Relative Networks Pty Ltd v Evoluzione Pty Ltd
[2021] WASC 121
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RELATIVE NETWORKS PTY LTD -v- EVOLUZIONE PTY LTD [2021] WASC 121
CORAM: REGISTRAR WHITBY
HEARD: ON THE PAPERS AND SUBMISSIONS DATED 26 MARCH & 12 APRIL 2021
DELIVERED : 23 APRIL 2021
PUBLISHED : 23 APRIL 2021
FILE NO/S: CIV 2056 of 2020
BETWEEN: RELATIVE NETWORKS PTY LTD
Plaintiff
AND
EVOLUZIONE PTY LTD
Defendant
Catchwords:
Costs - Application for a stay of proceedings under Commercial Arbitration Act 2012 (WA) - Whether successful party entitled to costs - Whether costs should be awarded on indemnity basis for proceedings brought in breach of an arbitration agreement
Legislation:
Commercial Arbitration Act 2012 (WA)
Rules of the Supreme Court 1971 (WA)
Supreme Court Act 1935 (WA)
Result:
Plaintiff ordered to pay the defendant's costs of the application to be taxed if not agreed
Category: B
Representation:
Counsel:
| Plaintiff | : | A G Norwood |
| Defendant | : | A D McDonald |
Solicitors:
| Plaintiff | : | Trinix Lawyers |
| Defendant | : | Pragma Lawyers |
Case(s) referred to in decision(s):
Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52(S)
Dalian Huarui Heavy Duty Industry International Company Ltd v Clyde & Co Australia (a Firm) [No 3] [2020] WASC 312
Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122(S); (2003) 28 WAR 95
Gray v Sirtex Medical Ltd formerly known as Paragon Medical Ltd [2009] WASC 126
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [No 2] [2015] NSWSC 564
Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10(S)
Re Ikon Group Ltd [No 3] [2015] NSWSC 982
Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [No 2] [2015] FCA 1046; (2016) 246 FCR 498
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129(S)
Wheatley v Bower [2001] WASCA 293
Yara Australia Pty Ltd v Oswal [2012] WASCA 264
REGISTRAR WHITBY:
In October 2020, Relative Networks Pty Ltd commenced these proceedings to recover possession of land from Evoluzione Pty Ltd pursuant to loan agreements and a registered mortgage.
The loan agreements contained a clause requiring the parties to refer a dispute over their rights and liabilities to an arbitration conducted in accordance with the Commercial Arbitration Act 2012 (WA) (the Act).
On 19 January 2021, Evoluzione applied to this court to have the proceedings stayed and for the parties to be referred to arbitration (Application).
On 9 March 2021, Master Sanderson made an order, with the consent of the parties, that the proceedings be stayed and that the parties be referred to arbitration. The Master ordered the costs of the Application be determined by a Registrar.
Evoluzione submits that Relative should pay Evoluzione's costs of the Application on an indemnity basis forthwith.
Relative submits that the costs of the Application should be in the cause payable on a party/party basis.
The relevant issues are:
(a)whether Relative should pay Evoluzione's costs of the Application or whether the costs of the Application should be in the cause;
(b)whether the costs should be payable on an indemnity basis or a party/party basis;
For the reasons that follow, I find that Relative should pay Evoluzione's costs of the Application on a party/party basis forthwith.
Legal Principles – general rules as to costs
Pursuant to s 37 of the Supreme Court Act 1935 (WA), the court has a general discretion on costs.
Order 66 r 1(1) the Rules of the Supreme Court 1971 (WA) (RSC) provides that the court will generally order that the successful party to an action recover his costs.
Furthermore, Consolidated Practice Direction 4.7.1 states that the court will generally order the unsuccessful party to pay the costs of the successful party forthwith.
The usual order is for costs to be assessed on a party/party basis: Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129(S). Under an order for party/party costs, the quantum is assessed by reference to the relevant Legal Profession (Supreme and District Courts) (Contentious Business) Determination.
An order for the successful party to be paid costs on a party/party basis is generally considered to result in a just outcome as it ensures that the unsuccessful party recompenses the successful party's costs: Gray v Sirtex Medical Ltd formerly known as Paragon Medical Ltd [2009] WASC 126.
An indemnity costs order requires the unsuccessful party to pay all of the successful party's costs incurred except insofar as the costs are of an unreasonable nature or have been unreasonably incurred: Wheatley v Bower [2001] WASCA 293.
