Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd

[2016] WASC 52

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   AUSTRALIAN MARITIME SYSTEMS LTD -v- McCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD [2016] WASC 52

CORAM:   MITCHELL J

HEARD:   15 FEBRUARY 2016

DELIVERED          :   19 FEBRUARY 2016

FILE NO/S:   CIV 2724 of 2015

BETWEEN:   AUSTRALIAN MARITIME SYSTEMS LTD

Plaintiff

AND

McCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD
Defendant

Catchwords:

Arbitration - Whether action brought in a matter the subject of an arbitration agreement - Whether arbitration agreement rendered inoperative by settlement agreement - Whether stay of curial proceedings requested before applicant's first statement on the substance of the dispute - Standard of review to be applied when construing arbitration agreement on an application to stay curial proceedings

Legislation:

Commercial Arbitration Act 2012 (WA), s 8
Rules of the Supreme Court 1971 (WA), O 58 r 10
UNCITRAL Model Law on International Commercial Arbitration, art 8

Result:

Parties referred to arbitration
Proceedings stayed until dispute resolution process completed

Category:    B

Representation:

Counsel:

Plaintiff:     Mr S K Dharmananda SC & Mr T J Porter

Defendant:     Mr S J Davis

Solicitors:

Plaintiff:     DLA Piper

Defendant:     Norton Rose Fulbright Australia

Case(s) referred to in judgment(s):

APC Logistics Pty Ltd v CJ Nutracon Pty Ltd [2007] FCA 136

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99

Bakri Navigation Co Ltd v Owners of Ship 'Golden Glory' Glorious Shipping SA (1991) 217 ALR 152

Butler v St John of God Health Care Inc [2008] WASCA 174

Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337

Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; (2006) 157 FCR 45

Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs of the Government of Pakistan [2011] 1 AC 763

Daws v Daily Sketch & Sunday Graphic Ltd [1960] 1 All ER 397

Delmere Holdings Pty Ltd v Green [2015] WASC 148

Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyd's Reports 357

Electra Air Conditioning BV v Seely International [2008] FCAFC 169

Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640

Flint Ink NZ Ltd v Huhtamaki Australia Pty Ltd [2014] VSCA 166; (2014) 289 FLR 30

Gilgandra Market Cooperative Ltd v Australian Commodities and Marketing Pty Ltd [2010] NSWSC 1209

Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112

Hancock v Rinehart [2013] NSWSC 1352; (2013) 96 ASCR 76

Hi-fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 155 ALR 94

Ishimaru Ltd v Page [2007] NZHC 571

Laing O'Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2015] WASC 237

Louis Dreyfus Trading Ltd v Bonarich International Group Ltd [1997] HKCFI 878

Monde Petroleum SA v Westernzagros Ltd [2015] EWHC 67 (Comm)

Pathak v Tourism Transport Ltd [2002] 3 NZLR 681

Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10

Recyclers of Australia Pty Ltd v Hettinga Equipment Inc (2000) 100 FCR 420

Ridgepoint Corporation Pty Ltd v Perth Airport Pty Ltd [2014] WASCA 235

Rinehart v Welker [2012] NSWCA 95

Rizao Steel Holding Group Co Ltd v Koolan Iron Ore Pty Ltd [2012] WASCA 50; (2012) 43 WAR 91

Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2015] WASC 458

Seidel v TELUS Communications Inc [2011] 1 SCR 531

Shanghai Foreign Trade Corporation v Sigma Metallurgical Co Pty Ltd (1996) 133 FLR 417

Siam Steel International PLC v Compass Group Australia Pty Ltd [2014] WASC 415

Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332

The Lisheen Mine v Mullock & Sons (Shipbrokaers) Ltd [2015] IEHC 50

Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57

Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102

MITCHELL J: 

Summary

1. On 11 September 2012, the plaintiff and defendant entered into an Agreement in which the plaintiff agreed to design, supply and install navigation aids at the Cape Lambert Tug Harbour.  The plaintiff provided warranties and indemnities to the defendant.  The Agreement also contained a dispute resolution clause incorporating an arbitration agreement.

2. Disputes arose in relation to the Agreement.  The parties executed a Supplemental Agreement to resolve those disputes on 2 September 2013.

3. By a letter to the plaintiff dated 12 August 2015, the defendant claimed payment of $7,630,908.59 in respect of costs of remedial works to allegedly defective navigation aids supplied by the plaintiff under the Agreement.

4. On 29 October 2015, the plaintiff commenced this action, seeking a declaration that the Supplemental Agreement released it from all obligations and liabilities to the defendant under the Agreement.

5. The defendant has applied to stay the action on the basis that the plaintiff has failed to comply with the dispute resolution clause in the Agreement. The court is asked to intervene either in the exercise of the court's inherent jurisdiction or under s 8 of the Commercial Arbitration Act 2012 (WA) (Act).

6. Section 8(1) of the Act provides:

   A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party's first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

7. The plaintiff resists the stay application, advancing three reasons why s 8 of the Act does not require the court to refer the parties to arbitration.

8. First, the plaintiff denies that the matter in which the action is brought is subject to the arbitration agreement.

9. I do not accept that submission.  The matters which are the subject of the arbitration agreement include any controversy of any kind arising out of or in connection with the Agreement or the carrying out of the Agreement.  The matter in which this action is brought may be regarded as a controversy about whether, after 2 September 2013, the Agreement continued to provide for ongoing obligations and liabilities of the plaintiff to the defendant.  Alternatively, the matter may be regarded as a controversy as to whether, after 2 September 2013, the Agreement obliged the plaintiff to pay money to the defendant in respect of a claimed breach of warranty.  Either formulation of the 'matter' clearly arises out of, or is connected with, the Agreement on any reasonable understanding of that phrase.  This action is brought in a matter to which the arbitration agreement applies.

10. Secondly, the plaintiff contends that the Supplemental Agreement makes the arbitration agreement inoperative.

11. This contention must also be rejected.  The Supplemental Agreement is expressed to form part of the Agreement.  It expressly contemplates that, unless otherwise stated, the terms and conditions of the Agreement remain in operation.  The Supplemental Agreement does not contain its own dispute resolution provision, or otherwise deal with the subject matter of the arbitration agreement.  The Supplemental Agreement continues the warranties and indemnities provided for in the Agreement for some purposes, and so does not resolve all disputes which may arise in the future about the operation of the Agreement.  A reasonable businessperson would not understand the Supplemental Agreement to continue the operation of the warranties and indemnities while implicitly removing the mechanism for resolving disputes about that continued operation and providing no substitute mechanism.  In this manner, the Supplemental Agreement itself envisages that the arbitration agreement survives and applies to disputes which may arise out of or in connection with the Agreement as modified by the Supplemental Agreement.

12. Thirdly, the plaintiff says that the defendant had made its first statement on the substance of the dispute before making the stay application, which is therefore out of time.

13. I have concluded that the defendant did not make any statement on the substance of the dispute in this action before requesting the referral of the parties to arbitration.  The only steps that the defendant took before applying for a stay were to enter an unconditional appearance and write a letter to the court requesting consolidation of the action with other proceedings.  Neither step involved the defendant stating its position on the proper construction of the Supplemental Agreement, which is the substance of the dispute.

14. Therefore, the requirements of s 8 of the Act are satisfied. It is unnecessary to decide whether the court would have inherent jurisdiction to stay the proceedings if s 8 of the Act did not apply.

15. For the reasons explained above, I would make an order referring the parties to arbitration and staying the present proceedings until the process provided for in cl 40 of the Agreement is engaged and completed.

16. My more detailed reasons for reaching these conclusions follow.

The Agreement

1. On 11 September 2012, the plaintiff and defendant entered into an agreement relating to the design, supply and installation by the plaintiff of navigational aids for a harbour being constructed by the defendant for Rio Tinto Iron Ore at Cape Lambert (Agreement).  In broad terms, the plaintiff agreed to design, supply and install tripods and lighting systems described in the Agreement.  The design, supply and installation of those navigational systems were referred to in the Agreement as the 'Goods'.  The price to be paid for the Goods was $2,162,481.50.

2. Clause 23 of the Agreement contained the plaintiff's warranty to the defendant as to certain matters relating to the Goods.  This included warranties that the Goods would be 'new, fit and free from defects in design, material and workmanship', be 'of merchantable quality and fit for any purpose held out by the [plaintiff]' and 'function and operate satisfactorily in the environmental and climactic conditions to which they are to be exposed'.

3. Clause 23.4 of the Agreement makes provision for the plaintiff to be liable for, and to indemnify the defendant against, certain matters in connection with third party claims connected with a breach of any warranty given by the plaintiff in relation to the Goods or non-compliance with the Agreement.

