Elizabeth CHONG Pty Ltd v Brown - [2011] FMCA 565

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ELIZABETH CHONG PTY LTD & ANOR v BROWN

[2011] FMCA 565

Federal Magistrates Act 1999, ss.21, 22, 23, 24
Federal Magistrates Court Rules 2001, r. 27
Civil Procedure Act 2005 (NSW), ss.26, 27, 56

Aiton v Transfield [1999] NSWSC 996; (1999) 153 FLR 236
Broad Spectrum Training Pty Ltd & Ors v Bidding Buzz Limited & Ors [2010] FMCA 932; (2010) 244 FLR 335
Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709
Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194
Morrow v chinadotcom Corporation [2001] NSWSC 209
Strategic Publishing [2003] NSWSC 1134

First Applicant:

ELIZABETH CHONG PTY LTD

Second Applicant:

ELIZABETH CHONG

Respondent:

RONALD VIVIAN BROWN

File Number:

MLG 720 of 2010

Judgment of:

Riethmuller FM

Hearing date:

2 September 2010

Date of Last Submission:

2 September 2010

Delivered at:

Melbourne

Delivered on:

22 July 2011

REPRESENTATION

Counsel for the Applicant:

Mr Fitzgerald of Counsel

Solicitors for the Applicant:

Davies Collison Cave Law

Counsel for the Respondent:

Mr Scott

Solicitors for the Respondent:

Dwyer & Co

ORDERS

The Respondent’s application dated 2 August 2010 for a stay of the proceedings be dismissed.
Costs be reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

