InfraShore Pty Ltd v Health Administration Corporation
[2015] NSWSC 736
•12 June 2015
|
New South Wales |
Case Name: | InfraShore Pty Ltd v Health Administration Corporation |
Medium Neutral Citation: | [2015] NSWSC 736 |
Hearing Date(s): | 29 May 2015 |
Decision Date: | 12 June 2015 |
Jurisdiction: | Equity Division - Technology and Construction List |
Before: | Hammerschlag J |
Decision: | Motion dismissed. |
Catchwords: | COMMERCIAL ARBITRATION – Commercial Arbitration Act 2010 (NSW) ss 5, 7 and 8 – application for an order under s 8(1) on the grounds that the plaintiff has brought an action in a matter that is the subject of an arbitration agreement – CONTRACTUAL CONSTRUCTION – whether on the proper construction of a written agreement between the parties, the matter is the subject of it – whether the arbitration agreement is inoperative. |
Legislation Cited: | Commercial Arbitration Act 2010 (NSW) |
Category: | Principal judgment |
Parties: | InfraShore Pty Ltd - Plaintiff/Respondent |
Representation: | Counsel: |
File Number(s): | 2015/117024 |
JUDGMENT
HIS HONOUR: The Royal North Shore Hospital (RNS) is a major teaching hospital in Sydney. It comprises many buildings built progressively since the hospital first opened just after 1902. Some of the buildings were known to have hazardous materials present, especially asbestos.
On 23 October 2008, the defendant (Health) and the plaintiff (InfraShore or the Project Company) entered into a written agreement styled the PPP Project Deed (the Contract) under which Health retained InfraShore to finance, design and construct certain works and manage, maintain and provide services for a project known as the RNS and Community Health Project. The project entailed demolition of some buildings.
Clause 4.6(a) of the Contract provides for the establishment of a committee to be known as the Project Co-ordination Group, comprising representatives of both parties.
Clause 4.6(h) of the Contract provides that if any dispute arises between the parties, a party may by notice to all other parties refer the dispute to the Project Co-ordination Group for resolution. The notice must specify in reasonable detail the nature of the dispute.
Clause 4.6(j) of the Contract provides that if a dispute is referred to the Project Co-ordination Group, it will meet to resolve the dispute and that if it is not resolved within a specified period, either party may refer the dispute to designated Representatives in accordance with cl 40.1(a).
Clauses 40.1 to 40.3 of the Contract provide as follows:
40 DISPUTE RESOLUTION
40.1 Dispute Resolution Procedure
If any dispute arises between NSW Health and/or the Director-General of the NSW Department of Health and the Project Company, which has been referred to but has not been resolved by the Project Co-ordination Group in accordance with clauses 4.6(h) to 4.6(j), any party to the dispute may by notice ("Referral Notice") to all other parties refer the dispute to the Director General of the Department and the Chief Executive Officer of the Project Company (or their delegates with authority to bind NSW Health or the Project Company (as relevant)) (the "Representatives") for resolution. The Referral Notice must specify in reasonable detail the nature of the dispute.
The joint decisions of the Representatives in respect of matters referred to them under this clause 40.1 will be reduced to writing and will be contractually binding on the parties.
If a dispute is referred to the Representatives, the Representatives and their delegates will meet to resolve the dispute.
If the Representatives do not resolve the dispute within the Resolution Period, the Project Co-ordination Group will:
refer the dispute to expert determination under clause 40.2; or
refer the dispute to arbitration under clause 40.3; or
refer the dispute to resolution by some other dispute resolution procedure,
within 2 Business Days after the expiration of the Resolution Period.
If:
the Project Co-ordination Group cannot agree within the 2 Business Days period referred to in clause 40.1(d) on:
A. whether the dispute should be referred to expert determination, arbitration or some other dispute resolution procedure; or
B. the expert or arbitrator to be appointed for the dispute resolution process; or
the Representatives do not:
A. meet before the expiry of the relevant Resolution Period; or
B. on the expiration of the Resolution Period refer the dispute for resolution in accordance with clause 40.1(d),
then the Project Co-Ordination Group or the Representatives (as the case may be) may request the President of the Institute of Arbitrators and Mediators Australia ("President") to:
select the process for resolution of the dispute; and
nominate a committee of not less than 3 experts or arbitrators (as the case may be) ("Selected Committee").
If the President has nominated a Selected Committee the Project Director must within 3 Business Days of being notified of the members of the Selected Committee advise the Project Company of the expert or arbitrator for the purposes of clause 40.2 or clause 40.3 as the case may be, chosen from the Selected Committee. If the Project Director fails to select a member of the Selected Committee as the expert or arbitrator within that period of 3 Business Days then the Project Company will be entitled to select the expert or arbitrator for the purposes of clause 40.2 or clause 40.3 respectively.
This clause 40.1 has no application to the appointment of an independent expert under clause 36.1.