4. Clause 26.1 of the Agreement contained the plaintiff's promise to indemnify the defendant in relation to certain matters, including costs paid by the defendant 'in connection with … any act or omission of the [plaintiff] … in connection with the performance of the Agreement'.

5. Clause 40 of the Agreement is a dispute resolution clause which relevantly provides:

   40.1 Disputes

   In the event that any dispute, controversy or difference of any kind whatsoever arising out of or in connection with the Agreement (including the validity or enforceability of the Agreement or any part thereof) or the carrying out of the Agreement, shall arise, either Party may notify the other in writing that a dispute has arisen and giving full details of the dispute.

   40.2 Resolution by Senior Executives

   Within 14 days of the date of notification of a dispute, Senior Executives of [the defendant] and the [plaintiff] shall confer in good faith and attempt to settle the dispute amicably or agree a method for settlement.

   40.3 Arbitration

   If the parties are unable to resolve the dispute by negotiation or agree a method of settlement, within 30 days of notification of the dispute, the dispute may be referred by either party to arbitration by a single arbitrator …

6. Clause 40 of the Agreement goes on to make provision for the appointment of an arbitrator.  It contains special provision for what is to occur where the defendant is of the opinion that the matter being referred to arbitration gives rise to a claim by the defendant against Rio Tinto under the head contract.

The Supplemental Agreement

1. On 2 September 2013, the plaintiff and defendant entered into an agreement called the 'Final Release and Discharge Supplemental Agreement' (Supplemental Agreement).  The Supplemental Agreement is set out in the appendix to these reasons.

2. In broad terms the Supplemental Agreement provides for the plaintiff to accept a reduction of $525,000 in the fee payable to it under the Agreement.  The defendant was to make a payment of $783,301.32 in two instalments as full compensation under the Agreement.  Clause 4 of the Supplemental Agreement provides that the defendant waived any right under the Agreement or otherwise at law to recover damages or costs associated with the supply under the Agreement.  Clause 6 of the Supplemental Agreement contains a number of declarations made by the parties, and should be read in full.

A further claim

1. On 12 August 2015 the defendant wrote to the plaintiff in a letter which described itself as a claim for payment under the Agreement in respect of remedial works required to be performed by the defendant as a result of the design and manufacture of defective navigation aids by the plaintiff.  The letter asserted that the plaintiff was in breach of the warranties in cl 23.1 of the Agreement and was liable to indemnify the defendant for costs it incurred to rectify and replace the defective navigation aids pursuant to cl 23.4 and cl 26.1 of the Agreement.  It claimed the sum of $7,630,908.59 in respect of those costs.

Current proceedings

1. On 29 October 2015 the plaintiff commenced the current proceedings by a 'construction' summons under O 58 r 10 of the Rules of the Supreme Court 1971 (WA) (Rules). The plaintiff claimed:

   A declaration that, on the proper construction of the [Supplemental Agreement], the Plaintiff is released from all obligations and liabilities to the Defendant under, or arising out of, the [Agreement].

2. Prior to the commencement of these proceedings, there was no notification of a dispute under cl 40.1 of the Agreement and no conferral between Senior Executives under cl 40.2 of the Agreement.  The defendant entered an unconditional appearance to the originating summons on 3 November 2015.  On 12 November 2015 the defendant's solicitors wrote to the plaintiff's solicitors inviting them to discontinue these proceedings and to follow the procedure set out in cl 40 of the Agreement.  The plaintiff's solicitors replied on the same day, declining to accept this invitation.

3. On 16 November 2015, the defendant applied for an order either:

   1.staying the proceedings in the inherent jurisdiction of the court on the basis that the plaintiff has not complied with the dispute resolution procedure contained in the Agreement; or

   2.that the proceedings be stayed and referred to arbitration under s 8(1) of the Act, on the basis that the proceedings have been brought in a matter which is the subject of an arbitration agreement, being cl 40 of the Agreement.

4. I am now dealing with this application.

Section 8 of the Act

1. It is convenient to begin by considering the application under s 8(1) of the Act.

2. The paramount object of the Act is to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense.  The Act must be interpreted so that (as far as practicable) the paramount object of the Act is achieved.[1]

   [1] Section 1C of the Act.

3. Provisions of the Act, including s 8, are based on the UNCITRAL Model Law on International Commercial Arbitration. The Act is intended to operate so as to be as uniform as possible with the UNCITRAL Model Law.[2]  In interpreting the Act, regard is to be had to the need to promote, so far as practicable, uniformity between the application of the Act to domestic commercial arbitrations and the application of the provisions of the Model Law to international commercial arbitrations.[3]

   [2] Section 1D of the Act.

   [3] Section 2A of the Act.

4. When interpreting the Act, reference may be made to preparatory material related to the Model Law.[4]  However, despite having undertaken research, counsel could not point me to any preparatory material of assistance in resolving any of the questions I have found it necessary to decide in this case.

   [4] Section 2A(3) of the Act.

5. An 'arbitration agreement' is defined in s 7(1) of the Act as:

   [A]n agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

6. There is no dispute in the present case that cl 40 of the Agreement is an 'arbitration agreement' for the purposes of the Act.

7. Section 8(1) of the Act provides:

   A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party's first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

8. Section 8 of the Act provides for the parties, rather than the proceedings, to be referred to arbitration. Such an order does not have compulsive effect and does not actually require the parties to submit to arbitration.[5] Rather, it reflects an outcome that the curial proceedings are stayed. An order staying proceedings is usual when the parties are referred to arbitration under s 8 of the Act.[6]

   [5] Hi-fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 155 ALR 94, 113; Siam Steel International PLC v Compass Group Australia Pty Ltd [2014] WASC 415 [50] ‑ [51]; cf Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10 [93].

   [6] Pipeline Services [94].

9. Section 8 of the Act confers power on the court together with a duty to exercise the power in a case where the power arises. If the statutory conditions are satisfied, the court 'must' make an order referring the parties to arbitration.

Issues

1. The plaintiff contends that the requirements of s 8(1) of the Act are not satisfied in the present case in three respects. First, it contends that the question which is raised in these proceedings is not a 'matter the subject of an arbitration agreement'.  This is on the basis that the words of cl 40 do not extend to the validity or enforcement of a settlement agreement reached by negotiation.  Secondly, it contends that cl 40 is 'inoperative' by reason of the Supplementary Agreement.  Thirdly, it contends that the defendant's application was made later than when the defendant submitted its 'first statement on the substance of the dispute' for the purposes of s 8(1) of the Act.

2. Although the first two grounds were largely run together, because they relate to different aspects of s 8(1), I have found it more convenient to deal with them separately.

3. The defendant filed detailed anticipatory written submissions on the question of whether cl 40 of the Agreement was inoperative because the defendant had waived its requirements.  Following receipt of those submissions, the plaintiff did not contend that the defendant had waived the requirements of the arbitration agreement.

Scope of the arbitration agreement

Plaintiff's submissions

1. The plaintiff denies that the current proceedings are an action brought in a matter which is the subject of the arbitration agreement in cl 40 of the Agreement.  That is, the plaintiff denies that the current proceedings arise from a matter which could be the subject of arbitration under cl 40 of the Agreement.  It says that the current proceedings concern the effect of the Supplemental Agreement, which settled all disputes which could arise under the Agreement.  The plaintiff contends that the words of cl 40 do not extend to the validity or enforcement of a settlement agreement reached by negotiation.

2. I do not accept those submissions, for the following reasons.

General rules of construction

1. In construing an arbitration agreement, the ordinary rules of construction of a commercial contract apply.  Those rules were summarised in Electricity Generation Corporation v Woodside EnergyLtd,[7] in the following terms:

   The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean … it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.  Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating' … unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'.  A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.  (citations omitted)

   [7] Electricity Generation Corporation v Woodside EnergyLtd [2014] HCA 7; (2014) 251 CLR 640 [35].

1. A number of themes emerge from cases dealing with the construction of arbitration agreements.  Of course, a general approach taken by courts in other cases cannot usurp the language used in the particular provision, considered in its context, which must govern the construction exercise.  However, those cases are useful in indicating the objective understanding of a traditionally formulated arbitration clause which courts commonly attribute to a reasonable businessperson.  Aspects of the approach were conveniently summarised by Martin CJ in Pipeline Services:

   1.An arbitration agreement is generally considered to be a contract independent of the underlying contract in which it is contained, and for that reason in the absence of evidence of a contrary intention of the parties, evident in the language that they have used, survives termination of the underlying contract [42].

   2.In construing the language used by the parties in relation to an arbitration agreement, reference can and should be made to the authorities in Australia and in other comparable jurisdictions which establish that generally the courts should adopt a broad, liberal and flexible approach to the construction of such agreements and should favour a construction which provides a single forum for the adjudication of all disputes arising from, or in connection with, that agreement [44] ‑ [46].

