Murrumbidgee Irrigation Limited v Goodwood Services Pty Limited

[2010] NSWSC 914

CITATION:	Murrumbidgee Irrigation Limited v Goodwood Services Pty Limited [2010] NSWSC 914
HEARING DATE(S):	10 August 2010
JUDGMENT DATE :	25 August 2010
JUDGMENT OF:	Price J at 1
DECISION:	1. The plaintiff is to provide to the first defendant the particulars requested in paragraph 5.1(a), (c) and (d) and paragraph 17.2 (a) to (c) inclusive of the letter from Mackenzie & Vardanega solicitors dated 8 April 2010 to Thomson Playford Cutlers solicitors within 14 days. 2. The plaintiff is to pay the first defendant’s costs of the motion on an ordinary basis. 3. The second defendant's costs are to be costs in the cause. 4. Liberty to either party to apply on short notice.
CATCHWORDS:	PRACTICE AND PROCEDURE - arbitration - contractual provision for arbitration under Commercial Arbitration Act - application for stay - whether arbitration would give rise to separate proceedings and inconsistent findings - whether second defendant not a party to arbitration agreement should be compelled to participate in arbitration under Commercial Arbitration Act - whether proceedings should be referred to arbitration under Civil Procedure Act - PARTICULARS - whether requested particulars relevant - whether proceedings instituted to find a case - whether statement of claim should be struck out or particulars ordered.
LEGISLATION CITED:	Arbitration Act 1902 s 6 Civil Liability Act 2002 s 35, s 56 Civil Procedure Act 2005 s 43, s 58 Commercial Arbitration Act 1984 s 53, s 53(1), s 53(1)(b), s 53(2) Limitation Act 1969 s 14 Uniform Civil Procedure Rules r 14.28
CATEGORY:	Separate question
CASES CITED:	Abigroup Contractors Pty Ltd v Transfield Pty Ltd [1998] VSC 103 Associated Dominion Assurance Society Pty Ltd v Sir John Fairfax & Sons Ltd (1952) 72 WN (NSW) 250 Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 193 Dare v Pulham (1982) 148 CLR 658 Hennessy v Wright (1888) 24 QBD 445 Huddart Parker Ltd v The Ship Mill Hill (1950) 81 CLR 502 Qantas Airways Ltd v Dillingham Corporation (1985) 4 NSWLR 113 Reliable Roof Treatments Pty Ltd v Citra Constructions [1974] 1 NSWLR 285 Savcor Pty Ltd v State of New South Wales [2001] NSWSC 596 Sims v Wran (1984) 1 NSWLR 317
PARTIES:	Murrumbidgee Irrigation Limited Goodwood Services Pty Limited Hydro-Clean (Griffith) Pty Limited t/as Applied Packaging & Machinery
FILE NUMBER(S):	SC 20481/2009
COUNSEL:	Mr S Goldstein (Plaintiff) Mr A M Gruzman ( First Defendant) Mr E Refenes (Second Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

PRICE J

25 August 2010

20481/2009 Murrumbidgee Irrigation Limited
v Goodwood Services Pty Limited

JUDGMENT

: The first issue raised by this notice of motion is whether the court’s power to grant a stay under s 53 Commercial Arbitration Act 1984 should be exercised. Before venturing into the orders sought and the competing arguments of the parties, it is useful to recount the background to the present proceedings.

Background

2 On about 27 June 2003 Murrumbidgee Irrigation Limited (MI) entered into a contractual agreement with Goodwood Services Pty Limited (Goodwood) for the manufacture and supply by Goodwood to MI of all steelwork and associated items for five new replacement regulatory gates at Bundidgerry and five new replacement regulatory gates at Narrandera. MI is the owner and operator of a business involving the distribution and management of water under licences issued by the Department of Water and Energy in the Murrumbidgee Irrigation area in southern central New South Wales. The dispute between MI and Goodwood is confined to the gates at Bundidgerry.

3 The contractual agreement, relevantly, required Goodwood to manufacture and supply to MI:

(a) “The first gate (including frame and associated steelwork) at Bundidgerry which would be fully welded and used as a pattern or jig in the manufacture of the remaining four gates; and
(b) The four further fully fabricated but not welded gates (including frames and associated steelwork) that were to be used at Bundidgerry.”

