IN THE SUPREME COURT OF VICTORIA	Not Restricted	
AT MELBOURNE
COMMERCIAL COURT
ARBITRATION LIST

S ECI 2020 02191

ISOAQUA PTY LTD (ACN 602 513 726)	Applicant	
		
v  		
		
AUSTRALIA CENVIC CONSTRUCTIONS PTY LTD (ACN 608 196 747)	Respondent	

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JUDGE:	LYONS J	
WHERE HELD:	Melbourne	
DATE OF HEARING:	On the papers	
DATE OF JUDGMENT:	28 August 2020	
CASE MAY BE CITED AS:	IsoAqua Pty Ltd v Australia Cenvic Constructions Pty Ltd	
MEDIUM NEUTRAL CITATION:	[2020] VSC 538	

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ARBITRATION – Commercial Arbitration Act 2011 (Vic) – s 11 – application for appointment of arbitrator – appointment not opposed – costs – whether costs of application should be costs in the cause in the arbitration – application for appointment separate proceeding and discrete issue – aspects of respondent’s conduct of the proceeding unreasonable – standard costs of the application awarded in favour of the applicant.

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APPEARANCES:
	Counsel	Solicitors	
For the Applicant		ALT Legal Associates	
			
For the Respondent		King & Wood Mallesons	

HIS HONOUR:
1	In this application, the applicant (‘IsoAqua’) sought the appointment of an arbitrator pursuant to s 11(3) of the Commercial Arbitration Act 2011 (Vic) (the ‘Act’).  On 20 August 2020, in the absence of any opposition by the respondent (‘Cenvic’), I made orders appointing Mr Romauld Andrew as arbitrator of the disputes pursuant to s 11 of the Act and reserved the questions of costs of the application.  These reasons deal with the appointment of the arbitrator and the costs of this application.
Background 
2	The arbitration relates to disputes arising from three subcontracts each dated 22 September 2017 (collectively, the ‘contracts’) for IsoAqua to undertake waterproofing, screeding and epoxy coating works in three towers in Footscray, Victoria (the ’works’).  Disputes arose between the parties over Cenvic’s alleged refusal to pay invoices issued by IsoAqua for works performed pursuant to the contracts.  IsoAqua also alleges that Cenvic ‘banned’ its employees from working on the site on a number of occasions, preventing IsoAqua from complying with its obligations, and engaged third party contractors to perform the works.  It claims that each of these breaches constitutes a repudiation of the contracts.  As a result of these disputes, IsoAqua claims damages of over $410,570. 
3	In April 2020, the parties agreed that the disputes be referred to arbitration.  On the evidence before the Court, it appears that Mr Andrew was first suggested to be appointed as arbitrator by email on 3 April 2020.  However, I note that Mr Andrew had confirmed that he would accept any appointment as early as 5 March 2020.  Cenvic opposed the appointment of Mr Andrew. 
This application
4	As a result, this application was issued on 15 May 2020.  It was supported by an unsworn affidavit of Ajai Thapliyal, solicitor for IsoAqua, dated 15 May 2020.  
5	On 12 June 2020, the Court made orders by consent (the ‘12 June Orders’) that:
(1)	Cenvic file any material in opposition to IsoAqua’s application and any cross application and material in support thereof by 19 June 2020;
(2)	IsoAqua file any material in reply by 26 June 2020;
(3)	the parties file submissions by 5 July 2020; and
(4)	the application and any cross application be set down for hearing after 12 July 2020 with an estimate of 2 hours.
6	By this time, Cenvic foreshadowed a cross application for security for costs of the arbitration. The 12 June Orders were made on that basis. 
7	Cenvic did not comply with the 12 June Orders for it to file affidavit material and submissions in opposition to this application.  As a result, on 10 August 2020, the Court advised the parties that in the circumstances, subject to any objection from either party, it would decide the application on the papers.  Cenvic objected to this course.  At the time, Cenvic indicated that it sought further orders from the Court but did not indicate what orders were sought.  As a consequence of Cenvic’s objection, the Court informed the parties that the application was listed for hearing on 21 August 2020 and noted that any application to vary or extend the times in the 12 June Orders would be heard on proper notice.
8	No application was made to vary or extend the 12 June Orders.  Rather, Cenvic filed submissions and an affidavit of Eden Bird on 19 August 2020.  In its submissions, it indicated to the Court for the first time that it did not oppose the appointment of Mr Andrew.  Further, it sought that the costs of this application be the costs in the arbitration. It withdrew its insistence that there be a hearing of the application, advising it was content for the matter to be determined on the papers.
9	By email, IsoAqua objected to Cenvic being allowed to rely upon the submissions and the Bird affidavit as no application for leave had been made and no explanation for the failure to comply with the 12 June Orders had been given.  It noted that counsel had been engaged by IsoAqua for the hearing on 21 August 2020.
10	After considering these matters, on 20 August 2020, the Court advised that parties that:
(1)	notwithstanding that no application for leave had been made and no explanation for the failure to comply with the 12 June Orders had been given, the Court would have regard to this material;
(2)	in the absence of opposition by Cenvic, the Court proposed to order the appointment of Mr Andrew as arbitrator that day;
(3)	the Court considered the matter of costs should be determined on the papers and would give IsoAqua the opportunity to file material or submissions in reply.  