2. The general approach of liberally construing the words of an arbitration agreement, while still having regard to the language of the clause, was also emphasised by Martin CJ, with whom Buss JA agreed, in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd.[8]

Dispute resolution procedure is mandatory

[8] Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66 [55] ‑ [63].

1. By cl 40 of the Agreement the parties have committed themselves to resolving their disputes in a certain manner.  Although expressed in a manner which describes what the parties 'may' do, it is implicit that cl 40 provides for the procedure which parties must adopt when a dispute arises.

Matter in which the action is brought

1. Section 8 of the Act refers to 'an action brought in a matter which is the subject of an arbitration agreement'. What is the 'matter' in which the present proceedings are brought?

2. There are a number of Australian authorities which consider the meaning of the term 'matter' used in the context of s 7 of the International Arbitration Act1974 (Cth). That section empowers a court to grant a stay where proceedings involve the determination of a matter that, in pursuance of an arbitration agreement, is capable of settlement by arbitration. In that context the 'matter' to be determined in a proceeding is to be ascertained by reference to the subject matter of the dispute in the proceeding and the substantive, although not necessarily the ultimate, questions for determination in the proceeding. The scope of the matter is to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including the defence, are based.[9]

   [9] See Recyclers of Australia Pty Ltd v Hettinga Equipment Inc (2000) 100 FCR 420 [18]; Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332, 343 ‑ 344, 351 ‑ 354; Flint Ink NZ Ltd v Huhtamaki Australia Pty Ltd [2014] VSCA 166; (2014) 289 FLR 30 [31] ‑ [34], [88].

3. The language of s 8 of the Act differs from that of s 7 of the International Arbitration Act, in that the former refers to a matter which is the subject of an arbitration agreement while the latter refers to a matter capable of settlement in pursuance of an arbitration agreement. However, the context in which the term 'matter' is used in s 8 of the Act is even more likely to invoke the concept of a controversy for determination in legal proceedings as opposed to the legal proceedings themselves.

4. Although framed in terms of the construction of the Supplemental Agreement, the declaration sought in these proceedings concerns the release of the plaintiff from its obligations and liabilities to the defendant under, or arising out of, the Agreement.  The declaration sought could also be expressed as a declaration that, since 2 September 2013,[10] the plaintiff does not owe any existing obligations or liabilities to the defendant under the Agreement, without changing its meaning.  The issue which these proceedings seek to determine is the controversy about whether, after 2 September 2013, the Agreement continued to provide for ongoing obligations and liabilities of the plaintiff to the defendant.  That controversy may be considered the 'matter' in which this action is brought.

   [10] The date of making of the Supplemental Agreement.

5. Alternatively, the 'matter' in which this action is brought might be regarded as the controversy as to the defendant's claim for $7,630,908.59 on 12 August 2015.  That is a controversy as to whether the plaintiff is liable to pay the defendant the claimed amount under, or in respect of a breach of, cl 23.1, cl 23.4 or cl. 26 of the Agreement.  The declaration sought in the originating summons, if made, would quell that controversy.

6. On either of those two alternative understandings of the 'matter' in which this action is brought, that matter is the subject of the arbitration agreement in cl 40 of the Agreement.  The matters which are the subject of the arbitration agreement are 'any dispute, controversy or difference of any kind arising out of or in connection with the Agreement (including the validity or enforceability of the Agreement or any part thereof) or the carrying out of the agreement'.  That is a very broad expression, capturing either formulation of the 'matter' in which the present action is brought.  A controversy about whether the Agreement continues to provide for ongoing obligations and liabilities, or obliges the plaintiff to pay money to the defendant, clearly arises out of, or is connected with, the Agreement on any reasonable understanding of that phrase.

Shanghai Foreign Trade Corporation

1. The plaintiff relied on the decision of Bainton J in Shanghai Foreign Trade Corporation v Sigma Metallurgical Co Pty Ltd.[11]  In that case the plaintiff, referred to as 'Shantra', entered into contracts with the defendant, referred to as 'Sigma', for the supply of scrap metal by Sigma to Shantra.  Sigma had paid for, but had not been supplied with, the material.  Shantra sued for damages arising out of the breach of the supply contracts.  Shantra also asserted, and Sigma denied, that the dispute had settled, and sought to enforce the settlement agreement.

   [11] Shanghai Foreign Trade Corporation v Sigma Metallurgical Co Pty Ltd (1996) 133 FLR 417.

2. The scrap metal supply agreements included a dispute resolution clause which provided for all 'disputes in connection with this contract or the execution thereof shall be settled by friendly negotiation', and for the matter to be referred to arbitration if 'no settlement can be reached'.[12]

   [12] Shanghai Foreign Trade Corporation (424)

3. Shantra applied to stay the proceedings, inter alia, under art 8 of the UNCITRAL Model Law (on which s 8 of the Act is modelled). Bainton J accepted that it would be appropriate to refer any extant dispute under the supply contracts to arbitration.[13]  However, he found a prima facie case that the contractual dispute had been settled, and held that he could not stay the action so far as it claimed to have the settlement agreement performed or damages for breach thereof.[14]  This was on the basis that, if the primary contractual disputes had been settled by agreement, then there remained nothing to submit to arbitration under the arbitration clause.[15]  While accepting that there was a connection between the supply contracts and the alleged settlement agreement, Bainton J said:

   The expression 'in connection with this contract or the execution thereof' is in my opinion a reference to the making, meaning, validity or enforceability and the carrying out of each contract.  It goes no further than that: it does not extend to the validity or enforcement of a settlement agreement reached by friendly negotiation.  It calls for friendly negotiation: it brings arbitration into play if, but only if, 'no settlement can be reached' (446).

   [13] Shanghai Foreign Trade Corporation (426).

   [14] Shanghai Foreign Trade Corporation (439).

   [15] Shanghai Foreign Trade Corporation (445).

4. Bainton J also observed, in relation to art 8 of the Model Law:

   For my part it appears clear that if the dispute has been resolved (by 'friendly agreement' or otherwise) an agreement to arbitrate that dispute 'if no settlement can be reached' (to quote the English version of cl 16) is inoperative (446).

5. Shanghai Foreign Trade Corporation is distinguishable from the present case in a number of respects.  The essential holding in that case was that the arbitration clause did not apply to a dispute which had been settled.  The court could determine whether the dispute had been settled, to see whether the arbitration clause applied.  In the present case there is no suggestion that any dispute as to the construction of the Supplemental Agreement, and the closely related question of whether the Agreement continued to impose obligations and liabilities on the defendant after the Supplemental Agreement was made, has been settled.  Clause 40 of the Agreement is expressed in materially different, and broader, terms to the arbitration clause in Shanghai Foreign Trade Corporation, where the dispute was different in character.  Resolving the matter which the court was to try in Shanghai Foreign Trade Corporation - the enforcement of the settlement agreement - did not require the court to make a determination of obligations and liabilities arising from the scrap metal agreements.  By contrast, in the present case the matter in which the action is brought necessarily requires the court to make a determination about the plaintiff's obligations and liabilities under the Agreement.  Shanghai Foreign Trade Corporation does not compel a conclusion that cl 40 of the Agreement does not apply to the matter in which these proceedings have been brought.

The matter is the subject of an arbitration agreement

1. The terms of cl 40 of the Agreement clearly capture the matter in which the present action is brought.  That is so whether that 'matter' is:

   1.the controversy as to whether the Agreement continued to impose obligations and liabilities on the plaintiff after the making of the Supplemental Agreement, or

   2.the controversy as to whether the plaintiff is liable to pay the defendant the claimed amount under, or in respect of a breach of, cl 23.1, cl 23.4 or cl 26 of the Agreement. 

   In either case, the controversy arises out of or in connection with the Agreement, or the carrying out of the Agreement, so as to be the subject of the arbitration agreement in cl 40 of the Agreement.  That conclusion emerges from the ordinary meaning of the language of cl 40.  It is reinforced by the broad, liberal and flexible general approach to the construction of arbitration agreements to which I have referred.  The present action is brought in a matter which is the subject of an arbitration agreement.

Whether the Supplemental Agreement renders the arbitration agreement inoperative

1. I turn to consider whether the Supplemental Agreement made cl 40 of the Agreement 'inoperative' for the purposes of s 8 of the Act.

General principle

1. In Bakri Navigation Co Ltd v Owners of Ship 'Golden Glory' Glorious Shipping SA,[16] Gummow J held that an arbitration agreement would be 'inoperative' for the purposes of s 7(2) of the International Arbitration Act where the arbitration agreement had ceased to operate by reason of some further agreement between the parties.[17] I reach the same conclusion on the similar language of s 8 of the Act.

   [16] Bakri Navigation Co Ltd v Owners of Ship 'Golden Glory' Glorious Shipping SA (1991) 217 ALR 152, 169.