MLG 720 of 2010

ELIZABETH CHONG PTY LTD

First Applicant

ELIZABETH CHONG

Second Applicant

And

RONALD VIVIAN BROWN

Respondent

REASONS FOR JUDGMENT

The second applicant in this case is a chef, instructor, author, and an expert in Asian cooking. The respondent is a film video producer.
In February 2000, the applicants and the respondent entered into an agreement for the production of a series of Chinese cooking programs entitled “Elizabeth Chong’s Tiny Delights” (‘the Film Agreement’).
The programs were produced and a companion cookbook was produced.
A dispute has arisen between the parties with respect to the operation of the Film Agreement, resolving in proceedings being issued in the Federal Magistrates Court on 17 May 2010. Points of claim and defence together with affidavits have been filed.
The issue that the Court must determine on this application is whether or not the proceedings should be stayed until the parties have completed a dispute resolution procedure as described in clause 21.5 of the Film Agreement. The relevant clause of the Film Agreement provides:
25.5 In the event of a dispute arising between the parties in relation to this Agreement, the parties agree that, except where there is an application for urgent interlocutory relief, they will meet together to discuss in good faith the resolution of the dispute. In the event that those discussions do not lead to a resolution within fourteen days of notice given by either party, either party can, by notice in writing, cause the matter to be referred for mediation under the auspices of the Arts Law Centre of Australia ACN 002 706 256 or, if this Centre is unable to provide a mediation service, a similar body offering a mediation service. Any mediation will be conducted by one mediator appointed by the Arts Law Centre of Australia or, if applicable, the similar body, and the costs of the mediation will be shared equally by the parties. Subject to the exception referred to above, no party will take legal proceedings against the other party under this Agreement until such alternative dispute resolution processes are completed. (emphasis added)
The second applicant is not a party to the Film Agreement: She signed only as the director of the first applicant.
Correspondence between the parties with respect to requests to inspect documents commenced in November 2002. It is clear from the correspondence in 2002 and 2003 that a dispute had arisen between the parties by that time. The parties last met in September 2005. However, the dispute remains as to whether or not appropriate documents have been disclosed for any effective auditor’s report. There are a broad range of allegations made against the respondent, which remain in dispute between the parties. I am not able to resolve the issues relating to discovery on the affidavit material alone.
Significantly, on 4 September 2005, the respondent wrote to the applicants stating:
The agreement you frequently refer to, the Film Agreement dated 8 February 2000, is not in fact on foot at this time, nor was it on foot at the time of the production of the TV series or cookbook. That Agreement came to an end on 8^th July 2000, a full year or more before filming and book production was ever undertaken.
A further letter reiterating the respondent’s position that the agreement was no longer on foot, and that it had lapsed on 8 July 2000 was sent on 5 December 2005.
At the hearing of this application, Counsel for the respondent was not able to state whether or not the respondent continued to maintain that there was no agreement on foot, as alleged by the applicant, saying that:
Your Honour, on that point I can only say I’ve had discussions with my client, and he’s indicated to me that it is a moot point as to whether the agreement is still on foot or not. That is all I can say, and I do not think that should be a definitive ‑ ‑ ‑
Thus the respondent is prepared to state in correspondence that the agreement is not on foot, yet when it contains a clause he wishes to rely upon he now alleges it is a ‘moot point’ whether the agreement is on foot. However, this is ultimately no more than a rather inelegant way of putting the propositions that:
a)The respondent pleads its case in the alternative; and
b)Whether the agreement has elapsed or been repudiated, the clause was intended to operate after the agreement ended in any event (just as an arbitration clause would operate after breach or repudiation).
On the respondent’s case:
a)a substantial part of the dispute is not covered by the Film Agreement in any event; and
b)the respondent has repudiated the Film Agreement (in the correspondence), but now seeks to rely upon the dispute resolution clause contained within it.
The second applicant sets out in her affidavit filed on 16 August 2008 that between 2002 and 2005 she met with the respondent at least 23 times at the first applicant’s offices and at her home, with respect to the issues arising under the agreement. She sets out the specific dates in her affidavit. She states that the discussions have not led to a resolution.
No party has given notice requiring mediation within 14 days of the meetings as the second applicant states in her affidavit:
At no stage has Mr Brown proposed that he and my company refer any matter for mediation under the auspices of the Arts Law Centre of Australia, nor has my company.
Clause 21.5, on a careful reading, is difficult to interpret. The clause requires them to meet and discuss the resolution of the dispute.
It appears that the first notice provided for in the clause is notice of the dispute. The clause then allows for 14 days of negotiations, after which either party may refer the matter to mediation.
The second reference to a notice in the clause is to a ‘notice in writing’ causing the matter to be referred to mediation.
Despite the dispute having been on foot for some years, no party issued a notice requiring mediation. By late July 2010, the applicants had commenced proceedings in order to ensure that the limitation periods did not expire. The points of claim are clear notice of the issues in dispute from the applicants’ perspective.
The clause also provides that no party may ‘take legal proceedings against the other party under this Agreement until such alternative dispute resolution processes are completed.’ There is a limited exception if urgent relief is required, which would appear to cover the issuing of proceedings before a time limit expired.
By 23 July 2010, the applicants specifically sought from the respondent a date for a meeting. The respondent’s reply by email on the same date did not provide a date. On 27 July 2010, a further request was made for a date to be set. However, no date was forthcoming. On 28 July 2010, the solicitors for the applicants suggested orders adjourning the proceedings to allow a meeting to take place before the end of August 2010.
The solicitors for the respondent rejected that proposal, maintaining that the proceeding should be stayed pending the process, but at no stage providing a date. By 11 August 2010, no possible dates had been set. However, dates were proposed on 12 August 2010.
If clause 21.5 did apply, notice was given at least by July 2010, and that the 14 day period had expired, at the very latest, by 6 August 2010. Thereafter it was open to either party to cause the matter to be referred for mediation.
Ultimately it is a case where mediation could have been required by notice under the clause for many years prior to the proceedings being instituted. Had the respondent failed to comply with the mediation clause the applicants could have pursued court proceedings.
The real issue is whether the applicants must comply with the mediation clause prior to the proceedings progressing.
The clause itself provides for the parties to pay half the costs of the mediation. The Arts Law Centre of Australia is the body named in the agreement to appoint the mediator. No issue was taken as to the existence of the Arts Law Centre, nor its capacity to nominate a mediator.
It appears that at equity, a mediation clause is not specifically enforceable, although it may be enforceable under legislative provisions. In Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 Giles J stated at 210:
In my opinion, therefore, if there be power to do so I can and should stay the conduct of the arbitration until the conclusion of the conciliation. I do not think any question arises of ordering Natcon to continue the conciliation. It was, I think, common ground that equity would not order specific performance of the implied term for which Hooper Bailie contended, because supervision of performance would be impossible. That was why Hooper Bailie disclaimed the exercise of equitable jurisdiction, and the cases which Hooper Bailie mentioned but then put aside on this topic (André et Cie SA v Marine Transocean Ltd [1981] QB 694 and Japan Line Ltd v Himoff Maritime Enterprises Ltd (The “Kehrea”) [1983] 1 Lloyd's Rep 29) were concerned with injunctions to restrain an arbitration on the ground that it had been abandoned entirely. But there may be a stay of proceedings having the consequence that a party to the proceedings must give effect to an arbitration agreement, even against its will (see s 53 of the Commercial Arbitration Act 1984), and that illustrates that there is nothing offensive in indirectly requiring participation in a process of dispute resolution provided there is sufficient certainty in the conduct required by way of participation." (emphasis added)
An agreement to mediate is enforceable in principle, if the conduct required of the parties to participate in the process is sufficiently certain: Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 at 209.
In Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709 the dispute resolution clause did not have the sufficient degree of certainty to justify a stay of proceedings. Giles J observed (at 714) that the mediation agreement did not set out a procedure for the mediation other than as to the presence or representation of the parties, the mediator’s discretion to discuss privately with any of the parties, and the stipulation that the parties, unless otherwise agreed, would provide to the other and to the mediator a short statement of issues within 14 days of the agreement. At 715 Giles J concluded:
The agreements to mediate were open-ended, indeed unworkable because the process to which the parties had committed themselves would come to an early stop when, prior to the mediation, it was asked what the parties had to sign and the question could not be answered.
By way of the mediation agreement the parties in that case committed to attempt in good faith to negotiate towards achieving a settlement of the dispute. Giles J stated (at 714):
I do not think it matters which view is taken of cl 11. It is not easy to take a course requiring a party to assert a state of mind which it may well not have, and even less easy to take a course which compels a party to commit itself to the vagueness of attempting in good faith to negotiate with the other party to the dispute. The latter difficulty lies not so much in the ascertainment of the presence or absence of good faith, or even in the uncertainty of attempting, but rather in the necessary tension between negotiation, in which a party is free to, and may be expected to, have regard to self-interest rather than the interests of the other party, and the maintenance of good faith: see Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (at 209); Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 at

