Ansett Australia Ltd v Malaysian Airline System Berhad (No 2)

[2008] VSC 156

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL LIST

No 2044 of 2007
F6115

ANSETT AUSTRALIA LIMITED (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)	Plaintiff
and
MALAYSIAN AIRLINE SYSTEM BERHAD	Defendant

No 2045 of 2007
F6116

ANSETT AUSTRALIA HOLDINGS LIMITED (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)	Plaintiff
and
MALAYSIAN AIRLINE SYSTEM BERHAD	Defendant

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JUDGE:	HOLLINGWORTH J
WHERE HELD:	Melbourne
DATE OF HEARING:	2 May 2008
DATE OF RULING:	9 May 2008
CASE MAY BE CITED AS:	Ansett v Malaysian Airline System (No 2)
MEDIUM NEUTRAL CITATION:	[2008] VSC 156

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Practice and procedure – Stay of proceedings under International Arbitration Act 1974 (Cth) – Conditions of stay – Costs of application for stay – Whether costs should be on indemnity basis – Costs of proceeding

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M Garner	Holding Redlich
For the Defendant	Mr D Collins S.C. Mr G Harris	Lander & Rogers

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HER HONOUR:

1. In proceeding 2044 of 2007, the plaintiff (“Ansett”) seeks to recover from the defendant (“MAS”) for services provided under an airport ground handling agreement.   In proceeding 2045 of 2007, Ansett seeks to recover from MAS for services provided under Multilateral Interline Traffic Agreements (“MITA”).

1. In each proceeding, MAS has applied for a stay of the proceeding under s 7 of the International Arbitration Act1974 (Cth) (“IAA”) and/or s 53 of the Commercial Arbitration Act (1984) (Vic) (“CAA”), on the basis that Ansett's claim is covered by an arbitration clause.

1. On 11 April 2008, I published reasons for decision in the ground handling proceeding, which explained why that proceeding had to be stayed under the IAA.[1]  At the time of publishing my first reasons, I said I would hear from the parties as to the precise form of orders in that proceeding, including the conditions of stay, as well as costs.

   [1][2008] VSC 109.

1. The parties subsequently agreed that there should be a stay of the MITA proceeding on the same terms and conditions as I determined should apply in the ground handling proceeding. 

1. On 2 May 2008, I heard argument about the form of the stay conditions and as to costs.

Conditions of stay

Limitation period

1. In my first reasons, I indicated that I would impose conditions necessary to ensure that Ansett is not prejudiced in terms of the possible expiry of relevant limitation periods by MAS's delaying conduct in bringing the stay application. 

1. Ansett argues that I should therefore impose a condition to operate with effect from the commencement of the proceeding. 

1. MAS argues that the condition should operate from 24 August 2007, being the date when directions were first scheduled in the proceedings.  MAS says that is the first date on which it ought reasonably to have made any application for a stay. 

1. I propose to order that each arbitration be treated as if it had commenced on the same day as the commencement of the relevant proceeding.  Such an order will preserve the rights of the parties as at the date of commencement of the proceedings.  Whilst MAS’s delay is a very relevant consideration, Ansett properly commenced both proceedings in this court and, unless MAS applied for a stay, the proceedings would have continued in this court.  The proposed condition will reflect that fact.  In making a similar order in Hi Fert Pty Ltd v Kiukiang Maritime Carriers Inc[2], Tamberlin J noted that “It operates to avoid the conferring of any possible additional benefit on either party beyond the rights and obligations which would have prevailed if the arbitration proceeding provided for in the agreement had been commenced.” 

   [2](1997) 150 ALR 345 at 347. Although in Hi Fert Pty Ltd v Kiukiang Maritime Carriers Inc(No 5) (1998) 90 FCR 1, Beaumont, Branson and Emmett JJ partially allowed an appeal against Tamberlin J’s decision, they did not doubt the correctness of this statement, or the one referred to later in these reasons.

Liberty to apply

1. I also indicated in my first reasons that I would make it a condition of the stay that MAS act promptly, to enable the arbitration to commence and proceed with due expedition.  I noted there would be liberty for Ansett to apply to have the stay terminated if MAS did not comply with that condition.  There is no issue or problem arising from that proposed condition.

1. However, Ansett also seeks broader liberty to apply to the court, in case MAS seeks to raise in any arbitration a set-off or other defence which has not been foreshadowed in this court.

1. In my opinion, it is not appropriate to grant that liberty.  As I indicated in paragraphs 46 and 47 of my first reasons, it is not appropriate for this court to pre-empt the role of the arbitral tribunal, which must decide which defences, if any, are available to MAS under the relevant law. 

1. As I indicated in the course of discussion last week, if MAS seeks to raise by way of  defence in the arbitration a matter which Ansett disputes is within the arbitrator's jurisdiction, that is something which should, in the first instance, be argued before the arbitrator.  If Ansett is aggrieved with the arbitrator’s decision in that regard, there will presumably be rights of appeal or review of such a decision.  To grant the liberty proposed by Ansett would be contrary to what I have already ruled.

Costs

1. On 2 May, I heard argument about the costs of the stay application and the costs of the proceeding.

Stay application

1. MAS argues that Ansett should pay its costs of the stay application, as it was successful in obtaining a stay.  Further, MAS argues that they should be paid on an indemnity basis, because the proceeding was commenced in breach of an arbitration agreement.