   [17] The passage was also adopted in Siam Steel International [44].

2. In Bakri Navigation Co, the parties had reached a further agreement, after the action had commenced, which included a requirement to comply with an undertaking of one party to 'take all steps on its part as are properly necessary to prepare these proceedings for trial' on certain dates.[18]  That agreement was found to render the arbitration agreement inoperative.

   [18] Bakri Navigation Co (153, 167 ‑ 168).

3. Bakri Navigation Co usefully identifies the applicable principle in this case.  However, it is clearly distinguishable from the present case in relation to the manner in which the principle should be applied.  A subsequent agreement to litigate a dispute that would otherwise be the subject of an arbitration agreement may readily be seen to render the arbitration agreement 'inoperative' with respect to that dispute.[19]

   [19] See also Ishimaru Ltd v Page [2007] NZHC 571 where the approach to the application of the principle reflected that adopted by Gummow J in Bakri Navigation Co.

4. There are a number of features of the Supplemental Agreement which, considered in combination, make it clear that it did not provide for cl 40 of the Agreement to cease to operate in relation to matters which were the subject of the Supplemental Agreement.

Supplemental Agreement is expressed to form part of the Agreement

1. First, recital H to the Supplemental Agreement provided that the Supplemental Agreement was to form part of and be supplementary to the Agreement.  This indicated that the Supplemental Agreement was not to be considered in isolation, and gives rise to an inference that the terms of the Agreement apply to the Supplemental Agreement.  In particular, it strongly suggests that the references to the 'Agreement' in cl 40 should be read as references to the Agreement as varied by the Supplemental Agreement, the terms of which are incorporated into the Agreement.

Supplemental Agreement expressly preserved the terms of the Agreement

1. Secondly, recital I of the Supplemental Agreement indicates that, unless otherwise stated in the Supplemental Agreement, the terms and conditions of the Agreement remain unchanged.  The Supplemental Agreement does not state that cl 40 of the Agreement ceases to operate.

2. The above references are to recitals rather than operative provisions of the Supplemental Agreement.  However they provide a clear contextual indication of the manner in which the operative clauses are to be construed.

Supplemental Agreement does not deal with dispute resolution

1. Thirdly, the Supplemental Agreement does not itself contain any dispute resolution clause in relation to disputes arising in connection with the Supplemental Agreement.  That suggests that the Supplemental Agreement varies only the substantive rights and obligations arising under the Agreement and not the arbitration agreement.  As I have noted, an arbitration agreement is to be treated as an agreement independent of the underlying contract in which it is contained.[20]  For that reason it ordinarily survives termination of the underlying contract.  By the same reasoning, a variation to the terms and effect of the underlying contract should not be taken to render an arbitration agreement inoperative in the absence of some clear indication to the contrary. 

   [20] See Rizao Steel Holding Group Co Ltd v Koolan Iron Ore Pty Ltd [2012] WASCA 50; (2012) 43 WAR 91 [165] and cases there cited; Pipeline Services [42]; Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2015] WASC 458 [23]; Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; (2006) 157 FCR 45 [218] ‑ [229]. The principle is also reflected in s 16(2) of the Act for the purposes of an arbitral tribunal ruling on its own jurisdiction under s 16(1) of the Act.

2. In this regard I agree with the general observations made by Popperwell J in Monde Petroleum SA v Westernzagros Ltd:[21]

   Where parties to a contractual dispute enter into a settlement agreement, the disputes which it can be envisaged may subsequently arise will often give rise to issues which relate both to the settlement agreement itself and to the previous contract which gave rise to the dispute.  It is not uncommon for one party to wish to impeach the settlement agreement and to advance a claim based on his rights under the previous contract. 

   Popperwell J identified the following general approach:

   A termination or settlement agreement which contains no new dispute resolution clause is unlikely to be treated as a direct impeachment of an arbitration clause in an earlier agreement, in the absence of clear language, because it is directed merely at a challenge to the continued substantive rights under the [earlier] agreement, not the separate arbitration agreement within it. But a new and inconsistent dispute resolution provision will raise the presumption that the parties intended to impeach not just the earlier agreement but also the dispute resolution agreement within it and so go directly to impeach the arbitration agreement. This is not a failure to give effect to the doctrine of separability, but the reverse: it recognises that a dispute resolution provision in the second agreement raises a presumption that the parties intended to address the separate arbitration agreement within the earlier agreement because both clauses are concerned with how and where disputes are to be resolved and in this respect are in conflict [44].

   [21] Monde Petroleum SA v Westernzagros Ltd [2015] EWHC 67 (Comm) [38].

3. That approach is consistent with that adopted by Gummow J in Bakri Navigation Co, where the later agreement dealt with the same topic as the arbitration clause in the earlier agreement, namely how disputes under the underlying agreement were to be resolved.

4. In the present case the fact that the Supplemental Agreement does not contain a dispute resolution clause strongly suggests that it does not provide for the arbitration agreement in cl 40 of the Agreement to cease to operate.  The subject of the Supplemental Agreement is the substantive rights and obligations of the parties under the Agreement rather than the distinct arbitration agreement contained in cl 40 of the Agreement.  The fact that the Supplemental Agreement does not deal with the subject matter of the arbitration agreement means that it is unlikely to provide that the arbitration agreement ceases to operate.

Clause 6(e) of the Supplemental Agreement

1. Fourthly, cl 6(e) of the Supplemental Agreement expressly provides for all warranties and indemnities given by the plaintiff in respect of the Supply and the plaintiff's liabilities for the Supply to remain in force.  The clause operates notwithstanding the forgoing provisions of the Supplemental Agreement, and so qualifies the provisions of cl 4, cl 6(b) and cl 6(d) which would discharge the plaintiff from all obligations and liabilities under the Agreement.  It contemplates the continued operation of the warranties and indemnities provided for in the Agreement.

2. I am not persuaded by the plaintiff's submission that cl 6(e) only operates in relation to the additional warranty provided for in cl 7 of the Supplemental Agreement.  That submission is inconsistent with the language of cl 6(e) which refers to 'all warranties', as well as referring to indemnities.

3. I am also not persuaded by the plaintiff's submission that cl 6(e) has no effect because it is inconsistent with the other provisions of the Supplemental Agreement which indicate that it provides for a full and final settlement of all matters arising from the Agreement. 

4. The traditional starting point of the common law to is to qualify the general words of a release by reference to the occasion of the release, so as to confine it to disputes that are within the knowledge and contemplation of the relevant parties at the time of entry into the deed of release.[22]  Had cl 6(e) been absent, it would still have been necessary to consider whether the language of cl 4, cl 6(b) and cl 6(d) of the Supplemental Agreement, and the context in which that language was used, demonstrated an objective intention to absolutely release the plaintiff from all obligations and liabilities under the Agreement.  However, the presence of cl 6(e) clearly indicates that the release of the plaintiff from obligations and liabilities under the Agreement is not absolute.  Cases in which the general words of a release have been qualified by reference to the occasion of the release illustrate that the language of cl 6(e) is not necessarily incompatible with cl 4, cl 6(b) and cl 6(d) of the Supplemental Agreement.

   [22] Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112, 123 ‑ 124, 129 ‑ 131; Rinehart v Welker [2012] NSWCA 95 [138]; Hancock v Rinehart [2013] NSWSC 1352; (2013) 96 ASCR 76 [116] ‑ [119]; Ridgepoint Corporation Pty Ltd v Perth Airport Pty Ltd [2014] WASCA 235 [55]; see also Butler v St John of God Health Care Inc [2008] WASCA 174 [3] ‑ [6], [30] ‑ [36].

1. Effect should be given to all the words of the Supplemental Agreement and, if possible, the words in different clauses of the Supplemental Agreement should be construed so as to render them all harmonious with each other.[23]  This can be achieved by construing cl 6(e) as preserving the operation of warranties and indemnities in relation to matters, disputes or claims which did not form part of the occasion for giving the release.

   [23] Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, 109.

2. The details of the proper construction of the Supplemental Agreement in light of cl 6(e) are not appropriately resolved at this stage in the proceedings.  It may be that the warranties and indemnities referred to in cl 6(e) only operate in relation to 'new' matters or disputes arising after the date of the Supplemental Agreement or claims other than those referred to in recital E of the Supplemental Agreement.  It is unnecessary, for the purposes of dealing with the present application, to precisely define the circumstances in which the warranties and indemnities continue to give rise to obligations and liabilities after the making of the Supplemental Agreement.  It is not necessary for present purposes to precisely identify what might be regarded as a 'new' matter, dispute or claim for these purposes.  Nor is it necessary to determine whether it is the claim, the subject matter of the claim or the dispute which must be 'new'.  The plaintiff has identified extrinsic evidence which it says is relevant to the scope of cl 6(e) if it does have some effect.  The determination of the precise operation and effect of cl 6(e) of the Supplemental Agreement would require consideration of that material and its admissibility.  Nothing in these reasons should be taken to reach any conclusion about these matters, or whether the releases in the Supplemental Agreement provide an answer to the claim for $7,630,908.59 made by the defendant on 12 August 2015.

