John Holland Construction & Engineering Pty Ltd - [1999] QSC 16

IN THE SUPREME COURT
OF QUEENSLAND

O.S. No. 9642 of 1998
Brisbane

Before Justice Wilson

[John Holland Construction & Engineering Pty Ltd]

IN THE MATTER of The Commercial
Arbitration Act 1990
- and -

IN THE MATTER of an application by
JOHN HOLLAND CONSTRUCTION
& ENGINEERING PTY LTD ACN
004 282 268

CATCHWORDS: ARBITRATION - application to terminate pursuant to s 46 Commercial Arbitration Act 1990 - delay in prosecuting the arbitration proceedings - whether court may terminate the arbitration without removing the dispute into court - matters of which Court must be satisfied - discretion

Commercial Arbitration Act 1990 s 46
Corporations Law s 574
Property Law Act 1974 s 199
Allen v Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 229
Birkett v James [1978] AC 297
South Brisbane Regional Health Authority v Taylor (1996) 186 CLR 541
Cooper v Hopgood & Ganim (Appeal No. 8424 of 1997, 2 June 1998)

Counsel: Mr J Bond for the applicant
Mr R Peterson for the respondent

Solicitors Clayton Utz for the applicant
Walker Smith & Breen for the respondent

Hearing date: 20 November 1998
REASONS FOR JUDGMENT - WILSON J.