40.2 Expert Determination
If a dispute is referred to expert determination under this deed then the Project Director will appoint, upon the referral in accordance with clause 40.1(d) as expert, in relation to that dispute, a qualified person considered appropriate by the Representatives, or if the Representatives do not select an expert in accordance with this clause 40.2(a), an expert will be selected in accordance with clauses 40.1(e) and 40.1(f). The Project Director must engage the selected expert by way of letter setting out:
the details of the dispute;
the expert's fees; and
any other matter which is relevant to the engagement.
The expert must be engaged on terms which require the expert to:
initiate such enquiries and investigations as it considers necessary or desirable for the purposes of performing its functions; and
determine and inform the parties to the dispute of a time for presentation to the expert by the parties of their respective positions. Unless the Representatives otherwise agree the presentation must be no later than 5 Business Days after the appointment of the expert. The expert may ignore any submission or response not made within this stipulated time-frame, unless the parties otherwise agree.
The expert may request further information from either party. The request must be in writing with a time-limit for the response. The expert must send a copy of the response to the other party and give the other party a reasonable opportunity to comment.
The expert must make its determination or finding in respect of the dispute within 20 Business Days after the presentation referred to in clause 40.2(b). Any determination of a dispute by the expert will include a determination as to the award of costs. The expert must not tax the costs of a party. The fees and expenses of the expert will be borne by the parties equally.
Any determination made by the expert will be binding on all parties unless referred to arbitration or legal proceedings within 10 Business Days after the relevant decision.
The expert must act as an expert and not an arbitrator. The expert must have no interest or duty which conflicts with its role as an independent expert.
The expert must keep confidential all materials and information made available to that expert in respect of the dispute.
The expert is released by the parties to this deed from liability (other than for fraud, negligence or wilful misconduct) in acting as an expert.
40.3 Arbitration
If under clause 40.1 a dispute is referred to arbitration the following provisions will apply:
The Representatives will select a qualified person considered appropriate by the Representatives, or if the Representatives do not select an arbitrator in accordance with this clause 40.3(a)(i), an arbitrator will be selected in accordance with clauses 40.1(e) and 40.1(f), and the Project Director must appoint the selected arbitrator within 10 Business Days of the Representatives' selection or the selection in accordance with clauses 40.1(e) and 40.1(f).
The arbitration must be conducted in accordance with and subject to the Arbitration Law.
The arbitrator must:
A. initiate such enquiries and investigations as it considers necessary or desirable for the purposes of performing its functions; and
B. determine and inform the parties of a time for presentation to the arbitrator by the parties of their respective positions in relation to the dispute.
In any arbitration each party to the dispute will be permitted to be represented by a legal practitioner, call witnesses and present evidence.
The parties to the dispute and the arbitrator will not be bound by the rules of evidence.
The Representatives will request the arbitrator to make its determination within 20 Business Days after completion of presentations.
Any determination made by the arbitrator to this clause 40.3 will include a determination relating to costs. The arbitrator may not tax the costs of a party.
Any determination made by the arbitrator will be binding on all parties.
Resolution Period is defined in cl 1.1 of the Contract to mean the period of 5 Business Days from the date on which a Referral Notice described in cl 4.6(h) or cl 40.1 is served.
The works commenced in about July 2009. On about 7 June 2013, InfraShore issued a Hazardous Materials Variation Claim (the Claim), asserting that additional work (by way of deemed variation) was necessitated by the presence of asbestos in certain buildings, which variation gave it an entitlement to additional payments.
Health rejected the claim for various reasons upon which it is not necessary for present purposes to elaborate.
On 5 December 2013, InfraShore gave a Referral Notice. The Representatives failed to resolve the dispute whereupon the Project Co-ordination Group referred it to Expert Determination under cl 40.2.
To facilitate Expert Determination the parties, on 28 May 2014, entered into an Expert Determination Agreement under which John Tyrril & Associates Pty Ltd was appointed Expert. Clause 12.4 of the Expert Determination Agreement provides:
The parties acknowledge and agree that the matters in dispute have been referred to expert determination before the Expert in accordance with and for the purposes of clause 40.1 and 40.2 of the Contract, and in accordance with clause 40.2(e) of the Contract, any determination made by the Expert will be final and binding where the dispute is not referred to arbitration under clause 40.3 of the Contract or legal proceedings within 10 days of the expert ruling.
On 20 April 2015, the Expert determined that InfraShore was not entitled to any additional payment in respect of the Claim.
On the same day, InfraShore sued out of this Court a Summons and accompanying Technology and Construction List Statement claiming (based on the same matters relied on in the Claim) damages exceeding $16 million and a declaration that the Expert Determination is not binding on the parties. The Summons was returnable on 1 May 2015.
On 30 April 2015, Health served on InfraShore a ‘Notice of Arbitration’ stating that ‘Pursuant to clause 40.2(e) of the [Contract] and clause 12.4 of the Expert Determination Agreement’ it was notifying InfraShore that it was referring the determination made by the Expert to arbitration.
