John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd

[2015] NSWSC 451

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
Hearing dates:	5, 9, 17 March 2015
Decision date:	22 April 2015
Jurisdiction:	Common Law
Before:	Hammerschlag J
Decision:	Plaintiff and first defendant referred to arbitration pursuant to s 8(1) of the Commercial Arbitration Act 2010 (NSW). Plaintiff’s action against second defendant stayed.
Catchwords:	COMMERCIAL ARBITRATION – Commercial Arbitration Act 2010 (NSW) ss 5, 7(1) and 8(1) – arbitration agreement requiring disputes or differences arising out of or relating to the performance or breach of the agreement to be negotiated and if they cannot be resolved by negotiation the parties to confer to ascertain whether they agree that the dispute shall first be subject to an alternative dispute resolution process – further contractual provision that the agreement cannot be varied other than in writing – party A (plaintiff) brings an action in respect of a dispute with party B (first defendant) arising out of or relating to their contract or its breach but also has factually related disputes with non-parties – request by party B under s 8(1) that the parties be referred to arbitration – whether the dispute between the parties to the arbitration agreement is arising out of or relating to their agreement or its breach – CONTRACT – party A claims an oral agreement that the dispute be resolved by court action – whether such an agreement is established - CONTRACTUAL CONSTRUCTION – whether, if established, the agreement is for resolution of the dispute by an alternative dispute resolution process - EQUITY - estoppel - whether party B is estopped from denying the asserted oral agreement or has waived its right to rely on the arbitration agreement HELD - that the dispute between the parties is one arising out of or relating to the agreement or its breach - no oral agreement as alleged established - Court proceedings are not an alternative dispute resolution process - no estoppel established - no waiver established. COMMERCIAL ARBITRATION - arbitration agreement requiring parties first to negotiate any dispute then have expert determination as a condition precedent to arbitration - party A brings an action against party C (second defendant) in respect of a dispute with party C arising out of or in connection with their contract or its breach but also has factually related disputes with non- parties - party C seeks a stay of the action alternatively makes a request under s 8(1) that the parties be referred to arbitration - whether the dispute between the parties to the arbitration agreement is arising out of or in connection with their agreement or its breach - CONTRACT - whether arbitration agreement is void for uncertainty - EQUITY - whether party C has waived its right to rely on the arbitration agreement - STATUTORY CONSTRUCTION - whether the arbitration agreement is inoperative within s 8(1) for lack of fulfilment of the condition precedent. HELD: that the dispute between the parties is one arising out of or in connection with the agreement or its breach – arbitration agreement not void for uncertainty - no waiver established - negotiation is a precondition to arbitration - precondition not yet fulfilled - arbitration agreement presently inoperative - referral to arbitration refused - stay granted.
Legislation Cited:	Commercial Arbitration Act 2010 (NSW) Limitation Act 1969 (NSW)
Cases Cited:	Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 IBM Australia Ltd v National Distribution Services Pty Ltd (1999) 22 NSWLR 466 Paharpur Cooling Towers Ltd v Paramount (Wa) Ltd [2008] WASCA 110 Rhinehart v Welker [2012] NSWCA 95 Briginshaw v Briginshaw (1938) 60 CLR 336 Helton v Allen (1940) 63 CLR 691 Rejfek v McElroy (1965) 112 CLR 517 Watson v Foxman (1995) 49 NSWLR 315 Commonwealth v Verwayen (1990) 170 CLR 394 Austotel Pty Ltd v Franklins Self-serve Pty Ltd (1989) 16 NSWLR 582 Upper Hunter County District Council v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429 Pipeline Services WA Pty Ltd v Atco Gas [2014] WASC 10 PMT Partners v Australian National Parks and Wildlife Service (1995) 184 CLR 301 Savcor Pty Ltd v State of New South Wales (2001) 52 NSWLR 587 Tricontinental Corporation Limited v HDFI Limited (1990) 21 NSWLR 689
Texts Cited:	Paterson, Robertson, and Duke, Principles of Contract Law, (4th ed 2011, Thomson Reuters). J W Carter, Contract Law in Australia, (6th ed 2013, LexisNexis Butterworths).
Category:	Principal judgment
Parties:	John Holland Pty Limited - Plaintiff Kellogg Brown & Root Pty Ltd - First Defendant Atlantis Corporation Pty Ltd - Second Defendant
Representation:	Counsel: P.S. Braham SC and B.C.A. Bradley - Plaintiff T.J. Breakspear - First Defendant I. Faulkner SC - Second Defendant Solicitors: HWL Ebsworth - Plaintiff DLA Piper Australia - First Defendant Gadens Lawyers - Second Defendant
File Number(s):	2014/253176

Judgment

INTRODUCTION

1. Section 7(1) of the Commercial Arbitration Act 2010 (NSW) (the Act) provides that:

“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.

2. Section 8 provides that:

(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.

3. Section 5 provides that:

In matters governed by this Act, no court must intervene except where so provided by this Act.

4. References below to sections are references to the Act unless the context otherwise indicates.

5. The plaintiff (John Holland) is a builder. It was engaged by Downer EDI Rail Pty Ltd (Downer) to design and construct a rail facility known as the Auburn Maintenance Centre (the AMC). Downer itself was engaged by Reliance Rail Pty Ltd which in turn was engaged by Rail Corporation New South Wales.

6. By written Agreement for Engagement of Consultant entered into on 10 April 2007, John Holland engaged the first defendant (KBR) to furnish certain design and documentation services including the design of stormwater detention facilities for the AMC (KBR Contract).

7. By written agreement entered into on 15 August 2008, John Holland engaged the second defendant (Atlantis) to design, manufacture, supply and certify the stormwater detention facilities to be used for the AMC (Atlantis Contract). Atlantis installed a modular tank system under the AMC car park for the purpose of providing storm water on site detention.

8. Construction of the AMC was completed in 2010. Allegedly, about three and a half years after construction, subsidence of the pavement in the AMC car park was observed. Apparently another builder, Laing O’Rourke had been carrying out building and excavation works on an adjoining site.

9. On 28 August 2014, John Holland sued out of this Court a Summons accompanied by a Technology and Construction List Statement claiming from KBR and Atlantis damages for breach of contract, negligence, under the Trade Practices Act 1974 (Cth), and indemnity against all loss or damage arising out of breaches or other wrongful acts or omissions on their part.

10. Both the KBR contract and the Atlantis Contract contain arbitration agreements.

11. By Notice of Motion filed on 10 December 2014, KBR sought an order that the proceedings against it be stayed permanently. By its Amended Notice of Motion dated 5 March 2015 KBR moves only for an order that John Holland and KBR be referred to arbitration pursuant to s 8(1) (the KBR motion).

12. By Notice of Motion filed 19 February 2015 Atlantis sought an order that the proceedings against it be stayed permanently. By its Amended Notice of Motion dated 5 March 2015, Atlantis moves for orders that the proceedings against it be stayed permanently, and that John Holland and Atlantis be referred to arbitration pursuant to s 8(1) (the Atlantis motion).

13. Mr T.J. Breakspear of Counsel appeared for KBR. Mr I. Faulkner of Senior Counsel appeared for Atlantis. Mr P.S. Braham of Senior Counsel, together with Mr B.C.A. Bradley of Counsel appeared for John Holland.

THE KBR MOTION

Relevant provisions of the KBR Contract

14. In the KBR Contract, references to MF Subcontractor are to John Holland and references to Consultant are references to KBR.

15. Clause 12 of the KBR contract is entitled Settlement of Disputes. Clauses 12.2 – 12.6 are in the following terms.

12.2 NEGOTIATION OF DISPUTE

In the event of a dispute or difference (other than in relation to the MF Subcontractor's assessment of whether milestones have been met) arising out of or relating to the performance of the Agreement or the breach, rectification, termination, frustration or invalidity thereof, (hereinafter referred to as the "Dispute"), every endeavor shall be made to resolve the Dispute on its merits by negotiation. The parties shall attend at least one meeting to discuss the matter at issue, as a condition precedent to commencing any other proceeding in respect of the dispute. If the Dispute cannot be resolved by negotiation, the parties shall confer in order to ascertain whether they agree that the Dispute shall first be subject to the process of conciliation, mediation, appraisal, or such other alternative dispute resolution process as may be appropriate in the circumstances of the Dispute and, if they so agree, the Dispute shall be referred to such process.

12.3 GROUND FOR ARBITRATION

In the event that the Dispute cannot be resolved in accordance with the foregoing procedure then a notice may be issued by one party to the other party requiring that the Dispute be referred to arbitration.

12.4 ARBITRATOR

Arbitration shall be effected by a single Arbitrator in accordance with and subject to the Institute of Arbitrators and Mediators Australia Rules for the Conduct of Commercial Arbitration. Any Conciliator, Mediator or Appraiser who has been previously appointed shall not be appointed as Arbitrator, nor may that person be called by either party in the arbitration unless both parties agree in writing.

The parties and the Arbitrator shall meet to discuss and develop procedures appropriate to expedite the conduct of the arbitration and the parties shall cooperate with the Arbitrator in expeditious conduct of the arbitration.

12.5 COST OF ARBITRATION

The cost of Arbitration submission, reference and award, together with the apportionment thereof shall be at the discretion of the Arbitrator.

12.6 LEGAL ACTIONS

Compliance by the parties with the procedures of clauses 12 is a condition precedent to either party being entitled to pursue any subsequent relief or remedy.

16. Clause 15 of the KBR contract is in the following terms:

15. NON-WAIVER OF CONDITIONS

Except as provided in the Agreement, none of the terms and conditions, requirements and obligations of the Agreement shall be varied, waived, discharged or released at law or in equity except with the prior consent in writing of the parties in each instance.

In the event of any conflict or inconsistency between the provisions of clauses 1 to 15 hereof and the provisions of the Special Conditions, if any, then to the event only of such conflict or inconsistency, the provisions of the Special Conditions shall prevail.

The Facts

17. John Holland had parallel dealings with KBR and Atlantis. A single chronology will not facilitate ease of understanding. However, as will be observed, some of the factual background is relevant to both motions.

18. KBR certified its design on 29 August 2008.

19. Section 14(1)(a) of the Limitation Act 1969 (NSW) (Limitation Act) provides relevantly that:

An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims:

(a)    a cause of action founded on contract (including quasi contract) not being a cause of action founded on a deed

20. Thus, unless John Holland brought an action for damages in contract based on a breach by way of KBR’s certification, the limitation period in respect of that cause of action expired on 29 August 2014.

21. SMEC is a firm which provides consultancy services for major projects. John Holland retained SMEC to undertake an investigation to consider the suitability of certain aspects of the Atlantis Stormwater System used at the AMC, in particular, a component of it described as the “saw tooth detail”. SMEC produced a draft report on 23 June 2014. Under cover of a letter dated 18 July 2014, John Holland provided a copy of the SMEC report to KBR avowedly for the purposes of attempting to resolve the dispute. John Holland indicated that it would like to organise a meeting with KBR to discuss failings identified by SMEC.