4 The contractual agreement between MI and Goodwood contains in Clause 20 a dispute resolution provision in the following terms:

“DISPUTE RESOLUTION

Any dispute or difference which the parties cannot resolve within twenty-eight (28) days shall be submitted to arbitration. The arbitrator shall be a person agreed between the parties. Should the parties fail to agree upon an arbitrator, then the arbitrator shall be a person agreed between the parties chosen from a panel suggested by the Australian Commercial Disputes Centre and failing agreement, shall be a person nominated by the Secretary General of the Australian Commercial Disputes Centre. The arbitration shall be held in accordance with and subject to the laws of the State of NSW.”

5 It is common ground for the purposes of the motion that:

(i) The material for all five gates (including frames and associated steelwork) was supplied by Goodwood under the contractual agreement;
(ii) The first gate was welded by Hydro-Clean (Griffith) Pty Limited t/as Applied Packing and Machinery (APM) pursuant to a subcontract between Goodwood and APM in order for Goodwood to meet its obligations under the contractual agreement with MI; and
(iii) The remaining four gates were welded by APM pursuant to a separate contract between MI and APM (APM Welding Contract).

6 The APM Welding Contract does not contain a dispute resolution provision.

7 MI claims that after the installation of the gates at Bundidgerry, cracks and deformations occurred in all the Bundidgerry gates preventing them from sealing or operating properly and thereby not fulfilling their role in controlling the Murrumbidgee River water flow.

8 MI commenced proceedings in this court against Goodwood and APM by filing a statement of claim on 21 September 2009. The statement of claim was served on Goodwood under cover of letter dated 1 March 2010. In submissions, MI summarised its claim as follows:

(a) For work done on the jig and under the contractual agreement against Goodwood for breach of contract and negligence and against APM for negligence; and
(b) For work done in respect of the four further gates against Goodwood for breach of contract and against APM for breach of the APM Welding Contract and under the separate APM Welding Contract.

9 The loss and damage that MI claims as a result of the asserted breaches of contract and breach of duty by Goodwood amounts to $1,034,857.75 whereas the amount claimed against APM amounts to $1,059,857.75. The reason for this difference is a payment made to APM of $25,000 for which MI claims that it received no benefit. In all other respects, the particulars of MI’s loss and damage against Goodwood and APM are identical.

10 Goodwood filed a notice of appearance on 1 April 2010.

11 In a letter dated 8 April 2010 to MI’s solicitors, the solicitors for Goodwood requested further and better particulars of MI’s claim. Of particular relevance to the present motion were the following requests:

“1. As to paragraph 5

5.1 Please specify precisely:

(a) the identity of each of the alleged series of regulator gates (by some unique identifying feature),

(b) the manufacturer of each of the gates, and

(c) the dates and places that each of the gates were installed,

(d) by whom each gate was installed.”

Similar particulars were also requested with respect to the gates manufactured or welded by APM: SC 1 par 17.2.

12 The solicitors for MI responded to the request for particulars by a letter dated 25 May 2010. The response to par 5 was as follows:

“1. As to paragraph 5

5.1 We assume that this request for particulars is limited to the regulator gates that are the subject of these proceedings as we see no basis for you to request particulars in relation to any other regulator gates.

(a) The identity of each of the series of regulator gates including any unique identifying feature, if any, is under investigation and further particulars will be provided during the discovery process and/or upon completion of our client’s expert reports and other evidence.

(b) The manufacturers of each of the gates were the first and/or second defendants.

(c) The gates were installed in or about mid 2004. The precise date when each gate was installed is under investigation and further particulars will be provided during the discovery process and/or following completion of our client’s expert reports and other evidence.

(d) The gates were installed by our client.”

A similar response was provided to the request for particulars for the gates that were manufactured or welded by APM: SC 2 par 17.2.

