NSW Racing v TAB - [2002] NSWSC 742

No judgment structure available for this case.

CITATION: NSW Racing v TAB [2002] NSWSC 742

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): SC 2910/2002

HEARING DATE(S): 01/07/02

JUDGMENT DATE: 26 August 2002

PARTIES :

NSW Racing Pty Ltd v TAB Limited

JUDGMENT OF: Acting Justice Macready at 1

COUNSEL : MJ Leeming for plaintiff
NC Hutley SC & PJ Brereton for defendant

SOLICITORS: Clayton Utz for plaintiff
Freehills for defendant

CATCHWORDS: Arbitration. Power of arbitrator to grant an injunction. Proper construction of the submission. Application for stay under s 53 of the Commercial Arbitration Act. Stay granted.

DECISION: Paragraph 41

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Acting Justice Macready

Monday 26 August 2002

2910/2002 NSW Racing Pty Ltd v TAB Limited

JUDGMENT

1 His Honour: This is an application brought by the defendant pursuant to a notice of motion filed on 14 June 2002. The motion seeks a stay of the proceedings pursuant to Section 53 (1) of the Commercial Arbitration Act 1984 or alternatively pursuant to Part 13 Rule 5 of the Supreme Court Rules.

2 The matter arises because of an agreement between the parties known as the Racing Distribution Agreement. The agreement is one, which regulates the commercial affairs between the parties for a period of some 99 years. Clause 24 of the agreement is a provision for dispute resolution that includes a mechanism for expedited arbitration. It is because of the existence of that clause that it is suggested that the proceedings should be stayed.

3 The summons in this matter, which was filed on 28 May 2002, seeks mandatory injunctions with respect to a number of matters that have arisen between the parties as to the construction of the agreement. There are also claims for declarations that reflect those disputes. The disputes reflect a difference over clause 14 of the agreement that gives the plaintiff rights to have its own auditors investigate various matters, which are required under the agreement. It is clear on the correspondence that there is a dispute between the parties about these matters such that it would attract the provisions for dispute resolution under the agreement. The plaintiff has not given a notice of dispute but instead has brought these proceedings to resolve the matters.

4 The agreement is moderately lengthy and covers a wide range of matters concerning the business relationship between the plaintiff and the defendant. The plaintiff is a representative body for three main racing organisations that conduct different aspects of racing within New South Wales. The agreement governs in general terms the staging of the New South Wales racing program, the wagering and gaining activities of the defendant and payments between the parties as a result of these matters.

5 In order to understand the difference between the parties I will briefly refer to some of the terms of the agreement and then move to the matters in dispute. A resolution of those matters will require further reference to other terms of the agreement. In clause 1.2 it is provided that in the agreement headings are for convenience only and do not affect interpretation. The clause then goes on to set out a large number of other rules in relation to interpretation, which are not presently relevant. Clause 20 of the agreement provides for remedy for breach. Relevant clauses within clause 20, leaving out the headings, are as follows: --

20.1

20.2

(c) TAB may only recover such damages by off-setting such damages against moneys which would otherwise be or become payable by TAB to NSWR under this Agreement and then only to the extent and subject to the limitations permissible under clause 13 and any other specific limitations set out in this Agreement;

(d) for the avoidance of doubt, TAB shall have no right to and agrees that it shall not take any action to wind-up any party or sell or foreclose upon any assets or undertaking of any party or appoint an administrator, liquidator, receiver, controller, mortgagee in possession or like officer to any party or its assets or undertakings for any reason whatsoever; and

(e) the provisions of this clause 20.2 and clause 13 and the limitations on recourse set out therein are paramount and take effect notwithstanding any other right, remedy or enforcement action which may otherwise have been available to TAB but for those provisions.

