Green v Econia Pty Ltd - [2016] SASC 153

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
GREEN v ECONIA PTY LTD
[2016] SASC 153
Judgment of Judge Dart a Master of the Supreme Court
23 September 2016
ARBITRATION - GENERAL
Partnership agreement contains arbitration clause - plaintiff commences proceedings - whether arbitration clause engaged - stay of proceedings - referral to arbitration pursuant to s 8 of the Commercial Arbitration Act 2011.
Held:
1. Defendant entitled to a stay of these proceedings.
2. Parties are directed to arbitrate their disputes.
Commercial Arbitration Act 2011 (SA) s 5, s 8, referred to.
AED Oil Ltd & Anor v Puffin FPSO Ltd (2010) 27 VR 22; Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FC 45; Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, considered.

GREEN v ECONIA PTY LTD
[2016] SASC 153

On or about 17 December 2004 the plaintiff and defendant entered into a written partnership agreement. The partnership was called the “RBI Partnership” and was involved in the business of software ownership, development, maintenance and licencing.
The partners have now fallen into dispute, as a result of which the plaintiff has instituted these proceedings seeking a declaration and an injunction.
These reasons deal with an application by the defendant seeking a stay of these proceedings and an order referring the parties to arbitration. The application is made pursuant to s 8(1) of the Commercial Arbitration Act 2011 (“the Act”). In my opinion, for the reasons that follow, the defendant is entitled to the orders it seeks.
The relevant provision of the partnership agreement
The Partnership Agreement provides for disputes between the parties to be resolved by negotiation, failing which the parties are to proceed to arbitration. The plaintiff seeks to bring himself within a provision in the dispute resolution clause which permits the commencement of legal proceedings.
The Partnership Agreement provides as follows:
25. Dispute resolution
25.1In the event of any dispute between the partners concerning the terms of this Agreement or any matter arising in connection with this Agreement (“the Dispute”), either partner may notify the other partner of the existence and nature of the Dispute. Upon the other partner receiving the notice, the parties must exercise good faith in resolving the dispute by negotiation between themselves through their nominated representatives.
25.2. If the Dispute cannot be resolved by negotiation under clause 25.1 within 14 days of the notice, either partner may by notice to the other, refer that Dispute for determination by a single arbitrator to be appointed by agreement between the partners. If he partners cannot agree on the appointment of an arbitrator within 7 days of the service of the notice of referral, an arbitrator will be appointed at the request of either party by the President of the Institute of Arbitrators and Mediators (South Australian Division). The arbitrator [sic] will be held in Adelaide and will be conducted pursuant to the Commercial Arbitration Act 1986.
25.3 Clauses 25.1 and 25.2 will not prejudice the right of a party to institute proceedings to enforce payment due under this Agreement or to seek injunctive or urgent declaratory relief.
The plaintiff says that by reason of clause 25.3 he is entitled to commence these proceedings as he is seeking an injunction and an urgent declaration.
The genesis of the dispute between the parties is that the defendant says that plaintiff resigned from the partnership on 4 May 2016 by written notice. The Partnership Agreement provides that a partner may resign from the partnership on six months’ written notice (cl 20). The consequence of the giving notice of resignation was that the remaining partner had an option to purchase the share of the retiring party (cl 21). The defendant says that, the plaintiff having given written notice of resignation, it is entitled to exercise the option to purchase his share.
In the proceedings the plaintiff says that there was no effective notice of resignation and that the defendant has no entitlement to exercise the option. It is also said by the plaintiff that, if the notice of resignation was effective, it was procured by the unconscionable conduct of the defendant.
The relief sought by the plaintiff as set out in the Statement of Claim is as follows:
12.1. A declaration that:
12.1.1.The plaintiff has not given an effective notice of resignation for the purpose of clause 21 of the Partnership Agreement;
12.1.2.The Exercise of the Option is ineffective;
12.2.In the alternative to paragraph 12.1 above, an order pursuant to section 20 of the Australian Consumer Law preventing the defendant from taking any steps in reliance upon:
12.2.1.The Alleged Resignation;
12.2.2The Exercise of Option.
