Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd

[2012] WASC 228 (S)

JURISDICTION	:	SUPREME COURT OF WESTERN AUSTRALIA IN CHAMBERS
CITATION	:	CAPE LAMBERT RESOURCES LTD -v- MCC AUSTRALIA SANJIN MINING PTY LTD [2012] WASC 228 (S)

CORAM	: CORBOY J
HEARD	:  31 JULY 2012
DELIVERED	:  20 AUGUST 2012
FILE NO/S	:  CIV 2408 of 2010
BETWEEN	:  CAPE LAMBERT RESOURCES LTD First Plaintiff

MT ANKETELL PTY LTD

Second Plaintiff

AND

MCC AUSTRALIA SANJIN MINING PTY LTD

First Defendant

MCC MINING (WESTERN AUSTRALIA) PTY LTD

Second Defendant

METALLURGICAL CORPORATION OF CHINA
LTD

Third Defendant

Catchwords:

Arbitration - Conditions to be imposed on a stay of proceedings under s 7(2)
International Arbitration Act 1974 (Cth)

[2012] WASC 228 (S)

Legislation:

International Arbitration Act 1974 (Cth)

Result:

Stay granted subject to the conditions contained in the attached orders

Category: B

Representation:

Counsel:

First Plaintiff	:	Mr M L Bennett
Second Plaintiff	:	Mr M L Bennett
First Defendant	:	Dr A S Bell SC
Second Defendant	:	Dr A S Bell SC
Third Defendant	:	Dr A S Bell SC

Solicitors:

First Plaintiff	:	Bennett & Co
Second Plaintiff	:	Bennett & Co
First Defendant	:	Corrs Chambers Westgarth
Second Defendant	:	Corrs Chambers Westgarth
Third Defendant	:	Corrs Chambers Westgarth

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

Cape Lambert Resources Ltd v MCC Australian Sanjin Mining Pty Ltd [2012]

WASC 228

Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc 90 FCR 1

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

1102

CORBOY J [2012] WASC 228 (S)

1. CORBOY J: I made the orders annexed to these reasons on 13 August 2012. These are my reasons for making those orders.

The disputes between the parties

2              The plaintiffs and the second defendant made an agreement (the

Asset Sale Agreement) by which the plaintiffs agreed to sell and the second defendant agreed to purchase certain tenements and related assets (the Assets). Subsequently, there was a novation of the Asset Sale Agreement so that the first defendant was substituted as the purchaser of the Assets. The plaintiffs and the third defendant made an agreement at the same time as the novation by which the third defendant guaranteed the obligations of the first defendant under the Asset Sale Agreement (the Guarantee).

3              A dispute has arisen between the plaintiff and the first defendant

over whether the final instalment of the purchase price for the Assets is due and payable. Related disputes have arisen between the plaintiffs and the third defendant over the meaning and effect of various provisions of the Guarantee. Those disputes arose when the plaintiffs demanded payment of the final instalment of the purchase price from the first defendant and subsequently, made a demand on the third defendant for payment under the Guarantee.

4              The plaintiffs commenced proceedings to enforce the Asset Sale

Agreement and the Guarantee. The defendants applied to stay those proceedings on the ground that the parties had agreed to resolve any dispute arising under those agreements by following a dispute resolution procedure that allowed for senior executive conferral, mediation and arbitration. I concluded that a stay should be granted under s 7(2) of the International Arbitration Act 1974 (Cth) (IAA) : see Cape Lambert Resources Ltd v MCC Australian Sanjin Mining Pty Ltd [2012] WASC 228.

5              There are two disputes between the plaintiffs and the third defendant

concerning the Guarantee. The first dispute is over the validity of the demand made by the plaintiffs under the Guarantee. The third defendant contends that the plaintiffs are only entitled to make a call on the guarantee after the dispute between the plaintiffs and the first defendant has been finally resolved and the first defendant has failed to pay any amount agreed to be paid or determined to be owing under the dispute resolution procedures contained in the Asset Sale Agreement.

CORBOY J [2012] WASC 228 (S)

6              The second dispute is over the meaning and effect of what has been

referred to as the escrow provision. Clause 3(b) of the Guarantee provides
that:

If there is any dispute between the parties to this document regarding whether an amount is payable that amount will be paid into an escrow account organised by a solicitor that is independent from the parties (on such reasonable escrow terms as the parties may agree in good faith) and must be released as soon as practicable in accordance with the outcome or decision of the mediation or arbitration (as the case may be).