6 Clause 24 deals with disputes. Clause 24.1 provides a mechanism for the parties to attempt in the first instance to resolve the dispute by meetings between the chief executive officer of each of the parties. If that mechanism does not resolve the dispute within 15-business days the matter is referred to resolution in accordance with clause 24.2. The remaining provisions within clause 24 then deal with that method of dispute resolution. The relevant provisions are as follows: --

24.2

If a Dispute is not resolved pursuant to clause 24.1 the Dispute will be referred for expedited arbitration under clause 24.3 .

24.3

The arbitration is to be conducted before an arbitrator agreed on by the parties, or if they are unable to agree within 5 Business Days of a written request by one of the parties to the other party requiring them to attempt to agree upon an arbitrator, a person to be appointed by the President for the time being of the Institute of Arbitrators, Australia. If the President appoints the person to act as arbitrator, the parties require that the arbitrator to be appointed must be a senior lawyer or retired judge experienced in the conduct of the racing and gaming industry.

24.4

24.5

7 Immediately apparent is the tension between the mechanism of dispute resolution in clause 24.5 and the provisions of clause 20. Clause 24.5 only allows a party to seek urgent interlocutory relief outside the dispute resolution procedure and it is clear that the present proceedings do not fall within that exception.

8 In order to understand the interplay between clauses 20 and 24.5, the agreement must be read as a whole. Clause 24.5 provides that no party may commence court proceedings in relation to a dispute until the arbitration procedure set out in clause 24 has been followed and even then may only bring such proceedings on the grounds of error of law by the arbitrator. The only express exception is the case where either party is seeking urgent interlocutory relief.

9 The plaintiff’s submission is that clause 20.1 effectively operates as an exception to clause 24.5, and that clause 24.5 should be read down accordingly. On the plaintiff’s construction, parties can commence court proceedings for urgent interlocutory relief, an injunction or an order for specific performance, but for any other relief must enter into arbitration pursuant to clause 24. If one could have regard to the heading to 20.1, namely, “Court Action for Injunction or Specific Performance” the plaintiff’s argument would have much attraction. However, one cannot have regard to the heading. That this should be so is not surprising as no doubt more effort has gone into drafting the substance of the clauses with their carefully worded exceptions rather than the headings.

10 The defendant’s submit that clause 20.1 must be understood in the context of the agreement as a whole. In the context of an agreement that expressly provides a mechanism of arbitration for dispute resolution, clause 20.1 merely represents agreement between the parties as to certain remedies that may be sought. The statement that parties may seek an injunction or specific performance follows the statement that damages may not be an adequate remedy. The purpose of clause 20.1 is to prevent opposition to an injunction or order of specific performance on the grounds that damages are sufficient. It does not expressly qualify the operation of clause 24.5.

11 Further, there is no reason to assume that clause 20.1 applies solely to court proceedings. The plaintiff relies on the clause to say that it grants a right to bring court proceedings for an injunction or order of specific performance. However, the defendant submits that the remedies to which clause 20.1 refers may also be granted by the arbitrator under the agreement and the clause therefore cannot be understood to be referring only to court proceedings.

12 Section 24 of the Commercial Arbitration Act provides that:

13 There is no contrary intention expressed in the agreement. The question of whether an arbitrator can grant an injunction has been the subject of comment over the years. In England s 48(5)(a) of the Arbitration Act 1996 now gives arbitrators such powers. The Commercial Arbitration Act in this State does not touch upon the matter.

14 In Chandris v Isbrandtsen-Moller Co Inc (1951) 1KB 240 the Court of Appeal was concerned with whether an arbitrator had an implied power to award interest. When discussing this question Lord Justice Tucker said as an aside at p 262:-

“To that there are, of course, certain well-known exceptions, such as the right to grant an injunction, which stand on a different footing; one of the reasons why an arbitrator cannot give an injunction is, of course, that he has no power to enforce it; but such an objection does not apply to the award of interest.”

15 The High Court approved the decision in Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture (1981) 146 CLR 206. Two of the majority judges referred in passing to the power to grant injunctions.