In response to these proceedings the defendant, by written notice dated 11 July 2016, given in accordance with clause 25.1 of the Partnership Agreement, advised of disputes in the following terms:[1]
In accordance with cl 25.1 of the Agreement, Econia puts you on notice of the following disputes:
1.   Econia contends that your written resignation of 4 May 2016 is effective;
2. Econia contends that the Proceeding should be set aside pursuant to s 8(1) of the Commercial Arbitration Act;
3.   Econia contends that, in commencing the Proceeding, you breached cl 25 of the Agreement;
4.   Econia contends that you are indebted to it for half the funds it has loaned the RBI Partnership, namely half the principal totalling approximately $5 million and interest thereon at commercial rates;
5.   Econia contends that your failure to pay for half the funds it has loaned the RBI Partnership constituted a breach of the Agreement; and
6.   Econia contends that, by sending you the Notice of Exercise of Option, it was properly entitled to do so, under cl 21 of the Agreement.
[1]    Letter dated 11 July 2016 from Anthony Geddes to Peter Green, Exhibit CAP1 to the affidavit of Christopher Paton sworn 28 July 2016 (FDN8).
The notice indicated that the defendant was prepared to negotiate in relation to the issues of dispute notified by it. One of those matters is the principal issue which the plaintiff seeks to agitate in these proceedings, namely whether his written resignation was effective. The plaintiff did not respond to the Notice of Dispute, nor did he participate in any negotiation.
On 10 August 2016 a letter was sent to the plaintiff’s solicitors advising of names of appropriate arbitrators, in accordance with clause 25.2 of the Partnership Agreement. As at the time of the argument, which was the final day for the plaintiff to respond, the plaintiff had not responded to the letter of 10 August 2016. As a result, at close of business on 17 August 2016 the defendant was to become entitled to have the President of the Institute of Arbitrators and Mediators (South Australia) Division appoint an arbitrator.
It is apparent that, regardless of the fate of this application, there will need to be an arbitration. The issues in dispute as notified by the defendant are wider than the issues which the plaintiff seeks to agitate in these proceedings.
There are a number of provisions of the Commercial Arbitration Act 2011 (“the Act”) which need to be considered. They include 1C, which provides as follows:
1C—Paramount object of Act
(1)The paramount object of this Act is to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense.
(2)This Act aims to achieve its paramount object by—
(a)parties to agree about how their commercial disputes are to be resolved (subject to subsection (3) and such safeguards as are necessary in the public interest); and
(b)providing arbitration procedures that enable commercial disputes to be resolved in a cost effective manner, informally and quickly.
(3)Act must be interpreted, and the functions of an arbitral tribunal must be exercised, so that (as far as practicable) the paramount object of this Act is achieved.
(4)Subsection (3) does not affect the application of section 22 of the Acts Interpretation Act 1915 for the purposes of interpreting this Act.
It is also necessary to consider s 5 of the Act, which provides as follows:
In matters governed by this Act, no court must intervene except where so provided by this Act.
The principal provision which is in play on this application is s 8 of the Act, which provides as follows:
(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.
There is no dispute that clause 25 is an arbitration agreement for the purpose of the Act and that no party suggests that that agreement is null and void, inoperative or incapable of being performed. As a result, the defendant says the proceedings should be stayed and the disputes referred to mediation.
Consideration of clause 25.3
The plaintiff says he is entitled to commence these proceedings he is simply exercising his entitlement pursuant to clause 25.3 to institute proceedings. He is seeking a final, rather than interlocutory, injunction and also he says the declaration he seeks is urgent. In the circumstances, the plaintiff says s 8 of the Act is not engaged.
The drafting of clause 25.3 is perhaps the result of an oversight. An application for an injunction, in the overwhelming majority of cases, is an urgent application for interlocutory relief. The word “urgent” is only used in clause 25.3 in respect of the declaratory relief. The plaintiff argues therefore that it is not necessary for the injunctive relief to be urgent. That seems to create a commercially odd outcome. It is common for arbitration clauses to allow provision for urgent relief to be sought from a Court. That is often necessary even if an arbitration thereafter proceeds. It is difficult to see the commercial utility in allowing a party to bring proceedings in relation to an injunction when that is not in fact urgent. There is no dispute that an arbitrator may grant an injunction, if one is required. Nonetheless, the argument is open to the plaintiff given the wording of the clause.
The plaintiff says that the declaration being sought is urgent.
The Court of Appeal in Victoria had to consider the concept of “urgent” in an arbitration provision in the case of AED Oil Ltd & Anor v Puffin FPSO Ltd.[2] The Court wrote a joint judgment. The clause under consideration was as follows:
Nothing in this Article 33 prevents a party from seeking urgent interlocutory or declaratory relief from a court of competent jurisdiction where, in that party’s reasonable opinion, that action is necessary to protect that party’s rights.