22. Mr Paul Deschamps (Deschamps) is a solicitor and a partner at HWL Ebsworth (Ebsworth), the law firm which has at all material times acted for John Holland. Mr Joseph Glatter (Glatter) is the senior legal counsel in KBR’s law department in Australia. He is also the company secretary of KBR’s main trading entity. He is based in South Australia.

23. On 24 July 2014, Deschamps called Glatter, to whom he had been referred by another KBR officer, to discuss the subsidence issue and to try and organise a meeting. At that time Glatter did not know about the issue. Deschamps followed up with an email in which he said:

I confirm that you will bring yourself up to speed on this matter and then give me a call to organise a discussion on procedural issues and the matter generally between John Holland and KBR.

24. On 28 July 2004, Mr Raymond Mahony (Mahony), KBR’s Director of Transport, wrote to Mr Gerard Kodomichalos (Kodomichalos), John Holland’s Executive Manager - Legal & Contracts, Infrastructure. He said, relevantly:

After a review of our project file and the report from SMEC dated 23 June 2014, we respectfully decline the invitation to attend a meeting with you to discuss the cracking and subsidence of the pavement in the Eastern portion of the Auburn Maintenance Centre (AMC) carpark.

25. On 1 August 2014, Kodomichalos replied:

Thank you for your letter dated 28 July 2014.

Whilst we understand that KBR does not believe it has any responsibility in relation to the failures which occurred, John Holland does not share this view as, amongst other things, KBR was responsible for the design of the AMC, including the design and certification of the stormwater detention system. The design of the stormwater detention system incorporated an inadequately detailed serrated edge at the end of the OSD tank. Further, KBR certified the inadequate design of the stormwater system after it had been made aware that a change to the design configuration of the Atlantis cells in the vicinity of the AMC car park was required due to the revised angle of the parallelogram.

Additionally, failures in the Atlantis cells are not isolated to areas where a serrated edge was used.

In the circumstances, there is a difference arising out of or relating to performance of the agreement with KBR which should be the subject of discussion. At this stage, John Holland's primary aim is to avoid the need to commence any action by maintaining the status quo through agreement with KBR and Atlantis in relation to non reliance on any limitations defence for a certain period pending commencement of any action by Downer in relation to the AMC failures.

As you are most likely aware, pursuant to clause 12.2 of the agreement with KBR, the parties are required to meet to discuss any matter at issue. KBR is also obliged under the agreement to cooperate and exercise good faith in the best interests of John Holland.

Accordingly, we request that you reconsider your position and agree to meet with John Holland. If desired by KBR, we are prepared to have the meeting conducted by way of teleconference.

We propose that a meeting be scheduled for next week. Please inform us if you are prepared to meet.

26. KBR then changed its mind about a meeting. There were some logistical difficulties in arranging one. Ultimately, arrangements were made for a meeting on 26 August 2014 to be attended by Mahony in person and to which Glatter would dial in by telephone. It was envisaged that Kodomichalos and Mr Antoine Smily (Smily) of John Holland would be present. As it happened, Kodomichalos and Smily could not participate and Mahony could not physically attend.

27. What happened was a telephone conference from a conference room at Ebsworth (the conference). Present in the conference room were Deschamps and a solicitor from the same law firm, Mr Benjamin Chedid (Chedid). Glatter and Mahony participated by telephone. Chedid has since left John Holland to form his own law firm.

28. In a critical respect, what was said is in dispute. By all accounts Deschamps did most of the talking. He took a perfunctory handwritten note. Chedid took more detailed notes which were later transcribed and edited. Neither Glatter nor Mahony took notes.

29. Deschamps says that he outlined what had occurred at the AMC and what the matters in issue were. He says that he informed KBR that John Holland had met with representatives from Atlantis and Downer, that rectification of the car park damage was to commence shortly, and that Downer was going to be claiming against John Holland and John Holland would in turn be claiming against KBR and Atlantis. He says that he discussed issues in relation to who may or may not have been responsible for the damage. He says that he identified the potential parties to any dispute including the relevant rail entities, Reliance Rail, Downer, John Holland, Laing O'Rourke, KBR and Atlantis. He discussed notification of KBR's insurers in relation to the dispute, and the dispute resolution process.

30. He says that a conversation to the following effect took place:

DESCHAMPS:    Although John Holland does not wish to commence any action downstream against KBR prior to Downer commencing against John Holland, we are concerned as to a potential limitations defence as one of the KBR design certifications was given on 29 August 2008.

We have considered deed polls from KBR and Atlantis agreeing not to rely on a limitations defence if an action is commenced by John Holland within a certain period of any action being commenced against John Holland in relation to the project, but don't believe that this will work from a practical perspective taking into consideration the number of potential parties and insurers and the limited time available to get all potential parties to agree on the form of and execute such a deed.

There are different dispute resolution procedures in the various contracts between the different parties engaged on the project and no agreed dispute resolution procedure with Laing O'Rourke as there was no contract with them.

We are of the view that litigation is the most appropriate dispute resolution procedure in the circumstances for resolution of the dispute taking into consideration the number of different parties and the inconsistent dispute resolution process.

GLATTER:      I agree that litigation is the best course of action for resolution.

DESCHAMPS:   We are in the process of finalising draft proceedings. In our view, the best way forward is for John Holland to commence proceedings to overcome any potential limitation issues and then to stay/stand over the proceedings pending commencement of proceedings by Downer.

GLATTER:   I agree. We're happy with that proposal. In the interim though, we'd like to maintain open dialogue in relation to details concerning liability for the design, to share information in relation to the design and to have further meetings in this respect.

DESCHAMPS:   I'll have to get some instructions on that, but it seems like a sensible approach.

31. Chedid says that Deschamps said words to the following effect:

We have met with Atlantis, Downer and their representatives regarding the subsidence of the car park and the status of the matters at play. As you know these matters occurred a long time ago and we are worried about the statute of limitation periods. We have been trying to work out what has happened and maybe it’s best if I give you a summary of what we have found. Railcorp, which is a different rail entity now, I think Sydney Trains, entered into an agreement with Reliance Rail. Reliance Rail entered into an agreement with Downer, who in turn entered into an agreement with John Holland. John Holland was required to build one component of the works, which was the AMC. As part of the AMC, John Holland was required to construct stormwater retention facilities. John Holland engaged KBR as lead designer and KBR recommended the use of Atlantis cells for the stormwater retention facilities.

32. Chedid says that there was discussion about whose fault the subsidence was and that Glatter and Mahony said that Laing O’Rourke was to blame. After further discussion about who was to blame, the conversation continued to the following effect:

DESCHAMPS:   I originally spoke to you about the limitations defence. This matter really needs to be explored further. The problem is that KBR certified its design on 29 August 2008. We are now three days shy of the expiry of the limitations period. On a conservative view, we have to commence proceedings now. We have drafted pleadings and we will be filing tomorrow. We would have liked to preserve the status quo and have the parties sign a deed poll stating that they would not rely on the a statute of limitations defence. However, we spoke to Atlantis who indicated that it would not be in a position to sign a deed poll unless all parties agreed to do the same, including its manufacturers. This is impossible given the short time frame. It’s just logistically an impossibility.

GLATTER or

MAHONY:   It’s hard not to react defensively.

John Holland have a problem here more than KBR.

DESCHAMPS   Look, I’m not saying who is to blame. It is quite possible that John Holland are to blame and if it is Laing O’Rourke, we are all off the hook. We do not want to bring a claim against KBR or Atlantis at this stage. Downer have not commenced proceedings but we know a claim is coming at some stage. We are worried about the limitations period which is why we are speaking to you now. I am sorry if this came across as an ambush but that was not the intention. Do you want to know what I would say if I was advising KBR about the deed poll? I would advise KBR not to sign it. I would be in the same position as Atlantis. You cannot agree to extend the limitation periods without all parties agreeing to the same thing, including any sub-consultants that KBR is intending on suing. All parties need to be included in the same proceedings. I have spoken to Downer and Atlantis about this. The contracts between all the different parties have different dispute resolution procedures. Our contract contains an arbitration clause. We cannot go through arbitration and need to go commence through litigation otherwise there will be too many different proceedings on foot. We also want to put Laing O’Rourke into the mix and we don’t have a contract with them.

GLATTER:   Yes. This is right. Litigation is the proper course.

DESCHAMPS:   This is purely to ensure that we are not facing a limitations defence. We can commence proceedings and park them until Downer and Sydney Trains commence proceedings and they are consolidated upstream. You should make sure that your insurers are on notice.

GLATTER:   I have done that.

DESCHAMPS:   There are really two things that need to happen through this process. 1. We need to have open dialogue as much as possible to achieve a resolution. 2. We will have to commence proceedings by way of litigation and have the proceedings stayed.

GLATTER:    There are some really different views between KBR and John Holland. We should really discuss this. We do not have all the documentation and I’m sure there is stuff you have that we do not have. There is just a time problem. Commence the proceedings and park it. After that, let’s have some discussions.

33. It is appropriate to set out the most relevant parts of Chedid’s file note:

PD – originally spoke to you about limitations defence. Matter needs to be explored further. Problem is KBR certified design on 29 August 2008. This is 3 days shy of limitations period. Conservative view – commence proceedings. Atlantis indicated it would not be in a position to agree unless all parties agree. It is impossible in short time frame. Logistically an impossibility.

JG – Thus is no claim from Downer. How can JH commend proceedings.

PD – Does not have to be a physical loss, suffered loss of investigation. Belgrove, chocolate factures, SAS Trustees, JH would be entitled to claim the likely cost of rectification before it is required to pay.

Ray – Hard not to react defensively. What can we do to help?

PD – Costs Rectification is starting in a week. Can send you details. Consolidation of proceedings. Originally see if we could get an extension first.

JG – This is on the assumption KBR is liable.

PD – This is on the assumption JH is liable.

JG – JH have a problem here more than KBR.

PD – Look, I'm not saying that. Quite possible that JH are to blame. If LORA, we are all off the hook.

PD – We do not want to bring a claim against KBR or Atlantis at this stage. We know a claim is coming at some stage. We are worried about limitations period. Sorry about ambush. Not intention. If I was KBR I wouldn't sign the Deed Poll. I would be in same position as Atlantis. I have spoken to Downer and Atlantis – different dispute resolution procedures, need to go through litigation. That way LORA is in mix.

JG – This is right – Litigation is proper course.

PD – Purely to ensure we aren't facing a limitations defence. Commence proceedings and park until consolidated upstream. Insurers should be put on notice.

(PD is Deschamps. JG is Glatter. Ray is Mahony. JH is John Holland. LORA is Laing O’Rourke)

34. At an earlier point, Chedid’s file note records “RM – KBR knew that the design changed. KBR did not incorporate details into design and this was incorrectly certified by KBR”. This notation is incorrect. It is accepted that Mahony did not say this. If anyone said this, it was Deschamps.

