Oakton Services Pty Ltd v Tenix Solutions Imes Pty Ltd
[2010] VSC 176
•30 April 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST C
No. 1186 of 2010
BETWEEN
| OAKTON SERVICES PTY LTD (ACN 100 103 268) | Plaintiff |
| and | |
| TENIX SOLUTIONS IMES PTY LTD (ACN 126 390 378) | Defendant |
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JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16 April 2010 | |
DATE OF JUDGMENT: | 30 April 2010 | |
CASE MAY BE CITED AS: | Oakton Services Pty Ltd v Tenix Solutions IMES Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 176 | |
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ARBITRATION – Application for stay of Court proceedings – Commercial Arbitration Act 1984, s 53(1).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R Garratt QC with Mr J. Morse | Minton Ellison |
| For the Defendant | Mr D. Collins SC with Mr D. Batt | Molino Cahill |
HIS HONOUR:
Application
By summons dated 19 March 2010 the defendant, Tenix Solutions IMES Pty Ltd (“Tenix”), sought to stay the present proceedings which were brought by the plaintiff, Oakton Services Pty Ltd (“Oakton”), pursuant to s 53(1) of the Commercial Arbitration Act1984 (Vic) (“the Act”). Tenix also sought its costs of the proceeding, including the cost of this summons, on an indemnity basis.
Background
The present proceedings were commenced by writ dated 5 March 2010. The proceedings are with respect to a Subcontract, dated 4 September 2008, which is styled “Subcontract for Information Technology Design, Billed and Testing Services” made between Tenix, as Contractor, and Oakton as Subcontractor, as amended on or about March 2009 (“the Subcontract”).
The statement of claim was filed with the writ. It pleads, amongst other things, that at all material times from the “Commencement Date” (which is defined in the Subcontract as meaning 17 September 2007) Oakton performed the “Work” (which is also defined in the Subcontract) in accordance with the Subcontract.
The Subcontract defines “Work” as meaning “… the Deliverables and any work required to be performed by the Subcontractor pursuant to this Subcontract, including the Delivery and provision of the Deliverables”.[1] The term “Deliverable” is defined by the Subcontract as meaning
“… all systems, support systems, Documents, Software, technical and system architecture and other materials to be supplied by or on behalf of the Subcontractor pursuant to or otherwise in connection with the IMES Documents.”[2]
[1]Subcontract, clause 1.1.
[2]Subcontract, clause 1.1.
The capitalised terms within the definition of “Deliverable” are also defined in the Subcontract, but it is not necessary to go further into this defined terminology for present purposes.
Oakton, in its statement of claim, pleads that on or about 15 February 2010, Tenix wrongfully repudiated the Subcontract. It also pleads that on or about 3 March 2010, Oakton accepted Tenix’s repudiation of the Subcontract. Oakton claims loss and damage as a result of Tenix’s alleged repudiation of the Subcontract in the sum of $12,601,680, and on the basis that the losses claimed are continuing.
Tenix made it clear at the hearing of the summons that it relied only upon the power of the Court to stay court proceedings pursuant to s 53(1) of the Act, and that it did not seek to rely upon the inherent jurisdiction of the Court in this respect. Consequently, the question whether there is inherent jurisdiction in the Court to stay proceedings, apart from the powers conferred by s 53 of the Act, was not in issue.[3]
[3]See, generally, Arnwell Pty Ltd v Teilaboot Pty Ltd [2010] VSC 123, where the extent of the Court’s inherent power to prevent injustice with respect to arbitration proceedings was considered, but not resolved.
In broad terms, Oakton resisted the stay application on the following bases. First, it submitted that a dispute as to the subsistence of the Subcontract itself, as a result of a claim of an allegedly accepted repudiation, was not governed by the dispute resolution clause procedures, contained in clause 73 of the Subcontract. Secondly, it submitted that even if the arbitration agreement contained in clause 73 did extend to a dispute as to the subsistence of the Subcontract, the provisions of clause 73 were merely permissive in allowing rather than requiring arbitration. Further, Oakton submitted that the present proceedings commenced before the arbitration proceedings were commenced. Consequently, it was said, there was no bar at that time to the institution of Court proceedings, as the arbitration provisions of the Subcontract had not been triggered or enlivened. Thirdly, it was submitted that even if clause 73 of the Subcontract operated as a presently subsisting arbitration agreement which applied to the present dispute, the conduct of Tenix with respect to the preliminary alternative dispute mechanisms provided for in clause 73 amounted to a repudiation by it of the whole of the dispute resolution machinery provided for in clause 73 – including the arbitration agreement. As to the latter, Oakton claimed that it had accepted Tenix’s repudiation of clause 73 of the Subcontract. These issues are considered in turn, beginning with consideration of the proper construction of clause 73 of the Subcontract.