16 At p 235 Stephen J said:-

17 Mason J did not have the same reservations. At p 246 he commented as follows:-

“In the United States it is accepted that the parties to an arbitration are free to clothe the arbitrator with such powers as they may deem it proper to confer, provided that they do not violate any rule of law (5Am.Jur.(2d), p 539). There it has been held that the parties may authorise the arbitrator to grant equitable relief, even including relief by way of injunction. (5Am.Jur(2d), p620; 70A.L.R (2d) p1058).”

18 The matter was raised more directly in IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 a case which decided that an arbitrator could award relief under the Trade Practices Act. Under that Act relief may be given by way of injunction. After discussing the High Court’s decision and referring to the comments of Mason J above, Kirby P said at 479:-

“The last reference to the Act has proved prescient or influential or both. By s 33 of the Commercial Arbitration Act 1984, enacted as part of uniform legislation since the decision in Government Insurance Office of New South Wales v Atkinson-Leighton, it has been provided:

"33.(1) An award made under an arbitration agreement may, by leave of the Court, be enforced in the same manner as a judgment or order of the Court to the same effect, and where leave is so given, judgment may be entered in terms of the award."

19 Clarke JA and Handley JA concluded that an arbitrator did not have the power to declare a contract void under s 87 but they did decide that the arbitrator could exercise power under the Trade Practices Act.

20 Clarke JA had doubts about the power to grant an injunction. At p 486 he said:-

“I have pointed out that an arbitrator does not have power to declare a contract void ab initia and it may be that there are other powers exercisable by a court under s 87, such as the power to grant an injunction, which may not be open to the arbitrator. In this case the remedies sought are not said to be of such a nature as not to be open to an arbitrator and therefore it is unnecessary to express a concluded opinion on the remedies under s 87 which are open to an arbitrator.”

21 Handley JA did not refer to the power to grant injunctions and he agreed with the analysis Kirby JA made of the authorities and the reasons given by Clarke JA.

22 Later in Ferris v Plaister (1994) 34 NSWLR 474 the Court of Appeal decided that an arbitrator could have power to decide that a contract was void relying on the severability of the arbitration clause.

23 The question of the ability of the parties to clothe an arbitrator with the power to grant an injunction is thus one where there are some conflicting views. An important matter is s 33 of the Commercial Arbitration Act which removes the former reason for denying an arbitrator the power to grant an injunction, namely, that he had no power to enforce compliance. The Act now provides the appropriate means of enforcement by this court using its processes. In my view it is possible for the arbitrator to be given power to grant an injunction.

24 The question then is whether the submission authorised the arbitrator to grant an injunction. The referral in clause 24 of the agreement of a dispute to resolution uses the word, “dispute” which is defined in the agreement as:-

“Dispute means any dispute or difference between the parties in respect of any fact, matter or thing arising out of or in connection with this Agreement, a party’s performance of its obligations for exercise of its rights under this agreement or either party’s conduct before the date of this agreement.”

25 This is in wide terms but of more importance is the mechanism in clause 24.3 to which I have referred. The arbitrator will, in cases of no agreement, be a senior lawyer or a retired judge. Evidence is by affidavit, the rules of evidence apply and all questions are to be determined according to law.

26 The arbitration process requires the parties to make a written submission as to how the dispute should be resolved and requires the arbitrator to adopt the submission which most closely accords with the arbitrator’s opinion in the matter. There is nothing in the agreement to suggest that the parties may not request an injunction or order for specific performance, nor is there anything in the agreement to limit the arbitrator’s power to grant such relief. Apart from the arbitrator’s choice of submission, the whole process is closely akin to a legal proceeding. The words used to confer power to resolve the dispute confer almost unlimited flexibility in the method of its resolution. For this reason, I think that the arbitrator has been given power to grant an injunction.