35. Glatter says that he knew Kodomichalos from previous dealings. He says that before the conference he called Kodomichalos to confirm and was informed by his assistant that Kodomichalos was not attending and that the conference was at the offices of John Holland’s solicitors. He says he then spoke to Mahony and it was agreed that in the absence of Kodomichalos, Mahony should dial in from the KBR offices rather than attend the meeting in person. He says that he formed the view that in the absence of Kodomichalos they would not be holding the meeting in response to John Holland’s letter and that the meeting would just be Deschamps giving an update on where the matter was after his discussions with Atlantis and Downer. Accordingly, he saw no reason for Mahony to attend in person.

36. Glatter dialled into the conference from his office in Adelaide. His recollection of the conference is that Deschamps began by describing the background to the matter in detail, in particular, who the parties were in the upstream contractual arrangements. Deschamps then informed the meeting that he had met with Atlantis and Downer and then went on to explain the nature of the damage at the AMC car park and the nature of the rectification works that were to be undertaken. Glatter says that in the course of describing the damage to the car park, Deschamps made a number of allegations against KBR in relation to its design of the car park and went on to say why he thought KBR was liable for the AMC car park failure.

37. Glatter says that at this point he recalls being caught off-guard by Deschamps' allegations regarding KBR's liability and felt like they were being ambushed on that topic by an external lawyer without John Holland being present. He says that this annoyed him slightly as this was not the type of meeting he had been expecting. At this point, he interrupted Deschamps and a dialogue to the following effect took place:

GLATTER:    Paul, I don't understand the point of this call. We thought you were going to update us on where the matter is at but now we are being accused of various things. What is the purpose of this conversation? This just feels like a bloody ambush.

DESCHAMPS:   Sorry, it's not meant to be an ambush, it's not that way. We are just worried about the limitation period, which will expire…

38. Glatter says that he recalls Deschamps saying when the limitation period would expire but cannot now recall the specific date. The conversation then continued.

DESCHAMPS:    We would like KBR to sign a Deed Poll to waive its limitation defence. We have asked Atlantis to do this, but they will not do it unless the other parties do.

GLATTER:    KBR will not be signing any Deed Poll. We are not going to waive our rights.

MAHONY:   We are not going to waive our rights.

DESCHAMPS:   Look, if I was KBR I wouldn’t either. We don’t want to bring a claim against KBR or Atlantis right now but we know there is a claim coming from Downer. But if KBR does not agree to waive its limitation defence, we have no alternative but to commence proceedings before the limitation period expires.

GLATTER: Fine, you do what you need to do. We are not going to waive our rights.

39. There are parts of the conversation as recounted by Deschamps which Glatter says he does not recall. These include the reference to different dispute resolution proceedings in the various contracts between the different parties engaged on the project and no agreed dispute resolution procedure with Laing O’Rourke as there was no contract with them, and Deschamps saying that litigation was the most appropriate dispute resolution procedure taking into consideration the number of different parties and the inconsistent dispute resolution process.

40. Glatter does not recall Deschamps saying (as attributed to him by Chedid) that:

…All parties need to be included in the same proceedings. I have spoken to Downer and Atlantis about this. The contracts between all the different parties have different dispute resolution procedures. Our contract contains an arbitration clause. We cannot go through arbitration and need to go commence through litigation otherwise there will be too many different proceedings on foot. We also want to put Laing O'Rourke into the mix and we don’t have a contract with them.

41. Glatter denies that he said words to the effect:

Yes. This is right. Litigation is the proper course.

42. Glatter says that what he said was:

Fine, you do what you need to.

43. He denies that Deschamps at any point mentioned an arbitration clause in the KBR Contract (or otherwise). He says that at no point did Deschamps (or anyone else) use the word "arbitration". He says that as at the date of the conference, he had not read cl 12.3 of the KBR Contract and he had no knowledge at the time that there was a provision in it requiring the parties to resolve any dispute under it by way of arbitration. He says that he did not understand Deschamps to be asking him to choose between the contractually provided process of arbitration and any other process, such as litigation. He understood the discussion to be about the choice being given to KBR to either sign a Deed Poll waiving its limitation defence or face John Holland's commencement of proceedings. He considered in those circumstances that the commencement of proceedings by John Holland was the proper course as KBR would not sign a Deed Poll waiving any limitation defence.

44. Mahony’s recollection of the conference is that Deschamps began by giving a history of the matter, and talking through the contractual structure of the project and the different entities and parties involved. Deschamps then informed the conference about the status of the AMC car park issue and told the conference that the rectification works would commence in the near future. He recalls Deschamps suggesting that KBR could have someone attend the site inspections that were to take place during the rectification. He says that Deschamps then started making a number of allegations in relation to KBR's design being at fault and he recalls a conversation which included an exchange to the following effect:

MAHONY:   We don't believe KBR is at fault. The prime cause of failure is the large excavation by Laing O'Rourke on the adjacent site. That large excavation coupled with the heavy rain events reduced the lateral support of the retention system and caused the failure.

DESCHAMPS:   You're not the only ones who think that this is the case but KBR was also responsible for the failure…

MAHONY:   KBR did not produce the saw tooth detail. This was a detail agreed between Atlantis and John Holland. We also weren’t involved in supervising or certifying the build.   

45. He recalls that Glatter became increasingly frustrated with Deschamps raising issues about KBR’s liability. Glatter interrupted the conversation on that subject. Deschamps then talked about a limitation defence, which KBR and Atlantis had if John Holland did not start proceedings within a certain time.

46. The conversation then continued to the following effect:

GLATTER:   Paul, what is this all about? Why are we really here?

DESCHAMPS:   We are worried about the limitation defence. We need KBR to sign a Deed Poll to waive its right to this defence or we will have to start proceedings.

MAHONY:    Why would KBR do that?

GLATTER:   KBR will not be signing anything.

DESCHAMPS:   If I was KBR, I wouldn’t either. But if KBR doesn't sign the Deed Poll and give us an extension, we will have to commence proceedings.

Sometimes in these complex cases because of the different parties and different contractual procedures parties can be joined in proceedings. Downer could take action and join KBR, John Holland and Atlantis in proceedings and bring Laing O'Rourke in as well. Because of the limitation defence, we will commence proceedings and then park them.

47. Mahony says that not being a lawyer, while he did not fully understand what Deschamps meant by limitation defence, he understood this to be some form of a time bar in which John Holland had to commence proceedings.

48. On 26 August 2014, after the conference, Deschamps sent an email to Kodomichalos and others in which he said:

Had the conversation with KBR – Joseph Glatter and Ray Mahoney.

They were defensive initially but co operative towards the end.

They believe LOR and Atlantis liable.

They said Atlantis & JH responsible for detailing. Knew final design as certified different to actual design.

Agreed that litigation best course of action.

Understand that we will commence litigation due to potential limitation issues then stay pending commencement of proceedings upstream. Agree to this course. In interim wish to meet to share information concerning design etc. I said would seek instructions but seemed like a sensible approach.

49. Later that day, Glatter emailed Deschamps as follows:

Paul, I wanted to apologise for being terse on our call.

I’m sure you understand that I would much rather focus on the job of winning and successfully executing projects rather than defending claims.

With that said, I also appreciate you are just doing your job too and I trust that together we can both do what’s right for our respective ‘clients’.

50. Deschamps responded “Not a problem”.

51. On 27 August 2014 Deschamps emailed Glatter as follows:

Further to our discussion, we are close to finalising the pleading which we intend to file and serve to avoid any potential limitation argument.

I was wondering if you are comfortable with us serving a copy of the pleadings on KBR via email to you with the original to be posted to you on behalf of KBR.

52. On 28 August 2014, Chedid emailed Glatter, copy to Deschamps, confirming that John Holland had commenced proceedings and informing him that a copy would be served by post. As a courtesy, a scanned copy of the Summons and Technology and Construction List Statement were attached.

53. Deschamps says that in deciding to commence proceedings he relied upon statements by Glatter at the conference that he agreed that litigation was the best course of action for resolution and that KBR was happy with John Holland’s proposal to commence proceedings and stand them over pending commencement by Downer of an action. He says that if the statements by Glatter (and certain statements separately made on behalf of Atlantis – to which reference is made below) had not been made, he would have sought instructions from and met with John Holland and Senior Counsel to determine how best to proceed with the matter with a view to minimising the risk of any limitation defences and having the dispute determined in a single forum.

54. Deschamps says that John Holland has incurred costs in commencing and conducting the proceedings including legal costs to finalise the Summons and the Technology and Construction List Statement, a filing fee of $2,816.00 and the legal costs of attending directions hearings and conducting the proceedings.

The parties’ contentions on the KBR Motion

55. It is common cause between John Holland and KBR that cl 12 of the KBR contract is an arbitration agreement within the meaning of s 7(1).

56. KBR requests the Court to refer the parties to arbitration under s 8(1). If the action brought by John Holland is a matter which is the subject of their arbitration agreement, unless the Court finds that it is null and void, inoperative or incapable of being performed, s 8(1) read with s 5, requires the Court to refer the parties to arbitration. There is no room for the exercise by the Court of any discretion to do otherwise.

57. In resisting the KBR motion, John Holland puts, first, that the action which it has brought is not in a matter the subject of the arbitration agreement because the dispute, the subject of the proceedings, is not a “dispute or difference arising out of or relating to the performance of the Agreement or the breach…thereof…” within the meaning of cl 12.2 of the KBR Contract. This is because, it puts, a dispute or difference under cl 12.2 of the KBR Contract is limited to one between John Holland and KBR alone, whereas the dispute the subject of the action involves Atlantis and Downer and may also involve Laing O’Rourke. It puts that construction of cl 12 of the KBR contract should be informed by the commercial presumption that the parties did not intend the inconvenience of having possible disputes from their transaction being heard in multiple places.

58. Second, it puts that the arbitration agreement is inoperative because during the conference, John Holland and KBR agreed, as contemplated by cl 12.2, on another “alternative dispute resolution process”, namely court proceedings.

59. Third, it puts that if there is no agreement as contemplated by cl 12.2, KBR is estopped from denying the existence of such an agreement or from asserting its private rights arising under cl 12.3 because John Holland and KBR held the common assumption (known by KBR to be held by John Holland) that litigation was the proper course and John Holland acted to its detriment by taking the course of litigation, namely by incurring costs and exposing itself to a limitations defence which KBR would not otherwise have had.

60. KBR submits that the dispute or difference between it and John Holland arises out of or relates to the performance of the KBR Contract or its breach and is within cl 12.2.

55. KBR denies that any agreement was reached at the conference to the effect that the dispute was to be settled by litigation or which had the effect that it waived or forwent any right to rely on the parties’ arbitration agreement. It says that it did no more than express its agreement with John Holland’s stance that litigation was the appropriate course for John Holland in the circumstances.

56. KBR disputes that the agreement asserted by John Holland (and denied by it) was an agreement that the dispute would be subject to some other alternative dispute resolution process as contemplated by cl 12.2. It puts that an agreement as asserted by John Holland (and denied by it) would not be binding because it was not in writing as required by cl 15.

57. KBR denies the existence of the common assumption asserted by John Holland. It puts in issue that John Holland acted on any such common assumption, and that if it did, that it did so to its detriment sufficient to displace KBR’s entitlement to rely on its rights under s 8(1).

Arbitrable dispute?