26-27; Walford v Miles [1992] 2 AC 128 at 138. The difficulty is greater than that under the rules for the court-ordered mediation in a Texas case cited by Boral, Decker v Lindsay 824 SW 2d 247 (1992): see generally, Rogers & McEwen, Mediation: Law, Policy, Practice (1989) at 49-52. (emphasis added)
In Morrow v chinadotcomCorporation [2001] NSWSC 209 Barrett J outlined three conditions necessary at the least, for the respondent’s application for a stay of proceedings, which was made on the basis of a dispute resolution clause:
7 First, in order to avoid being void as an unlawful attempt to oust the jurisdiction of the Court, the provision must operate as a pre-condition to the parties' freedom to litigate rather than a purported denial of that freedom: cf Scott v Avery [1856] EngR 810; (1855) 5 HLC 811.
8 Second, it is axiomatic that the disputes which are the subject of the proceedings sought to be stayed must be within the scope of the contractual provision.
9 Third, the agreed contractual process must possess such a degree of definition and certainty as to enable it to be meaningfully undertaken and enforced.
In the Federal Magistrates Court there is a legislative basis for requiring parties to participate in mediation. Sections 21 to 24 of the Federal Magistrates Act 1999 provide for ‘dispute resolution processes’, which include mediation: see s.21(b) of the Act. Sections 22 and 23 of the Act respectively require the Court to consider whether to advise parties to use ‘dispute resolution processes’ and to advise the parties to use the process if it considers the process would help resolve the dispute. In Broad Spectrum Training Pty Ltd & Ors v Bidding Buzz Limited & Ors [2010] FMCA 932 at paragraph [45] Lucev FM stated:
The Court having:
concluded that mediation may help the parties resolve their dispute; and
advised the parties to use that dispute resolution process,
has a discretion to adjourn the proceedings to enable attendance in connection with the dispute resolution process, if the Court “considers it desirable to do so”. [51] The very broad discretion given by those words must nevertheless be exercised judicially, consistent with the subject matter, scope and purpose of the relevant legislation. [52] A number of factors might affect whether or not the Court considers it desirable to adjourn the proceedings pending mediation, and in which forum mediation ought to initially take place. Having regard to the circumstances of this case, the factors may include:
a. whether the parties consent to mediation;
b. the prospect of the matter being resolved through mediation;
c. whether mediation might narrow the issues to be determined in the proceedings, and, therefore, whether the mediation might be of benefit to the proceedings;
d. the length of time that mediation may take;
e. whether or not mediation will unduly delay the proceedings;
f. whether processes and timeframes for mediation have been, or can be, complied with;
g. the expense to the parties of the mediation;
h. the effect on the parties of mediation and attending mediation; and
i. the objects of the relevant legislation, in this case the FM Act and FMC Rules, and the TP Act, TP Franchising Regulations and Franchising Code.
Rule 27 of the Federal Magistrates Court Rules provide for the court to order parties to mediation, an order that is now regularly made with respect to matters such as this case. Rule 27.02 provides a legislative basis for adjourning proceedings pending the completion of mediation.
These sections and rules were discussed in detail, in the context of the objects of the Federal Magistrates Act and the Rules in Broad Spectrum Training Pty Ltd & Ors v Bidding Buzz Limited & Ors [2010] FMCA 932 at paragraphs [5] to [10]. The court has an inherent power to stay proceedings pending the fulfilment of the requirements for a mediation clause: Aiton Australia v Transfield [1999] NSWSC 996 at 26-27; Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 at 211. In Aiton Australia v Transfield [1999] NSWSC 996 Einstein J stated:
26 Equity will not order specific performance of a dispute resolution clause, notwithstanding that it may satisfy the legal requirements necessary for the court to determine that the clause is enforceable. This is because supervision of performance pursuant to the clause would be untenable: see Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 at 210. The court may, however, effectively achieve enforcement of the clause by default, by ordering that proceedings commenced in respect of a dispute subject to the clause, be stayed or adjourned until such time as the process referred to in the clause, is completed.
27 The court's power to order a stay of proceedings is derived from its inherent jurisdiction to prevent abuse of its process