13 By letter dated 27 May 2010, Goodwood’s solicitors’ response to MI’s solicitors included the following (SC 6):

“With respect the responses provided are unsatisfactory. In particular we regard your client’s failure to identify the particular gate, the subject of the alleged negligence by our client, that our client provided as crucial. As the response has not provided any further clarity to your clients (sic) pleaded claim we are not in a position to advise our client and obtain instructions to file a Defence.”

14 Goodwood’s solicitors further wrote to MI’s solicitors on 1 June 2010: SC 7. This letter included the following:

“If we do not receive the particulars in relation to the identity of each of the Regulator Gates and the dates and places where each of the gates were installed by 10 June 2010 the First Defendant shall, when the matter is next before the Court on 18 June 2010 for directions, seek directions in relation to the appropriate Notice of Motion.”

15 By letter dated 3 June 2010, the solicitors for MI responded to the letters dated 27 May 2010 and 1 June 2010: SC 8. Included in this letter is the following:

“In your letters of 27 May 2010 and 1 June 2010 you have raised our client’s alleged failure to identify each of the gates as being one of those complaints. Although we attempted to respond to this request in our letter of 26 May 2010 the fact remains that this is an issue that is not relevant. Our client contracted with your client to provide fully fabricated steelwork for all of the gates. All of the gates contain defective steelwork.”

16 On 8 July 2010 Goodwood filed the present notice of motion.

17 APM filed a defence to the statement of claim on 23 June 2010.

The Notice of Motion

18 Goodwood seeks the following orders:

“1. An order pursuant to s 53 Commercial Arbitration Act , 1984 [that MI’s] proceedings against [Goodwood] be permanently stayed and dismissed.

2. Alternatively, an order pursuant to UCPR Rule 15.10 that [MI] provide [Goodwood] with particulars of the Claims made in the Statement of Claim, requested in letter by [Goodwood] dated 8 April 2010 and partially provided by [MI] by letter dated 25 May 2010 and by [Goodwood’s] letters of 27 May 2010 and 1 June 2010, and partially answered by [MI’s] letter of 3 June 2010.

3. An order pursuant to UCPR Rule 14.28 that paragraphs 6 to 16 of the Statement of Claim be struck out and the claim dismissed.

4. An order pursuant to UCPR Rule 14.14 that [MI] plead specifically the identity of the items supplied to [MI] by [Goodwood], and the date of supply.

5. Such further or other order as the Court deems fit.”

An order for costs is also sought.

Should a stay be granted?

19 Mr Gruzman for Goodwood contended that the dispute, the subject of the proceedings in this court, is a dispute or difference which the parties cannot resolve (or have not resolved) within 28 days and falls within clause 20 of the contractual agreement. Goodwood does not seek a permanent stay, but a stay in accordance with s 53(1) Commercial Arbitration Act which provides:

“ Power to stay court proceedings

(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, subject to subsection (2), 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.”

20 Mr Goldstein for MI submitted that the stay should not be granted for the following reasons:

“(a) …[APM] is not only not a party to the arbitration agreement that Goodwood relies upon, there is also no arbitration agreement between [MI] and [APM];

…

(b) MI would incur additional costs and expense as it would have to proceed by way of arbitration against Goodwood and by way of litigation against APM;

(c) There is a real possibility of conflicting findings of fact;

(d) The disputes will raise much of the same questions of fact and law as will arise at each of those separate hearings;

(e) In paragraphs 32-40 of APM’s defence, APM has raised issues which could not be determined if there were separate proceedings;

(f) MI may be prejudiced as both Goodwood and APM may be entitled to raise a defence based on s 14 of the Limitation Act 1969.

...

(g) The difficulties that MI has had in identifying which one of the five gates was manufactured and/or welded by Goodwood may become of some significance if there were separate proceedings.”

21 Mr Goldstein argued that, although Goodwood had not yet filed a defence, Goodwood had taken a number of steps in the proceedings and as a consequence Goodwood requires leave of the court for a stay.

22 Mr Gruzman responded to MI’s argument by contending that MI chose to contract in different terms with Goodwood and APM and should be held to its bargain. The distinct claims against Goodwood and APM were, Mr Gruzman said, capable of separate and distinct findings of fact which did not conflict, as were any questions of law that might arise. Mr Gruzman submitted that any issue of proportionate liability under s 35 Civil Liability Act 2002 was able to be determined in separate proceedings. He argued that the court’s leave for a stay was not required as no steps had been taken by Goodwood other than the entry of an appearance.