[2] (2010) 27 VR 22.
The Full Court said: [3]
In our opinion, the article, by its terms, contained two requirements. First, that the relief was in fact urgent, a matter to be determined objectively. Secondly, that the party claiming the relief form the reasonable opinion that the relief was necessary to protect that party’s rights.
[3] AED Oil Ltd & Anor v Puffin FPSO Ltd (2010) 27 VR 22 at [27].
There is no requirement in clause 25.3 that the plaintiff form a reasonable opinion that relief was necessary to protect his rights. Nonetheless, in my opinion, the use of the word “urgent” in clause 25.3 is something that falls to be determined objectively. It is not enough simply for a plaintiff to assert that in his opinion the matter is urgent. It must be urgent objectively. For a matter to be urgent it must have the quality of requiring immediate attention.
I am unable to accept the plaintiff’s assertions that the declaratory relief is urgent. The proceedings were issued in the usual way on 6 June 2016. The proceedings were not accompanied by any application seeking urgent relief or an urgent hearing of the matter. The matter did not come before the Court until 29 July 2016. On that occasion, the Court considered the defendant’s application to stay the proceedings.
The plaintiff has not filed an affidavit in response to the affidavits filed on behalf of the defendants. There is no evidence before the Court of the basis on which the plaintiff says the matter is urgent. In the circumstances, while I accept that there is something to be resolved, I do not think objectively it can be found that the declaratory relief sought is urgent so as to bring it within the meaning of clause 25.3 of the partnership agreement.
That leaves the plaintiff simply with an application for a final injunction preventing the defendants taking any steps to act in reliance on the alleged resignation. Regardless of the extent to which clause 25.3 may be available, what is tolerably clear is that there are a wider range of disputes between the parties than those that fall within clause 25.3.
I am not satisfied, in any event, that there will ever be a need for an injunction. The principal question to be determined before this Court or at arbitration is whether the plaintiff’s written notice of resignation was valid and operative. If the adjudication is that it was, there is no basis on which to seek an injunction. Separately, if the result of the adjudication in this Court or at arbitration is that the notice of resignation was, for whatever reason, invalid or not operative, there seems no need for an injunction.
The Court’s approach to arbitration clauses
In the case of Comandate Marine Corp v Pan Australia Shipping Pty Ltd[4] the Full Federal Court was considering an international arbitration agreement. Allsop J was considering the effect of Article 8 of the model law. Section 8 of the Act is based on that provision. Allsop J said:[5]
Its command is simple. The Court should refer parties to arbitration, unless it finds the arbitration agreement to be null and void, inoperative or incapable of being performed.
[4] (2006) 157 FC 45.
[5] Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FC 45 at [197].
His Honour Allsop J also said the authorities required a liberal approach to be adopted to the interpretation of arbitration agreements:[6]
This liberal approach is underpinned by the sensible commercial presumption that the parties did not intend the inconvenience of having possible disputes from their transaction being heard in two places. This may be seen to be especially so in circumstances where disputes can be given different labels, or placed into different juridical categories, possibly by reference to the approaches of different legal systems. The benevolent and encouraging approach to consensual alternative non-curial dispute resolution assists in the conclusion that words capable of broad and flexible meaning will be given liberal construction and content.
[6] Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FC 45 at [165].
The same approach was adopted in the decision of the New South Wales Court of Appeal in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd where Gleeson CJ said: [7]
When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument.
[7] (1996) 39 NSWLR 160 at 165.
The abovementioned authorities make clear that an arbitration agreement should be given effect to, and all disputes should be resolved by the single method of arbitration. Such an approach immediately puts the position advocated by the plaintiff in difficulty. It is clear that if the position of the plaintiff is correct, and that he has an entitlement to pursue in this Court a resolution of the matters articulated in the statement of claim, there will need to be two hearings. The hearing in this Court and at the arbitration to deal with the balance of the matters which the defendant seeks to have resolved. A Court should be loath to permit a fracturing of issues in circumstances where the parties have agreed to a comprehensive arbitration provision to resolve their disputes.
When the authorities referred to above are considered, as well as the mandatory nature of s 8 of the Act, the only outcome can be a referral of this dispute to arbitration.
I will hear the parties as to the form of orders and any incidental matters.