Construction of the Subcontract
The arbitration agreement is contained within the provisions of clause 73 of the Subcontract, which also contains provisions addressed to dispute resolution procedures more generally. The word “dispute” is not defined in clause 73 or in the definition provisions of clause 1.1 of the Subcontract. Clause 1.1 does, however, define “Dispute Resolution Committee” and also “Dispute Resolution Procedures”. These expressions are defined as follows:
“‘Dispute Resolution Committee’ means a committee comprising the Contractor’s Representative, the Subcontractor’s Representative and one other senior representative of each of the Contractor and the Subcontractor appointed in accordance with clause 73.2.
‘Dispute Resolution Procedures’ means the procedures set out in clause 73.”
The critical provisions of clause 73 are as follows:
“73.1 General
(a)The parties must use their reasonable endeavours to co-operatively resolve a dispute.
(b)Subject to clause 73.11, if any dispute or difference arises between the parties as to any fact, matter or thing arising out of or in connection with this Subcontract, the Work or the Project, subject to complying with the relevant requirements of any other clause of this Subcontract, either party may give to the other party a notice adequately identifying the matters the subject of the dispute or difference together with detailed particulars of it and requiring the convening of the Dispute Resolution Committee.
(c)For the avoidance of doubt, a party has the right to refer any dispute or difference between the parties as to any fact, matter or thing arising out of or in connection with this Subcontract, the Work or the Project to the process set out in this clause 73 irrespective of whether any clause dealing with the area of dispute specifically refers to the Dispute Resolution Procedures.
(d)Despite the existence of a dispute between the parties:
(i)the Subcontractor must continue to carry out the Work;
(ii)each party must otherwise comply with its obligations under this Subcontract, except that the Contractor will be under no obligation to make any payment in respect of that portion of the amounts which are in dispute; and
(iii)each party’s rights under this Subcontract will not be affected.
(e)Except where a party seeks urgent interlocutory relief (including interim injunctions), each party may not commence court proceedings relating to this Subcontract before it has complied with the Dispute Resolution Procedures.
…
73.2 Dispute Resolution Committee review
(a)If a dispute is referred to the Dispute Resolution Committee under clause 73.1(b), the Dispute Resolution Committee is required to meet within 5 Business Days of the dispute being referred to it to attempt to resolve the dispute in good faith.
…
(e)If:
(i)The Dispute Resolution Committee is unable to resolve the dispute within 5 Business Days of first convening to resolve the dispute under clause 73.2(a); or
(ii)the Dispute Resolution Committee does not convene within 5 Business Days following a referral of the dispute under clause 73.1(a),
then either party may immediately refer the dispute to the Chief Executive Officers.
73.3 Chief Executive Officer review
(a)If a dispute is referred to the Chief Executive Officers under clause 73.2(e) the Chief Executive Officers are required to meet within 5 Business Days of the dispute being referred to them to attempt to resolve the dispute in good faith.
…
(c)If:
(i)the Chief Executive Officers are unable to resolve the dispute within 5 Business Days of first convening to resolve the dispute under clause 73.3(a); or
(ii)the Chief Executive Officers do not convene within 5 Business Days following referral of the dispute to them under clause 73.1(a),
then the parties may agree that the dispute will be referred to an Expert for determination in accordance with clause 73.4. Failing such agreement within 10 Business Days following referral of the dispute to the Chief Executive Officers, either party may immediately refer the dispute to arbitration pursuant to clause 73.5.
73.4 Expert determination
(a)Upon referral of any matter to an Expert the parties must appoint an Expert, within 15 Business Days of referral of the dispute to the Chief Executive Officers, on the terms of the Expert Deed, with amendments in writing as reasonably required by the Expert and consistent with the terms of this Subcontract, or as otherwise agreed between the parties and the Expert. If the parties are unable to agree upon the identity of an Expert within 10 Business Days of the referral, or within a time otherwise agreed between the parties, then either party may request the Australian Centre for International Commercial Arbitration (ACICA) to nominate an Expert and the parties must execute an Expert Deed with that nominated Expert as soon as practicable after nomination and in any event within 5 Business Days.
…
(i) To the extent permissible by law, the determination of the Expert will be final and binding on each party, unless a party gives notice of appeal to the other party within 14 days of receiving such determination. Any such appeal will be de novo.
…
73.5 Arbitration
Where:
(a)clause 73.3(c) requires that the dispute be referred to arbitration;
(b)there has been an expert determination but one of the parties has expressed dissatisfaction with that determination and given notice as required by clause 73.4(i) within 14 days of receiving such determination;
(c)if the Expert fails to make a determination within 28 days from his/her acceptance pursuant to clause 73.4(i) and either party gives notice to the other that it no longer wishes the dispute to be referred to expert determination; or
(d)the dispute resolution process in clauses 73.2 to 73.4 otherwise fails or a step in that process is not taken within the time stipulated,
a party may give notice to the other party requiring that the dispute be referred to arbitration and clauses 73.6, 73.7, 73.8, 73.9 and 73.10 of this Subcontract will apply to that dispute.
