Joban Kosan Co Ltd v Flame SA

[2018] NSWSC 1754

Supreme Court

New South Wales

Medium Neutral Citation:

Joban Kosan Co Ltd v Flame SA [2018] NSWSC 1754

Hearing dates:

6 November 2018

Date of orders:

15 November 2018

Decision date:

15 November 2018

Jurisdiction:

Common Law

Before:

Walton J

Decision:

The Court makes the following orders:

 

(1) The proceeding be permanently stayed pursuant to s 7(2) of the International Arbitration Act 1974 (Cth).

 (2) The plaintiff shall pay the defendant’s costs of the motion as agreed or, in default, as assessed, forthwith.

Catchwords:

COSTS – application for permanent stay of proceedings – s 7(2) of International Arbitration Act 1974 (Cth) – consent to permanent stay – arbitration clause in contract – dispute as to costs of the motion – unnecessary to resolve whether plaintiff as respondent on the motion acted unreasonably – high degree of certainty that the motion would have been successful if fully tried – defendant awarded costs of the motion – costs payable forthwith

Legislation Cited:

Civil Procedure Act 2005 (NSW)
International Arbitration Act 1974 (Cth)
Migration Act 1958 (Cth)
Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Carob Industries Pty Ltd v Simto Pty Ltd (1997) 18 WAR 1
Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6

Texts Cited:

J W Carter, Contract Law in Australia (LexisNexis Butterworths, 7th ed, 2018)

Category:

Costs

Parties:

Joban Kosan Co Ltd (Plaintiff / Respondent)
Flame SA (Defendant / Applicant on Motion)

Representation:

Counsel:
L Robb Vujcic (Plaintiff / Respondent)
G Nell SC (Defendant / Applicant on Motion)

  Solicitors:
Advantage Partnership Lawyers (Plaintiff / Respondent)
Colin Biggers & Paisley Lawyers (Defendant / Applicant on Motion)

File Number(s):

2018/150586

Judgment

1. HIS HONOUR: By a statement of claim filed 14 May 2018 (“the statement of claim”), Joban Kosan Co Ltd (“the plaintiff”) sought liquidated damages and interest from the defendant, Flame SA (“the defendant”).

2. The plaintiff engages in tourism, trading, manufacturing and transport businesses in Japan and internationally. It also engages in the trade of imported coal. The defendant is an international trading and shipping company engaged in the sourcing of, inter alia, coal (thermal and metallurgical) for delivery to customers worldwide.

3. In the statement of claim, the plaintiff pleaded that it had entered into commercial agreements over time for the supply of coal from the defendant and, in particular, had reached an agreement by email on 14 April 2016 for the supply of two shipments of coal (“the agreement”). Whilst it was pleaded that a contract was “drawn up” by the plaintiff and not executed by the parties, the plaintiff pleaded that at all times it relied upon the terms of “the Contract” and the defendant’s part performance thereof.

4. It was further pleaded that, in December 2017, the defendant part performed its obligations under the “unexecuted contract” by supplying and delivering the first shipment of coal to the plaintiff but the defendant had failed to perform its obligations in respect of the second shipment of coal such that the defendant had breached the terms of the “Contract”. The proper construction of those pleadings is that the plaintiff’s cause of action was predicated upon the agreement of 14 April 2016, as constituting a contract between the plaintiff and the defendant, albeit one the subject of agreed variation in August/September 2017 (such variations being illustrated by the part performance and breach relied upon by the plaintiff as summarised above, paras 10-15 of the “Pleading and Particulars” and the following factual background).

5. By a notice of motion filed on 24 July 2018 (“the motion”), the defendant sought, inter alia, an order that the proceedings be permanently stayed and the plaintiff’s claim be referred to arbitration pursuant to Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) rr 11.6(1), 11.6(2)(b) and/or 12.11(1)(h) and s 7(2) of the International Arbitration Act 1974 (Cth) (“the Act”). An alternative form or relief was sought which was irrelevant for the purposes of this judgment.

6. By consent orders filed in Court at the time the matter was called before the Court, the parties agreed that the proceedings be permanently stayed pursuant to s 7(2) of the Act.