7              The plaintiffs contend that a dispute has arisen regarding whether an

amount is payable for the purpose of that clause so that the third defendant is bound to pay the disputed amount into escrow. The disputed amount is $80 million, being the amount of the final instalment of the purchase price that the plaintiffs claim is due and payable under the Asset Sale Agreement and which was the subject of the demand made under the Guarantee.

8              As with the first dispute under the Guarantee, the third defendant

contends that it cannot be required to make a payment into escrow until the dispute under the Asset Sale Agreement has been finally resolved. It is only at that time that a dispute can arise between the parties to the Guarantee.

1. Consequently, there is a dispute between the plaintiffs and the third defendant over the meaning and effect of cl 3(b) (the 'Escrow Dispute').

The parties' applications and the Escrow Dispute

10            The plaintiffs applied for an interlocutory injunction compelling the

third defendant to pay the disputed amount into escrow pending the determination of the proceedings that they had commenced. That application was considered with the defendants' application for a stay. I concluded in Cape Lambert Resources that:

(a)	each of the disputes between the plaintiffs and the third defendant under the Guarantee was caught by the dispute resolution provisions of the Guarantee (cl 9.9(c));
(b)	arguably, the plaintiffs and the third defendant intended that:

(i)         demands for payment of the final instalment of the purchase price (a 'Guaranteed Obligation' under the Guarantee) could be made simultaneously on the first

CORBOY J [2012] WASC 228 (S)

defendant under the Asset Sale Agreement and the
Guarantee;

(ii)        a demand could subsequently be made by the plaintiffs on the third defendant under the Guarantee;

(iii)       the first and third defendants could dispute the demands on the same grounds so that disputes would arise simultaneously under the Asset Sale Agreement and the Guarantee;

(iv)       the parties could resolve those disputes by invoking and following the dispute resolution procedures specified in the Asset Sale Agreement and the Guarantee concurrently;

(v)        there would, in those circumstances, be a dispute regarding whether an amount was payable within the meaning and for the purpose of cl 3(b) of the Guarantee;

(c) although the Escrow Dispute was caught by the dispute resolution provisions contained in the Guarantee, the third defendant's argument that it was not obliged to pay the amount in dispute into an escrow account until the dispute between the plaintiffs and the first defendant under the Asset Sale Agreement had been finally resolved was tenuous.

11            The third defendant contended at the hearing of the applications that

the purpose of cl 3(b) of the Guarantee was to provide an 'assurance' to the plaintiffs as the third defendant was incorporated in China. I accepted that this was one purpose of the clause. Self-evidently, the escrow provision avoided the need for the plaintiffs to enforce any settlement agreement or arbitral award in China. However, I also considered that the primary purpose of the provision was to ensure that there was no delay in the plaintiffs being paid any amount that the parties agreed at mediation should be paid or which was awarded in an arbitration. It was relevant that the Guarantee provided that the third defendant was to pay any Guaranteed Obligation within 24 hours of a valid demand.

12            I also concluded that an interim order should be made under s 7(3)

IAA requiring the third defendant to pay the disputed amount into an escrow account: Cape Lambert Resources [130]. Two points relating to that conclusion are significant:

CORBOY J [2012] WASC 228 (S)

(a)

I held that there had been senior executive conferral over the disputes as required by the dispute resolution provisions in the Asset Sale Agreement and the Guarantee and that the disputes had been referred to mediation. In those circumstances, the right to be preserved by an order under s 7(3) was to have the disputed amount paid into an escrow account prior to and pending the outcome of the mediation and to have any amount agreed to be paid to the plaintiffs paid out of the account (the parties did not draw any distinction in their submissions between the mediation and arbitration steps in the dispute resolution procedures).

(b)

I was only prepared to make an interim order. I considered that such an order would preserve the rights of the parties pending the mediation. If the disputes were not resolved at mediation, any arbitrator subsequently appointed under the dispute resolution provisions of the Guarantee would be able to review the order if requested to do so.

13            I also concluded that the balance of convenience favoured making an

interim order 'to the extent that this was relevant to the exercise of the court's discretion' [130(d)]. However, I thought that the discretion conferred by s 7(3) IAA was not necessarily to be exercised according to the principles governing an application for an interlocutory injunction. It was for that reason that the conclusion concerning the balance of convenience was expressed with a qualification.