64. John Holland’s contention that the dispute is not susceptible to cl 12.2 because the dispute the subject of the action involves Atlantis and Downer and may also involve Laing O’Rourke is unsustainable.

65. Section 8(1) applies where there is brought before a court an action in a matter which is the subject of an arbitration agreement. The section is enlivened where the matter, the subject of the action, that is, the rights or liabilities in controversy, fall within the ambit of controversies which the parties to the arbitration agreement have, on its proper construction, agreed to refer to arbitration. Section 8(1) requires the court to refer the parties to arbitration if a party so requests. The section does not expressly say so, but it seems clear that the compulsory reference pertains only to the extent that the subject of the action is also the subject of the arbitration agreement.

66. Determining the extent of any overlap requires examination of the relevant pleading or other process revealing the elements of the action, and examination of the terms of the arbitration agreement.

67. Importantly, s 7(1) defines Arbitration Agreement as 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.

68. Clause 12 of the KBR Conract captures any dispute or difference (other than in relation to John Holland’s assessment of whether milestones have been met) arising out of or relating to the performance of the KBR Contract or its breach.

69. The courts have repeatedly held that words such as “arising out of”, “arising under”, “in connection with” or “connected with” have a wide ambit and that when commercial parties choose a forum for the resolution of disputes which may arise between them, such provisions should be liberally construed so as to further their ultimate intent, namely, that their disputes should be susceptible to the forum which they have chosen; see Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160; IBM Australia Ltd v National Distribution Services Pty Ltd (1999) 22 NSWLR 466.

70. In its Summons, John Holland sues KBR for, amongst other things, damages for breach of contract and indemnity against all loss or damage arising out of its breach of contract. In Section B of its Technology and Construction List Statement, John Holland articulates as issues likely to arise: whether the failures in the stormwater detention facilities were the result of defects in the design prepared by KBR, and if so, whether KBR breached the terms of the KBR Contract, whether it breached the warranties provided for under the KBR Contract, whether KBR is required to indemnify John Holland pursuant to the KBR Contract, and whether KBR was negligent in the performance of its services under the KBR Contract. It may be assumed, with some degree of confidence, that these claims will be controversial.

71. As between John Holland and KBR, the dispute between them patently arises out of or relates to performance of the KBR Contract or breach thereof and is susceptible to their arbitration agreement. It is not suggested that some elements of the dispute are susceptible whereas others are not.

72. The thrust of John Holland’s submission is that because it also has rights against Atlantis (which it has chosen to vindicate in the same action), because Downer may have claims against it for which it may seek indemnity against KBR and because it, KBR and others may have claims (or cross-claims) against Laing O’Rourke, the dispute between John Holland and KBR is not a dispute arising out of or relating to performance of the KBR contract or its breach. This needs only to be stated to be revealed as unsound. There may be rights and liabilities between each or both of them and other parties or strangers to the action. That has no bearing on whether the dispute that exists between John Holland and KBR is one which arises out of or relates to the performance of the contract between them or its breach.

73. In support of its contention, John Holland relies on the decision of the Court of Appeal of Western Australia in Paharpur Cooling Towers Ltd v Paramount (WA) Ltd [2008] WASCA 110. The case did not concern s 8(1) or any analogue of it. It concerned an appeal from an order of the Acting Master that proceedings be stayed pursuant to s 7 of the International Arbitration Act 1974 (Cth) or s 53(1) of the now repealed Commercial Arbitration Act 1985 (WA). Both those sections were in the same terms as the now repealed s 53(1) Commercial Arbitration Act 1984 (NSW). They provided relevantly that:

(1)    If a party to an arbitration agreement commences proceedings in a court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement, that other party may, […], apply to that court to stay the proceedings and that court, if satisfied:

(a)    that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement, and

(b)    that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration

may make an order staying the proceedings and may further give such directions with respect to the future conduct of the arbitration as it thinks fit.

74. Section 8(1) represents a significant shift from the regime which applied under predecessor legislation. Under the earlier regime, the court retained discretion, even in the face of an arbitration agreement, to decline to refer the parties to arbitration if it was satisfied that there was sufficient reason to take that course.

75. Paharpur and Paramount entered into a contract by which Paharpur agreed to design, supply and supervise the installation of two cooling towers for an ammonia plant being constructed by Paramount for a third party, BFPL. The contract had provisions for the payment by Paramount to Paharpur in a number of instalments. The terms of payment were amended by agreement under which Paramount agreed to provide a bill of exchange accepted by it and BFPL. The contract contained an arbitration clause, cl 22, entitling Paramount to require arbitration of a Dispute. Clause 2 defined Dispute to mean:

a dispute or difference between the parties as to the construction of the Contract or as to any matter or thing of whatsoever nature arising, whether antecedent to the Contract and relating to its formation or arising under or in connection with the Contract, including any claim at common law, in tort, under statute or for restitution based on unjust enrichment or for rectification or frustration or a dispute concerning a direction given and/or acts or failing to act by the Engineer or the Engineer's Representative or interference by the Principal or the Principal's Representative.

76. Paharpur commenced action against Paramount for a sum said to be due and payable under the contract and against Paramount and BFPL for a different amount on the bill of exchange because that instrument was a standalone contract between the three parties to it and was not the subject of the arbitration agreement in the contract. Paramount applied to the Court for a stay of the action so far as it related to Paramount. Paharpur accepted that its claim against Paramount under the contract should go to arbitration, but argued that its claim against Paramount for the bill of exchange should not. The Acting Master ordered that the action should be stayed in its entirety.

77. The Court (Steytler P and Newnes AJA) disposed of the matter by dealing only with the question of whether there was, in relation to Paharpur’s claim on the bill of exchange, a dispute within the meaning of cl 22 of the contract.

78. After reviewing some of the authorities on the approach to construction of arbitration agreements, including Francis Travel Marketing v Virgin Atlantic Airways and IBM v National Distribution Services, the Court said:

[42] But while 'one stop adjudication' (see Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1993] QB 701 at 726) has commonly been invoked in cases involving disputes between the parties to an arbitration agreement, in support of a construction which would bring a particular dispute within it, it does not necessarily follow that it applies in the same way where the dispute in question is not limited to the parties to the arbitration agreement.

[43] On the contrary, where a party to an arbitration agreement makes the same claim against both the other party to the arbitration agreement and a person who is not a party to the arbitration agreement — with the result that, so far as it involves the latter, the dispute cannot be referred to arbitration — it will generally be equally difficult to ascribe to the parties to the arbitration agreement an intention that in such an event the dispute should be fragmented and that the liability of the party to the arbitration agreement and that of the third party respectively should be determined in different forums.

[44] Whether or not the parties intended such an outcome will necessarily turn on the facts of each case, but in our view it is not readily to be inferred. It is not likely to be consistent with the commercial purpose of the agreement. It will commonly result in a duplication of proceedings that will be costly, inefficient and time-consuming, and give rise to the unwelcome possibility of inconsistent decisions of the different tribunals involved. That is, it will commonly result in the very opposite of what the parties ordinarily set out to achieve by an arbitration clause.

[45] In the present case, we do not think the parties could be taken to have contemplated such fragmentation. In our view, the reference in cl 2 of the contract to 'a dispute or difference between the parties' was intended to apply to a dispute between the parties to the contract only. It was not intended to apply to a dispute involving the parties and a stranger to the contract such as that which arose here, where the dispute involves the liability to one party to the contract (as the drawer/payee) of two acceptors of a bill of exchange, one of the acceptors being a party to the contract and the other a stranger to it. The parties to the contract would hardly have intended that in such circumstances (and it is common cause that neither party foresaw them at the time of contracting), rather than being determined in one judicial forum, the liability of each acceptor would be dealt with in separate forums, one judicial and one arbitral, with all of the potential difficulties and additional costs involved.

[46] In our view, Paharpur's claim in relation to the bill of exchange does not give rise to a dispute within the meaning of cl 22 of the contract.

[47] As the dispute in relation to Paharpur's claim on the bill of exchange is not, pursuant to the terms of the arbitration agreement, capable of settlement by arbitration, it follows that s 7 of the International Arbitration Act has no application to it: Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 [238]; Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547 [18], [19], Seeley International Pty Ltd v Electra Air Conditioning BV [2008] FCA 29 [16].

[48] The same result follows in respect of s 53 of the Commercial Arbitration Act, as the dispute is not one 'in respect of a matter agreed to be referred to arbitration by the [arbitration] agreement'.

[49] In light of the conclusion we have reached, it is unnecessary to consider the other grounds of appeal.

79. Paharpur v Paramount does not assist John Holland.

80. The circumstances of Paharpur v Paramount are not apposite to the present case. The wording of the KBR Contract clearly covers the present dispute. There, there was a concession that the claim under the contract was arbitrable. Only the claim on the bill of exchange, a separate instrument, the parties to which were Paharpur and Paramount and another, was in contest. In this case there is only one instrument governing the contractual relationship between John Holland and KBR and only they are parties to it.

81. I confess, with respect, to having difficulty with the reasoning of the Court. If the circumstances in Paharpur v Paramount were otherwise pertinent to the present case, I would decline to follow it. I consider it to be plainly wrong and inconsistent with authority binding upon me.

82. There is no rule of construction to be applied to a commercial arbitration agreement irrespective of the plain meaning of the words used; Rhinehart v Welker [2012] NSWCA 95 at [114] – [122]. Whether a particular dispute falls within an arbitration clause is, and remains, a question of construction of the words used, albeit that such an agreement should not be construed narrowly. The words of such an agreement cannot be given a meaning they do not have or, for that matter, not be given a meaning they do have, to satisfy a perceived commercial purpose.

83. In Paharpur v Paramount the Court took a different approach. The clause there covered a dispute or difference between the parties as to any matter or thing whatsoever arising under or in connection with the contract. It is difficult to see how a dispute between Paramount and Paharpur, with respect to liability on a bill of exchange, drawn to effect payment of monies due under a contract, is not in connection with the contract, irrespective of whether there is also a dispute between Paramount and another person arguably liable on the bill.

84. The Court reasoned backwards in concluding that where fragmentation might occur because a plaintiff may, in addition to its claim against its counterparty to the arbitration agreement, have a non-arbitrable claim against some other party, it was difficult to ascribe to the parties to the arbitration agreement an intention that the liability of the party to the arbitration agreement and that of the third party should be determined in different forums.

85. It may be accepted, as the Court held at [45], that the reference in cl 2 of the contract in Paharpur v Paramount to a dispute or difference between the parties was intended to apply to a dispute between the parties to the contract only. A dispute with a non-party would clearly not qualify. But the Court’s further statement that cl 2 was not effective as between the parties where the dispute involved both the parties and a stranger to the contract such as that which arose there, namely a dispute involving the liability to one party to the contract (as the drawer/payee) of two acceptors of a bill of exchange, one of the acceptors being a party to the contract, and the other a stranger to it, pays insufficient (if any) heed to the words of the arbitration agreement.

