Felmeri Builders and Developers Pty Ltd v Tonway Pty Ltd - [2023] SASC 54

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeal: Civil)
FELMERI BUILDERS AND DEVELOPERS PTY LTD v TONWAY PTY LTD
[2023] SASC 54
Judgment of the Honourable Justice Blue
14 April 2023
ARBITRATION - CONDUCT OF ARBITRAL PROCEEDINGS - GENERALLY
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS
Appeal against a decision by a Magistrate dismissing the appellant’s application for referral to arbitration of the parties to an action instituted against it by the respondent pursuant to section 8 of the Commercial Arbitration Act 2011 (SA).
In the action, the respondent seeks the following relief under the Building Work Contractors Act 1995 (SA):
1an order under subsection 36(4) for repayment of monies on statutory termination of the contract under subsection 36(2);
2an order under subsection 38(4) modifying the terms of the contract and repayment of monies by reason of harsh and unconscionable terms under subsection 38(2);
3an order under subsection 37(6)(b) for compensation for breach of statutory warranties implied by section 32.

In the alternative to the third claim under subsection 37(6)(b), the respondent seeks damages for breach of contract and in the further alternative damages for breach of duty of care.
The appellant filed an interlocutory application seeking referral to arbitration under the provisions of the contract. The Magistrate held that the arbitration provisions of the contract were rendered void by section 42 of the Building Work Contractors Act. The Magistrate held that it was not appropriate to refer the non-statutory causes of action to arbitration because they were in the alternative to the statutory causes of action.
In substance the appeal raises the following issues:
1Is the reference in section 42 of the Building Work Contractors Act to a “right” confined to substantive rights or does it encompass the right to proceed in the Magistrates Court under sections 36, 37 and 38?
2If the latter, is the right confined to the right to institute a proceeding or does it encompass the right to institute and prosecute a proceeding to determination in the Magistrates Court?
3Do clauses 25 to 27 of the contract (as opposed to section 8 of the Commercial Arbitration Act) purport to exclude, limit, modify or waive the right to proceed in the Magistrates Court?
4Is it an implied term of the contract that an arbitrator may exercise the powers of the Magistrates Court under sections 36, 37 and 38 of the Building Work Contractors Act?
5Did section 8 of the Commercial Arbitration Act require referral to arbitration of the non-statutory causes of action in any event?
Held (dismissing the appeal):
1The reference in section 42 of the Building Work Contractors Act to a “right” encompasses the right to proceed in the Magistrates Court under sections 36, 37 and 38 (at [143]).
2The right encompasses the right to institute and prosecute a proceeding to determination in the Magistrates Court (at [168]).
3Clauses 25 to 27 of the contract purport to exclude, limit, modify or waive the right to proceed in the Magistrates Court (at [179]).
4It…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2023] SASC 54
Decision Date: 14 April 2023

CaseChat Overview and Summary

Felmeri Builders and Developers Pty Ltd sought to appeal a decision of the Magistrate who declined to refer certain claims to arbitration. The dispute arose from a contract for the construction of a double storey dwelling, which included clauses mandating dispute resolution through conciliation and arbitration. The central issue before the court was whether certain statutory rights, specifically those under sections 36, 37, and 38 of the Building Act, could be excluded or limited by the contractual arbitration clauses. The appeal raised several sub-issues, including the scope of the term “right” in section 42 of the Building Act, whether the contractual provisions could exclude these statutory rights, and whether section 8 of the Arbitration Act mandated the referral of non-statutory causes of action to arbitration.

The court found that the Magistrate was correct in not referring the alternative common law claims to arbitration. The reasoning hinged on the interpretation of section 8 of the Arbitration Act, which requires referral to arbitration unless the agreement is null, void, or incapable of being performed. The court held that once an order is made under this section, it effectively terminates the court proceeding, as the rights of the parties are determined by the arbitration, not the court. Furthermore, the court noted that there is no need for a party successful in arbitration to return to the original court proceeding. The court concluded that the statutory rights under the Building Act were not encompassed by the arbitration clauses and that section 8 of the Arbitration Act did not mandate the referral of non-statutory claims.

In light of the above, the appeal was dismissed, and the court directed the parties to address costs. The decision underscores the importance of distinguishing between statutory rights and contractual dispute resolution mechanisms, ensuring that statutory provisions designed to protect parties are not inadvertently waived or limited by arbitration agreements.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