Judgment delivered 5 February 1999

This is an application brought by John Holland Construction and Engineering Pty Ltd (“Holland”) to terminate three arbitrations between it and Federal Building Industries Pty Ltd (in liquidation) (“FBI”) pursuant to s 46 of the Commercial Arbitration Act 1990.
There is also an application by Eastcoast Holdings Pty Ltd (“Eastcoast”) for leave to appear and be heard on the application by Holland. The two applications came before another chamber judge on 3 November 1998, when Eastcoast sought and obtained an adjournment of Holland’s application, and was ordered to pay the costs thrown away by the adjournment.
Mr Bond of counsel appeared for Holland and Mr Peterson of counsel for FBI and Eastcoast. Mr Bond made no objection to Mr Peterson’s appearance on behalf of Eastcoast and indeed sought an order for costs against Eastcoast and/or the liquidator. To the extent that it may still be necessary to do so, I grant Eastcoast leave to appear and be heard on Holland’s application.
On 18 August 1993 FBI was ordered to be wound up. It was de-registered pursuant to s 574 of the Corporations Law on 27 February 1998, but restored to the register (in liquidation) on 20 November 1998. The liquidator consented to the continuation of proceedings for the recovery of moneys owing by Holland to FBI.
In November 1991 Holland was the principal contractor in relation to two projects for the South Brisbane College of TAFE - the Information Technology Building (“ITB”) and the Food Technology Building (“FTB”). With respect to each, it entered into a sub-contract with FBI for the provision of plumbing and drainage. Work under the sub-contracts was performed in late 1991 and early 1992.
Each sub-contract contained an arbitration clause in the following terms:-
(b)“Subject to sub-clause (a) of this clause in case any dispute or difference shall arise between the Contractor and the Sub-Contractor either during the progress of the Work under the Contract or after determination abandonment or breach of this Contract as to the construction of the same or as to any matter or thing whatsoever arising thereunder or in connection therewith THEN either party may give to the other notice in writing of such dispute or difference and at the expiration of three days unless it shall have been otherwise settled such dispute or difference shall be and is hereby submitted to arbitration in accordance with the provisions of the laws relating to arbitration in force in the State or Territory named in the Second Schedule and if no place be named therein in the State or Territory where the Main Contract Works are located in one of the following manners:
(i)by either a single arbitrator or by two arbitrators agreed upon in writing between the Contractor and the Sub-Contractor; or
(ii)failing agreement of the parties within ten days under the preceding sub-paragraph (i), the arbitrator shall be appointed by the Chairman for the time being of the Queensland Chapter of the Institute of Arbitrators Australia. Any arbitration hereunder shall be conducted in accordance with and subject to the Institute of Arbitrators Australia Rules for the Conduct of Commercial Arbitration.”
On 8 June 1994 FBI served two notices of dispute (dated 7 June 1994). With respect to the ITB sub-contract, it claimed that Holland owed it money for unpaid variations and other matters amounting to $55,912. With respect to the FTB project, it claimed that Holland owed it money for unpaid variations, improper deductions, and moneys in respect of a bank guarantee that Holland had improperly called up, totalling $141,880.
Mr Holt SC was appointed as arbitrator. A preliminary conference was convened on 15 August 1994 at which a timetable was set. It was agreed that Holland should have security for costs - a bank guarantee in the sum of $10,000 to be provided by 30 September 1994. A timetable for pleadings was set, to end with a review by the arbitrator in early December 1994.
On 12 September 1994 FBI’s then solicitors wrote to Holland’s solicitors indicating their client’s intention to claim prolongation costs with respect to both projects. On 27 September 1994 they served a further notice of dispute, which related only to the FTB contract, and which claimed prolongation costs of $268,704.
On 3 October 1994 FBI’s solicitors wrote to the arbitrator, formally asking him to extend the ambit of the arbitration proceedings to cover the claim for prolongation costs or alternatively to consolidate the proceedings the subject of the notice of dispute dated 27 September 1994 with the proceedings the subjects of the notices of dispute of 7 June 1994. An amended version of the third notice of dispute was served on 17 October 1994.
The application came before Mr Holt SC on 17, 20 and 21 October 1994. He ordered provisionally that the arbitration proceedings with respect to the third notice of dispute be consolidated with the proceedings in respect of which he had been appointed arbitrator. The order made was provisional because he had not been appointed as arbitrator in the third arbitration. Subsequently neither he nor anybody else has been formally so appointed whether by agreement of the parties or by the chairman of the Queensland Chapter of the Institute of Arbitrators.
Thereafter there was no real activity for almost two years. The security ordered was not provided; no pleadings were exchanged; and there was no appointment of an arbitrator with respect to the third dispute.
On or about 1 August 1996 FBI changed its solicitors. The new solicitors advised Holland’s solicitors accordingly.
On 30 September 1996 FBI’s solicitors sent Holland’s solicitors a draft amended timetable and a bank guarantee in the sum of $10,000. In their covering letter they referred to their understanding that the prolongation claim had been consolidated with the other two claims. This produced a response from Holland’s solicitors on 13 October 1996 pointing out that there had been no appointment of an arbitrator in the third arbitration and that the security did not extend to the third arbitration. They also included a draft amended timetable.
On 31 January 1997 FBI’s solicitors wrote to Holland’s solicitors enclosing a draft pleading entitled “Points of Claim” which related to the three arbitrations and a further draft amended timetable. Holland’s solicitors responded at the end of February to the effect that the consolidated pleading was entirely premature and insisting on security for the prolongation claim. There was apparently some communication (probably oral) in May 1997, but there were no further written communications for nearly six months.
In the meantime on 30 June 1997 a deed of assignment was executed by FBI and Eastcoast. Pursuant to that deed, FBI assigned to Eastcoast debts owing to it by Holland, the benefit of the Holland arbitrations and the Holland causes of action. Formal notice of the assignment was not given to Holland pursuant to s 199 of the Property Law Act 1974. Thus the assignment was ineffective at law whether or not it was effective in equity.
In August 1997, FBI’s solicitors wrote to Holland’s solicitors enclosing a copy of a bank guarantee with respect to the costs of the third arbitration and a further amended timetable, and suggesting joint communication with Mr Holt SC about consolidation of the arbitrations. Holland’s solicitors replied that the guarantee was inadequate because it was limited in time. On a without prejudice basis they offered to agree to the appointment of Mr Holt SC as arbitrator in the third arbitration and to the consolidation of the proceedings in return for the giving of adequate security for the costs of the prolongation claim and agreement that there be no order for the costs of the previous application for consolidation. While they made criticisms of the draft timetable which had been sent by FBI’s solicitors, they indicated their willingness to consider a revised version which took account of their criticisms.