86. Fragmentation, or possible fragmentation, might have been a reason to refuse a stay. It could not impact on the meaning of the words which the parties chose in their arbitration agreement. Since Paharpur v Paramount, the legislative landscape has changed significantly. Section 8(1) leaves no room for the exercise of a discretion such as was given under s 53(1) of the Commercial Arbitration Act 1984 (NSW). The fact there may be an overlap of issues with claims between one or other of the parties to the arbitration agreement and third parties, with the consequent risk of inconsistent findings arising out of a multiplicity or proceedings, is no longer a relevant factor to be considered by a court in deciding whether or not to refer parties to arbitration (or grant a stay in that context) (see A Monichino, “International Arbitration in Australia – 2010/2011 in review” (2011) 22 ADRJ 215).

87. Section 8(1) reflects the modern trend both domestically and internationally to facilitate and promote the use of arbitration and to minimise judicial intervention in the process. It gives full effect to the parties’ contractual freedom, which they have exercised by their arbitration agreement, to have disputes comprehended by that agreement arbitrated.

88. In principle, whether a dispute is arbitrable or not cannot depend on a plaintiff party to an arbitration agreement deciding to claim not only against the counterparty, but also a third party stranger.

89. I therefore have some difficulty in understanding what the Court had in mind in paragraph [43] in its reference to a party to an arbitration agreement making the same claim against both the other party to the arbitration agreement and a person who is not a party to the arbitration agreement. If a party to an arbitration agreement makes a claim for breach of contract against its counterparty, a claim against another non-party on some other cause of action cannot be the same claim.

90. Ironically, John Holland chose to have arbitration agreements with each of KBR and Atlantis, yet now puts that where the dispute involves both, neither arbitration agreement applies.

Agreement?

91. John Holland contends that at the conference a binding arrangement was concluded between it and KBR that their dispute would be resolved, not by arbitration, but by curial litigation. It contends that this arrangement amounted to agreement, in accordance with cl 12.2, to “[an]other alternative dispute resolution process”. The primary issue is whether John Holland and KBR made an agreement as alleged. The secondary issue is whether any agreement they made qualifies as an agreement to an alternative dispute resolution process under cl 12.2. The significance of the answer to the second question lies in the fact that an agreement under cl 12.2 to an alternative dispute resolution need not be in writing to be effective – see cl 15.

92. The agreement is said to arise from an exchange in which Deschamps explained John Holland’s potential Limitations Act problems, referred to the fact that there were different resolution procedures in various contracts and none with Laing O’Rourke, expressed the view that litigation was the most appropriate dispute resolution procedure in the circumstances, and Glatter responded to the effect that he agreed that litigation was the best course of action for resolution (recorded in Chedid’s file note as “This is right – Litigation is proper course”).

93. A binding agreement is made when a reasonable person would believe that, based on their words and behaviour, the parties intended to contract. This is an objective test, which in most cases can be administered by determining whether there has been an offer by one party to be bound on certain terms accompanied by an unqualified acceptance of that offer communicated by the other party to the offeror. See generally: Paterson, Robertson, and Duke, Principles of Contract Law, (4th ed 2011, Thomson Reuters) at [1.15] and [12.10]; J W Carter, Contract Law in Australia, (6th ed 2013, LexisNexis Butterworths) at [3.06].

91. Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; Helton v Allen (1940) 63 CLR 691 at 712; Rejfek v McElroy (1965) 112 CLR 517 at 521; Watson v Foxman (1995) 49 NSWLR 315 at 319.

92. The sensation of feeling an actual persuasion, after a contest, that an event has happened or that something exists is one which is well known and recognised by experienced trial judges for what it is.

93. John Holland has the onus of establishing the agreement for which it contends. This entails proving to the reasonable satisfaction of the Court that the words said to give rise to the agreement were actually said, and that the alleged consensus was capable of forming a binding agreement and was intended by the parties to be legally binding.

94. John Holland falls at each of these hurdles.

95. There are parts of the alleged conversation which Glatter does not recall. But he denies having said words, or words to the effect, that he agreed that litigation was the proper course. His version is that his response to Deschamps’ blandishments was “Fine, you do what you need to do”.

96. I had the benefit of observing Deschamps, Chedid, Glatter and Mahony under cross-exmination.

97. I did not form the view that Deschamps and Chedid were anything other than honest in giving their respective recollections.

98. However, I feel no actual persuasion that Deschamps said words which conveyed to Glatter or which would have conveyed to a reasonable person in Glatter’s position that John Holland was asking for KBR’s binding assent to a proposal that would bypass significant provisions of the KBR contract and which would interrupt a relevant limitations period, or that Glatter said words which conveyed that he was giving assent or which would have conveyed to a reasonable person that he was giving assent to such a proposal.

99. There is not a great chasm separating the effect of the words which Deschamps and Chedid attribute to Glatter and the words which Glatter says he uttered. The significant (albeit subtle) difference in meaning contended for, respectively, by John Holland and KBR lies in whether Glatter conveyed acceptance that litigation was the right course for John Holland or conveyed that KBR was agreeing that litigation was the right course for both of them in the context and with the consequence that KBR would lose the possible advantage of a limitations point.

100. The critical exchange took place in the context of Glatter having earlier made it clear that KBR had no intention of waiving a possible limitations defence.

101. John Holland’s stance that KBR was legally liable to it was something new to KBR. There had been no earlier meaningful discussion between John Holland and KBR, nor was there any at the conference, aimed at endeavouring to resolve the dispute on its merits by negotiation. At that time, the ambit of the dispute was far from being defined, yet John Holland was in the position of wanting or having to commence proceedings forthwith.

102. Deschamps was treading a somewhat delicate path. He was acutely aware of John Holland’s potential limitations difficulty and that KBR had no intention of signing any deed poll or waiving any limitations point. He went so far as to say that if he were KBR, he would not do so either. Court process had already been prepared. John Holland was also facing the possible inconvenience of having different disputes in different forums but that was not its immediate problem. He was on the horns of a dilemma. On the one hand, he wanted KBR’s binding assent to a course which would avoid the limitations problem. On the other hand, he knew that Glatter was not willing to consent to a waiver of the limitations point. In the end result I do not consider that he raised the issue squarely so has to provide a safe foundation for a binding agreement or that Glatter’s response connoted assent to a course which would have the effect of such a waiver.

103. Chedid’s file note supports a conclusion that words such as “litigation is proper course” were used, but it is far from conclusive (or even compelling) evidence that the words which it records conveyed assent by KBR that significant provisions of the KBR Contract were being bypassed. I feel no actual persuasion that words conveying such assent were used. The file note does not say litigation is the proper course, as opposed to a proper course. The file note says Glatter said “This is right”. It does not say “I agree” as Deschamps testifies Glatter said. In his email to John Holland reporting the outcome of the conference, Deschamps used a different and arguably substantively different formulation that it was “agreed that litigation was the best course of action”. The file note contains at least one significant mistake of attribution. It also makes no reference to any arbitration clause. It refers to different resolution procedures. Chedid is no longer with John Holland and has moved on. His evidence was clearly (and understandably) a reconstruction from the file note.

104. I prefer and accept Glatter’s evidence that the effect of what he said was “fine, you do what you need to do”, that is, that he used words which in the context he understood and which in fact carried the meaning that KBR understood John Holland’s predicament and took no exception to John Holland doing what it considered it must, namely, commence proceedings. In the context of the conference, words to the effect that litigation is a proper course could carry this meaning.

105. I consider that it is more likely that Glatter used words carrying the meaning that KBR understood John Holland’s predicament and took no exception to John Holland doing what it considered it must.

106. His communication of the so-called agreement in his email to his client after the conference was somewhat equivocal. More importantly, he never confirmed any agreement with John Holland in writing. No agreement such as that now contended for was referred to in his email to Glatter on 27 August 2014. He referred to “our discussion” and to the motivation “to avoid any potential limitation argument”.

107. I believe Glatter when he says that he understood the discussion to be about the choice being given to KBR to either sign a Deed Poll to waive its limitation defence or face John Holland's commencement of proceedings. I believe him when he says that he had not read cl 12.3 of the KBR Contract, and that he did not know of the provision in it requiring the parties to resolve any dispute under it by way of arbitration. I believe him when he says that he did not understand Deschamps to be asking him to choose between the contractually provided process of arbitration and any other process, such as litigation. I believe him that he considered in those circumstances that the commencement of proceedings by John Holland was the proper course as KBR would not sign a Deed Poll waiving any limitation defence. I believe him when he says that he used words which he understood were conveying that John Holland should do what it had to do.

108. Glatter is an intelligent and articulate (and somewhat argumentative) man. He was an impressive witness. Where Glatter’s version conflicts with that of Deschamps and Chedid, I prefer Glatter.

109. Glatter was repeatedly pressed to agree that certain things could have been said and repeatedly acknowledged as a matter of theory that they could have been, but he made no concession inimical to his evidence that he did not agree to any proposal which involved any waiver by KBR. I believe him when he says that his state of mind was that he was not being faced with an option to make an election as to the applicable dispute resolution process. He had made it clear that KBR would not waive a limitations defence. This makes it less likely that Deschamps clearly put a proposition having this effect to which Glatter communicated assent. It is inherently improbable that Glatter would have conveyed something which was open reasonably to be viewed as agreeing to bring about by indirect means an outcome which he was not prepared to allow through direct means.

110. Finally, and in any event, in my opinion, the words which Deschamps and Chedid attribute to Glatter would not in context convey to a reasonable person in the position of John Holland that he was assenting to be bound by an agreement on the terms which John Holland must establish. Those words rise no higher than Glatter indicating that for John Holland, litigation was, in the circumstances, the right course. If that is consensus, it is not capable of forming a binding agreement.

111. I am not satisfied that either subjectively KBR intended to create legally binding relations or that anything that it did or said, objectively viewed, indicated an intention that it did.

Alternative dispute resolution process?

115. In the ordinary grammatical meaning of the words, court proceedings are not an alternative dispute resolution process. They are a dispute resolution process to which all other resolution processes are alternative.

116. The words of cl 12 itself leave no room for the contention that the parties had court process in mind as an alternative dispute resolution process. Firstly, the phrase appears after the words “the process of conciliation, mediation, appraisal or such other…”. The processes described have the common genus of being alternatives to court process. The generic reference to other alternative dispute resolution process is to be construed accordingly. Clause 12.3 of the KBR Contract has in mind that the parties will go to arbitration if the dispute cannot be settled by some such procedure. The clear idea behind the provision is that if such a procedure fails the dispute will certainly be settled by arbitration. There is no dispute amenable to arbitration under cl 12.2 of the KBR Contract that cannot be settled by court process. Where cl 12.5 of the KBR Contract refers to any subsequent relief or remedy, this is clearly a reference to court process.

117. Thus, even had John Holland made out the agreement for which it contends, it would not be an agreement covered by cl 12.2.

118. The agreement for which it contends would amount to a variation of the KBR Contract, rendered ineffective by cl 15.

Estoppel

119. The central principle of the doctrine of estoppel is that the law will not permit an unconscionable (or unconscientious) departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party’s detriment if the assumption is not adhered to. For the departure to be unconscionable the party concerned must have played such a part in the adoption of, or persistence in the assumption, that that party would be guilty of unjust and oppressive conduct if it were now to depart from it. Cases where departure would be unconscionable include where that party has induced the assumption by express or implied representation, has entered into contractual or other material relations with the other party on the conventional basis of the assumption or knew that the other party laboured under the assumption and refrained from correcting it when it was that party’s duty in conscience to do so. The remedy is to effect the minimum equity needed to avoid the relevant detriment: Commonwealth v Verwayen (1990) 170 CLR 394 at 429 and 444 (Verwayen) per Deane J.