Before the Court is a Notice of Motion (the Motion) filed by Health on 30 April 2015 by which it seeks an order that the proceedings be referred to arbitration pursuant to s 8(1) of the Commercial Arbitration Act 2010 (NSW) (the Act) and an order that the proceedings be stayed.
References below to sections are references to the Act unless the context otherwise indicates.
Section 7(1) provides that:
7 Definition and form of arbitration agreement
(1) An “arbitration agreement” is an 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.
Section 8 provides that:
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) Where 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.
Section 5 provides that:
5 Extent of court intervention
In matters governed by this Act, no court must intervene except where so provided by this Act.
By the Motion, Health requests that the parties be referred to arbitration. It has not yet in the action submitted its first statement on the substance of the dispute.
Section 8(1) applies, and the court must refer the parties to arbitration, where the following four requirements are met:
(1)there is brought before a court an action;
(2)the action is in a matter which is the subject of an arbitration agreement;
(3)not later than when submitting its first statement on the substance of a dispute, a party to the action requests that the parties be referred to arbitration; and
(4)the agreement is not null and void, inoperative, or incapable of being performed.
The first and third requirements are uncontroversial in this case. It is also uncontroversial that there is an arbitration agreement between the parties within the meaning of s 7(1).
The contest is as to whether the second requirement is met, namely that the action is in a matter which is the subject of the Contract.
That requirement is met where, at the time a party makes the relevant request, the rights or liabilities in controversy fall within the ambit of controversies which the parties have agreed to will be referred to arbitration.
Health argues that cl 40.2(e) of the Contract and cl 12.4 of the Expert Determination Agreement are an arbitration agreement under which each party has the right to refer the present dispute to arbitration, which right is not lost to one party where the other elects to commence proceedings.
InfraShore argues that in the circumstances that have occurred and on the proper construction of the Contract, the present dispute is not one which either party can require to be arbitrated.
Whether the Contract requires the present dispute to be referred to arbitration is a matter of contractual construction.
For the following reasons, I am of the opinion that InfraShore is correct and Health’s proposed construction is unsustainable.
Firstly, the words of cl 40.2(e) (and of cl 12.4 of the Expert Determination agreement which rise no higher from cl 40.2(e)) in their ordinary meaning confer on neither party any right to require arbitration, and they give rise to no such right by necessary implication.
Clause 40 provides only two routes by which a dispute is required to go to arbitration.
The first is under cl 40.1(d)(ii), where the Project Co-ordination Group refers it to arbitration under cl 40.3. The second is where the Project Co-ordination Group or the Representatives request the President to select the process for resolution and the President selects arbitration. In both cases the arbitration is governed by cl 40.3.
Here, neither route is available any longer. The Project Co-ordination Group referred the dispute for Expert Determination, and the procedure under cl 40.2 has been exhausted. The alternative route of a request to the President is not open. There is no other route by which either party may force arbitration.
Secondly, cl 40.2(e) encapsulates a mechanism which gives the parties the option not to be bound by the Expert Determination. Either party can achieve this by commencing legal proceedings within 10 Business Days, otherwise the Expert Determination is binding. If there is no further agreement as to arbitration instead of litigation, a party can exercise its right by commencing proceedings. The provision gives the parties an opportunity to agree to arbitrate before one of them takes that course. If there is a referral to arbitration within the time limit, the Expert Determination will likewise not be binding.
Thirdly, cl 40.3, which lays down a governing procedure in comprehensive terms, only applies if a dispute is referred to arbitration under cl 40.1. There is no such procedure for the arbitration which Health asserts it is entitled to require both parties to have. It may be inferred that where the parties contemplated forced arbitration, they would also have legislated for procedure, including a method of selection of the arbitrator. They have clearly left this over for further agreement in the case of cl 40.2(e).
Fourthly, the clause makes no provision for who prevails if one party chooses litigation and the other arbitration, something which one would expect the parties to have regulated. In order to be read as giving a right to force arbitration, it would either have to operate on a first past the post basis with the person calling for the arbitration beating the party opting for litigation, or arbitration has to prevail even if the other party litigates first. Both are unsatisfactory. The first encourages a race and the second has the unsatisfactory consequence that the party choosing litigation would have taken a step it was entitled to take at the time but then be penalised if the other later chose arbitration. In both cases games of cat and mouse or brinkmanship are encouraged.
Finally, a matter telling against Health’s construction is that it subjects the parties, after failure to resolve without agreement, to two compulsory alternative dispute resolution processes. I consider it more to accord with commercial common sense that they contemplated only one such process unless they agreed otherwise.
In my view there is no agreement for the referral of the present dispute to arbitration to which s 8(1) can attach. An alternative way of looking at it is that so far as the present dispute is concerned, the arbitration agreement is not operative.
It follows that the Motion must be dismissed, and I so order.
I will make directions for the further conduct of the proceedings. I will hear the parties on costs. The exhibits can be returned.
**********
0
1