73.6 Reference to Arbitration
(a)Arbitration pursuant to this clause 73 shall be conducted in accordance with the Rules of Australian Centre for International Commercial Arbitration (‘ACICA Rules’) current at the time of the reference to arbitration and as otherwise set out in this clause.
(b)The seat of the arbitration will be Melbourne, Australia.
(c)Nothing in this clause is intended to modify or vary the rights of appeal contained in the Commercial Arbitration Act. For the avoidance of doubt, anything in the ACICA Rules which would otherwise prejudice such right, will not apply.
73.7 Basic Principles Relating to Arbitration
The parties agree:
(a)that the purposes of the Dispute Resolution Procedures are to achieve a just, quick and cheap resolution of any dispute;
(b)that any arbitration conducted pursuant to this clause shall not mimic court proceedings of the seat of the arbitration or, if different, of the place where the hearing takes place and the practices of those courts will not regulate the conduct of the proceedings before the arbitrator; and
(c)that in conducting the arbitration, the arbitrator must take into account the matters set out in paragraphs (a) and (b) above.
73.8 Appointment of Arbitrator
One arbitrator shall be appointed.
… .”
Oakton submitted that the provisions of clause 73 of the Subcontract (including the arbitration agreement), properly construed, did not apply to a dispute as to which of the two parties had validly determined the Subcontract. In any event, it submitted that the present dispute is not a dispute which, under the provisions of clause 73, was agreed to be referred to arbitration. Oakton also submitted that the starting point is that a court will not treat a contract as preventing parties from pursuing their remedies in the courts, unless their agreement in this respect is clear. Reliance was placed on the statement by Brennan CJ, Gaudron and McHugh JJ in PMT Partners Pty Ltd v Australian National Parks & Wildlife Service:[4]
“… contracts will only be construed as limiting the rights of the parties to pursue their remedies in the courts if it clearly appears that this is what was agreed.”
[4](1995) 184 CLR 301 at 311.
In support of this submission, Oakton also made reference to paragraph 73.1(d) of the Subcontract which, it said, presupposes the continued operation of the Subcontract. In particular, reference was made to subparagraph 73.1(d)(i), which provides that: “Despite the existence of a dispute between the parties … the Subcontractor must continue to carry out the Work”. Similarly, reference might have been made to subparagraph 73.1(d)(ii) which requires that “each party must otherwise comply with its obligations of this Subcontract … “. Consequently, Oakton submitted, that as there can be no question of Oakton being required to continue to carry out work, these provisions suggest that the parties did not intend disputes as to which of the parties validly terminated the Subcontract to be resolved by the agreed dispute resolution procedure. In making these submissions, Oakton said that this was not to suggest that the arbitration clause does not survive termination of the agreement. Rather, it submitted the arbitration clause survives any termination of the agreement, because of the provisions of clause 78.13 which specifically provide that the “rights and obligations of the parties set out in this clause 78 and the following clauses of the Subcontract survive the expiry, or early termination, of this Subcontract: … 73 …”. In this respect the parties were on common ground.
This common ground potentially has different consequences for the positions of the parties with respect to the ambit of the arbitration agreement and, consequently, in relation to the stay application. Oakton submitted that on a proper construction of clause 73, the arbitration agreement applied after termination of the Subcontract only in respect of rights and obligations that arose during the subsistence of the Subcontract. It submitted, by way of example, that an arbitration proceeding commenced in relation to a dispute that arose prior to the termination of the Subcontract would, as a result of the operation of clause 78.13, run its course. The position of Tenix, on the other hand, was that the severability and survival of the arbitration agreement within clause 73 meant that a dispute as to whether the parties had validly terminated the Subcontract would be within the ambit of the arbitration agreement.
In my opinion, it is quite clear that clause 73 of the Subcontract is intended as a comprehensive set of provisions establishing a regime for a “staged” or “stepped” series of dispute resolution procedures. They range from more consensual procedures involving a Dispute Resolution Committee review, through to review by the chief executive officers of the parties. Absent agreed resolution of the particular dispute, the possibility arises for expert determination or an arbitration under subclauses 73.4 or 73.5, respectively. The branching pathways from Chief Executive Officer review, to expert determination, or arbitration, are not signposted in the sense that provision is made specifying which disputes would be more appropriately referred to one particular dispute resolution procedure over another. It is nonetheless clear from the nature of these provisions and, particularly paragraph 73.1(a) which requires that the parties “must use their reasonable endeavours to cooperatively resolve a dispute”, that it is intended that as part of or immediately after the process of Chief Executive Officer review, some assessment be made as to whether expert determination or arbitration would be more appropriate for the particular dispute. In my opinion, this is inherent and implicit in the use of the word “may” in the concluding words of paragraph 73.3(c) with respect to the reference to expert determination (under clause 73.4) or to arbitration (under clause 73.5).