3. For present purposes, it is sufficient to conclude that cl 6(e) of the Supplemental Agreement preserves some aspect of the operation of the warranties and indemnities in the Agreement.  When the terms of the Supplemental Agreement are considered as a whole, it is clear that the Supplemental Agreement continues the operation of provisions for warranties and indemnities in the Agreement for at least some purposes.  The extrinsic material which the plaintiff has identified does not affect this conclusion, and is in any event not capable of contradicting the plain meaning of cl 6(e) of the Supplemental Agreement.[24]

   [24] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 352.

4. The fact that the warranties and indemnities have some continued operation is a strong indicator that the Supplemental Agreement does not provide for the arbitration agreement to cease to operate in relation to disputes concerning the warranties and indemnities.

5. By providing for the warranties and indemnities to continue to operate for some purposes the Supplemental Agreement necessarily contemplates disputes arising as to the obligations and liabilities which warranties and indemnities create for the future.  Such disputes are likely also to raise contentions about the operation of the Supplemental Agreement and the extent of the continued operation of the warranties and indemnities for which it provides.  The Supplemental Agreement does not resolve all disputes which may arise in the future about the operation of the Agreement.  Clause 40 of the Agreement still has work to do in resolving those disputes.  A reasonable businessperson would not understand the Supplemental Agreement to continue the operation of the warranties and indemnities while implicitly removing the mechanism for resolving disputes about that continued operation and providing no substitute mechanism.

The arbitration agreement is not inoperative

1. The four considerations to which I have referred, in combination, lead to the conclusion that the Supplemental Agreement did not provide for the arbitration agreement contained in cl 40 of the Agreement to cease to operate.  To the contrary, the Supplemental Agreement itself envisages that the arbitration agreement survives and applies to disputes which may arise out of or in connection with the Agreement as varied by the Supplemental Agreement.  The Supplemental Agreement does not make the arbitration agreement in cl 40 of the Agreement inoperative.

2. For these reasons, I reject the plaintiff's second ground for opposing the stay application.

Whether the defendant submitted its 'first statement on the substance of the dispute' before requesting referral to arbitration

1. The plaintiff's third ground for opposing an order under s 8 of the Act is that the defendant had submitted its first statement on the substance of the dispute before the present application was filed.

2. The plaintiff contends that the defendant made its first statement on the substance of the dispute when it filed an unconditional appearance to the originating summons and then wrote to the central office of the court requesting consolidation of the current proceedings with two other pending proceedings, pursuant to O 83 r 1 of the Rules.[25] 

   [25] The request appears at page 57 of the affidavit of Paul Bernard Broome sworn 16 November 2015.

3. The two other pending proceedings concerned an adjudication under the Construction Contracts Act2004 (WA) which determined that the plaintiff is liable under the Agreement to pay to the defendant the claimed amount of $7,672.303.66 (being the sum claimed plus interest) by no later than 30 October 2015. In one pending proceeding, the defendant seeks leave to enforce the adjudicator's determination as an order of this court, pursuant to s 43 of the Construction Contracts Act.  In the other pending proceeding, the plaintiff seeks to quash the adjudicator's determination for jurisdictional error.

Relationship between the Act and the Construction Contracts Act

1. I digress to note that neither party suggested that the arbitration agreement prevented the defendant from seeking the determination of an adjudicator under the Construction Contracts Act. Section 53 of that Act precludes contractual provisions excluding, modifying or restricting the operation of that Act. The controversy as to the validity of the adjudicator's determination, and whether the court should grant leave to enforce the adjudicator's determination as an order of the court, cannot be resolved by arbitration. However, an adjudicator's determination does not finally resolve controversies about the obligations and liabilities of the plaintiff under the Agreement. It creates a statutory payment obligation, but does not prevent the parties from commencing curial or arbitration proceedings to finally determine their rights and obligations under the Agreement. Section 45 of the Construction Contracts Act provides for the institution of such proceedings, in which anything said or done in the adjudication is not admissible.[26]  In those proceedings, there will be an accounting in respect of payments required by an adjudicator's determination according to the finally determined rights.  Therefore, the question of whether the parties' rights, obligations and liabilities arising from the Agreement should be finally determined by litigation or arbitration remains extant.

Plaintiff's submissions

[26] I note that the plaintiff read, without objection, the affidavit of Gandhi affirmed 29 October 2015 which included the adjudication application and response as well as the adjudicator's determination.  I have not had regard to the adjudication documents, other than the result of the determination, in resolving the current application.

1. The plaintiff submits that the meaning of the phrase 'statement on the substance of the dispute' is not particularly clear.  It identifies, as a 'workable test', the formulation of Lord Denning in Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd,[27] that such a statement is one that 'implicitly affirms the correctness of the proceedings and the willingness of the [party] to go along with a determination by the courts of law instead of arbitration'. It asserts that the letter requesting consolidation indicated that the court ought to exercise its discretion under O 83 r 1, which was a considered position reflective of the appreciation of the issues at hand when the defendant was cognizant of the matters to be determined by the court. The plaintiff submits that the application for consolidation was made in furtherance of the proceeding, rather than simply seeking information about the issues in the proceeding, and with knowledge of those issues.

   [27] Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyd's Reports 357, 361.

2. For the following reasons, I do not accept those submissions.

Eagle Star Insurance test

1. The test identified by Lord Denning in Eagle Star Insurance is not applicable to s 8 of the Act. Lord Denning's comment was made in relation to s 4 of the now repealed Arbitration Act 1950 (UK), which was in materially different terms to s 8 of the Act. Section 4 provided that, in order to ask for court proceedings to be stayed, the defendant must apply to the court:[28]

   … at any time after taking appearances and before delivering any pleadings or taking any other steps in the proceedings.

   [28] Eagle Star Insurance (361).

2. The provision with which Lord Denning was concerned required the application to be made before taking steps in the proceedings, rather than making a statement on the substance of the dispute in the proceedings.

3. The critical phrase 'first statement on the substance of the dispute' is drawn from art 8 of the UNCITRAL Model Law.  The source of the phrase explains its generality, as the Model Law is to be applied to a variety of different judicial bodies in a variety of different jurisdictions.  The Model Law had to accommodate a wide diversity of different procedural rules, and must be construed in that context.

Authorities

1. The only Australian authority to which I have been referred dealing with the relevant language of art 8 of the Model Law is the decision of Slattery J Gilgandra Market Cooperative Ltd v Australian Commodities and Marketing Pty Ltd.[29]  In that case the defendant's opposition to an application for an interim injunction, during which it stated its position on the substantive questions in dispute, was found to constitute the defendant's 'first statement on the substance of the dispute'.  The subsequent stay application was held to have been made out of time.  In so holding, Slattery J reviewed a number of New Zealand cases dealing with the provision, including Pathak v Tourism Transport Ltd.[30]

   [29] Gilgandra Market Cooperative Ltd v Australian Commodities and Marketing Pty Ltd [2010] NSWSC 1209.

   [30] Pathak v Tourism Transport Ltd [2002] 3 NZLR 681.

2. I accept the defendant's submission that there is a common feature of the examples of a 'first statement on the substance of the dispute' found in Gilgandra and cases referred to therein. The common feature is that the statements contained what the party in question said about how the substantive dispute in the primary proceedings should be determined. That accords with the natural meaning of the language used in s 8 of the Act.

There was no relevant statement in this case

1. The letter in which the defendant requested consolidation of the proceedings did not contain any statement, express or implicit, as to the defendant's position on the proper construction of the Supplemental Agreement.  It merely made a contention as to an aspect of the procedure by which the action was to be resolved.  The statement of the relationship between the subject matter of the respective proceedings did not involve the defendant making any statement on its position as to the way in which issues raised by the proceedings should be resolved.  Nor did the filing of an unconditional appearance involve the making of such a statement.  In all the circumstances, I am satisfied that the present application was made before the defendant had submitted its first statement on the substance of the dispute sought to be raised in these proceedings.

Formality

1. In Louis Dreyfus Trading Ltd v Bonarich International Group Ltd,[31] Wuang J of the Supreme Court of Hong Kong held that the reference to a statement submitted to the court in the Model Law is to some formal document which is specially submitted by a party to the court which contains what that party says on the substance of the dispute.  He did not consider a statement in an affirmation supporting an application for security for costs to be such a document.

   [31] Louis Dreyfus Trading Ltd v Bonarich International Group Ltd [1997] HKCFI 878.