7. The defendant sought costs in the motion. The order sought was for costs of the motion and the proceedings generally but, in the course of argument, the defendant amended the order and sought costs of the notice of motion payable forthwith. That application was opposed by the plaintiff. This judgment concerns the determination of the application as to costs in the motion but will also result in the making of the order regarding the stay of the proceedings by consent of the parties.

FACTUAL BACKGROUND

8. Prior to the agreement, the parties had entered into a number of contracts over time for the supply of coal. Such contracts were entered into in 2009, 2013, 2014 and 2015.

9. In an affidavit of Mr Junichi Horie sworn 9 October 2018 (Mr Horie is the principal of Advantage Partnership Lawyers, the plaintiff’s solicitors), he deposed the following:

5. Between 2013 and 2017, [the plaintiff] purchased multiple shipments of coal from [the defendant] pursuant to the terms of [the plaintiff’s] standard form agreement. Article 15.01 of each contract contained the following arbitration agreement:

“Any dispute related to or arising from this Contract which the parties are unable to settle on an amicable basis shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce.”

(The Article referred to by Mr Horie, as extracted above, shall hereinafter be referred to as “Article 15”).

10. On 7 January 2015, the plaintiff and the defendant entered into a contract to supply two cargos of coal. The end user of the contract was Daio Paper. That contract contained Article 15. The first supply under the contract was performed by the defendant. However, difficulties arose as to the supply of the second cargo. There then arose a dispute resulting in exchanges between the parties in February 2016 as to issues such as delivery and price (“the dispute”). Out of those exchanges emerged a proposal for two shipments within a certain period. On 13 April 2016, Mr Jason Machin, a consultant to the defendant, made an offer by email for two shipments between April 2017 and March 2018. Under the entry “Other Terms” it was stated “As per previous contract with logical amendments required”.

11. On 14 April 2016, there were exchanges between the parties as to price. By an email exchange of that date between Mr Yuji Yamawaki for the plaintiff and Mr Machin, the agreement was reached between the parties. The terms of that final exchange did not vary the terms of the 7 January 2015 contract, save as to the 13 April 2016 email and the amended price.

12. Later in February 2017, the plaintiff sent an email to the defendant attaching a draft contract. As mentioned, that draft contract was not executed by either party. It contained the same arbitration clause as had been found in earlier contracts for the supply of coal, namely, Article 15.

13. There then occurred discussions concerning variation to the contract by an exchange of emails dated 29 August 2017 and 4 September 2017. It was agreed that the first shipment under the agreement would be delivered in December 2017 and the second shipment in the first quarter of 2018 subject to certain conditions which lay at the centre of the dispute between the parties to which the statement of claim addressed.

14. The statement of claim was filed in this Court soon after the first quarter of 2018.

15. Following the initiation of proceedings in this Court, Mr Graeme Lloyd of Winter Scott Solicitors, the defendant’s legal representatives in the United Kingdom, wrote to Advantage Partnership Lawyers on 29 May 2018 and stated: “it is difficult to see how the Supreme Court can have jurisdiction over your client’s claims”. The reference was plainly to Article 15 which was said by the defendant to constitute part of the contract between the parties. Mr Lloyd reserved the right to argue the “NSW proceedings [were] wrongly brought”. It might be noted that, in the affidavit of Mr Horie, a number of exchanges are recorded as occurring between the parties as to the dispute prior to this communication which evidenced that Mr Lloyd’s email was the first occasion the defendant had placed reliance upon the “arbitration clause” with respect to the proceedings in this Court. Mr Horie also recorded various unsuccessful attempts by Advantage Partnership Lawyers to contact Mr Lloyd by telephone together with attempts to initiate a mediation.