There were no further communications between late August 1997 and September 1998. In the meantime, on 27 February 1998 FBI was de-registered.
On 14 September 1998 the solicitors for FBI proposed an application to Mr Holt SC for consolidation of the arbitrations, security for costs and another timetable. This provoked Holland to make its present application.
Thus, there have been very considerable delays since the work was performed in late 1991 and 1992. About 2½ years elapsed before the first notices of dispute were served. Then there was a delay of nearly two years from October 1994 until August 1996. There was a delay of six months from February 1997 to August 1997, and from then until September 1998 a further thirteen months delay. There have been bursts of correspondence but no satisfactory explanation has been put forward for the intermittent character of FBI’s conduct of the matter. In July 1998 Eastcoast (which seems to have been funding the prosecution of the arbitrations on behalf of FBI) complained to its solicitors about delay, but on the material before me I cannot form a view whether the fault lay with the solicitors or the client or both. There seems to have been a failure to grapple with two fairly straightforward issues - the need to appoint an arbitrator in the third arbitration and to have the proceedings consolidated, and the provision of security for costs in the third arbitration. Holland consistently pointed to these issues. However, apart from its letter of 24 September 1996, which amongst other things complained about delay and foreshadowed an application to terminate the arbitrations, the correspondence emanating from its solicitors gave the impression of a readiness and willingness to proceed with the arbitrations, subject to the satisfactory resolution of those issues.
Holland now says that it would be prejudiced if the arbitrations were not terminated. The prejudice it asserts comprises inconvenience and expense in locating witnesses and the effect of the passage of time on their recollections. Exhibited to one of the affidavits filed on behalf of Holland is a schedule of fifteen witnesses. Of those there is only one whose whereabouts are presently unknown. Of the five principal ones, three continue to work for Holland (two of those in the Philippines), one is in Vietnam (although not in Holland’s employ) and one is working for a competitor in Queensland (not having been in Holland’s employ since 1993.)
Section 46 of the Commercial Arbitration Act provides:-
“46.(1)Unless a contrary intention is expressed in the arbitration agreement, it is an implied term of the agreement that in the event of a dispute arising to which the agreement applies it is the duty of each party to the agreement to exercise due diligence in the taking of steps that are necessary to have the dispute referred to arbitration and dealt with in arbitration proceedings.
(2)Where there has been undue delay by a party, the court may, on the application of any other party to the dispute or an arbitrator or umpire, make orders -
(a)terminating the arbitration proceedings; and
(b)removing the dispute into court; and
(c)dealing with any incidental matters.
(3)The Court shall not make an order under subsection (2) unless it is satisfied that the delay -
(a)has been inordinate and inexcusable; and
(b)will give rise to a substantial risk of it not being possible to have a fair trial of the issues in the arbitration proceedings or is such as is likely to cause or to have caused serious prejudice to the other parties to the arbitration proceedings.”
The application is simply for the termination of the arbitration proceedings, and not for their termination and the removal of the disputes into court. Under subsection (2) can the Court make an order terminating the arbitrations without also removing the disputes into court?
The section is concerned with delay in referring a dispute to arbitration and in prosecuting the arbitration proceedings. Subsection (2) sets out the orders (plural) which the Court may make. The conjunctive “and” appears between (a) and (b) and between (b) and (c). Subsection (3) sets out matters of which the court must be satisfied before making an order (singular) under subsection (2). The Court’s powers cannot be exercised unless it is satisfied (inter alia) that the delay will give rise to a substantial risk that a fair trial of the issues in the arbitration proceedings will not be possible or that it is such as to be likely to cause or to have caused serious prejudice to the other parties to the arbitration proceedings. Where the prejudice relied on is that resulting from the loss of witnesses or the fading of recollections, the prejudice will be no less in court proceedings than it would be in arbitration proceedings. 25 The use of the singular “an order” in subsection (3) and the factors of which it requires the Court to be satisfied lead me to conclude that the Legislature intended that the Court have power to terminate arbitration proceedings without necessarily also removing the dispute into court.
Section 46 gives the Court a discretion whether to terminate an arbitration; it does not set out an exhaustive list of the factors relevant to the exercise of that discretion. The factors of which the Court must be satisfied before the discretion can be exercised in favour of termination are a legislative enactment of the guidelines developed for the exercise of the judicial discretion to dismiss court proceedings for want of prosecution in Allen v Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 229 and Birkett v James [1978] AC 297. (I note in passing that the courts have shown an increasing reluctance to apply those guidelines rigidly, emphasizing that in exercising their inherent power to dismiss for want of prosecution their discretion is untrammelled. See, for example, Cooper v Hopgood & Ganim (Appeal No. 8424 of 1997, 2 June 1998).)
In the present case the delay is certainly deserving of criticism and it is largely unexplained, but I would not characterize it as inordinate or necessarily inexcusable.
I am not satisfied that the inconvenience and expense associated with locating witnesses would be such as to give rise to a substantial risk that a fair trial would not be possible or as to cause serious prejudice to Holland. It is in the nature of the construction industry and in particular of large construction companies which engage in offshore work that personnel move to distant places and that some secure employment with rival companies. The difficulties arising from such moves can to some extent be lessened by the use of modern communication technology including telephone, fax, video links and email.
The passage of time will always cause some prejudice. In South Brisbane Regional Health Authority v Taylor (1996) 186 CLR 541 at 551, McHugh J. made this point. However, in evaluating the extent of that prejudice one has to bear in mind the length of the delay and the extent to which there is likely to be documentary evidence with respect to the claim. I would expect there to be considerable documentation in the present matters. 30 Accordingly, because I am not satisfied of the matters in subsection (3), I could not make an order under subsection (2) even if I were otherwise minded to do so.
In the circumstances I dismiss the summons to terminate the arbitrations.
The summons was originally served on the Australian Securities and Investment Commission, which indicated that it had no interest in the proceedings. FBI was not restored to the register until 20 November 1998, the day the summons was heard. Although Eastcoast had the primary conduct of the response to Holland’s application, I do not think it would be proper to make an order for costs in its favour since it is not a party to the arbitrations and it was heard on Holland’s summons only pursuant to leave granted on its own application. Accordingly, I make no order as to costs on the summons filed by Holland.
Similarly, I make no order as to costs on the summons filed by FBI.