27 In my view clause 20.1 does not grant a right to commence court proceedings for an injunction or order for specific performance outside of the arbitration procedure set out in clause 24. It does not have anything to say about the means by which those remedies are sought. What it does do is represent agreement between the parties that an injunction or order for specific performance may be appropriate remedies. The means by which those remedies may be obtained remain governed by clause 24, requiring the parties to first seek them in arbitration before bringing court action.

28 The plaintiff further submitted that it is apparent from clause 20.2 that the rights granted by clause 20.1 are additional to those that arise from clause 24.5 and are not subject to the limitations imposed by clause 24.5. Clause 20.2 provides that the liability and quantum for damages is to be determined in accordance with clause 24 of the agreement, whereas there is no equivalent direction in clause 20.1. However, in the context of the agreement as a whole, this is of little significance. Clause 20.1 ought not to be construed solely by reference to clause 20.2. Clauses 20.1 and 20.2 are very different in nature and the superfluity of clause 20.2(a) is perhaps not surprising in the context of a clause that leaves TAB with very limited rights against other parties for breach of the agreement. Indeed, clause 20.1 has work to do in both disputes under clause 24 and in court proceedings which are expressly permitted under clause 24.5.

29 It seems very unlikely that in such a complex agreement, the seeking of injunctive relief or specific performance would be excluded from the operation of clause 24.5 merely by implication. This is especially so given the express exclusion of the situation in which a party seeks urgent interlocutory relief and the terms of section 24 of the Commercial Arbitration Act. The plaintiff’s construction of clause 24.5 gives it a very narrow scope, applying only where a party other than the TAB is not seeking urgent interlocutory relief, an injunction or an order for specific performance. Arbitration becomes merely an available option, since a party may often seek an injunction or order for specific performance rather than damages. On this construction it is only where a party is seeking damages that the clause 24 procedure is invoked requiring the meeting of the CEOs and from there, arbitration.

30 I am satisfied that the plaintiff has commenced court proceedings against the defendant in respect of a matter agreed to be referred to arbitration. Accordingly I am satisfied that the defendant is eligible to make a stay application under section 53 of the Commercial Arbitration Act. Section 53 (1) provides:-

31 The plaintiff did not oppose the grant of a stay on the grounds that the requirement in s 53(1)(b) had not been established, and the evidence of Mr Vance that the defendant wished to proceed with the resolution of the dispute pursuant to the terms of the agreement was not challenged. Rather, it was submitted that within s 53(1)(a) there was sufficient reason why the matter should not be referred to arbitration in accordance with the agreement.

32 As a starting point, the well-known statement of Dixon J in Huddert Parker Ltd v The Ship Mill Hill (1950) 81 CLR 502 is helpful:

“But the courts begin with the fact that there is a special contract between the parties to refer, and therefore in the language of Lord Moulton in Bristol Corp v John Hard & Co, considers the circumstances of a case with a strong bias in favour of maintaining the special bargain or as Scrutton LJ said in Metropolitan Tunnel and Public Works Ltd v London Electric Railway Co, a guiding principle on one side and a very natural and proper one, is that parties who have made a contract should keep it.”

33 The plaintiff advanced a number of reasons why it ought to be permitted to abandon the arbitration procedure in this case in favour of the courts. The plaintiff submitted that the nature of the dispute resolution procedure set out in the agreement was unsatisfactory. Clause 24.3(f) provides that each of the parties to the dispute must “make a written submission as to how the dispute should be resolved” to the arbitrator. Clause 24.3 (h) and (i) state that the arbitrator must “make a determination in relation to the dispute and in doing so, must adopt the submission made by the party (to the dispute) that most closely accords with the arbitrator’s opinion in the matter.” The submission that is adopted by the arbitrator is deemed to be the decision of the arbitrator: clause 24.3(i).