11	As a result, on 20 August 2020, the Court made orders appointing Mr Andrew as arbitrator of the disputes pursuant to s 11(3) of the Act and reserved the questions of costs of the application.  IsoAqua did not seek to file any material or submissions in reply.  These reasons deal briefly with why I appointed Mr Andrew and with the question of the costs of this application.
Appointment of Mr Andrew
12	As I have said, Cenvic ultimately did not oppose the appointment of Mr Andrew as arbitrator.  This was a significant factor in my decision to appoint him.  However, I am satisfied of his suitability to act as arbitrator in this dispute and, to the extent it is relevant to my decision, any counterclaim.  
13	In this regard, Cenvic foreshadowed a proposed counterclaim at the arbitration.  There is no evidence before me that it has been the subject of the dispute resolution process under the contracts like IsoAqua’s dispute.  There was limited evidence about the nature of such a counterclaim before me.  The Bird affidavit referred to claims for loss and damage arising from defective works and wrongful termination of the subcontract in the order of $4-5 million.  However, there was no objective evidence of the quantum of these claims.  As set out below, Cenvic had proposed in correspondence that a senior counsel arbitrator was appropriate to hear and determine the disputes and its counterclaim.  However, Cenvic does not now oppose the appointment of Mr Andrew.
14	In my view, Mr Andrew’s experience at the Bar suggests that he is experienced in disputes of the kind outlined in the notice of dispute and any counterclaim.  He has been practising as a barrister since 1999 and his practice focuses on technology, engineering and construction cases.  He has been a fellow of the Chartered Institute of Arbitrators since 2011.  He has also been a qualified adjudicator under the Building and Construction Industry Security of Payments Act 2002 (Vic) since 2003.  While I note the evidence to the effect that Mr Andrew has not himself acted as an arbitrator, I consider that in the circumstances of this case that does not preclude his appointment.  This is in a context where Cenvic does not oppose his appointment.
15	I consider that the claims made by IsoAqua in this case, relating to the payment of invoices, breach of the contracts relating to Cenvic preventing IsoAqua from performing the works required under the contracts and claims of repudiation of the contract, are matters that are well within Mr Andrew’s capacity to determine fairly and finally without unnecessary delay or expense in accordance with the paramount object of the Act.  Further, on the evidence before me, the nature of any counterclaim does not involve issues of particular complexity.  
16	As a consequence, I consider it appropriate that Mr Romauld Andrew is appointed as arbitrator. 
The Costs Issue 
17	The affidavit material reveals the following chronology.
18	By email from its solicitors dated 14 April 2020, Cenvic did not agree to the appointment of Mr Andrew as arbitrator on the basis that senior counsel should be appointed due to the size of Cenvic’s anticipated counterclaim, which was estimated in the order of $5 million.  In the same email, Cenvic proposed that the parties agree to amend the terms of General Condition VII(2) to allow the disputes to be progressed in Court as follows:
If the dispute has not been resolved within 28 days of the service of the notice of dispute, either party may commence proceedings in a court of competent jurisdiction shall be and is hereby referred to the Aarbitration [sic].
19	IsoAqua, through its solicitor, replied on the same day rejecting the proposed amendment and requesting that Cenvic provide a list of suitable arbitrators.  IsoAqua stated in this email that the appointment of senior counsel as arbitrator must be justified according to the complexity of the dispute and not the amount in dispute, and that an experienced member of the junior Bar would be capable of arbitrating the extant disputes between the parties. 
20	On 9 June 2020, Cenvic’s solicitors sent a letter to the solicitor for IsoAqua noting that it was appropriate that senior counsel act as arbitrator.  It proposed a particular senior counsel be appointed as arbitrator and invited IsoAqua to propose three further nominees not including Mr Andrew if it did not agree to Cenvic’s senior counsel.  Attached to the letter was a proposed arbitration agreement to govern the disputes.
21	On 17 June 2020, Cenvic again proposed three senior counsel and repeated its request for IsoAqua to provide alternative proposed arbitrators.  IsoAqua did so on 19 June 2020, proposing four junior counsel.  
22	Ultimately on 26 June 2020, the solicitors for Cenvic sent an email to IsoAqua’s solicitors noting that each of the alternative proposed arbitrators did not hold themselves out to be practising arbitrators or specialists in building and construction law.  However, Cenvic offered to resolve this proceeding by agreeing to the appointment of Mr Andrew as arbitrator provided that costs in this proceeding be costs in the arbitration.  This offer was not accepted by IsoAqua and accordingly no agreement was made.  Cenvic renewed this offer by email on 11 August 2020 but did not receive a response. 
23	IsoAqua’s submissions deal predominantly with the issue of costs.  Two sentences of the submissions stating that Cenvic had agreed to the appointment of Mr Andrew as arbitrator by email dated 26 June 2020 were subsequently withdrawn.
24	IsoAqua submitted that it should be awarded its costs of this proceeding.  It submitted that given the quantum of the dispute, Cenvic’s insistence on the engagement of senior counsel as arbitrator was unreasonable and not properly made.  It further submitted that Cenvic failed to engage in the process of appointing an arbitrator with any level of expedition and that Cenvic’s extended delays at each step of the dispute resolution process justified IsoAqua in making this application.