16. On 19 July 2018, Mr Lloyd wrote to Ms Stephanie Chalhoub of Advantage Partnership Lawyers in which he stated that his client relied upon the terms of Article 15 of the “Contract” with respect to the dispute. He further contended that the claim in this Court, which was disputed, fell within the terms of Article 15 and “should therefore be resolved by arbitration”. He contended that the action in this Court was contrary to and in breach of Article 15 and invited the plaintiff to discontinue those proceedings in favour of arbitration. He contended that should the plaintiff not discontinue the proceedings in this Court, his client would apply for a stay of the proceedings in favour of arbitration pursuant to s 7 of the Act. (He also asked that any response occur by the close of business in London on 20 July 2018).

17. On 20 July 2018 (within the time allocated by Mr Lloyd), the plaintiff’s lawyers replied to the email and contended that the communication of 19 July 2018 was the first occasion “in which your client acknowledges the initial contract” and sought to establish whether that contract was relied upon to dispute the claim in the Supreme Court. It was stated that:

We have commenced proceedings in the Supreme Court due to the lack of cooperation to resolve matters not performed by your client as a party to the contract… As previously stated, we wish to rely on the initial contract.

18. No reference was made by the plaintiff to Article 15 in the reply but the responses were directed to passages of the 19 July 2018 in which reliance was placed upon that provision.

19. As mentioned earlier, the motion was then filed on 24 July 2018.

20. A mediation was conducted, unsuccessfully, in London in August 2018. On 28 August 2018, the plaintiff advised, via its solicitor, that it would oppose the motion. Later on 11 September 2018, it was indicated that the plaintiff no longer opposed the motion.

SECTION 7(2) OF THE ACT

21. Section 7(2) of the Act is in the following terms:

(2) Subject to this Part, where:

(a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and

(b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;

on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.

SUBMISSIONS BY THE PARTIES

The Defendant

22. The defendant relied upon the provisions of s 98 of the Civil Procedure Act 2005 (NSW) and r 42.1 of the UCPR to submit that costs should follow the event. It was further submitted that a successful party should not be deprived of its costs unless there was material of sufficient cogency to justify a contrary order.

23. It was submitted that the proceedings before this Court should never have been commenced and the dispute was only ever appropriate to be determined by arbitration. Whilst the motion was filed after proceedings had been commenced, the defendant gave the plaintiff notice of the issue arising with respect to Article 15 within a reasonable time of the filing of the statement of claim and, after the plaintiff failed to respond in terms, to the issues the defendant had raised in that respect.

24. The defendant referred to paras 24 and 25 of Mr Horie’s affidavit in which it was essentially suggested that the reference to “initial contract” in the 20 July 2018 email was a reference to the 2017 draft contract. However, the defendant submitted that the reference to “initial contract” must be construed as the contract the parties initially entered into, namely, the agreement. It was then submitted that it was clear from the 19 July 2018 email that the defendant did not accept that the “initial contract” was operative, rather it was seeking to invoke the varied contract, being the agreement. This was further supported by the plaintiff’s solicitor’s use of the words “selected purported agreements” which was presumably a reference to the 2017 draft contract (being the only purported agreement which was not executed). There is substance in the defendant’s submission in this respect.

25. Further, it was contended that the defendant did nothing after 20 July 2018 from which it could be said that it could have avoided the costs of the motion. The motion was filed 4 days after the 20 July 2018 email in order to comply with UCPR r 12.11 which required it to file the motion 28 days after being served with the statement of claim to prevent the risk of losing the benefit of argument (the date of the service of the statement of claim was unclear but there was no demur from this contention during the hearing).

26. The defendant also submitted that it was not until 11 September 2018 that the plaintiff accepted that there was an agreement to arbitrate and that the proceedings should be stayed. The plaintiff’s acceptance occurred after directions were made on 31 July 2018 for the plaintiff to indicate by 28 August 2018 whether it opposed the application (as earlier mentioned, the plaintiff’s solicitors communicated on that date that it continued to oppose the motion).

27. In reply, it was submitted that at no time did the plaintiff contend that the arbitration provision was not contained in the contract that was being sued upon. No suggestion of that kind will be found in any communications between the parties. Nor is such a suggestion found in the plaintiff’s submissions.