1. Ansett not only resists paying MAS's costs, but argues that MAS should pay some or all of its costs of the stay application, for a number of reasons. 

1. In my opinion, the costs of and incidental to the stay application should be divided into two broad categories.

1. Even though MAS was ultimately successful in obtaining a stay, it is undoubtedly the case that some costs were unnecessarily incurred because of how MAS went about making the application.  I set out the relevant chronology in paragraph 30 of my first reasons.

1. I have already ordered MAS to pay Ansett's costs of the wasted directions hearings on 12 October and 14 December 2007.  For similar reasons, MAS should pay Ansett's costs of the directions hearing on 9 November 2007.

1. As far as the balance of the costs of the stay application are concerned, they should follow the event.  That is to say, Ansett should otherwise pay MAS's costs of and incidental to the application.  Although it is true that MAS did not win on each and every point that was argued, and that it abandoned any reliance on a set-off during the course of argument, MAS was, nevertheless, successful in obtaining a stay.  In particular, it succeeded in relation to the critical questions concerning the scope of the arbitration clause and whether there was a “matter” capable of being referred to arbitration.

1. I do not accept Ansett's argument that my award of costs should be influenced by the fact that MAS’s alternative application under s 53 of the CAA was "hopeless and bound to fail." I have not made any findings in respect of the CAA, because of the conclusion I came to about the IAA. Without expressing any view as to whether MAS’s s 53 application would in fact have succeeded, it was certainly arguable.

1. However, I only propose to order that Ansett pay those costs on the usual party/party basis.  I doubt whether the statement of principle enunciated by Mr Justice Coleman in A v B[3] represents the law in Victoria. 

   [3](2007) EWHC 54.

1. Even if, contrary to that conclusion, it did represent the law, it would not be a basis for awarding costs on an indemnity basis here.  Mr Justice Coleman's remarks were  concerned with the situation in which one party's breach of an arbitration clause has caused the other party "reasonably to incur legal costs."

1. I have previously made, and will make further, specific orders to reflect MAS’s delaying conduct.  However, there are a number of additional aspects of the way in which MAS conducted its stay application (including the number of affidavits, and various irrelevant matters raised therein), which have no doubt led to the unreasonable incurring of legal costs.  Rather than require the Taxing Master to have to sift through all of the affidavits and submissions, in my view it is fairer for me to make the general observation that there are costs that were not reasonably incurred by MAS.  In the exercise of my discretion I will simply award MAS its costs on a party/party basis, not an indemnity basis.

Costs of the proceeding

1. Finally I turn to deal with the costs of the proceeding, insofar as they are unrelated to the stay application.

1. I will deal first with the costs of the directions hearings on 17 August and 7 September 2007.  The first directions hearing in each proceeding was unable to proceed on the first scheduled return date, primarily because MAS's solicitor was on leave.  Accordingly, on 17 August 2007, both summonses for directions were adjourned by consent on the papers to 7 September.  Although the parties were thereby spared the costs of an appearance, insofar as any costs were incurred, either in oral or written communications between the solicitors regarding the 17 August adjournment, it is appropriate that MAS pay Ansett's costs.

1. At the directions hearing on 7 September, I made various directions, including a direction that MAS file and serve a defence.  MAS did not object in principle to the making of directions and made no mention of a possible stay application.  In fact, MAS never complied with the directions made on the occasion.  Although I understand from the affidavit material that there were various problems, including communication problems within the MAS camp in obtaining adequate instructions, these are not matters for which Ansett should suffer financially.  Accordingly, MAS will pay Ansett's costs of the directions hearing on 7 September 2007.

1. Insofar as the parties have otherwise incurred costs in relation to the proceeding, such as costs of drawing or considering the statement of claim, I propose to reserve those costs for later determination by this court, depending on the outcome of the arbitration.

1. I am not persuaded that the court has power to refer costs in or arising out of this proceeding to be determined as part of the arbitration, for the same reasons as found favour with Tamberlin J in Hi Fert Pty Ltd v Kiukiang Maritime Carriers Inc[4].  Even if there were such a power, I would decline to exercise it on the basis that this court is in a better position to determine those costs, if need be.

   [4]Op cit.

Orders

1. There will be orders in each proceeding in the following terms:

1.Pursuant to s 7 of the International Arbitration Act 1974 (Cth), the whole of the proceeding against the defendant be stayed and referred to arbitration in accordance with the terms of the arbitration agreement between the parties on the following conditions:

(a)The arbitration be treated as if it had commenced on the date on which this proceeding was commenced; and

(b)The stay may be terminated upon application made by the plaintiff in the event that the defendant does not do all things necessary to be done on its part to have the matters the subject of the proceeding referred to and determined in accordance with the arbitration agreement between the parties with reasonable expedition.

2.The defendant pay the plaintiff's costs of the directions hearings on 17 August, 7 September and 9 November 2007, on a party/party basis.

3.Save for the costs mentioned in the preceding order and the costs already awarded by the court on 12 October and 14 December 2007, the plaintiff pay the defendant's costs of and incidental to the application for a stay, on a party/party basis.

4.The costs of the proceeding are otherwise reserved.

5.The parties have liberty to apply on five business days' notice in writing in respect of:

(a)       The stay granted by order 1 hereof; and

(b)      The reserved costs of the proceeding.

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