120. John Holland’s contention that KBR is estopped from denying the existence of an agreement under cl 12.2 or from asserting its private rights under cl 12.3 fails.

121. My finding that John Holland has failed to establish the binding agreement for which it contends precludes KBR from being estopped from denying the existence of that agreement. Where the parties themselves did not make an agreement because of an essential missing element – in this case, absence of consensus (or a common assumption) that litigation would replace arbitration under the KBR Contract – estoppel cannot supply the missing element; Austotel Pty Ltd v Franklins Self-serve Pty Ltd (1989) 16 NSWLR 582 at 584, 602 and 617.

122. Whatever assumption John Holland may have held as to KBR’s view of the proceedings to be instituted by John Holland, it has not established that KBR held the same assumption.

123. I am also not persuaded that John Holland acted to its detriment on the basis of the assumption it says it held. I am not persuaded that it would have acted any differently to the way it in fact did act, that is, by commencing court proceedings even if it considered that KBR held the assumption which it says it itself held. Put another way, John Holland has not established that by 28 August 2014, it would have commenced arbitration (as opposed to court proceedings) against KBR. Deschamps’ evidence goes no further than to say that, absent Glatter’s statements and things said by lawyers for Atlantis’ insurer (see below), he would have taken John Holland’s instructions and the advice of Senior Counsel. Court process had been prepared somewhat earlier. As will appear below in the context of the Atlantis motion, KBR has an arbitration agreement with Atlantis, which at the time John Holland had no apparent reason to believe was inoperative. John Holland had neither sought nor obtained any agreement from Atlantis to litigate rather than arbitrate.

124. John Holland relies on the costs and expenses incurred by it in bringing and maintaining the proceedings together with the exposure to a limitations defence that would otherwise not have been available to KBR as the detriment supposedly suffered by it in reliance on the asserted assumption.

125. Beyond the filing fee (which in the present context is insubstantial), John Holland’s evidence does not extend to establishing the amount of the costs and expenses that have been incurred let alone what of those costs would not have been incurred had it gone to arbitration.

126. KBR puts that John Holland has not established that KBR has a limitations defence which it otherwise would not have had.

127. Section 70 of the Limitation Act provides as follows:

(1)    This Act applies to an arbitration in like manner as it applies to an action.

(2)    An arbitration for any difference or matter under any provisions for arbitration is not maintainable if commenced after the date of the expiration of the period of limitation fixed by or under this Act for a cause of action in respect of the same difference or matter.

128. Section 72 of the Limitation Act provides as follows:

(1)    For the purposes of this Division:

(a)    where the provisions for arbitration require or permit a party to the arbitration to give notice in writing to another party:

(i) requiring the other party to appoint or concur in appointing an arbitrator, or

(ii) requiring the other party to submit or concur in submitting a difference or matter to a person named or designated in the provisions for arbitration as arbitrator, or

(b)    where, in a case to which paragraph (a) does not apply, a party to the arbitration takes a step required or permitted by the provisions for arbitration for the purpose of bringing a difference or matter before an arbitrator and gives to another party notice in writing of the taking of the step,

the arbitration is commenced, as between the party giving the notice and the party to whom the notice is given, on the date on which the notice is given.

(2)    For the purpose of subsection (1), the date on which a notice is given is the date, or the earlier or earliest of the dates, when the party giving the notice:

(a)    delivers it to the party to whom it is to be given,

(b)    leaves it at the usual or last-known place of business or of abode of the party to whom it is to be given,

(c)    posts it by the certified mail service to the party to whom it is to be given at the party’s usual or last-known place of business or of abode, or

(d)    gives the notice in a manner required or permitted by the provisions for arbitration.

129. It is common cause that arbitration has not commenced as contemplated by s 72 of the Limitation Act. However, KBR puts that John Holland has not established that, even if there is to be a reference to arbitration, the commencement of the action was otherwise not effective to prevent the limitation period expiring.

130. This raises issues of significant complexity concerning, amongst others, the status of an action subject to a request under s 8(1), and the juridical effect of the court referring the parties to arbitration and the interplay between ss 8 and 14 of the Act, and ss 70(1) and 72 of the Limitation Act, the latter sections having been in force for many years prior to s 8 coming into force. Counsel informed the Court that they had been unable to find any pertinent authority on these issues. Having regard to the findings that I have made, it is not necessary to delve into the intricacies of this aspect, suffice it to say that KBR is not prepared to agree that it will not take a limitations point and John Holland is not prepared to concede that there is one. At the lowest, John Holland is, to its detriment, exposed to an argument of some complexity that it may not maintain an action in contract in respect of KBR’s 29 August 2008 certification. It is not necessary to consider whether, in the circumstances, and assuming all other things in its favour, this would constitute a sufficient equity to ground the estoppel John Holland asserts.

Conclusion

131. I have significant doubt that the conference can properly be characterised as a meeting to discuss the matter at issue within cl 12.2 of the KBR Contract. John Holland contends that the conference was such a meeting. KBR initially took the opposing position but now accepts that on 29 January 2015 a meeting took place which constituted compliance with the requirements imposed by cl 12.2.

132. KBR, having made a request under s 8(1), and the arbitration agreement not being null and void, inoperative or capable of being performed, the Court must, and will, refer John Holland and KBR to arbitration.

133. Although the Act does not specify what is to happen with the action, it cannot be furthered.

THE ATLANTIS MOTION

134. In the Atlantis Contract, references to the Contractor are references to John Holland and references to the Subcontractor are references to Atlantis.

Relevant Provisions of the Atlantis Contract

135. Clause 53 of the Atlantis Contract is entitled “Dispute Resolution”. Clauses 53.1 to 53.9 are in the following terms:

53.1    Procedure for resolving disputes

(a)    Any dispute between the Contractor and the Subcontractor arising, out of or in connection with this Subcontract or the Subcontractor's Activities (including questions concerning, this Subcontractor’s existence, meaning, validity or termination) (“Dispute”) must be resolved in accordance with the procedures set out in this clause 53.

(b)   The sequential procedure that is to be followed to resolve a Dispute is as follows:

(i)   (Negotiation): firstly, the Dispute must be negotiated in accordance with clause 53.2;

(ii)   (Expert determination): secondly, if the Dispute remains unresolved (in whole or in part) after the expiration of the period for negotiation referred to in clause 53.2(c) then the Dispute must be referred to expert determination in accordance with clauses 53.3 – 53.6 (inclusive); and

(iii)   (Arbitration): thirdly, if:

(a)   the Dispute has been referred to expert determination and:

(1)    a determination is not made by the relevant Expert within 60 days after the Expert's acceptance of appointment (or such other period as the parties may agree); or

(2)    a notice of dissatisfaction is given under clause 53.6(a),

then the Dispute may be referred to arbitration in accordance with clauses 53.9-53.11 (inclusive).

(c)   Without limiting clause 53.10, it is a condition precedent to a party being entitled to refer a Dispute to arbitration in accordance with clauses 53.9-53.11 (inclusive) or to commence court proceedings (other than in the case of an application for urgent interlocutory relief) that the procedures referred to in clause 53.1(b)(i) and clause 53.1(b)(ii) (as applicable) first be complied with.

(d)   If a Dispute is referred to arbitration under clauses 53.9-53.11 (inclusive), it is a condition precedent to a party being entitled to commence court proceedings (other than in the case of an application for urgent interlocutory relief) that the procedures referred to in clauses 53.9-53.11 (inclusive) first be complied with.

53.2    Negotiation

(a)   If a Dispute arises then a party may give notice to each other party requesting that the Dispute be referred for resolution by negotiation between the chief executive officers of the Contractor and the Subcontractor or their appropriate nominees (Representatives).

(b)   A notice under clause 53.2(a) must:

state that it is a notice under this clause 53.2; and

include or be accompanied by reasonable particulars of the matters the subject of the Dispute.

(c)   If a Dispute is referred for resolution by negotiation under clause 53.2(a), the Representatives must meet and use reasonable endeavours acting in good faith to resolve the Dispute (in whole or in part) within 5 Business Days of the date on which the notice under clause 53.2(a) is received (or such later date as the parties may agree). The joint decision (if any) of the Representatives will be reduced to writing and executed by the parties in a manner which is contractually binding on the parties.

(d)   The meeting referred to in clause 53.2(c) may take place via telephone, video conference or other form of instantaneous communication, if the Representatives agree

.

53.3    Expert determination

(a)   If a Dispute which has been referred to the Representatives for negotiation pursuant to clause 53.2 remains unresolved (in whole or in part) after the expiration of the period for negotiation referred to in clause 53.2(c),

then any party may by giving notice to the other party in accordance with clause 53.3(b) require that those parts of the Dispute which remain unresolved be referred to an Expert for determination in accordance with clauses 53.4 – 53.6 (inclusive).

(b)   A notice under clause 53.3(a) must:

(i)   be given within 10 Business Days after the expiry of the period for negotiation referred to in clause 53.2(c);

(ii)   state that it is a notice under this clause 53.3; and

include or be accompanied by reasonable particulars of those parts of the Dispute which remain unresolved.

53.9    Arbitration

(a)   If:

(i)   a Dispute which has been referred to the Representatives for negotiation pursuant to clause 53.2 remains unresolved (in whole or in part) after the expiration of the period for negotiation referred to in clause 53.2(c) and the Dispute is not one of those referred to in clause 53.1(b)(ii); or

(ii)   in the case of a Dispute which is referred to expert determination:

(A)   a determination is not made within 60 days of the relevant Expert's acceptance of the appointment (or such other period as the parties may agree); or

(B)   a notice of dissatisfaction is given under clause 53.6(a);

the Contractor or the Subcontractor may notify the other that it requires the Dispute to be referred to arbitration.

(b)   Upon receipt by the other party of a notice under clause 53.9(a) the Dispute will then be referred to arbitration.

(c)   The arbitrator will have power to grant all legal, equitable and statutory remedies and to open up, review, and substitute any determination of an Expert under clause 53.6.

The Facts

136. On 18 July 2014, John Holland wrote to Atlantis requesting a meeting and providing a copy of the SMEC report.

137. On 25 July 2014, Deschamps met with representatives of Atlantis including Mr Humberto Urriola (Urriola), a Director of Atlantis and Mr Christian Urriola, its General Manager.

138. Urriola told Deschamps that they had been instructed by Gillis Delaney, the lawyers for their insurer, not to discuss the dispute with Deschamps. In the circumstances, Deschamps asked to meet with the insurer’s lawyers. Urriola referred Deschamps to Mr Kelvin Keane of Gillis Delaney (Keane) and gave him his telephone number. Deschamps told those present that John Holland was only really looking to agree on a process for maintaining the status quo pending a claim by Downer. After a number of communications between Deschamps and Keane, Deschamps met Keane on 14 August 2014 at the offices of Gillis Delaney in Sydney.