As to the ambit of the arbitration agreement, which, in turn, raises the question of the ambit of clause 73 of the Subcontract as a whole, I am of the opinion that the defendant’s submissions give insufficient weight to the provisions of paragraph 73.1(b) and (c). Paragraph 73.1(b) provides, subject to the generally procedural requirements of subclause 73.1.1, “… if any dispute or difference arises between the parties … as to the Work or the Project … either party may give to the other party a notice adequately identifying the matters the subject of the dispute or difference …” for the purpose of reference to the Dispute Resolution Committee. The provisions of paragraph 73.1(b) apply to “any dispute or difference … as to any fact, matter or thing arising out of or in connection with this Subcontract, the Work or the Project …”. These are very general provisions which, in my opinion, are made even more general by the reference to the “dispute or difference” arising as to “any fact, matter or thing arising out of or in connection with … “. Phrases such as “arising out of or in connection with” are treated as provisions of the broadest application and scope.[5] In particular, they are treated as extending the application and scope of an arbitration agreement beyond the ambit of disputes expressed to “arise under” a particular contract. [6] This expression is limited to the construction and application of contract terms. It is further limited, temporally, by the implicit requirement that the relevant contract subsist.[7] Consequently, I am of the view that the provisions of paragraph 73.1(b) would apply even after the Subcontract had ceased to exist as a result of its termination.
[5]The primary authorities, the House of Lords decision in Fiona Trust and Holding Corp v Privalov (also known as Premium Nafta Products Ltd v Fili Shipping Co Ltd) [2007] 4 All ER 951; [2007] UKHL 40; and Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45, establish how this process is undertaken: in construing the scope of an arbitration agreement, the ordinary rules of construction applicable to contracts generally are first applied. Secondly, where words or expressions of broad or flexible meaning are used, those words will be given a liberal construction.
[6]In Australia, see, for example, Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102, beginning at [41]. See also Nigel Blackaby, Constantine Partasides, Alan Redfern and Martin Hunter, Redfern and Hunter on International Arbitration (5th ed, 2009) at pp 93-94, and particularly at footnote 43.
[7]Exford Pines Pty Ltd v Vlado’s Pty Ltd [1992] 2 VR 449, particularly at pp 452-4 (Tadgell J).
This position is further reinforced, in my opinion, by the broader provisions of paragraph 73.1(c) of the Subcontract. These provisions are not limited to part of the dispute resolution processes provided for in clause 73 (namely the Dispute Resolution Committee review under clause 73.2). Thus, these provisions are not subject to the argument which might be made with respect to the provisions of paragraph 73.1(b) that they are limited with respect to a particular dispute resolution procedure. Given the generality of the provisions of paragraph 73.1(c), there can be no argument that these provisions are limited in their application to any of the specific dispute resolution procedures provided for in clause 73; whether Dispute Resolution Committee review, Chief Executive Officer review, expert determination, or arbitration.
In my opinion, this position is reaffirmed and strengthened by the provisions of paragraph 73.1(e) of the Subcontract. These provisions are general in nature, and clearly state that “each party may not commence court proceedings relating to this Subcontract before it has complied with the Dispute Resolution Procedures”. An exception is provided, namely that the prohibition does not apply where a party seeks “urgent interlocutory relief (including interim injunctions)”. In my opinion the provisions of paragraphs 73.1(b), (c) and (e), particularly, are to be taken as a clear statement and agreement by the parties that their rights to pursue their remedies in the courts are severely constrained. I am of the view that this is to be taken as a clear statement in this respect of the kind contemplated by Brennan CJ, Gaudron and McHugh JJ in PMT Partners Pty Ltd v Australian National Parks & Wildlife Service.[8] This prohibition is clearly cast in broad terms because the prohibition on the commencement of court proceedings extends to court proceedings “relating to this Subcontract”. Again, the phrase “relating to” is a phrase which carries broad meaning and scope.[9] It is not, for example, limited to a prohibition on court proceedings “under” the provisions of the Subcontract. Neither is it limited by any other form of words which, as with “under”, would have the effect of limiting the prohibition to disputes during the currency of the Subcontract and, possibly, disputes as to the proper construction of its terms and their operation only during the subsistence of the Subcontract.
[8](1995) 184 CLR 301 to 311; but see, above, paragraph 11.
[9]See above, paragraphs 15 and 16.
In the face of these provisions, Oakton argued that paragraph 73.1(d) of the Subcontract made it clear that the dispute resolution provisions of clause 73 could only operate while the contract subsisted, as a result of the reference to the carrying out of Work by the subcontractor in paragraph 73.1(d). I do not accept that this is a proper construction of clause 73.1, because it gives pre-eminence to what appears to be a subordinate provision contained in paragraph 73.1(d). This is particularly so, given the clear and broad scope of paragraphs 73.1(b), (c) and (e), as indicated. To give paragraph 73.1(d) the pre-eminence argued for by Oakton would, in my view, be to fail to give efficacy to the provisions of paragraph 73.1(b), (c) and (e), which cast the operation of clause 73 beyond the subsistence of the Subcontract.