25	In its submissions, IsoAqua estimated its costs incurred of and incidental to this proceeding at $12,100.00.  No affidavit material was filed in relation to this estimate, however, the submissions provide a breakdown as follows:
(1)	Supreme Court filing fee - $4,100.00;
(2)	Junior counsel’s fees - $2,410.00;
(3)	Professional costs - $5,500.00.
26	Cenvic submitted that the costs of this proceeding should become costs in the cause in the arbitration.  In support of its submissions, Cenvic noted that:
(1)	it has been content for the matter to be referred to arbitration prior to and after the proceeding was commenced;
(2)	it made concerted efforts to agree upon a suitable barrister and considered that senior counsel would be appropriate given the size of the foreshadowed counterclaim; and 
(3)	after disagreement as to who should be appointed, Cenvic informed IsoAqua that it was prepared to accept Mr Andrew as the arbitrator in the interests of progressing resolution of the dispute, provided costs of this proceeding become costs in the cause in the arbitration.
27	Cenvic rejected IsoAqua’s allegations that it caused delay.  It submitted that its position has been plain since the dispute arose, namely that it has been prepared to arbitrate and appoint a suitably qualified arbitrator and that the senior counsel nominees it proposed would conduct the arbitration efficiently.  It further submitted in this regard that Cenvic proposed terms of an arbitration agreement for IsoAqua’s consideration but were met with silence from IsoAqua.
28	Cenvic noted that there has been no formal agreement between the parties to the appointment of Mr Andrew.  It submitted that IsoAqua’s costs submissions ‘came as a surprise’ as Cenvic had not agreed to the appointment of Mr Andrew unconditionally.
Costs - Analysis
29	In my view, IsoAqua is entitled to its costs of the proceeding.  It has been successful on the substantive issue before the Court, namely the appointment of Mr Andrew as arbitrator.  
30	It is true that from 26 June 2020 Cenvic offered to resolve this proceeding by agreeing to the appointment of Mr Andrew as arbitrator but only on the condition that costs in this proceeding be costs in the arbitration.
31	It was not made plain at that time or in Cenvic’s submissions why such a costs order was appropriate.  While this application is related to the arbitration, it is a separate proceeding dealing with distinct issues.  It is not an application in the arbitration per se, and is indeed not an application relating to the subject matter of the disputes referred to arbitration but to a preliminary procedural matter that precedes the formation of the arbitral tribunal.  As a result, I consider that this matter is separate from the issues in the arbitration and that costs should be treated accordingly.  
32	Further, I do not consider that the other matters in Cenvic’s submissions outlined at [26] above support the conclusion that the costs of this proceeding should be costs in the arbitration.  Rather, they appear to relate to the question of whether Cenvic’s approach to conducting this proceeding has been reasonable for the purposes of determining orders as to costs. However, in my view they have no relevance to the determination of the costs application in light of my conclusion that Mr Andrew is and has at all times been a suitable arbitrator of the dispute and, if relevant, any counterclaim. 
33	Moreover, I have concluded that Cenvic’s approach to the conduct of this proceeding has not been reasonable.  For the reasons set out in [31] above, I do not consider that it was reasonable to offer to accept Mr Andrew as arbitrator only on the condition that the costs of this proceeding be costs in the arbitration.  Further, there is other conduct on the part of Cenvic and its solicitors which I consider has added to the costs of the proceeding since 26 June 2020, namely:
(1)	the failure to comply with the 12 June Orders;
(2)	its failure to make a proper application to extend or vary those orders and to explain why they were not complied with; 
(3)	its decision to object to the Court determining this application on the papers which resulted in the fixing of a hearing date on 21 August 2020; and
(4)	its decision to file material on 19 August 2020 and at the same time advise it no longer insisted on an oral hearing. 
34	I consider that this conduct has added to the time and costs associated with this proceeding.  Parties and their solicitors should understand, if they do not already, that orders of the Court are not mere indications of when things are to be done: they are orders which must be complied with.  Of course, on occasions, that cannot be done for good reason.  However, the response is not to ignore those orders: it is to seek to vary or extend them as soon as reasonably practicable and explaining the reasons why they could not be met.  Further, the decision of Cenvic to insist on a Court hearing and then no longer insist on a hearing after its material had been filed (without leave having been granted to rely on that material) does Cenvic and its solicitors no credit. 
35	However, I do not consider that a costs order other than a standard costs order is appropriate in this case.  This is notwithstanding my conclusions in the previous paragraphs.  
36	As a result, I will order that Cenvic pay IsoAqua’s costs of and incidental to this application (including any costs incurred in briefing counsel for 21 August 2020) on a standard basis, to be taxed in default of agreement.  
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