34 (2) of the Act. In doing so, he relied on the same three grounds.

Judgement

.  Before analysing the three grounds for resisting enforcement of the Award, His Honour Kenneth Martin J noted that the Act gives effect to the UNCITRAL Model Law and that cases in international jurisdictions would "carry a greater than usual significance in this area – beyond the force they might otherwise carry in other areas of State domestic law.

His Honour further noted that both domestic and international case law highlighted the "policy of minimal curial intervention in arbitral proceedings".[1]

His Honour expanded by saying that a "considerable level of curial caution… is called for as regards assessing what is the true underlying subject matter of an alleged denial of natural justice or procedural fairness deficiencies" [at 59]. His Honour at [67] synthesised the cases as acknowledging the importance for curial restraint against a "disgruntled loser party" attempting to set aside arbitral awards.

The Opportunity to Give Evidence

His Honour observed that section 18 of the Act provides that the opportunity given to a party to present its case is qualified by the word "reasonable".  The opportunity therefore:

            "to present a party's case at an arbitration is clearly not unqualified, open ended or unlimited.  Necessarily then, what will amount to a 'reasonable' opportunity to present a party's case must depend upon the invariably unique presenting circumstances of each and every distinct arbitral dispute."

His Honour then assessed the three grounds on which the Builder sought to resist enforcement of, alternatively set aside the Award. 

Ground 1:  Refusing to allow the Builder to give evidence

The first ground relied by the Builder was that he was not allowed to give evidence and that this constituted an error of law.  However His Honour concluded that the Builder was given "more than a reasonable opportunity to present his case".   In fact, the Builder expressly stated in clear terms on day 1 that he would not give evidence but then changed his mind after his case was closed.  

His Honour held that the Arbitrator's decision against allowing the Builder to give evidence when he changed his mind on day 4 did not meet the threshold for curial intervention.   

The Builder sought to argue that that he only needed to establish that he had wrongly been denied reasonable opportunity to give evidence to set aside the awards and that it was not necessary to show any causative significance of any inability to give evidence.  His Honour did not accept that argument.  The question which His Honour considered should be confronted was "what difference would it have made".  In His Honour's view, the Builder had not made any attempt to identify with any specificity the character of the hypothetical extra evidence that could have been presented by the Builder. 

Grounds 2 and 3:  Part of the hearing took place in the absence of the Builder and the Builder was denied a fair opportunity to present its case.

His Honour addressed these two grounds together. 

His Honour considered day 4 of the arbitration hearing at length.  Unfortunately on that day, the Builder became unwell and was taken to hospital. The Arbitrator proposed to proceed in the Builder's absence.  An agreement was made that, Ms Ungerean, the Builder's de facto partner and administrative assistant, who had been present at the proceedings, would take the Builder to hospital and then return to cross-examine the Owner's expert.  Ms Ungerean returned and cross-examined the expert. Late on day 4, directions were given for the parties to provide the Arbitrator with written closing submissions.

Bearing in mind, the factual background, on His Honour's assessment, there were three issues to be considered:

  1. First, the Builder contended that the proceedings ought to have been adjourned, until the Builder's health had recovered. His Honour did not accept this argument.  Although His Honour does not in the judgment provide reasons for this view, it would seem that part of his thinking was that the adjournment was not requested and in fact an agreement was made that Ms Ungerean would conduct the cross examination on the Builder’s behalf.  Further it seems that Ms Ungerean conducted a relatively competent cross examination (in contrast to the Builder).
  2. Second, the fact that there was a transcript meant that the Builder was fully appraised of what occurred in his absence.
  3. Third, the Arbitrator gave directions for written closing submissions. Although he refused to consider the submissions provided late by the Builder, that was not one of the grounds of grievance asserted by the Builder.  The fact that the Arbitrator directed written closing submissions provided the Builder with a further opportunity to be heard.  It was the Builder who ultimately failed to provide the written submissions. 

Overall, his Honour held that there was no denial of natural justice or procedural fairness.  

Comment

As Martin J made clear, whether a party has had a reasonable opportunity to be heard depends upon an assessment of the circumstances of the case.  In the unique circumstances of this case, his Honour considered that the Builder had a reasonable opportunity to be heard. 

The fact that:

  1. the Arbitrator directed written closing submissions; and
  2. there was a transcript of proceedings,

mitigated the risk that the Builder was not aware of the conduct of the arbitration.  These are tools which any arbitrator should consider in situations where it is considered that there is a risk that one party may seek to argue that there has not been a reasonable opportunity to present its case.  

It is also worth noting that in Western Australia, unlike Victoria, New South Wales and Queensland, domestic building disputes are arbitrable.

 

[1] Referring to AKN v ALC [2015] SGCA 18 at 37.