Consequently, I am of the view that the proper approach is to read paragraph 73.1(d) of the Subcontract as a subordinate provision. It should be read down to require the subcontractor to continue to carry out work where there remains “Work” to be done under the Subcontract and in circumstances where the Subcontract subsists. As a matter of logic, it would seem difficult to accept that in circumstances where “Work” had been completed under the Subcontract the effect of paragraph 73.1(d) would be to set aside the operation of the dispute resolution procedures, arbitration or otherwise, under clause 73 simply because there was nothing further to be done by way of “Work”. Consequently, where the dispute between the parties is in relation to the termination of the contract by repudiation and its acceptance, paragraph 73.1(d) would not operate on the basis that there was no “Work” to be performed, as the Subcontract would have been terminated by repudiation and its acceptance.
The provisions of paragraph 73.1(d) of the Subcontract facilitate the extended operation of clause 73 to circumstances such as the present, where it is alleged that the Subcontract has been determined by repudiation and its acceptance. This is because, in my view, the provision of 73.1(d) put in issue a dispute under the terms of the Subcontract. This may be under the provisions of clause 73, if it is treated as a severable and surviving provision following the termination of the Subcontract. In other words, the contractor may claim that the subcontractor was in particular circumstances required to continue to carry out the “Work” under paragraph 73.1(d)(i). This would raise the question whether or not there was any obligation on the subcontractor to do so which, in turn, would raise the question whether the Subcontract subsisted and obligations under its provisions other than those containing clause 73 subsisted.
Oakton also argued that the use of the permissive “may” in the concluding provisions of paragraph 73.3(c) of the Subcontract meant, in effect, that there was no operative agreement to refer a matter to arbitration unless and until the party seeking to refer a matter to arbitration had made an effective decision to do so. Consequently, it was said that the provisions of clause 73 with respect to arbitration did not constitute “an agreement in writing to refer present or future disputes to arbitration” within the meaning of “arbitration agreement” contained in subsection 4(1) of the Act. In this vein, reference was made to the provisions of paragraph 73.3(c) of the head contract, being the “Infringement Management and Enforcement Services Agreement” dated 29 July 2007 between the Attorney-General of the State of Victoria for and on behalf of the Crown in Right of the State of Victoria and the Minister for Police and Emergency Services of the State of Victoria for and on behalf of the Crown in Right of the State of Victoria and Tenix. Attention was drawn to the concluding words of paragraph 73.3(c) of the head contract, which provide that “Failing such agreement within 10 Business Days following referral of the dispute to the Chief Executive Officers the dispute shall be referred to arbitration pursuant to clause 73.6” [Emphasis added]. The purpose of the emphasis was to contrast the provisions of this paragraph with the corresponding provisions of the Subcontract which provide in the same general context that “either party may immediately refer the dispute to arbitration pursuant to clause 73.5” [Emphasis added].
Tenix submitted that the provisions of paragraph 73.3(c) of the head contract were not relevant to the construction of the corresponding provisions of the Subcontract. On the basis of the material before me, I am of the view that these provisions of the head contract are not particularly helpful in construing the corresponding provisions of the Subcontract, even if they were to be treated as part of the factual matrix against which the Subcontract is to be interpreted.[10] I say this for two reasons.
[10]See Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.
The first is in light of the intention of commercial parties. The clear references to a broad range of disputes and alternative dispute resolution procedures, including arbitration under the provisions of clause 73.1 of the Subcontract, suggest that an interpretation of clause 73.3 giving decisive effect to the use of the word “may”, and thereby depriving the arbitration provisions of clauses 73.5 and 73.6 of efficacy, cannot be regarded as being in accordance with the intention of commercial parties (as already clearly expressed in provisions such as paragraph 73.1(a), (b), (c) and (e)).[11] On this basis, the provisions of paragraph 73.3(c) of the head contract should be taken as confirmation of a contrary intention, suggesting that the use of the word “may” in paragraph 73.3(c) of the Subcontract is either an error or a provision which should be read in a mandatory sense having regard to the context of clause 73 of the Subcontract.
[11]See Upper Hunter County District Council v Australian Chilling and Freezing Company Ltd (1968) 118 CLR 429.
Secondly, I am of the opinion that the use of the word “may”, even if it were to be treated as permissive, would not produce a position as argued for by Oakton which, in effect, opens a gap in the operation of clause 73. This would allow a dispute within the ambit of clause 73.1 to be litigated before a court, prior to a party “electing” to refer a dispute to arbitration pursuant to clause 73.5. The basis submitted in support of this position is the lack of any arbitration agreement, prior to that election, for the purposes of the definition of “arbitration agreement” under subsection 4(1) of the Act, and as required for the operation of subsection 53(1) of the Act as a result of the words of its chapeau.