28. It was contended that this is not a case where a compromise of the issues arising from the motion represents any uncertainty as to what may have been determined. If the plaintiff wished to pursue its claim as expressed in the statement of claim, it must do so by arbitration thereby asserting that there was an arbitration agreement between the parties in order to attract the jurisdiction of the International Chamber of Commerce, the relevant body under Article 15.

The Plaintiff

29. The plaintiff contended that the defendant had sought to apply the wrong test. The appropriate principles were those bearing upon the resolution of proceedings where there had been no hearing on the merits. In those circumstances, there were very limited circumstances in which costs may be ordered. One of those circumstances was where the Court was confident that a party would not succeed in an action. However, it was contended there was no proper basis for such a conclusion with respect to the motion in this case. There was no defence filed by the defendant and no certainty as to the outcome of the motion.

30. In order to accept that the outcome of the motion was certain, it was contended that it would be necessary to accept there was no issue about the source of “the Article 15 arbitration agreement” and it was submitted that was not the case.

31. The plaintiff submitted that what came out of the evidence was that the parties had a practice of reducing their agreements to a standard form of contract, each of which had an Article 15 provision. The last operative standard form of contract governing the parties’ arrangements was on 7 January 2015. Subsequently, there was a dispute arising out of the agreement or the variations to that agreement in an email exchange. There was produced in 2017 a draft contract which was never executed.

32. It follows that, in circumstances where the usual practice for the parties was to reduce the agreement to writing in a standard form and there had been a number of variations or new agreements, there was a real question as to whether an operative arbitration provision governed the parties’ arrangements. It was contended there were real issues as to construction of the documents, namely, there was a very complicated construction which requires an 18 month period of email exchanges to be interpreted. The plaintiff contended that until 19 July 2018, there was no basis for the plaintiff to understand that Article 15 operated in the agreement between them.

33. There was never confirmation to the plaintiff that there was a binding arbitration clause existing although it was accepted that the agreement may have incorporated Article 15 “by reference”. In that respect, the plaintiff submitted there was a Masters v Cameron issue because it cannot be assumed that the parties agreed to be immediately bound by that contract (although the submission received no elaboration).

34. Ultimately, the plaintiff submitted that, while the issues as to the terms of the contract remained unresolved, it was not appropriate to make an order of costs. That question included whether or not the Article 15 provision continued to be incorporated in or by subsequent variations to the agreement.

CONSIDERATION

35. By s 98(1)(a) of the Civil Procedure Act, this Court has, subject to the rules of the Court, a discretion to order costs and has power to determine “by whom, to whom and to what extent costs are to be paid”. That provision is subject to the UCPR.

36. The defendant relied upon r 42.1 of the UCPR in submitting that there was nothing in the evidence before the Court which would warrant a departure from the rule that costs should follow the event. However, whilst that rule is no doubt applicable, and the proceedings do not attract the provisions of rr 42.13-42.15, the plaintiff was correct, in my view, to submit that in assessing whether there should be an award of costs, the Court must be cognisant of the compromise reached between the parties as to the motion.

37. The plaintiff relied upon the judgment of McHugh J in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (“Lai Qin”). In that matter, an applicant for a protection visa under the Migration Act 1958 (Cth), whose application had been refused by the Minister and who had failed in review proceedings before the Refugee Review Tribunal, commenced proceedings in the High Court of Australia for prohibition, certiorari and mandamus directed to the Minister and the Tribunal. Before the application was heard, the Minister exercised his discretion under s 417 of the Migration Act, thereby granting the protection visa. The prosecutrix did not pursue the proceedings but applied for an order for costs up to the time that the visa was granted.

38. His Honour described the critical question in those proceedings as to whether or not the prosecutrix acted reasonably in bringing the proceedings and whether the respondents acted “so unreasonably” in not informing the prosecutrix that an application to review the decision to refuse a visa was being considered that it would be proper for the Minister to pay the whole or part of the costs of the proceedings (at 625).

39. It is appropriate to refer to the following passages from his Honour’s judgment (at 624-625):

In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extracurial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action.

…

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.

[Footnotes omitted.]