14            I was advised after my reasons were delivered that the parties had, in

fact, conferred in mediation but had been unable to resolve their various disputes. I was also advised that the defendants had referred the disputes to arbitration following the publication of the reasons. However, the plaintiffs contended that the steps taken by the defendants to refer the disputes to arbitration did not satisfy the requirements for a valid referral under the Asset Sale Agreement and the Guarantee.

The issue for determination

15            The third defendant contended that the foreshadowed interim order

should not be made in the circumstances that had occurred since the hearing of the applications: '[t]he mediation having occurred and having been terminated by the plaintiffs, there is no basis or reason to make the interim order contemplated in the reasons for judgment which necessarily, in light of the evidence before the court, assumed that the mediation had not yet occurred, let alone been terminated' (defendants' submissions, par 10). It was also submitted that:

CORBOY J [2012] WASC 228 (S)

(a)

An arbitrator had the power to order a payment into escrow if that was thought appropriate pending the determination of the disputes between the parties. The question of whether a payment should be ordered as an interim measure was a matter that ought to be left to the arbitrator having regard to the concern that had been expressed in Cape Lambert Resources that the court should not intrude upon the arbitration process (par 12).

(b)

The jurisdictional basis for making an interim order under s 7(3) IAA no longer existed as the mediation had occurred and had been terminated by the plaintiffs (par 15).

16            The plaintiffs contended that the foreshadowed interim order should

be made as 'the reasoning of the court in [126] - [133] [of the reasons for decision] applies with equal force to the interim period prior to consideration (if sought) of the court's orders by a duly appointed arbitrator' (plaintiffs' submissions, par 10). They emphasised the views that had been expressed in Cape Lambert Resources about the strength of the third defendant's argument on the construction of the escrow provision and about the balance of convenience. They also submitted that the defendants' contention that the 'jurisdictional basis' for making an interim order no longer existed mistakenly sought to 'elevate the issue of mediation to the status of a "jurisdictional fact"' (par 12).

17            Having reviewed the parties' submissions, I raised the possibility that

an order could be made under either s 7(2) or (3) IAA requiring the Escrow Dispute to be determined by an arbitrator in advance of the other disputes between the parties under the Asset Sale Agreement and the Guarantee. The plaintiffs would lose the practical benefit of the escrow provision if their interpretation of the provision prevailed in an arbitral award that was delivered concurrently with the award(s) determining the other disputes. The possible benefit of the provision would, however, be preserved if an award determining the Escrow Dispute was delivered in advance of any award determining the remaining disputes. That would achieve the purpose of the provision if the plaintiffs' construction prevails.

The parties' submissions

18            The parties provided further submissions on that possibility. They

also filed and served evidence on the procedures that might apply to arbitrations under the Asset Sale Agreement and the Guarantee. The dispute resolution procedures in the agreements provide that any arbitration is to be conducted at the Singapore International Arbitration Centre (SIAC) under the United Nations Commission on International

CORBOY J [2012] WASC 228 (S)

Trade Law Arbitration Rules (UNCITRAL Rules) and to the extent that the UNCITRAL Rules do not deal with any procedural issues for the arbitration, the SIAC Arbitration Rules that were in force on the date of the agreements are to be applied. The evidence submitted by the parties concerned the possible application of those sets of rules.

1. In summary, the plaintiffs submitted that:

(a)

Advice obtained from SIAC regarding the conduct of an arbitration at the centre (annexure 'MS 79' to the seventh affidavit of Martina Sedic) indicated that:

(i)	the expedited procedure and emergency arbitrator provisions contained in the 2010 version of the SIAC Arbitration Rules were not available to the parties as they were not in force at the time that the agreements were made (and by implication, there was no equivalent procedure in the rules previously in force);
(ii)	typically, an arbitration that was not conducted according to the expedited procedures could take between nine and 24 months to complete depending on factors such as the complexity and size of the dispute;
(iii)	there might be disputes between the parties over the extent to which the SIAC Arbitration Rules applied given the reference in the agreements to two sets of procedural rules;
(iv)	a tribunal 'seated in Singapore would, strictly speaking, not be bound by an order from an Australian court to deal with a particular issue in advance of other issues in dispute' (annexure 'MS 79').