In this context, Oakton referred to the chapeau to s 53(1) of the Act as follows:
“(i) 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 …”. [Emphasis added.]
Oakton submitted that the emphasised passage contained in the chapeau to s 53(1) does not encompass a situation where a party to an arbitration agreement might, if it elected to do so, refer a dispute to arbitration but has yet to do so. In this respect, reference was made to PMT Partners Pty Ltd v Australian National Parks and Wildlife Service,[12] Stevens Construction Pty Ltd v Zorko,[13] and Equuscorp Pty Ltd v Wilmoth Field Warne (a firm).[14]
[12](1995) 184 CLR 301.
[13](2002) 81 SASR 316 (FC).
[14][2003] VSC 279.
In PMT Partners Pty Ltd v Australian National Parks and Wildlife Service,[15] Brennan CJ, Gaudron and McHugh JJ said at 309:
“’a matter agreed to be referred to arbitration’, [is] an expression which is apt to describe the situation that occurs when a right of election has been exercised or other preconditions satisfied and which is syntactically and conceptually quite different from that found in the definition of ‘arbitration agreement’ which merely requires that the parties have agreed ‘to refer present or future disputes to arbitration’.”
[15](1995) 184 CLR 301.
In Stevens Construction Pty Ltd v Zorko,[16] Doyle CJ, after setting out the above passage, said:[17]
“I take their Honours to mean that if the relevant arbitration clause allows a right of election or choice as between litigation and arbitration, the matter of dispute in question will be a matter ‘agreed to be referred to arbitration’ if, but only if, the election or choice for arbitration has been exercised.”
The Chief Justice also said:
“The language of s 53(1) suggests quite strongly that the time at which the nature of the proceedings must be considered is the time when the proceedings are commenced.”
[16](2002) 81 SASR 316.
[17](2002) 81 SASR 316 at paragraph 19.
The decision of the South Australian Full Court in Stevens Construction was followed by Byrne J in Equuscorp Pty Ltd v Wilmoth Field Warne (a firm).[18] Byrne J expressly agreed with the Full Court’s reasoning and said:[19]
“The text of s 53(1) shows this to be correct. Moreover, until a party has enlivened the arbitration agreement by electing to arbitrate, it is difficult to see how the Court should under s 53 act to give effect to a course which no party has set in train.”
[18][2003] VSC 279.
[19][2003] VSC 279 at paragraph 23.
On the basis of these authorities, Oakton re-affirmed its submission that the effect of clause 73.3 of the Subcontract was to provide a party with a right to elect to arbitrate. In the particular circumstances of this matter, the election had not occurred prior to the commencement of these proceedings, with the result that it could not be said that there was “a matter agreed to be referred to arbitration” for the purposes of s 53(1) of the Act.
In my opinion, the difficulty with Oakton’s submission with respect to “election” is that it fails to have proper regard to the effect of the provisions of clause 73 as a whole, which, as indicated previously, provide a comprehensive regime of dispute resolution procedures. This is underpinned by the clear agreement of the parties that, save for urgent interlocutory relief (including interim injunctions), each party may not commence court proceedings relating to the Subcontract before it has complied with the Dispute Resolution Procedures.[20]
[20]See above, paragraphs 15 to 17.
The particular factual circumstances which form the basis of Oakton’s submissions that the election to arbitrate on the part of Tenix was too late are set out in Oakton’s submissions, as follows:
“31. The writ here was issued on 5 March 2010. The statement of claim pleads a claim in damages for a repudiation of the Subcontract arising from Tenix serving a Termination Notice on or about 15 February 2010 which repudiation is pleaded as having been accepted on about 3 March 2010 (by letter of Minter Ellison of that date).
32. Oakton was at liberty to accept the repudiation by Tenix without issuing a notice of dispute. Clause 73.1(b) did not require a notice of dispute to be given before or after doing so. Clause 73 did not impose any requirement with which Oakton had to comply before it issued its writ.
33. On or about 19 March 2010 Tenix served a notice of dispute in respect of inter alia of the Minter Ellison letter of 3 March 2010 and the statement of claim and stating that ‘Tenix hereby invokes clause 73.3 of the Subcontract … and requires the convening of the Dispute Resolution Committee pursuant to that clause’; MEAC 15.
34. The summons for the stay was issued on the same day as the notice of dispute was served.
35. What is plain is that by the date of the summons – that is, the date of the notice – it could not be said that the dispute resolution process in clause 73.2 to 73.4 had failed or some step in that process had not been taken.
36. It therefore follows that the time for referring any dispute to arbitration in respect of the matters which are the subject of the statement of claim had not arisen as at the date of the summons. It is also clear that no notice of referral of any such dispute to arbitration had occurred (and might never occur). Indeed, Tenix made no attempt to convene the dispute resolution committee. This inaction stands in contrast to action evidenced, for example, in exhibit NW-18 at pages 227, 229 and 230.”