40. Whilst not enlisting the test of unreasonableness in Lai Qin, namely, that the conduct of a party is “so unreasonable”, per se, it is tolerably clear that the defendant advanced a contention that the plaintiff had, in fact, acted with such a degree of unreasonableness in resisting the defendant’s entreaties that the parties could not be resolved by proceedings in this Court. The defendant went so far as to contend that there was no proper basis upon which the plaintiff may have instituted proceedings for damages in this Court.

41. In applying the principles in Lai Qin, in that respect, a conclusion may be readily reached that it was reasonable for the defendant to bring the motion. The timing of the commencement of the motion was not unreasonable. The plaintiff was on notice as to the issue of the arbitration provision preventing proceedings in this Court shortly following the statement of claim being served on the defendant. The plaintiff did not reply to the email of 19 July 2018 by acknowledging the prospect of Article 15 applying and the timing of the filing of the motion thereafter was propelled by r 12.11. It may also be accepted that the defendant did not fail to take a step after 20 July 2018 which would have avoided unnecessary costs in those circumstances.

42. Questions do arise as to the reasonableness of the plaintiff’s approach to the motion. The Article 15 issue had been well and truly flagged prior to the filing of the motion, and further a program for the filing of evidence was fixed by the Registrar, evidence was then filed and the plaintiff maintained, as late as 18 August 2018 (and, in fact, did not consent to the stay until 11 September 2018), that it continued to oppose the motion, notwithstanding that it had pleaded the agreement was the contract on which it sued.

43. However, it is unnecessary to resolve the matter on the question of whether the conduct of the plaintiff was unreasonable given my conclusion that there is a high degree of certainty that the motion would have succeeded, if fully tried.

44. The plaintiff’s cause of action in this Court was predicated upon the contract, as constituted by the agreement as varied.

45. There can be little doubt that Article 15 was incorporated in that contract either by the course dealing (see J W Carter, Contract Law in Australia (LexisNexis Butterworths, 7th ed, 2018) at 224 [10-18]) or incorporated by reference into the contract (see Carob Industries Pty Ltd v Simto Pty Ltd (1997) 18 WAR 1 at 19 as to incorporation by reference relating to an arbitration clause). Nor do I consider there may be any reasonable doubt that the parties intended to enter into legal relations in that respect.

46. Article 15 had been a term of all relevant business arrangements under contract between the parties for the supplying of coal. It featured in the 15 January 2015 contract which was amended by the agreement to resolve a dispute arising out of the operation of that contract. Nothing on the dealings relating to the agreement suggested any departure from that historical position. Nor did the later variations.

47. The email of the defendant of 13 April 2016 expressly brought in the previous contract and the agreement was formed out of that foundation.

48. Further, as the defendant correctly contended, at no point in the communications between the parties after the filing of the statement of claim did the plaintiff deny the existence or operation of a contract containing an arbitration provision despite agitation of that issue by the defendant. Section 7(2) of the Act provides that where a party institutes proceedings against another party to an arbitration agreement and, as here, the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration, the Court shall stay the proceedings. It is apparent that the compromise reached as to the motion vis-à-vis the grant of a permanent stay, reflects the effect of Article 15 upon the resolution of the disputed question.

49. Irrespective of whether the statement of claim should have been initiated, it should not have been persisted with after communication to the plaintiff by the defendant relying upon the terms of Article 15, particularly given the plaintiff had, in my view, made reference to the agreement by its reply on 20 July 2018.

50. In the result, the defendant should have its costs of the motion. (The costs of the hearing of 6 November 2018 simply follows the event vis-à-vis the contest as to costs).

51. Given that an order to permanently stay the proceedings will be made, and therefore, no orders as to costs of the proceedings are able to be pursued beyond such an order, it is appropriate that costs be made payable forthwith.

ORDERS

52. The Court makes the following orders:

1. The proceeding be permanently stayed pursuant to s 7(2) of the International Arbitration Act 1974 (Cth).

2. The plaintiff shall pay the defendant’s costs of the motion as agreed or, in default, as assessed, forthwith.

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Decision last updated: 19 November 2018