139. After a number of communications had passed between Deschamps and Keane, they met on 14 August 2014. Mr David Newey (Newey) of Gillis Delaney was also present.

140. Deschamps says that Newey said words to the effect:

We see no benefit in taking silly procedural points and wasting everybody's time and money. That's not the way we operate. Because of the nature of the dispute and the number of potential parties, including Atlantis' manufacturers, litigation is the correct forum and we won't be seeking referral to arbitration or anything like that. We are more interested in open communication and the exchange of information to get to the heart of the problem.

141. On 28 August 2014, Deschamps sent a copy of the Summons and List Statement to Gillis Delaney. The proceedings were listed for directions on 12 September 2014.

142. Deschamps says that whilst he was aware that Newey did not have formal instructions at the time of the meeting on 14 August 2014, in deciding to commence the proceedings, the statements made by Newey at the meeting were relied upon by him on behalf of John Holland.

143. On 2 September 2014 Chedid emailed Gillis Delaney asking them to confirm who they were acting for. On 10 September 2014 Deschamps forwarded proposed consent orders to Keane standing the proceedings over for directions until 12 December 2014. On the same day Keane informed Deschamps by email that they had not received instructions to act for Atlantis and no appearance had been filed, but that they had been informed by Atlantis that they were not opposed to the orders. On 18 November 2014, Keane informed Chedid by email that Gillis Delaney were acting for QBE Insurance, the public liability insurer of Atlantis.

144. By 10 December 2014 KBR had filed the KBR motion. On 12 December 2014, directions were made to progress the motion and the proceedings were stood over to 6 February 2015. Keane appeared for the Atlantis’ insurer, however it was noted that there was no appearance for Atlantis itself. On 24 December 2014, Deschamps wrote to Urriola seeking, amongst others, confirmation in writing by 9 January 2015 that Atlantis agreed that the dispute should be resolved by way of litigation currently before the Supreme Court of New South Wales. On 4 February 2015, Deschamps wrote to Mr Christian Urriola proposing an order that Atlantis file and serve its defence by 19 February 2015. On 5 February 2015, Atlantis appointed Mr Patrick Ferguson, solicitor, to act for it.

145. On 6 February 2015, the matter was listed for directions before me. Mr Ferguson appeared for Atlantis on that occasion.

146. By this time, Atlantis had not responded to John Holland’s request that it confirm its agreement that the dispute be resolved by litigation.

147. On 6 February 2015, I made directions for the further progress of the KBR motion and fixed it for hearing on 5 March 2015. In relation to Atlantis, I made the following direction:

Unless the second defendant notifies the plaintiff by 18 February 2015 that it will not be taking the point that an arbitration provision in the contractual documents between the parties is an inhibition on the plaintiff bringing these proceedings against it, it is to file and serve its defence by 19 February 2015. If it so notifies the plaintiff, directions for the filing of the second defendant’s defence will be made on 5 March 2015.

148. On 17 February 2015, a Notice of Change in Solicitor was filed appointing Gadens Lawyers (Gadens) in place of Mr Fergusson. That day, Gadens wrote to Ebsworth as follows:

We act for Atlantis Corporation Pty Limited in the above matter and attach a Change of Solicitor notice filed in Court today.

We have received a copy of the Orders made by the Court on 6 February 2015. 

We will seek that this matter be listed for directions this Friday 20 February 2015 on the basis that we consider that the meaning of Order II is uncertain and we will need a reasonable period of time to obtain instructions in any event.

Finally, the alternative dispute resolution process under clause 53 of the contract between our respective clients is an unambiguous pre-condition to commencing proceedings in Court. So that we can obtain instructions, we would appreciate your client’s position as to why the litigation has been commenced against our client in the first place and notwithstanding section 8 of the Commercial Arbitration Act 2010.

149. Gadens also requested that the matter be listed for directions on 20 February 2015, to which request I acceded.

150. On 19 February 2015, Ebsworth responded as follows:

I have been provided with a copy of your email to Mr Deschamps.

There is no uncertainty in the order. Furthermore, your client's former legal representative was in Court and made submissions on the form of the order and the time for the filing of the defence.

As no letter was received yesterday that your client will not be taking the point that an arbitration provision in the contractual documents between the parties is an inhibition on our client bringing the proceedings against your client, your client must file its defence today.

We look forward to receiving that defence.

In the absence of a defence, our instructions are to file a motion for default judgment at the hearing tomorrow that we would seek to have made returnable and heard instanter.

The proceedings were commenced in August 2014. There have been three directions hearings since then and your client has had more than adequate time to prepare and file its defence.

We attach the correspondence passing between the parties which we would tender on the hearing of an application for default judgment if that step is necessary.

151. On the same day Gadens in turn replied to Ebsworth as follows:

We refer to your email received today 19 February 2015 (received at 12:58pm - copy below).

We do not agree with your view as to the consequence for our client of court order 3(II) dated 6 February 2015. 

We wrote to you by email on 17 February 2015 (sent at 4.12pm). In circumstances we had just come into this matter, the purpose of our email was to permit the plaintiff to let us know why it had ignored the dispute resolution provisions (including the arbitration agreement) under its contract with our client, so that those reasons could be considered by us and our client in deciding whether our client should permit the plaintiff to maintain the proceedings against it, contrary to the dispute resolution provisions (including arbitration agreement) in the contract.

You did not see fit to respond either promptly or co-operatively to that request.  Instead, you responded in a way which is most unhelpful to the resolution of differences between the parties.

In the circumstances, our client now gives notice to you that it intends to request the Court to refer the dispute to the dispute resolution provisions (including arbitration agreement) in the contract.

As you are aware, our client has requested the proceedings be relisted for directions tomorrow. We enclose a copy of draft Short Minutes (omitting dates) which we propose, together with a copy of our client’s foreshadowed Notice of Motion.

We will serve on you later today a copy of our client’s filed Notice of Motion. We will also serve on you shortly our client’s affidavit in support of its application.

152. When the matter came on for directions on 20 February 2015, I vacated the direction requiring Atlantis to file its defence notwithstanding its failure to notify the plaintiff by 18 February 2015, as contemplated in the 6 February 2015 direction, and made further directions for the progress of the Atlantis motion.

The parties’ contentions on the Atlantis Motion

153. The Atlantis Motion was filed on 19 February 2015. In its original form it sought only a permanent stay of the action.

154. Initially, Atlantis put that its application for a stay was made pursuant to s 8(1) and the Court’s inherent jurisdiction. John Holland’s response was that the application in its then form should be dismissed because s 8(1) does not give the Court power to grant a permanent stay. John Holland made no reference to inherent power. John Holland put further that contractual preconditions to a referral to arbitration imposed by the Atlantis Contract had not been met with the consequence that there is presently no agreement to refer any dispute to arbitration. Clause 53.1(c) of the Atlantis Contract makes compliance with cl 53.1(b)(i) (Negotiation) and cl 53.1(b)(ii) (Expert Determination) a condition precedent to a party being entitled to refer a Dispute to arbitration. In oral submissions, John Holland articulated this as a submission that the arbitration agreement is presently inoperative for want of fulfilment of this condition.

155. Atlantis’ reaction was to amend its motion to request, in addition to a stay, a reference to arbitration pursuant to s 8(1). The motion does not seek these orders in the alternative. However, during submissions, Atlantis clarified its position so as to seek, primarily, a stay of the action to force John Holland to comply with its contractual obligations and, secondarily, that the parties be referred to arbitration under s 8(1).

156. John Holland puts, first, that cl 53 of the Atlantis Contract is void or inoperative for uncertainty.

157. John Holland puts that cl 53 contains the following errors in cross-referencing or drafting errors which have the effect of making the entire clause void for uncertainty:

- the opening words in cl 53.1(c) of the Atlantis Contract which it suggests are meaningless and indicate some cross-referencing or drafting error.

- the reference in the same clause to the commencement of court proceedings, which is suggests are difficult to understand because there is no trigger in cl 53 for court proceedings given that all disputes will, unless otherwise resolved, go to arbitration.

- the reference in the same clause to the procedures referred to in cl 53.1(b)(i) and cl 53.1(b)(ii) (as applicable) which it says does not make sense because cl 53.1(b)(ii) contains no procedures or any conditions of application.

- the inclusion in cl 53.9 of the words “and the Dispute is not one of those referred to in 53.1(b)(ii)…” which suggests that it was intended to exclude from the need to go to arbitration some disputes but cl 53.1(b)(ii) does not refer to any disputes. It submits that it is to be inferred that cl 53.9 has been drafted consistently with cl 53.1(c) at a time at which there were enumerated in a clause then referred to as cl 53.1(b)(ii) some disputes which did not have to be dealt with in accordance with the prescribed dispute resolution procedures. It submits that it is now impossible to give a sensible meaning of the clause, which is therefore void for uncertainty.

158. Second, John Holland puts that the action which it has brought is not in a matter which is the subject of cl 53 because the dispute the subject of the proceedings involves third parties and therefore does not fall within the description of “any dispute between the Contractor and the Subcontractor arising out of or in connection with” the Atlantis Contract or Atlantis’ activities. It puts that as soon as a dispute extends beyond the parties to the Atlantis Contract, it arises out of or relates to matters outside that contract and does not fall for determination in accordance with cl 53.

159. Third, John Holland puts that cl 53 is inoperative because Atlantis has waived its right to insist upon compliance with it.

160. Initially, John Holland contended that Atlantis is estopped from raising cl 53 “in defence to the claim”. It proposed to rely on what Newey said to Deschamps at their 14 August 2014 meeting as founding an estoppel. It correctly abandoned this contention because (apart from anything else) the evidence clearly established that Gadens had no authority to speak for Atlantis.

161. John Holland puts that a waiver occurred firstly by Atlantis deliberately choosing or failing to take the point that litigation was impermissible under cl 53. It says that the waiver is established by:

- up to 19 February 2015, in the face of proceedings foreshadowed as early 25 July 2014 and commenced on 28 July 2014, Atlantis not insisting on compliance with any procedure in cl 53.

- Atlantis’ non-opposition to the matter being stood over from 12 September 2014 to 12 December 2014, albeit that they were intended to “park” the proceedings.

- Atlantis’ agreement to the matter being stood over from 12 December 2014 to 6 February 2015 pending commencement of the upstream litigation by Downer.

- Atlantis failing to respond to John Holland’s request for Atlantis’ consent to litigation on 24 December 2014 and 4 February 2015.

162. John Holland puts that a waiver occurred second, because effect of the 6 February 2015 direction was to put Atlantis to an election between consenting to litigation or assenting to the arbitration provisions, which election had to be made by 18 February 2015 and that by not filing its defence by 19 February 2015, as I have said earlier, it elected not to rely on its rights under cl 53.

163. Finally, John Holland puts that the Court is not required to refer the parties to arbitration under s 8(1) because the arbitration agreement is inoperative for want of fulfilment of the condition precedent imposed by cl 53.1(c) of the Atlantis Contract.