An indemnity costs order is only made in exceptional circumstances. Such exceptional circumstances include where the losing party, properly advised, would have known there was no chance of success, has persisted on a hopeless case or has engaged in improper or unreasonable conduct: Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122(S); (2003) 28 WAR 95; Yara Australia Pty Ltd v Oswal [2012] WASCA 264.
Should Relative pay Evoluzione's costs of the Application or should the costs of the Application be in cause?
Relative's submissions
Relative submits that the costs should be in the cause, meaning that the party ultimately successful in the action will recover the costs of the Application, and relies on the following chronology of events:
(a)on 19 May 2020, the solicitors for Relative first foreshadowed these proceedings to the solicitors for Evoluzione: Affidavit of Alister Gerald Norwood sworn 26 March 2021 (Norwood Affidavit) Annexure AGN03;
(b)on 29 July 2020, Evoluzione foreshadowed legal proceedings against Relative in relation to lease agreements for the mortgaged properties: Affidavit of Rosalba Vicario-Adams sworn 18 January 2021 (Vicario-Adams Affidavit) [45]. This led Relative to reasonably believe that Evoluzione would not rely on the arbitration clauses in the loan agreements;
(c)on 21 October 2020, Relative commenced these proceedings and on 27 October 2020, served the Writ on Evoluzione;
(d)it was not until 1 December 2020 that the solicitors for Evoluzione raised the issue of the arbitration clause in the loan agreements and foreshadowed making the Application: Affidavit of Melanie Claire Lynn sworn on 26 March 2021 (Lynn Affidavit) Annexure MCL1;
(e)on 14 December 2020, at an in‑person meeting between the solicitors for the parties, the solicitors for Relative requested legal authority to support the jurisdiction of an arbitrator to determine a claim for vacant possession of the mortgaged properties: Affidavit of Calvin Chung Kee Ko sworn 12 February 2021 (Ko Affidavit) Annexure CCKK01;
(f)on 19 January 2021, having not provided the requested authority, Evoluzione filed the Application. Relative submits that Evoluzione did not properly confer before making the Application;
(g)on 12 February 2021, the solicitors for Evoluzione provided authority to the solicitors for Relative;
(h)on 24 February 2021, Relative consented to the Application (save that it sought costs be in the cause).
Relative also submits that no dispute actually arose between the parties before the proceedings were commenced. As a result, the arbitration clause in the loan agreements was never enlivened and Relative had no choice but to commence the proceedings.
Lastly, Relative submits that, regardless of the outcome of the arbitration, the successful party will be required to use the proceedings as the vehicle for enforcing the arbitral award. Therefore, the proceedings had to be commenced and no party should be ordered to pay the costs of the Application until the proceedings are determined.
Evoluzione's submissions
Evoluzione submits that Relative should pay its costs of the Application forthwith because the Application was:
(a)made promptly, that is before Evoluzione took any substantive step in the proceedings;
(b)properly pursued;
(c)necessary because Relative commenced the proceedings in breach of the loan agreements; and
(d)ultimately consented to by Relative.
Determination
It is important to distinguish the costs of the Application from the costs of the action. It is only the former that I am required to determine in accordance with the order of Master Sanderson dated 9 March 2021. Relative's submission, that the proceedings will be required in any event to enforce an arbitral award, is not relevant to the determination of the costs of the Application. The proceedings have been stayed, not finally determined. The costs of the action remain to be determined at the conclusion of the proceedings.
I do not accept Relative's submissions that the conduct of Evoluzione caused Relative to commence the proceedings. There is no evidence before me to establish that Evoluzione represented by words or conduct to Relative that it would not rely upon the arbitration clause in the loan agreement. The fact that Evoluzione foreshadowed proceedings in relation to lease agreements does not constitute such conduct. Ultimately, no such proceedings were commenced.
Similarly, there is no merit in Relative's submission that the Arbitration clause was not enlivened prior to the commencement of the proceedings. It is also a circular uncommercial argument to submit that the proceedings creates the dispute which enlivens the arbitration clause, which in turn leads to a stay of the proceedings. There is no merit in either submission.
The parties' solicitors were required to confer prior to bringing the Application in order to comply with the requirements of the RSC O 59 r 9(1). Genuine conferral requires the lawyers with conduct of the matter to converse in an attempt to reach common ground, preferably face to face, but at a minimum by telephone: Dalian Huarui Heavy Duty Industry International Company Ltd v Clyde & Co Australia (a Firm) [No 3] [2020] WASC 312 [19].
On 14 December 2020, the solicitors for the parties met face‑to‑face to discuss the foreshadowed Application: Ko Affidavit Annexure CCKK01.