23 As the proceedings commenced in this court by MI are proceedings in respect of a matter agreed to be referred to arbitration by clause 20 of the contractual agreement, the discretion conferred by s 53(1) is available. Before considering whether the discretion should be exercised, I propose to deal with MI’s contention that Goodwood requires the leave of the court to apply for a stay.

24 Section 53(2) Commercial Arbitration Act is as follows:

“(2) An application under subsection (1) shall not, except with the leave of the court in which the proceedings have been commenced, be made after the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance.”

25 Goodwood has not delivered pleadings other than the entry of an appearance. The alternative orders sought for particulars or for paragraphs of the statement of claim to be struck out and the action dismissed in Goodwood’s motion, do not, in my opinion, amount to a step in the proceedings prior to the application for a stay: see Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 193 per French J at 207. I do not consider that the letters requesting particulars can be treated as such a step for the purposes of s 53(2). As Master Cantor said in Reliable Roof Treatments Pty Ltd v Citra Constructions [1974] 1 NSWLR 285 at 288 when considering s 6 Arbitration Act 1902:

“The authorities show that a step in the proceedings means something in the nature of an application to the court and not mere talk between solicitors nor the writing of letters.”

26 It would make little sense if a defendant was thrust into an application for a stay before a plaintiff’s claim against him was properly identified: see Ives & Barker v Willans [1894] 2 Ch 478. In any event, I would be disposed to grant leave to Goodwood to apply for a stay if its filing of the motion, including the claim for alternative relief, and the requests for particulars amount to “any other step” under s 53(2): Reliable Roof Treatments Pty Ltd v Citra Constructions at 289; Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd at 209.

27 I am satisfied that Goodwood was at the time of commencement of the proceedings willing, and remains so, to do all things necessary for the proper conduct of the arbitration: s 53(1)(b) Commercial Arbitration Act.

28 Section 53(1)(a), however, posits the question as to whether there is any sufficient reason why the matter should not be referred to arbitration in accordance with the agreement. The starting point is that the parties have agreed in clause 20 to submit the dispute to arbitration and should abide by their contract unless MI can show sufficient reason for not adhering to its agreement: Huddart Parker Ltd v The Ship Mill Hill (1950) 81 CLR 502 at 508-509; Savcor Pty Ltd v State of New South Wales [2001] NSWSC 596 at [42]-[43].

29 MI did not submit that the dispute involves questions of law which could not be properly considered by an arbitrator. The principal basis upon which MI contended that the stay should be refused on discretionary grounds was that adherence to clause 20 would give rise to separate proceedings and to a real possibility of conflict in the findings of fact and of apportionment under s 35 Civil Liability Act.

30 The risk of inconsistent findings arising from separate proceedings as a consequence of adherence to an agreed alternative dispute mechanism is an important consideration. In Savcor Pty Ltd v State of New South Wales Barrett J said at [47]:

“The fact that alternative dispute resolution will give rise to a multiplicity of proceedings with a risk of inconsistent concurrent findings has been a powerful factor in decisions by courts not to compel adherence to the alternative procedure.”

31 It is evident from all that was argued before me that the claims against Goodwood and APM have a common factual background. The statement of claim demonstrates that the issues concerning the three parties are interwoven. The particulars provided in the pleading of MI’s claim against APM repeat in pars 16 and 21, the particulars pleaded in pars 10 and 12 of the claim against Goodwood. The amounts claimed for damage are identical save for the amount of $25,000 to which I have referred at [9] above. APM’s defence indicates that there might be a substantial dispute between APM and Goodwood both on liability and apportionment.