[cf Supreme Court Rules (Pt 13 r5)].
28 As Giles J observed in Hooper Bailie, for a party to proceed with litigation in the face of an enforceable agreement to follow a dispute resolution procedure, may be an instance of abuse of process in accordance with the principle stated by MacKinnon LJ in Racecourse Betting Control Board v Secretary for Air [1944]
Ch 114 at 126, having reference to an exclusive jurisdiction clause:
'. . . the court makes people abide by their contracts, and, therefore, will restrain a plaintiff from bringing an action which he is doing in breach of his agreement with the defendant that any dispute between them will be otherwise determined.'
29 This same approach was adopted by Rogers CJ in AWA Ltd v Daniels (unreported, Supreme Court of NSW, 24 February 1992) and, at least in principle, by Master Horton in Allco (Steel) Queensland Pty Ltd v Torres Strait Pty Ltd (unreported, Supreme Court of Qld, 12 March 1990). (emphasis added)
I must therefore determine whether, on the facts of this particular case, it is appropriate to stay the proceedings until the parties attend mediation as arranged by the Arts Law Centre or allow the matter to proceed.
In this case there are a number of relevant considerations:
a)The agreement that governs the relations between the parties provided for a mediation as part of the dispute resolution process;
b)The parties have had prolonged and extensive negotiations over a period of years;
c)Not all parties to the litigation are parties to the agreement containing the mediation clause;
d)Neither party has sought to hold a mediation prior to proceedings issuing;
e)The costs of a mediation are generally modest compared to the costs of litigation;
f)A mediation is more likely to succeed if the parties have already exchanged relevant information and critically reviewed their positions prior to attending a mediation;
g)In this case there remain disputes as to discovery which are likely to hinder any mediation;
h)The fact that not all of the disputes are covered by the clause leads to the real possibility of the dispute resolution processes becoming fractured: see generally Strategic Publishing [2003] NSWSC 1134 at [42] (although I note that the difficulties that may flow from fragmentation around mediation are not nearly as great as those in cases involving arbitration or expert determination);
i)That the court has power to order a mediation with an experienced registrar once sufficient interlocutory processes have been undertaken to ensure the parties are properly prepared for a mediation to ensure that it is an event that is not wasted;
j)That the efficient disposal of many cases requires directions to ensure that parties are appropriately prepared and have sufficient disclosure of material to ensure that a mediation is a real event and not simply a process step.

Ultimately, it appears to me that disclosure and pleadings are required to structure the issues in dispute and thereby allow the parties to marshal the relevant available documentary evidence for disclosure if mediation is to be productive in the context of this case. It is also important that all of the parties attend the mediation.
In the circumstances, I decline to order a stay or otherwise adjourn the proceedings pending mediation.

I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of Riethmuller FM

Date: 22 July 2011