(b)

Circumstances could change significantly during the period that might be required to complete the arbitrations and 'this heightens the necessity (on the balance of convenience) of this Court making interim orders pending determination by the arbitrator' (plaintiffs' submissions dated 25 July 2012, par 7).

(c)

Even if the parties agreed to vary the dispute resolution provisions of the Asset Sale Agreement and the Guarantee to enable the 2010 version of the SIAC Arbitration Rules to apply, it was a matter for the Chair of SIAC whether, in the exercise of his or her discretion,

CORBOY J [2012] WASC 228 (S)

an arbitration was to be conducted according to the expedited

procedures.

(d)

It would be necessary to resolve any procedural disputes over which rules applied before the substance of the parties' disputes could be determined (par 8.5).

(e)

The defendants had referred to the decision of the Full Court of the Federal Court in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 90 FCR 1 as indicating that the Court had power to grant a stay on a condition of the kind that had been suggested. However, the facts in that case were different. The Full Court had ordered a stay of the arbitration and not of the Federal Court proceedings (plaintiffs' submissions 3 August 2012, par 8).

20            The defendants noted that the advice provided by SIAC to the

plaintiffs also indicated that the parties could apply to have the arbitral proceedings conducted on an 'accelerated' basis once an arbitrator had been appointed even if the 2010 version of the SIAC Arbitration Rules did not apply. That was consistent with the view expressed by Mr Malcolm Holmes QC, an experienced arbitrator, who had provided an opinion to the defendants' solicitors regarding the procedures to be adopted under the UNCITRAL Rules and the SIAC Arbitration Rules (annexure 'MBB-7' to the second affidavit of Mark Simon Van Brakel). Mr Holmes advised that there was no limitation in the UNCITRAL Rules that would prevent the Escrow Dispute being arbitrated through an expedited procedure.

1. The defendants further submitted that:

(a)

The court could refer the disputes to arbitration under s 7(2) IAA if there was doubt over whether the disputes had already been validly referred.

(b)

Any conditions imposed on a stay could not bind SIAC. Rather, 'the purpose of the imposition of conditions would be to assert a degree of ongoing control by the Supreme Court of Western Australia over the parties such that, if any one or more of the conditions were not honoured, it would be open to the plaintiffs to exercise their liberty to apply to either lift or vary the terms of the stay's (defendants' further submissions, par 12).

22            The defendants also indicated that they were willing to submit to

conditions that required the Escrow Dispute to be determined expeditiously. They filed a minute of proposed orders by which the

CORBOY J [2012] WASC 228 (S)

various disputes between the parties would be referred to arbitration under

s 7(2) IAA subject to the following conditions:

(a)

the parties would not seek to appoint different arbitrators in relation to the claims referred to arbitration;

(b)

the defendants would consent to the hearing of the Escrow Dispute prior to the resolution of all of the other matters referred to arbitration;

(c)

the third defendant would:

(i)	take all steps reasonably required of it and submit to all directions to facilitate the early and expeditious hearing of the Escrow Dispute by the arbitrator following his or her appointment;
(ii)	agree to serve a defence on the plaintiffs in relation to the Escrow Dispute within 14 days of receipt of a statement of claim in the arbitration from the plaintiffs;
(iii)	not oppose the preliminary meeting with the arbitrator being held by video or telephone if sought by the plaintiff;
(iv)	not require any discovery for the purposes of the determination of the Escrow Dispute.

23            The plaintiffs filed submissions in response to the defendants' further

submissions and minute of proposed orders. The plaintiffs contended
that:

(a)

The minute of proposed orders went beyond the conditions that could be imposed under the Commercial Arbitration Act 1985 (WA) and were outside the scope of the directions contemplated by s 7(2) IAA. That was because the proposed conditions 'clearly interfere with the discretion of an arbitrator and are inconsistent with the court's primary determination to stay proceedings pending arbitration - that is, respect the independent authority of the arbitral process' (pars 2 - 3).

(b)

The directions contemplated by the IAA were directions concerning the reference to arbitration and not the conduct of the arbitration itself.

CORBOY J [2012] WASC 228 (S)

(c)

The decision in Hi-Fert did not support the proposition that a court could impose procedural directions that were binding on an arbitrator (pars 7 - 8). The decision of Allsop J (as his Honour then was) in Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102 indicated that the directions to be made under the IAA focused on the reference to arbitration and not the procedure to be followed in the arbitration (par 9).