32 There is a real chance that a stay would give rise to separate litigation “involving much the same issues with parties present before the particular forum seeking to blame parties who may not be present”: Abigroup Contractors Pty Ltd v Transfield Pty Ltd [1998] VSC 103 per Gillard J at [167]. The risk of inconsistent findings and increased legal costs, seems to me, to be plainly demonstrated. It is unnecessary, for present purposes, to consider Mr Gruzman’s suggestion that s 35 Civil Liability Act might not apply as liability may have arisen before 26 July 2004. APM has pleaded s 35 in its defence and Mr Gruzman’s reference to this consideration, further manifests, to my mind, the desirability of avoiding separate proceedings. The grant of a stay would not, in my view, “facilitate the just, quick and cheap resolution of the real issues in the proceedings”: s 56 Civil Procedure Act 2005.

33 Mr Gruzman put to me that the risk of inconsistent findings could be avoided if all the parties (including APM) were ordered to attend arbitration. He cited in aid of this contention the orders made in Qantas Airways Ltd v Dillingham Corporation (1985) 4 NSWLR 113 by Rogers J at 123.

34 APM, however, does not consent to an order being made that the dispute be determined by arbitration under the Commercial Arbitration Act. I am unable to find, nor did counsel refer me to any provision in the Commercial Arbitration Act which enables the court to compel a defendant, who is not a party to an arbitration agreement, to participate in arbitration proceedings under that Act. I canvassed the parties as to whether the proceedings should be referred to arbitration under s 38 Civil Procedure Act. The parties were united in their opposition to such a referral for the justifiable reason that the proceedings might be reheard under the powers conferred by s 43 Civil Procedure Act.

35 It is unnecessary to determine whether the court has the power to order an unwilling defendant who is not a party to an arbitration agreement, to participate in arbitration proceedings under the Commercial Arbitration Act. It appears that all the principal litigants in Qantas Airways wished to arbitrate which is not the position in the present proceedings. The court is required to exercise its powers “in accordance with the dictates of justice”: s 58 Civil Procedure Act. I am not persuaded that it would be in accordance with the dictates of justice to compel APM, a principal litigant, who is not otherwise contractually obliged, to participate in arbitration under the Commercial Arbitration Act.

36 In my judgment the stay should not be granted and the proceedings against Goodwood and APM should remain in this court.

Particulars

37 All of the alternative orders that Goodwood seeks are founded upon the complaint that MI has failed to provide particulars of the identity of each of the regulatory gates. The essence of the complaint is that MI has not identified which was the first gate which was to be fully welded and used as a pattern or a jig in the manufacture of the remaining four gates. This gate was to be welded by Goodwood under the contractual agreement with MI.

38 Mr Goldstein told the court that MI has been unable to identify which one of the five gates was welded by APM under its subcontract with Goodwood and which four of the five gates were welded by APM under the APM welding contract. He submitted that it is irrelevant whether or not MI is able to identify which was the first gate as all five gates were defective for similar reasons. He referred to the colour drawings of the five gates (SC10) as indicating a similarity between the alleged defects. The defects were such that all gates had to be replaced. Furthermore, the materials that were used to manufacture all five gates were cut and supplied by Goodwood under the contractual agreement and it was part of MI’s case that these materials were in breach of the agreement as they were not cut and supplied to specification. He argued that the issue of proportional liability raised by APM made the identification of the gates “even less relevant.” Mr Goldstein pointed out that Goodwood’s solicitors had been informed by letter dated 25 May 2010 that “further particulars will be provided during the discovery process and/or upon completion of our client’s expert reports and other evidence”.

39 Mr Gruzman recognised that pars 14 to 16 of the statement of claim were pleaded against APM and not against Goodwood. Accordingly order 3 of the motion, Mr Gruzman told me, was to be confined to pars 6 to 13.

40 Mr Gruzman argued that the defects on the colour drawings (SC 10) indicated a dissimilarity in the alleged weld cracking between the drawing numbered one and the drawings numbered two to five. What was asserted to be the weld cracking on drawings two to five appeared to be around the edges of the gates whereas all that was noted as weld cracking on drawing number one was one crack in the middle of the gate. The justice of the case, Mr Gruzman submitted, dictates that Goodwood should not be put to the expense of dealing with all of the cracked welding as it was only responsible for the first gate which was to be used as the jig. He put to me that contract MI 149 between MI and Colliers and Miller for additional radial welding (SC 9) did not suggest that there was a problem with the manufacturing standard at the time. The nature of Goodwood’s complaint was, Mr Gruzman submitted, that the statement of claim was “speculative” and “fishing” in crucial areas and “embarrassing” in that it did not comprehensively apprise Goodwood of the case that was to be met. MI’s inability to presently identify the gate made by Goodwood after seven years was, Mr Gruzman contended, unlikely to improve during the discovery process.