At this stage, I put to one side the question of the extent to which without prejudice privilege may or may not prevent the Court investigating the extent to which the Dispute Resolution Committee review process and the Chief Executive Officer review process provided for in clauses 73.2 and 73.3 of the Subcontract, respectively, have been complied with. I am of the view that the provisions of clause 73.1, particularly paragraph (e), would prevent either party commencing proceedings, other than as provided for in that paragraph, prior to compliance with clauses 73.2 and 73.3, even assuming the plaintiff’s submissions with respect to the question of election on the basis of its interpretation of the concluding words of clause 73.3 were correct. In any event, I am of the view that, in the event that the parties fail to agree, following the Chief Executive Officer review under clause 73.3, that the dispute is to be referred to an Expert for determination under clause 73.4, or to arbitration pursuant to clause 73.5. As indicated previously, this accords with the comprehensive scheme provided for in clause 73 and, in particular, gives effect to paragraphs 73.1(b), (c) and (e).[21] Consequently, I am of the opinion that no issue of election arises. Properly construed, the provisions of clause 73.3 and the related provisions of clause 73 provide an agreement that a matter be referred to arbitration for the purposes of s 53(1) of the Act.
[21]See above, paragraphs 15 to 17.
Repudiation and willingness and readiness to comply with arbitration agreement
Oakton submitted further that to the extent that an arbitration agreement existed for the purposes of s 53(1) of the Act, it had, nevertheless, been repudiated by Tenix’s conduct. As I understand the position as put by Oakton, it says that the alleged repudiation by Tenix was accepted expressly or impliedly by Oakton’s issue of these proceedings. Tenix, on the other hand, submitted that Oakton had acted inconsistently with this position with the result of its commencement of arbitration proceedings itself under clause 73.
It was common ground between the parties that it is possible, as a matter of law, for a party to waive its rights under an arbitration agreement or to raise an estoppel against those rights being exercised.[22] This possibility does not, however, transcend the substantive law and the approach of the courts with respect to a finding of repudiation. In this respect, it is important to recall the words of Mason J (as he then was) in Progressive Mailing House Pty Ltd v Tabali Pty Ltd:[23]
“… Repudiation of a contract is a serious matter and is not to be lightly inferred …”.
[22]See ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896 at [53] to [64] (Austin J); La Donna v Wolford (2005) 194 FLR 26 at [17] (Whelan J); and Zhang v Shanghai Wool and Jute Textile Co Ltd (2006) 201 FLR 178 at pp 185 and following.
[23](1985) 157 CLR 17 at 32.
A further issue in this context is the extent to which the Court ought to receive evidence with respect to conduct of the parties which, in substance, amount to settlement negotiations; particularly as they involve the Dispute Resolution Committee review process under clause 73.2 and the Chief Executive Officer review process under clause 73.3. Tenix submitted that significant parts of the affidavit material relied upon by Oakton were not admissible on the basis of without prejudice privilege. Oakton submitted that the relevant evidence was admissible despite any claim of without prejudice privilege because the evidence was relevant and admissible other than for the proof of the facts asserted by Tenix. Reference was made to the statement in Cross on Evidence that “[T]he relevance of the communication does not lie in any fact which it asserts or admits, but simply in the fact that it was made”.[24] Oakton also submitted that other aspects of the evidence of claimed without prejudice communications were relevant to prove misconduct, including misrepresentation, on the part of Tenix in substance to establish the proposition advanced by Oakton that Tenix made no bona fide efforts to settle the matters in dispute, and hence comply with the provisions of clause 73.[25]
[24]Cross on Evidence (6th Australian edition) at p 865.
[25]I note in this respect the provisions of paragraph 73.1(a) that “The parties must use their reasonable endeavours to cooperatively resolve the dispute”.
In support of its position, Tenix relied upon s 131 of the Evidence Act 2008, which provides as follows:
“131. Exclusion of evidence of settlement negotiations
(1) Evidence is not to be adduced of:
(a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute; or
(b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.”
These provisions are subject to the range of exceptions provided for in s 131(2) of the Evidence Act. In my opinion, the provisions of paragraph 131(2)(i) are of relevance in the present circumstances. The exception provided for in that paragraph is where “making the communication, or preparing the document, affects a right of a person”. Clearly, the present circumstances involve the “right of a person” under the Subcontract or the Act. In the present context, I interpret the application of this exception as permitting reference to the claimed without prejudice evidence for the purpose of establishing the fact that the communications to which reference is made in the evidence took place, rather than as to proof of the contents of those communications.
In my opinion, this leaves the state of the admissible evidence as establishing that Tenix did take part in the Dispute Resolution Committee review process under clause 73.2 of the Subcontract and the Chief Executive Officer review process under clause 73.3. The without prejudice privilege claim pursuant to s 131 of the Evidence Act does, however, prevent the Court from receiving evidence as to the content of those communications and, consequently, embarking upon some detailed investigation and assessment of what did or did not occur during the settlement negotiations under clauses 73.2 and 73.3.