(d)

In any event, the conditions proposed by the defendants could not assure the plaintiffs of an early hearing and determination.

Conclusion

1. I made the attached orders for the following reasons:

(a)	I accepted that there has been a material change in the circumstances relevant to the interim order that I foreshadowed would be made under s 7(3) IAA. The right that was to be preserved by the order was the right of the plaintiffs to have recourse to funds held in escrow so that they could immediately receive any amount that was agreed to be paid in a mediation.
(b)	The Escrow Dispute was caught by the dispute resolution provisions of the Guarantee. The parties had agreed to resolve their disputes according to the procedures specified in those provisions. The court should not cut across the parties' agreement and accordingly, the foreshadowed interim order had been intended to preserve the plaintiffs' rights prior to any referral to arbitration. The interim order was not intended to bind the arbitrator and it was expressly contemplated that the arbitrator could review the order if requested by any party to do so.
(c)	The plaintiffs' arguments were to the effect that an interim order should be made requiring the disputed amount to be paid into escrow so as to preserve the status quo pending the arbitration (some submissions also suggested that the order was required to preserve the status quo during the arbitration). However, in my view those arguments misconceived the nature of the right that was sought to be preserved by the foreshadowed interim order. The plaintiffs' right to have recourse to a fund held in escrow was linked to the procedures prescribed in the dispute resolution provisions. That is, it was a right that the plaintiffs could exercise at the completion of a successful mediation or on an arbitral award being made in their favour. It was not a right that could be

CORBOY J [2012] WASC 228 (S)

exercised in other circumstances and at other times. There was, in my view, no status quo in the sense suggested by the plaintiffs that was to be preserved between the end of an unsuccessful mediation process and the commencement of a referral to arbitration. What was the right or interest that was to be protected between the end of the meditation and the referral to arbitration? Further, the interim order that had been contemplated was intended to bind the arbitrator once he or she was appointed for the reasons explained in Cape Lambert Resources.

(d)	Consequently, the plaintiffs' submissions and the evidence regarding the possibility of an expedited arbitration and the time that might be required for the arbitration to be completed were not to the point (although, I have noted in these reasons the defendants' minute of proposed orders indicating their willingness to adopt procedures that would expedite the arbitration). It may be that one effect of the escrow provision was to provide the defendants with an incentive to co-operate in the speedy resolution of disputes under the Asset Sale Agreement and the Guarantee but that, in my view, was not the purpose of the provision. It is to be noted that the parties did not expressly provide for expedition in the dispute resolution provisions of the agreements.
(e)	The parties did not make detailed submissions on the extent of the court's power to impose conditions under s 7(2) IAA. That was understandable in the circumstances in which the issue arose. I do not consider that it is appropriate to embark on a detailed analysis of the nature and extent of the court's discretion under s 7(2). The orders made reflected the following considerations:
(i) In my view, the orders made in Hi-Fert indicated that the Full Court of the Federal Court considered that there was power to impose a condition of the kind that I had suggested under s 7(2) IAA. The Court granted a stay of the prosecution of certain claims in the Federal Court proceedings on the ground that the parties had agreed that those claims should be determined by arbitration. It imposed a condition on the stay that the parties were not to proceed with the arbitration until the balance of the claims made in the court proceedings had been determined.

CORBOY J [2012] WASC 228 (S)

(ii)        As Hi-Fert indicated, a condition imposed on the grant of a stay is directed to the parties and not to the arbitrator to whom the dispute is referred.

(iii)       The defendants accepted that the court had power to impose conditions on a stay that affected the procedure to be adopted in the arbitration. Without deciding the question, I have a reservation over whether the court's power to impose conditions could intrude upon the arbitration to that extent. If it does possess that power, discretionary factors would suggest that the power would only be sparingly and occasionally used. Accordingly, the orders made were not as extensive as those proposed by the defendants.

(iv)       The plaintiffs denied that the court had power to impose any condition that would bind an arbitrator to first determine the Escrow Dispute. Again, without determining that question, the orders that have been made deliberately impose conditions on the parties to facilitate that possibility. They are not expressed to bind the arbitrator who may be appointed.

(v)        The plaintiffs have been directed to refer the disputes to arbitration in view of their submissions on whether the notices that had been issued by the defendants were valid referrals.

CORBOY J [2012] WASC 228 (S)

CORBOY J [2012] WASC 228 (S)