2. The defendant submitted that a letter written to the court was not a formal document of the kind described by Wuang J, and submitted that an application for consolidation of proceedings must be made by way of chamber summons issued in each proceeding proposed to be consolidated.[32]  The defendant submits that no summons, or memorandum of conferral, was filed and that the court could therefore not have made the order in any event.  The defendant's submission overlooks the fact that a consolidation order is a case management direction which the relevant case manager could make under O 4A of the Rules without a formal summons.  It is unnecessary to determine the degree of formality required of a submitted statement in this case.

   [32] Citing Daws v Daily Sketch & Sunday Graphic Ltd [1960] 1 All ER 397, 399.

Other issues

Relevance of the judicial review proceedings

1. The plaintiff submits that the issue of the proper construction of the Supplemental Agreement will be determined in the judicial review proceedings in any event.  It advances this as a reason why the current proceedings should not be stayed.

2. However, the plaintiff attacks the validity of the adjudicator's determination on a number of grounds, including grounds which do not turn on the proper construction of the Supplemental Agreement. For example, the plaintiff contends that the adjudicator's determination is infected by jurisdictional error because there was no payment claim, as the defendant's claim for payment was not made 'under a construction contract' within the meaning of the definition of 'payment claim' in s 3 of the Construction Contracts Act.[33]  The plaintiff also argues that the adjudicator committed jurisdictional error by failing to determine any payment dispute by reference to the terms of any construction contract.[34]  If either of those grounds were made out then it would not be necessary for the court to determine disputed questions of construction of the Supplemental Agreement in order to resolve the judicial review application in the plaintiff's favour.  The ordinary consequence would be the refusal of the defendant's application for leave to enforce the invalid determination.  Therefore, I do not agree with the plaintiff's submission that the constructional question raised in the present proceedings will necessarily require determination in the judicial review proceedings.

   [33] See Delmere Holdings Pty Ltd v Green [2015] WASC 148 [39] and Laing O'Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2015] WASC 237 [30] ‑ [33], [185] ‑ [188].

   [34] Laing O'Rourke [215] ‑ [219].

3. In any event, if the constructional question necessarily arose for determination in the judicial review proceedings that would be a consideration favouring the grant, rather than the refusal of a stay. The grant of a stay would not then be to the plaintiff's prejudice. More importantly, s 8 of the Act does not confer a discretionary power on the court. The court must refer the parties to arbitration if the conditions for the existence of the power to do so are satisfied. As those conditions are satisfied, the circumstance that some issues may require determination in other curial proceedings in any event does not provide a ground for refusing to refer the parties to arbitration.

Standard of review

1. It is unnecessary for me to resolve the question as to the standard of review on an application under s 8 of the Act. The issue is whether a stay should only be granted when the conditions for its grant are established prima facie, or whether the court may grant a stay only if satisfied on the balance of probabilities that the requirements for the grant of a stay have in fact been met. Australian authority, including Shanghai Foreign Trade Corporation and Bakri Navigation Co, supports the latter approach.[35]  However, the approaches have varied between courts.[36]  Recently, the Supreme Court of Singapore decided, following a review of conflicting approaches in some jurisdictions, to adopt the prima facie approach.[37]  This reflects the approach adopted in Canada.[38]  The High Court of Ireland has recently confirmed the need for the court to give full consideration to the issue,[39] which reflects the position adopted in the United Kingdom.[40]  Not all of these cases were decided under art 8 of the Model Law.

   [35] The approach of deciding whether the requirements for a stay were satisfied is also reflected in Electra Air Conditioning BV v Seely International [2008] FCAFC 169; Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102 and APC Logistics Pty Ltd v CJ Nutracon Pty Ltd [2007] FCA 136.

   [36] See the discussion in Comandate Marine Corp [215] ‑ [217].

   [37] Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57.

   [38] Seidel v TELUS Communications Inc [2011] 1 SCR 531 [110] ‑ [121].

   [39] The Lisheen Mine v Mullock & Sons (Shipbrokaers) Ltd [2015] IEHC 50 [114] ‑ [134].

   [40] Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs of the Government of Pakistan[2011] 1 AC 763 [97].

2. It is unnecessary to choose between these competing approaches in this case.  Taking account of the evidence filed in this application, I am satisfied on the balance of probabilities that the matter in which this action is brought is the subject of the arbitration agreement, which is not inoperative.  I am therefore required to refer the parties to arbitration.  It is unnecessary to decide whether that course would have been required had I merely been satisfied that a prima facie case for those conclusions had been established.

Inherent jurisdiction

1. Given my conclusion as to the application of s 8 of the Act, it is also unnecessary to consider whether the court would have jurisdiction to stay the proceedings if s 8 of the Act did not apply.

Objection to evidence

1. The plaintiff sought to read the affidavit of John Sugarman, which was sworn on 27 January 2016 in the judicial review proceedings.  That affidavit was filed well after the time required by programming orders in the present proceedings.  The defendant objected to the admission of the affidavit on this basis.

2. The plaintiff relies on Mr Sugarman's affidavit as:

   1.explaining the context in which the Supplemental Agreement was negotiated and executed;

   2.showing that the warranty contemplated by cl 7 of the Supplemental Agreement was never given; and

   3.showing that the corresponding payment of $110,000 provided for in the Supplemental Agreement was never made.

3. As I understood the plaintiff's submissions, the extrinsic material as to context would be relevant if the court determined that the Supplemental Agreement settled only some of the disputes or potential disputes arising from the Agreement.  The evidence would, on the plaintiff's case, establish a link between the breaches of warranty settled by the Supplemental Agreement and the current claims.  The plaintiff contended that further evidence from both parties would be required to determine whether such a link existed.

4. The principal purpose of Mr Sugarman's affidavit is therefore to identify the kind of extrinsic evidence which the plaintiff says is relevant, without inviting the court to make findings by reference to the surrounding circumstances.  Given that limited purpose, and the opportunity which the defendant has taken to file supplementary written submissions, it does not seem to me that the defendant is materially prejudiced by the late filing.  I therefore overrule the defendant's objection and read the affidavit in the stay application for the purposes indicated.

1. Of course, this ruling admits the evidence only for the purposes of the stay application.  Nothing in these reasons should be taken to determine the defendant's objection to the admission of Mr Sugarman's affidavit in the judicial review proceeding or its admissibility for any other purpose.

2. As it transpires, I have determined that the Supplemental Agreement did settle only some of the disputes or potential disputes under the Agreement but have found it unnecessary to decide whether the defendant's claim of 12 August 2015 is the subject of the releases contained in the Supplemental Agreement.  Mr Sugarman's evidence has been of material assistance only in identifying the nature of the extrinsic evidence to which the plaintiff would refer.

Orders

1. I am conscious that, in considering whether the Supplemental Agreement provides for the arbitration agreement to cease to operate, I have also construed the Supplemental Agreement inconsistently with the declaration which the plaintiff seeks in these proceedings.  In doing so, I have partly resolved any dispute about the proper construction of the Supplemental Agreement.  However, doing so was a necessary step in considering whether the arbitration agreement was inoperative, which itself involved the construction of the Supplemental Agreement.

2. Counsel for the defendant submitted that, in these circumstances, the appropriate order is that the action be dismissed rather than stayed as my conclusion means the plaintiff is not entitled to the relief it seeks.  However, it is more appropriate to make the usual orders referring the parties to arbitration and staying the proceedings.  The defendant's application was made to enforce an applicable and operative arbitration agreement, by which the parties have agreed to submit the matter to arbitration.  It would be inconsistent with the conclusion I have reached - that the matter must be resolved by arbitration - to then resolve the matter or an aspect thereof by an order disposing of the proceedings.  In dealing with the stay application, it is not appropriate for the court to determine the matter other than to the extent necessary to resolve the stay application. 

3. For the reasons explained above, I would make an order referring the parties to arbitration and staying the present proceedings until the process provided for in cl 40 of the Agreement is engaged and completed.

Appendix

FINAL RELEASE AND DISCHARGE SUPPLEMENTAL AGREEMENT

…

WHEREAS

A.[The defendant] is the Main Contractor on the project known as:  CAPE LAMBERT PORT B - TUG HARBOUR MARINE WORKS for Rio Tinto Iron Ore - Expansion Projects.

B.By a Major Supply Agreement dated 11 September 2012 (the 'Agreement') [the defendant] engaged the [plaintiff] to carry out the Design, Supply and Installation (where required) of [the plaintiff's] Tripods and Lighting Systems for the Cape Lambert Tug Harbour Project (the 'Supply') as set out in the Agreement.

C.In a letter referenced dated 30 July 2013 the [plaintiff] has claimed that it is entitled to additional payments totalling $423,430.35 in respect of the Supply.

D.[The defendant] has made payments under the Agreement totalling $1,070,428.36 but has disputed the contents of the [plaintiff's] letter dated 30 July 2013.