Felmeri appeals against the Magistrate’s decision on two grounds containing a total of 12 sub-grounds (many of which overlap). In substance the appeal raises the following issues:1Is the reference in section 42 of the Building Act to a “right” confined to substantive rights or does it encompass the right to proceed in the Magistrates Court under sections 36, 37 and 38?[4]2If the latter, is the right confined to the right to institute a proceeding or does it encompass the right to institute and prosecute a proceeding to determination in the Magistrates Court?[5]3If the latter, do clauses 25 to 27 of the contract (as opposed to section 8 of the Arbitration Act) not purport to exclude, limit, modify or waive the right to proceed in the Magistrates Court?[6]4If no to 1, 2 and 3, is it an implied term of the contract that an arbitrator may exercise the powers of the Magistrates Court under sections 36, 37 and 38?[7]5Did section 8 of the Arbitration Act require referral to arbitration of the non-statutory causes of action in any event?[8][4] Appeal grounds 1a, b, c, d, f, g, 2b, c.[5] Appeal grounds 1a, b, e, f, g.[6] Appeal ground 2a.[7] Nor raised by an appeal ground but arose on hearing of the appeal.[8] Appeal grounds 1h, 2d.Background Tonway is the registered proprietor of land at Port Noarlunga South (the land). Felmeri is a building work contractor within the meaning of the Building Act. On 20 November 2015 Felmeri and Tonway entered into a contract for the construction by Felmeri of a double storey dwelling on the land (the works) for $690,000. The contract is a domestic building work contract within the meaning of the Building Act. The works are domestic building works within the meaning of the Building Act. Clauses 25, 26 and 27 of the contract provided:25DISPUTE RESOLUTION25.1 If a dispute between the Builder and Owner arises in connection with this contract might then either party shall deliver to the other a notice of dispute identifying and providing details of the dispute.25.2 Whoever gives a notice of dispute must send a copy to the Master Builders Association of South Australia with $400.00 towards the cost of dispute conciliation.25.3 The Master Builders Association’s Chief Executive Officer or delegate will be the Conciliator.25.4 The Conciliator can:25.4.1refer to documents of either party25.4.2require the Builder and Owner to attend any meeting25.4.3make any reasonable request for information or action to enable him or her to resolve the dispute.25.5 The Conciliator can engage in a consultant to advise him or her.25.6 The dispute conciliation will go ahead speedily and without formality. 25.7 The Conciliator will properly consider the dispute and would decide on justice and fairness.25.8 The Conciliator’s costs (including the cost of any consultant) will be paid equally by the parties.25.9 Both the Builder and Owner will pay their own costs associated with dispute conciliation.25.10 The Conciliator can order that costs be paid differently from clauses 25.8 and 25.9 but only if there are special reasons.25.11 Neither the Builder nor Owner may be represented by a lawyer for dispute conciliation.26ARBITRATION26.1 If the dispute is not resolved by Dispute Conciliation either party may refer the dispute to arbitration by notifying in writing the other party.26.2 Whoever gives notice of their intention to refer the dispute to arbitration must give a copy of the notice to the Master Builders Association of South Australia with $400.00 towards the cost of arbitration.26.3 The $400.00 is extra to the $400.00 mentioned in clause 25.2. 26.4 The Chief Executive Officer of the Master Builders Association of South Australia will appoint an Arbitrator.26.5 The appointed Arbitrator must be a member of the Institute of Arbitrators.26.6 The Arbitrator will notify both the Builder and the Owner of their appointment.26.7 The Arbitrator will decide who will pay the costs of arbitration.26.8 Lawyers can be involved if the dispute involves more than $25,000.00 or such other amount stipulated by the Commercial Arbitration Act.27RULES APPLYING TO DISPUTE CONCILIATION AND ARBITRATION27.1 At any time, the Conciliator Arbitrator may 27.1.1Require any money in dispute to be paid into the Master Builders Association trust account.27.1.1.1Require that money towards the costs be paid into the Master Builders Association trust account.27.1.1.2Direct how money in the trust account is to be paid. 27.2 Except as required by this contract, the conciliator or arbitrator may handle the dispute as he or she wishes.27.3 The Builder and Owner must comply with the directions of the Conciliator or Arbitrator. 27.4 The Conciliator’s or Arbitrator’s decision will be in writing.27.5 The written decision must state issues in dispute and the decision on them.27.6 The decision will be binding on the Builder and Owner.27.7 The Builder and Owner release the Conciliator and Arbitrator from any costs or loss resulting from the dispute conciliation or arbitration.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The Magistrate was correct in not referring the alternative common law claims to arbitration.Conclusion I dismiss the appeal. I will hear the parties as to costs.

Ratio Decidendi

Legal Principle Established

Section 8 provides:8—Arbitration agreement and substantive claim before court(1)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.(2)If an action referred to in subsection (1) has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court. The effect of an order under subsection 8(1) is twofold. First, it initiates an arbitral proceeding in the same manner as a referral to arbitration by a party to an arbitration agreement. Secondly, it results in the effective termination of the court proceeding. This is because the relevant rights of the parties will be determined by the arbitration and not by the court. There is nothing further to be done in the court proceeding. The arbitration award is enforceable as such pursuant to section 35 of the Arbitration Act. There is no need, and no provision under the Arbitration Act, for the party who is successful on the arbitration to return to the court proceeding. Indeed, the party who is successful on the arbitration may well not be the applicant in the court proceeding. Moreover, if there is a right to apply to set aside or appeal against the award, the application is made directly to the Supreme Court against the award and not to the court in which the original proceeding was instituted or against any order by it. The equivalent of subsection 8(1) in the Previous Arbitration Act was subsection 53(1). Making an order under subsection 53(1) was expressed to be discretionary (“may”) and conditioned on the court’s satisfaction that there was no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement and the applicant was ready and willing to proceed with the arbitration. The parties do not cite any authorities on the meaning of “commercial”. In the absence of authority, it might be thought that the reference to “commercial” designates business to business relationships as opposed to relationships between a business and a consumer. The note to section 1 reproduced at [47] above suggests that the reference to commercial designates business to business relationships. However, as Tonway proceeded on the basis that the contract is governed by the Arbitration Act, I assume that the relationship between Tonway and Felmeri is commercial within the meaning of the Arbitration Act. The parties do not cite any authorities on the meaning of “arbitration”. Clause 26 of the contract provides for referral to arbitration and the appointment of an arbitrator and requires that the arbitrator be a member of the Institute of Arbitrators. It clearly provides for arbitration within the meaning of the Arbitration Act.