If the admissible evidence established that Tenix had not participated at all in the Dispute Resolution Committee review process and the Chief Executive Officer review process under clauses 73.2 and 73.3 of the Subcontract, respectively, then there may have been some basis for an argument by Oakton that Tenix had repudiated part of and, consequently, the whole of the provisions of clause 73 and that Tenix was in breach of its obligations under paragraph 73.1(a) and could not be regarded as being ready, willing and able to perform the other provisions of clause 73 with respect to arbitration. However, the admissible evidence clearly establishes the contrary; that both review processes were undertaken. Thus, there is no basis for finding that Tenix has repudiated the provisions of clause 73, in whole or in part. Nor is there any basis for a finding that Tenix has not acted bona fide or not used its reasonable endeavours to resolve the dispute cooperatively, as required by paragraph 73.1(a). In addition, there is also no basis for finding that Tenix is not ready, willing and able to comply with the arbitration provisions of clause 73, particularly paragraphs 73.5 to 73.8, inclusive. I should, however, make it clear that I do not find it necessary to determine the question whether, if Tenix had been found to have repudiated the provisions of clauses 73.2 and 73.3 with respect to what amount to settlement negotiation procedures, the result would have been found to be a repudiation of the arbitration agreement provisions of clause 73.
Discretionary matters
As I have indicated, on the basis of the admissible evidence, there is no evidence to establish that Tenix has repudiated clause 73 of the Subcontract or any relevant provisions of that clause, or that it has not been and will not be ready, willing and able to comply with the arbitration provisions of clause 73.
In relation to the arbitrations previously commenced, Oakton made the following submissions:
“60. The submissions served by Tenix on 15 April 2010 suggest that there is significance in the fact that ‘none of the three affidavits sworn on behalf of Oakton on the present application depose that Oakton will seek to effect the cessation of those arbitrations’. The existing arbitrations (for which there is presently no arbitrator) commenced by Oakton will not be pursued, because, as Tenix’s admits ‘the subject matter of those arbitrations is [indirectly] within the scope of the matters the subject of the proceeding’. Oakton’s solicitors have advised Tenix’s of the fact that the arbitrations previously initiated by Oakton will not be pursued. The prospect of ‘inconsistent findings, and wasteful duplication of time and costs’ is therefore fanciful.
61. Even if the existing arbitrations continued, there is no risk of inconsistent findings. The issue in this proceeding is whether there was a repudiation by the service of the notice of termination, that is, whether Tenix was entitled to serve that notice, and thus exclude Oakton. That is not a matter which will be determined under any of the preceding references to arbitration. There will not be and cannot be any double recovery by Oakton by way of damages and then award in a separation arbitration. Indeed the recovery of damages in this proceeding is likely to obviate the need for any arbitration to proceed (and thus to lead to a more just, quicker and cheaper resolution of matters in dispute than has been the case to date).”
In response, Tenix made the following submissions:
“14.There are additional and related considerations reinforcing that a stay should be granted:
(a)The arbitrations previously commenced by Oakton remain on foot. Significantly, none of the three affidavits sworn on behalf of Oakton on the present application depose that Oakton will seek to effect the cessation of those arbitrations. In any event, it is not possible for Oakton to do so unilaterally. The subject matter of those arbitrations is within the scope of the matters the subject of the proceeding. If the proceeding is permitted to continue, there will be a risk of inconsistent findings, and wasteful duplication of time and costs.
(b)Clause 73.5 provides amongst other things that if any step required under the dispute resolution procedure fails or is not undertaken within the prescribed time, either party may refer the matter to arbitration. The presence of this clause means that, apart from anything else, it was simply not possible for Tenix to frustrate the dispute resolution processes. Even if Tenix had sought to act as Oakton alleges, Oakton was always able to progress the clause 73 procedure and commence arbitration. And it is clear on the material that, rather than in any way acting to frustrate them, Tenix has constructively progressed any arbitral proceedings.
15.Tenix has now referred the disputes to arbitration, and the reference includes all the disputes. The arbitration can now proceed in accordance with clause 73 of the Subcontract and ACICA Rules, which provide for the proper and efficient resolution of disputes. Tenix has since 23 December 2009 sought to identify the substantive disputes and streamline their determination”.
Having regard to the provisions of clause 73 of the Subcontract and the fact that significant steps have already been taken to refer matters in dispute to arbitration, I am not satisfied that there are any relevant considerations which would justify the exercise of the Court’s discretion to refuse to stay the present proceedings in favour of arbitration of proceedings with respect to matters in dispute in accordance with clause 75 of the Subcontract.
Conclusion and orders
For these reasons, I am of the opinion that the proceeding ought to be stayed pursuant to s 53(1) of the Act. I will hear the parties in relation to appropriate orders and also in relation to the question of costs.
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