E.[The defendant] has alleged that it suffered damages due to the deficient supply of the Goods and such damages are due to [the defendant].

F.The Parties have now agreed a Full and Final Settlement to settle all compensation, claims, variations, re‑measurements, incentives and any other matters arising from the Agreement.

G.The purpose of this Final Release and Discharge Supplemental Agreement is to record the terms of the Full and Final Settlement of all matters arising from the Agreement.

H.This Final Release and Discharge Supplemental Agreement shall form a part of and be supplementary to the Agreement dated 11 September 2012.  The definitions used in this Supplementary Agreement are the same as those used in the Agreement.

I.Unless otherwise stated in this Supplementary Agreement, the terms and conditions of the Agreements remain unchanged.

J.All figures are deemed to include GST.

NOW IT IS HEREBY AGREED as follows:

1.The [plaintiff] agrees that the full and final total Fee payable under the Agreement is $1,853,729.68 being the Agreement Fee of $2,378,729.68 less an agreed deduction of $525,000.00 for all matters arising from and in relation to the Agreement.

2.[The defendant] will pay the [plaintiff] an amount of $783,301.32 made up of two payments, being $673,301.32 on or before 6 September 2013 and a further amount of $110,000.00 upon completion of items 8, 9 … hereunder as full compensation under the Agreement.

3.The [plaintiff] has invoiced a total amount of $2,802,160.03 and is to issue the following to [the defendant]:

•a credit note for $1,731,731.68;

•an invoice for $673,301.32; and

•an invoice for $110,000.00.

4.[The defendant] hereby waives any right under the Agreement or otherwise at law to recover damages or costs associated with Supply.

…

6.Pursuant to this Final Release and Discharge Supplemental Agreement, and in consideration of [the defendant's] agreement to pay the sums set out in this Supplemental Agreement, the [plaintiff] and [the defendant] hereby declare as follows:

(a)that the [plaintiff] shall have no claim (in contract or otherwise) now or in the future against [the defendant] under or in any way arising out of or in connection with the Agreement or the Supply.

(b)that [the defendant] shall have no claim (in contract or otherwise) now or in the future against the [plaintiff] under or in any way arising out of or in connection with the Agreement or the Supply.

(c)that [the defendant] is hereby released and discharged from all obligations and liabilities to the [plaintiff], and no compensation, claims, actions or proceedings however arising shall be brought by the [plaintiff] now or in the future against [the defendant], under or arising out of the Agreement or the Supply.

(d)that the [plaintiff] is hereby released and discharged from all obligations and liabilities to [the defendant], and no compensation, claims, actions or proceedings however arising shall be brought by [the defendant] now or in the future against the [plaintiff], under or arising out of the Agreement or the Supply.

(e)Notwithstanding the foregoing, all warranties and indemnities given by the [plaintiff] in respect of the Supply and the [plaintiff's] liabilities for the Supply shall remain in force.

7.The [plaintiff] shall provide an additional 12 month warranty for the Goods, to the satisfaction of [the defendant] and the Client commencing upon the issuance of the Main Contract Practical Completion Certificate by the Client.  Such warranty shall be in respect of the fitness of purpose of the Goods given the present installation positioning of the Navigational Aids.  The wording of any warranty is to be agreed by both parties who will act with reasonableness and integrity.

8.Both parties agree not to divulge the contents nor the existence of this agreement to any other party without the written consent of the other party.  It is agreed by both parties that this agreement has been made to provide a commercial resolution to each parties['] claim rather than an admission of any liability.

9.The [plaintiff] will provide a report to the satisfaction of [the defendant] and the Client indicating that the mast rotation resulting from an accidental impact incident does not affect the fitness for purpose of the Navigational Aids and including a method statement in respect of the access to the Navigational Aids for maintenance purposes.

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION: AUSTRALIAN MARITIME SYSTEMS LTD -v- McCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD [2016] WASC 52 (S)

CORAM:   MITCHELL J

HEARD:   19 FEBRUARY 2016 & ON THE PAPERS

DELIVERED          :   1 APRIL 2016

FILE NO/S:   CIV 2724 of 2015

BETWEEN:   AUSTRALIAN MARITIME SYSTEMS LTD

Plaintiff

AND

McCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD
Defendant

Catchwords:

Costs - Application for a stay of proceedings under Commercial Arbitration Act 2012 (WA) - Whether costs should be awarded on indemnity basis for proceedings brought in breach of an arbitration agreement

Legislation:

Rules of the Supreme Court 1971 (WA), O 66 r 1

Result:

Costs to be paid on party-party basis

Category:    A

Representation:

Counsel:

Plaintiff:     Mr T J Porter

Defendant:     Mr S J Davis

Solicitors:

Plaintiff:     DLA Piper

Defendant:     Norton Rose Fulbright Australia

Case(s) referred to in judgment(s):

A v B [No 2] [2007] EWHC 54 (Comm); [2007] 1 Lloyd's LR 358

Anderson v Bowles (1951) 84 CLR 310

Ansett v Malaysian Airline System [No 2] [2008] VSC 156

Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52

Ballantyne v Boylan [2013] SASC 177

Bartlett v Director of Public Prosecutions (Cth) [2013] WASCA 223

Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1

Gray v Sirtex Medical Ltd [2011] FCAFC 40; (2011) 193 FCR 1

IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; (2011) 38 VR 303

John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [No 2] [2015] NSWSC 564

Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72

Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10 (S)

Re Bond Corporation Holdings Ltd (1990) 1 WAR 465

Re Ikon Group Ltd [No 3] [2015] NSWSC 982

Saraceni v Jones [2012] WASCA 59 (S)

Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [No 2] [2015] FCA 1046

Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S)

Union Discount Co Ltd v Zoller [2001] EWCA Civ 1755; [2002] 1 WLR 1517

Wenpac Pty Ltd v Allied Westralian Finance Ltd (1994) 123 FLR 1

MITCHELL J: 

Summary

1. The plaintiff commenced this action in breach of an arbitration agreement between it and the defendant. On 19 February 2016, I stayed these proceedings and referred the parties to arbitration, under s 8(1) of the Commercial Arbitration Act 2012 (WA) (Act).[41]

   [41] Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52.

2. There is no contest that the plaintiff should pay the defendant's costs of the proceedings to the time they were stayed.  However, the defendant seeks an order that its costs be taxed on an indemnity basis.  The plaintiff opposes that order. 

3. The main contentious issue is whether, as a general rule, courts should award costs on an indemnity basis when staying proceedings commenced in breach of an arbitration agreement.  For the following reasons, no such general rule applies.

4. In all the circumstances of the present case, I exercise my general costs discretion[42] to award costs on a party‑party basis only.

   [42] Conferred by s 37 of the Supreme Court Act 1935 (WA) and O 61 r 1(1) of the Rules of the Supreme Court 1971 (WA) (Rules).

The compensatory nature of a costs order

1. The purpose of a costs order is to compensate the successful party for the costs which it has incurred.  However, the compensation offered by an ordinary costs order is typically only partial.

2. In some cases the court may award costs on an indemnity basis.  Applied to the circumstances of the present case, the ordinary form of an order for indemnity costs would be that:[43]

   [43] Re Bond Corporation Holdings Ltd (1990) 1 WAR 465, 479.

   The plaintiff pay all the costs of the proceedings to date incurred by the defendant except insofar as they are for an unreasonable amount or have been unreasonably incurred so that, subject to those exceptions, the defendant is completely indemnified by the plaintiff for its costs.

3. Indemnity costs orders are made only where there is some special or unusual feature to the case which justifies the court exercising its judicial discretion in that way.  Indemnity costs are commonly awarded where a party persists with what should, on proper consideration, be seen to be a hopeless case.  Indemnity costs may also be awarded where a party unreasonably refuses to accept an offer of settlement of the proceedings.  Indemnity costs may be appropriate where an agreement between the parties provides for one party to indemnify the other party in respect of all costs reasonably incurred by the other party in the proceedings.  The categories in which the discretion to award indemnity costs may be exercised are not closed.[44]

   [44] See Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [10], adopted in Saraceni v Jones [2012] WASCA 59 (S) [7] and Bartlett v Director of Public Prosecutions (Cth) [2013] WASCA 223 [18]; Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 [16] ‑ [32]; Wenpac Pty Ltd v Allied Westralian Finance Ltd (1994) 123 FLR 1, 69.

4. Even when an indemnity costs order is made because of improper conduct of a party, the purpose remains compensatory.  As Gaudron and Gummow JJ noted in Oshlack v Richmond River Council:[45]

   [45] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [44].

   It may be true in a general sense that costs orders are not made to punish an unsuccessful party.  However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a 'solicitor and client' basis or on an indemnity basis.  The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part.  (footnotes omitted)

5. Ultimately, any award of costs reflects the court's assessment of the extent to which a party should be compensated for legal costs incurred in the proceedings, having regard to all of the circumstances of the case.