41 I agree with Mr Gruzman’s observation that colour drawing number one (SC 10) discloses an alleged weld crack which is different to the weld cracking in the remaining four gates. The marking on colour drawing number five does indicate a crack throughout the weld at the bottom of that gate in addition to the weld cracks around the borders but that weld crack appears to be in a different location to the weld crack in colour drawing number one.

42 As MI alleges that Goodwood failed to adequately instruct and supervise APM in respect of the welding on the jig (the first gate) and as result, cracks subsequently occurred in all Bundidgerry gates, the identification of the first gate could rationally affect (directly or indirectly) the assessment of Goodwood’s liability not only for the first gate but for them all: s 55 Evidence Act 1995. It could rationally impact on the issue of apportionment under s 35 Civil Liability Act. I do not agree with MI’s argument that the identity of the first gate is irrelevant.

43 It is trite to observe that the primary principle for particulars is that a party must be apprised of the nature of the case it is to meet: Dare v Pulham (1982) 148 CLR 658 at 664. As was emphasised in Sims v Wran (1984) 1 NSWLR 317 by Hunt J at 321, the object of particulars is to:

“save expense in preparing to meet a case which may never be put…and to make the party’s case plain so that each side may know what are the issues of fact to be investigated at the hearing.”

The dictates of justice, it seems to me, require MI to identify which of the gates was the jig so that Goodwood then knows the case which it must meet. I propose to make an order that the particulars sought by Goodwood are to be supplied.

44 This is not, however, a case where MI has commenced proceedings on the chance of finding a case or to see if it can find a case: Hennessy v Wright (1888) 24 QBD 445; Associated Dominion Assurance Society Pty Ltd v Sir John Fairfax & Sons Ltd (1952) 72 WN (NSW) 250. Notwithstanding that the alleged weld cracking is dissimilar in colour drawing number one (SC10), the colour drawings suggest that there is weld cracking on all five gates. I am not persuaded that pars 6 to 13 of the statement of claim should be struck out as having a tendency to cause embarrassment or delay in the proceedings: UCPR 14.28.

45 MI did not file any affidavits in the motion. Although it was submitted that MI has not been able from its enquiries to identify the gate, there is no evidence of the extent of those enquiries. I do not know whether MI’s enthusiasm for its enquiry on this issue has been influenced in some way by the belief that the question is irrelevant. The passage quoted in [12] above from MI’s solicitor’s letter records that the question of identity “is under investigation”. It follows that I am unable to conclude at this time that MI has supplied the best particulars that it can supply and that liberty ought to be granted to provide further particulars after discovery and upon completion of MI’s expert reports.

46 Goodwood sought costs of the motion on an indemnity basis. Although I consider that MI should pay Goodwood’s costs of the motion as it has been successful in obtaining an order for particulars, there are no reasonable grounds for a costs order other than on an ordinary basis.

47 The participation of APM in the proceedings was limited to ascertaining whether it consented to an order being made that the dispute be determined by arbitration under the Commercial Arbitration Act or whether the proceedings should be referred to arbitration under s 38 Civil Procedure Act. The dictates of justice do not demand that APM's costs be paid by either party.

Orders

48 I order that:

1. The plaintiff is to provide to the first defendant the particulars requested in paragraph 5.1(a), (c) and (d) and paragraph 17.2 (a) to (c) inclusive of the letter from Mackenzie & Vardanega solicitors dated 8 April 2010 to Thomson Playford Cutlers solicitors within 14 days.

2. The plaintiff is to pay the first defendant’s costs of the motion on an ordinary basis.

3. The second defendant's costs are to be costs in the cause.

4. Liberty to either party to apply on short notice.

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