The Application was filed on 19 January 2021. In the intervening period between the face‑to‑face meeting and the filing of the Application, the parties continued to confer about the provision of legal authority to support the jurisdiction of the arbitrator. No authority was provided until after the application was filed: Norwood Affidavit Annexure AGN01.
I find that conferral was more than adequate to meet the requirements of O 59 r 9 RSC. The solicitors for Evoluzione did not have an obligation to provide authority to the solicitors for Relative – there was nothing to prevent the solicitors for Relative, having conferred face‑to‑face about the foreshadowed Application, conducting their own legal research into the jurisdiction of the arbitrator.
I find that it was reasonable for Evoluzione to make the Application when it did. Having made the Application, Evoluzione was ultimately successful given Relative consented to the orders sought in the Application.
I find that, in all the circumstances, there is no reason to depart from the usual costs order that the successful party receive its costs forthwith.
It follows that Relative is ordered to pay Evoluzione's costs of the Application forthwith.
Are the costs to be assessed on an indemnity or party/party basis?
Evoluzione relies upon the decision of Martin CJ in Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10(S) to support the proposition that a party commencing legal proceedings, in breach of a contractual obligation to refer the dispute to arbitration, should generally be ordered to pay the other party's costs on an indemnity basis. The effect of this decision is to reverse the general rule on costs, such that costs on a party/party basis will only be ordered in exceptional circumstances.
There are competing lines of authority in relation to ordering indemnity costs as a general rule when staying proceedings commenced in breach of an arbitration agreement.
Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd[No 2] [2015] NSWSC 564, [16] ‑ [40]; Brereton J in Re Ikon Group Ltd [No 3] [2015] NSWSC 982; and Edelman J in Sino Dragon Trading Ltd v Noble Resources International Pte Ltd[No 2] [2015] FCA 1046; (2016) 246 FCR 498 disapproved of a general rule for indemnity costs enunciated in Pipeline Services.
In Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52(S), Mitchell J referred to the competing authorities and noted that the conflict between the single judge decisions had not been resolved by any decision binding on him nor decided by an intermediate appellate court which he was bound to follow, unless plainly wrong. Mitchell J found:
[24] Commencement of the proceedings in breach of an arbitration agreement may be a relevant factor in exercising the court's discretion to award costs. However, I see no justification for a general rule that costs should be awarded on an indemnity basis where proceedings are commenced in breach of an arbitration agreement. The circumstance that legal costs have been incurred as a result of a breach of an arbitration agreement does not distinguish this case from many others in which a breach of contract causes a party to the contact to incur irrecoverable legal costs to enforce their rights.
[25] These factors… lead me to respectfully disagree with the proposition that the courts should adopt the general approach advocated in … Pipeline Services. The courts should not adopt the general approach of awarding indemnity costs where proceedings commenced in breach of an arbitration agreement are stayed.
[26] In the present case, the circumstance that the proceedings were commenced in breach of an arbitration agreement is relevant but, in all the circumstances of the present case, does not justify an indemnity costs order.
I do not consider that there are competing authorities from which I must choose. I am bound to follow the most recent decision of this court determining the basis upon which costs are generally awarded where proceedings are stayed in breach of an arbitration agreement. That decision is Australian Maritime Systems Ltd.
In accordance with Australian Maritime Systems Ltd, the general rule is that the successful party will receive its costs on a party/party basis. There must be exceptional circumstances to depart from this general rule.
I do not find that Relative's case was hopeless. It was not unreasonable to consider whether the arbitrator had jurisdiction to determine an action for recovery of possession.
There is no evidence of unreasonable refusal to engage in conferral on the part of Relative. Relative ultimately consented to the Application. It did so prior to the hearing. In all of the circumstances of the Application, the appropriate order is that Relative pay Evoluzione's costs on a party/party basis.
I note that Relative submits that, given it consented to the orders sought in the Application prior to the filing of Evoluzione's submissions, the costs associated with preparation of submissions should not be recoverable upon taxation. This is ultimately a matter for the taxing officer to determine in assessing the reasonable costs of Evoluzione.
Conclusion
I find that Evoluzione was the successful party on the Application. Relative must pay its costs forthwith.
I find that there is no conduct on the part of Relative that justifies an order for indemnity costs. The costs of the Application are to be assessed on a party/party basis.
Orders
The appropriate order is that the plaintiff pay the defendant's costs of the Application to be taxed if not agreed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TG
Court Officer
23 APRIL 2021
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