Void for Uncertainty?

164. Three initial observations are apt. First, where commercial parties clearly intend to contract, a court will strive to uphold rather than destroy their bargain where it is capable of a meaning. Second, difficulty of interpretation must be distinguished from absence of meaning; Upper Hunter County District Council v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429 at 436-437. Third, the underlying commercial object of cl 53 as a whole is clear. It provides for a three tier progressive process consisting of negotiation, expert determination and arbitration. What is not settled by negotiation goes to expert determination. Where an expert determination is not made within 60 days of the expert’s acceptance of the appointment or such other period as the parties may agree, or a party is dissatisfied with it, a party may require arbitration.

165. Clause 53 contains errors and felicities of drafting, but analysis of them reveals that they do not impair the efficacy and operation of the clause, in particular the parties’ arbitration agreement. I reject the submission that the clause is void.

164. The opening words of cl 53.1(c), “Without limiting clause 53.1(c)”, have no logical role to play, because they are circular in that they refer to the very clause which they purport not to limit. The draftsperson may have had in mind simply saying “Without limitation”. It is not necessary to delve into this. The operation of the clause is unimpaired if those words are ignored.

165. Clause 53 contains no trigger for court proceedings for the determination of a Dispute. All Disputes will be resolved by the alternative processes provided for. The condition precedent operates clearly and sensibly with respect to arbitration. Court proceedings will simply not have a role to play in the resolution of Disputes. That part of the provision, which apparently contemplates court proceedings, has no content. However, the provision works sensibly without it.

166. Clause 53.1(c) refers to the procedures referred to in cl 53.1(b)(i) and cl 53.1(b)(ii) (as applicable). I reject the submission that cl 53.1(b)(ii) contains no procedures or any conditions of application. The procedures are those for expert determination. If this is wrong, however, the consequence is that the reference in cl 53.1(c) to cl 53.1(b)(ii) has no content or is not applicable. It does not mean that the provision does not work.

167. There does not appear to be any field of operation for the words in cl 53.9(a)(i) “and the Dispute is not one of those referred to in clause 53.1(b)(ii)”. A dispute which is not one of those referred to in cl 53.1(b)(ii) is one which does not remain unresolved by negotiation, that is, one which has been resolved by negotiation. The field of operation of cl 53.1(b)(ii) is, however, clear. Disputes unresolved must be referred to expert determination. Clause 53.9(a)(ii) applies to a dispute which is referred to expert determination. Clauses 53.1(b)(ii) and 53.9(a)(ii) work congruently. The infelicity of cl 53.9(a)(i) has no effect on this.

Arbitrable dispute?

170. As with its contention in relation to the KBR Contract, John Holland’s contention that the dispute is not susceptible to cl 53 because it involves third parties is unsustainable. The dispute between them is clearly one which arises out of or in connection with the Atlantis Contract, irrespective of whether there may also be disputes with others.

Waiver?

171. A party may by deliberate act waive a defence to a claim which it otherwise may have had: see Verwayen at 472–3 per Toohey J and 482 per Gaudron J. It is commonplace to speak of a person “waiving” a right, for instance, by submitting to the jurisdiction of a court which otherwise has no jurisdiction over him, by not insisting upon arbitration, or by not pressing a particular argument that is available at trial. However, a defence available to a defendant, whether it be on the facts or on the law, is not waiver merely because the defendant does not initially plead it. It is commonplace for pleadings to change as an action progresses, whether by way of expansion or contraction: Verwayen at 473 per Toohey J. A right is waived only when the time comes for its exercise and the party for whose sole benefit it has been introduced knowingly abstains from exercising it, a mere intention not to exercise a right is not immediately effective to divest or sterilise it: Verwayen at 427 per Brennan J.

172. In Pipeline Services WA Pty Ltd v Atco Gas [2014] WASC 10 at [68] - [70], Martin CJ said:

[68] The rights arising under an arbitration agreement are private rights which may be waived: see Australian Granites Ltd v Eisenwerk Hensel Bayreuth Dipl.-Ing Burkhardt GmbH [2001] 1 Qd R 461 at 466–467 (Pincus JA, Thomas JA & Shepherdson J agreeing); ACD Tridon v Tridon Australia [53] (Austin J); Zhang v Shanghai Wool & Jute Textile Co Ltd [2006] VSCA 133; (2006) 201 FLR 178 [13] (Chernov JA, Ashley JA & Bongiorno AJA agreeing). Waiver renders the arbitration agreement inoperative: see ACD Tridon v Tridon Australia and Zhang v Shanghai Wool & Jute Textile.

[69] The cases dealing with waiver in the context of arbitration clauses refer to “waiver” being used in a strong sense, as compared to “waiver” being used in a weaker sense: see for example ACD Tridon v Tridon Australia [60]–[62] (Austin J). The former expression refers to an abandonment of the right to arbitrate implied from an intentional choice by a party not to exercise the right. As Toohey J observed in Commonwealth of Australia v Verwayen [1990] HCA 39 ; (1990) 170 CLR 394, such a form of waiver resembles a form of election and may sometimes be based on ordinary principles of estoppel although, unlike estoppel, it must always arise from an intentional act with knowledge (472). More recently waiver in this sense was described as “an unequivocal final choice between alternative procedures so that it could be said that the party had abandoned the right, if the right was thereafter asserted”: see La Donna Pty Ltd v Wolford AG [2005] VSC 359 [21] (Whelan J); Comandate Marine Corp v Pan Australia Shipping [64]–[65] (Allsop J).

[70] Waiver in the weaker sense can be described as “non-insistence upon a right either by choice or by default”: Commonwealth v Verwayen (457) (Dawson J). So, in cases under the former legislative regime, questions have arisen as to whether waiver, in this weaker sense, has arisen as a result of limited participation in court proceedings, or from a failure to object to those proceedings. There is considerable room for doubt as to whether waiver in this weaker sense has any application under s 8 of the 2012 Act, which expressly defines the point at which a party loses the right to apply for a reference to arbitration as a result of their participation in legal proceedings, being the time at which that party submits its “first statement on the substance of the dispute”.

173. No waiver (whether weaker or stronger) of any part of cl 53 has been made out.

174. On no fair view of things did Atlantis choose not to take the point. John Holland had chosen to deal with lawyers acting for Atlantis’ insurer, not Atlantis itself.

175. John Holland could not unilaterally by its request on 24 December 2014 that Atlantis confirm by 9 January 2015 its agreement to litigation, impose on Atlantis a requirement to make an election. It took the point within time.

176. Atlantis’ agreement (or non-opposition) to the matter being stood over for directions without any direction to file its Technology and Construction List Response (which would be its first statement on the substance of the dispute) is not inconsistent with exercising either its contractual rights under cl 53 or its statutory right under s 8(1).

177. So far as arbitration is concerned, under s 8(1), Atlantis had (and has) until its first statement on the substance of the dispute to request the Court to refer the parties to arbitration.

178. The direction which I gave on 6 February 2015 had no effect beyond requiring Atlantis to serve its Technology and Construction List Response by a particular date if a condition was not met. The direction could not, nor was it intended to, impair any contractual or statutory right of Atlantis to the procedures in cl 53. Atlantis could at the same time as submitting that Response have made the request under s 8(1).

179. In any event, that direction was subsequently vacated.

180. Prior to 18 February 2015, the correspondence from Gadens had made it clear that Atlantis was in no way foregoing any right to insist on the alternative dispute resolution procedures.

Stay or Referral?

181. Section 7(1) defines an arbitration agreement as one 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.

182. This definition varies slightly from that which appeared in predecessor legislation which defined arbitration agreement to mean an agreement in writing to refer present or future disputes to arbitration.

183. In PMT Partners v Australian National Parks and Wildlife Service (1995) 184 CLR 301, the High Court considered the definition of arbitration agreement in s 4 of the Commercial Arbitration Act 1985 (NT) (NT Act). At 310, Brennan CJ, Gaudron J and McHugh J said:

The words “agreement … to refer present or future disputes to arbitration” in s 4 of the Act are, in their natural and ordinary meaning, quite wide enough to encompass agreements by which the parties are bound to have their dispute arbitrated if an election is made or some event occurs or some condition is satisfied, even if only one party has the right to elect or is in a position to control the event or satisfy the condition.

184. In Savcor Pty Ltd v State of New South Wales (2001) 52 NSWLR 587, Barrett J (as His Honour then was) considered s 4 of the Commercial Arbitration Act 1984 (NSW) (which was in the same terms as the NT Act). His Honour concluded that a contractual condition for the resolution of disputes which provided that a dispute must initially be referred for an expert determination and may then be referred to arbitration but only if the expert’s decision is one that one party must pay the other a sum in excess of a certain threshold, was an arbitration agreement within the definition.

185. In amending its motion to seek an order for referral, Atlantis no doubt had these authorities in mind on the footing that cl 53 is an arbitration agreement to which s 8(1) applies, even though no Negotiation or Expert Determination under the clause has yet taken place.

186. I find, however, that the arbitration agreement is presently inoperative within the meaning of that term in s 8(1).

187. Clause 53.1(c) makes compliance with clauses 53.1(b)(i) and 53.1(b)(ii) a condition precedent to a party being entitled to refer a Dispute to arbitration.

188. A condition precedent is a stipulation in an agreement upon the fulfilment of which the existence of a contract, or of a principal obligation under an existing contract, is made contingent; see Tricontinental Corporation Limited v HDFI Limited (1990) 21 NSWLR 689 at 703.

189. The arbitration agreement which cl 53 contains is to be distinguished from the other contractual provisions in the clause constituting conditions precedent (that is, Negotiation and Expert Determination) upon which the coming into force of the right and corresponding obligation to have disputes settled by arbitration are contingent.

190. Unless and until that condition is fulfilled, neither party can effectively refer a Dispute to arbitration. When that condition is fulfilled, the arbitration agreement becomes operative.

191. Were the arbitration agreement to be treated as operative, the consequence would be that the Court would have to refer the parties to arbitration in conflict with the contractual provisions they have agreed, bypassing important provisions, compliance with which may entirely obviate the need for arbitration.

192. It follows that Atlantis has no right under s 8(1) to request the Court to refer the matter to arbitration and its motion, to that extent, must be dismissed or at least stood over pending fulfilment of the condition precedent.

193. Atlantis is, however, entitled to an order staying the action permanently in view of the Alternative Dispute Resolution provisions in cl 53.

194. I observe that John Holland contends that there is no operative arbitration agreement because there has not yet been Negotiation or Expert Determination and Atlantis primarily seeks a stay of the action for the same reasons. They are on common ground.

CONCLUSION

195. KBR is entitled to an order under s 8(1) referring John Holland and it to arbitration.

196. Atlantis is entitled to an order staying the action.

197. I will hear the parties on the form of appropriate orders, including whether the action against KBR should be stayed or dismissed, and on costs.

198. The exhibits can be returned.

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Amendments

27 April 2015 - paragraph 86 - restore original text

24 April 2015 - paragraph 86 - delete "refuse" and insert "grant" on first line

paragraph 191 - insert "agreement" on first line

Decision last updated: 27 April 2015