34 This kind of clause is sometimes referred to as a “last best offer” or “baseball” clause, so-named because of its use in the United States of America in resolving professional baseball players’ salary disputes. In that context, each party submits a proposed monetary amount to the arbitrator. At the conclusion of the hearing, the arbitrator chooses one award without modification. A variation, referred to as “night baseball” arbitration, requires the arbitrator to make a decision without the benefit of the parties’ proposals and then to make the award to the party whose proposal is closest to that of the arbitrator. In either form, the arbitrator does not have the authority to compromise between the parties’ positions, which provides an incentive to each party to make its final offer more reasonable than the other’s. The object is to move the parties towards the position of the other, to the extent where it may be possible to bridge the remaining gap by negotiation.

35 The plaintiff now seeks to bypass the baseball arbitration in favour of declaratory relief by a court, in an effort to avoid what it suggests may be an arbitrary result. The plaintiff submitted that the agreement has a long way to run, and that the continued use of arbitration as a means of dispute resolution is unsatisfactory in the long term. The agreement is dated 11 December 1997 and governs the relationship for 99 years.

36 Both the parties are commercially experienced and were capable of protecting their own interests in the negotiation of the agreement. I see no reason why the plaintiff should not be held to the form of dispute resolution which it agreed to when negotiating a long term agreement only a few years ago.

37 The plaintiff also submitted that the resolution of the dispute will involve questions of law which are best determined by a court. The fact is that the parties have by agreement committed matters of both fact and law to arbitration. Clause 24.3 provides that the arbitrator is to be agreed upon by the parties, or failing such agreement, is to be appointed by the President of the Institute of Arbitrators, Australia. In the case of the latter, the arbitrator to be appointed must be a senior lawyer or retired judge experienced in the conduct of the racing and gaming industry. There is no reason therefore why the arbitrator would not be capable of resolving questions of both fact and law. The plaintiff submits that in the case of a decision against them, they will commence court proceedings on the grounds of an error of law, as allowed by clause 24.5 and s 38 of the Commercial Arbitration Act. Therefore to avoid wasting time, the plaintiff submits that it is appropriate that this matter not go to arbitration, but proceed straight to court. This submission does not take account of the fact that the arbitrator’s decision may be plainly right and that leave is necessary under s 38(4) of the Act.

38 Reference was made to the fact that the agreement embodied the commercial arrangements between the parties for the purpose of the Totalisator Act 1997 and thus are conditions of the licence. Under that Act that Minister has certain functions and may apply to the court to prevent breaches of the Act as a condition of a licence. It was submitted that there was a public interest which was better served by the court dealing with the matter rather than an arbitrator who only had two choices.

39 Some disputes may attract the Minister’s concern and some may not. His rights to act are always preserved and parties to an arbitration can put their submissions to the arbitrator in a way which they think best resolves their dispute over the conditions and thus any breach.

40 In my view there is no sufficient reason why the matter should not be referred to arbitration.

Orders

41 The orders I make are:

1. That the proceedings be stayed.
2. That the plaintiff pay the defendant’s costs of the motion and the proceedings.

Last Modified: 09/04/2002

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Citations

NSW Racing v TAB [2002] NSWSC 742

Cases Citing This Decision

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Cases Cited

4

Statutory Material Cited

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Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture [1981] HCA 9

Passlow v Butmac Pty Ltd [2012] NSWSC 225

CITATION:	NSW Racing v TAB [2002] NSWSC 742
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 2910/2002
HEARING DATE(S):	01/07/02
JUDGMENT DATE:	26 August 2002
PARTIES :	NSW Racing Pty Ltd v TAB Limited
JUDGMENT OF:	Acting Justice Macready at 1

COUNSEL :	MJ Leeming for plaintiff NC Hutley SC & PJ Brereton for defendant
SOLICITORS:	Clayton Utz for plaintiff Freehills for defendant
CATCHWORDS:	Arbitration. Power of arbitrator to grant an injunction. Proper construction of the submission. Application for stay under s 53 of the Commercial Arbitration Act. Stay granted.
DECISION:	Paragraph 41