Plaintiff's conduct in the present case

1. Putting aside the consideration that these proceedings were brought in breach of an arbitration agreement, I see no basis for an indemnity costs order.  While the plaintiff was ultimately unsuccessful in opposing the stay of the proceedings, its case was not hopeless.  The plaintiff has acted reasonably in the conduct of the proceedings, which were subject to an early determination.  There is no evidence of an unreasonable refusal to accept any offer of settlement.  The defendant did not contend that the Agreement provided for the plaintiff to indemnify it for legal costs incurred in the present proceedings.[46]

   [46] The defendant did not suggest that these costs were incurred 'in connection with the performance of the Agreement' for the purposes of the indemnity in cl 26.1 of the Agreement.

2. Therefore, putting aside the circumstance that the proceedings were commenced in breach of an arbitration agreement, the appropriate order would be that the plaintiff pay the defendant's costs of the proceedings on a party-party basis.  Such an order would lead to the taxation of costs at a level which would provide a degree of compensation to the defendant for its legal costs in these proceedings that is appropriate in all the circumstances of the case. 

Should costs of proceedings commenced in breach of an arbitration agreement generally be awarded on an indemnity basis?

1. The defendant contends that the court should exercise its discretion to award costs on an indemnity basis where a stay of the proceedings establishes breach of an arbitration agreement, and it is established that the breach has caused the innocent party to reasonably incur legal costs.

2. There are two competing lines of authority as to the proper approach to costs on a successful application to stay proceedings commenced in breach of an arbitration agreement.

3. In A v B [No 2],[47] Colman J advocated the following general approach:

   [47] A v B [No 2] [2007] EWHC 54 (Comm); [2007] 1 Lloyd's LR 358.

   provided that it can be established by a successful application for a stay or an anti-suit injunction as a remedy for breach of an arbitration or jurisdiction clause that the breach has caused the innocent party reasonably to incur legal costs, those costs should normally be recoverable on an indemnity basis [11].

4. That general approach was approved and applied by Martin CJ in Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd.[48]

   [48] Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10 (S).

5. However, the general approach was doubted by Hollingworth J in Ansett v Malaysian Airline System [No 2],[49] and disapproved by Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [No 2],[50] by Brereton J in Re Ikon Group Ltd [No 3][51] and by Edelman J in Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [No 2].[52]

   [49] Ansett v Malaysian Airline System [No 2] [2008] VSC 156 [22].

   [50] John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [No 2][2015] NSWSC 564 [31] ‑ [39].

   [51] Re Ikon Group Ltd [No 3] [2015] NSWSC 982.

   [52] Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [No 2] [2015] FCA 1046.

6. Strong views have been expressed on both sides of the argument.  Martin CJ described the reasoning in A v B [No 2] as 'impeccable',[53] while Edelman J considered the criticisms of Hammerschlag J to be 'unanswerable'.[54]

   [53] Pipeline Services [18].

   [54] Sino Dragon [15].

7. The conflict between these single judge decisions has not been resolved by any decision binding on me, or by the decision of an intermediate appellate court which I must follow unless satisfied it is plainly wrong.  A somewhat similar issue was considered by the Victorian Court of Appeal in IMC Aviation Solutions Pty Ltd v Altain Khuder LLC.[55]  In that case, the court rejected the proposition that unsuccessful resistance of the enforcement of a foreign arbitral award was an appropriate category of special circumstance justifying the award of indemnity costs.  However, that was a different issue from the present, which concerns proceedings commenced in breach of an arbitration agreement.  It is therefore necessary for me to identify the proper approach by reference to first principles.

   [55] IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; (2011) 38 VR 303 [55] ‑ [58], [335].

Resolution

1. The argument in favour of the general approach identifies two reasons why fairness ordinarily requires an award of indemnity costs in litigation commenced in breach of an arbitration agreement.  First, a risk is perceived that, if costs are awarded on a party-party basis, a defendant may not be able to recover the difference between costs incurred and costs awarded in subsequent proceedings.  It is seen to be unfair to deprive the defendant of compensation for that aspect of its resulting loss.  Secondly, even if the difference between costs awarded and costs incurred could be recovered in subsequent proceedings, it would be unfair and inefficient to require the defendant to commence fresh proceedings to recover that aspect of its loss.[56]  This second aspect of the reasoning would only apply if the difference between costs incurred and costs awarded was actually recoverable in later proceedings.

   [56] A v B [9] - [10]; Pipeline Services [18].

2. It will not be open to the defendant to obtain an award for damages reflecting the difference (if any) between costs awarded and incurred in these proceedings.  In Anderson v Bowles,[57] the High Court recognised the general rule that a party cannot recover, by way of damages against the same party in later proceedings, costs not awarded in earlier proceedings.[58]  That rule was recognised and applied by the Full Federal Court in Gray v Sirtex Medical Ltd.[59]  In Gray, a different rule was applied to a damages claim against a third party to the original proceedings in which costs were incurred, so that all incurred costs were recoverable as damages.[60]  The defendant does not point to a potential claim against a third party to these proceedings.  Different considerations might also arise where the original proceedings are commenced in a foreign jurisdiction.[61]  However, in the present circumstances, I am bound to apply the rule recognised in Anderson.  That rule follows from the compensatory nature of a costs award, which reflects the court's assessment of the degree to which a successful party should be compensated for its legal costs in all the circumstances of the case.

   [57] Anderson v Bowles (1951) 84 CLR 310, 323.

   [58] See also Ballantyne v Boylan [2013] SASC 177 [13].

   [59] Gray v Sirtex Medical Ltd [2011] FCAFC 40; (2011) 193 FCR 1 [15] ‑ [16].

   [60] Gray [24].

   [61] See Sutton, Gill and Gearing, Russell on Arbitration (24^th edition) [7-057] and cases there cited, especially Union Discount Co Ltd v Zoller [2001] EWCA Civ 1755; [2002] 1 WLR 1517.

1. If the defendant could recover indemnity costs as damages in subsequent proceedings, that would be a powerful consideration in favour of awarding costs on an indemnity basis in these proceedings.  Such an award would avoid delay and expense in resolving questions of costs in later proceedings.  Avoiding the need for such proceedings would be consistent with the case management objectives of O 1 r 4A and O 1 r 4B of the Rules.

2. However, applying Anderson, only the costs awarded by this court are recoverable in these or subsequent proceedings between the same parties.  In those circumstances, there is no reason to exercise the costs discretion so as to avoid the need for subsequent proceedings to recover the difference between costs incurred and awarded in this action.  Subsequent proceedings of that kind would have no proper basis.

3. That leaves the question of whether the defendant's inability to recover all of its reasonably incurred costs, unless costs are awarded on an indemnity basis, provides a reason for awarding costs on an indemnity basis.  I am not satisfied that the outcome that the defendant cannot recover all of its incurred legal costs, when the law does not provide for full recovery, is unfair.  That outcome is simply a consequence of the limits on the extent to which those legal costs are recoverable.  The application of the ordinary principles as to costs results in an award of costs, following taxation, which reflects the court's assessment of the appropriate degree of compensation for legal costs which a party has incurred in the proceedings.  It is not unfair for the party receiving costs to be confined to recovering only those costs which the court has, in the application of the ordinary principles, determined to be appropriate.

4. Commencement of the proceedings in breach of an arbitration agreement may be a relevant factor in exercising the court's discretion to award costs.  However, I see no justification for a general rule that costs should be awarded on an indemnity basis where proceedings are commenced in breach of an arbitration agreement.  The circumstance that legal costs have been incurred as a result of a breach of an arbitration agreement does not distinguish this case from many others in which a breach of contract causes a party to the contract to incur irrecoverable legal costs to enforce their rights. 

5. These factors, which reflect Hammerschlag J's second and third criticisms, lead me to respectfully disagree with the proposition that the courts should adopt the general approach advocated in A v B [No 2] and Pipeline Services.The courts should not adopt the general approach of awarding indemnity costs where proceedings commenced in breach of an arbitration agreement are stayed. 

6. In the present case, the circumstance that the proceedings were commenced in breach of an arbitration agreement is relevant but, in all the circumstances of the present case, does not justify an indemnity costs order.

Orders

1. For the reasons explained above, I am not persuaded to exercise my discretion to award costs on an indemnity basis.  Having regard to all of the circumstances of this case, the appropriate order is that the plaintiff pay the defendant's costs of the proceedings up to 19 February 2016, to be taxed on a party‑party basis. 

2. I am not presently inclined to make any order as to costs incurred after 19 February 2016.  Those costs should mostly have been incurred in connection with the defendant's unsuccessful application for indemnity costs.  However, I will give the parties an opportunity to make further oral submissions on that question before making final orders.