Roy Hill Holdings Pty Ltd v Samsung C&T Corporation - [2015] WASC 458

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: ROY HILL HOLDINGS PTY LTD -v- SAMSUNG C&T CORPORATION [2015] WASC 458

CORAM: LE MIERE J

HEARD: 25 NOVEMBER 2015

DELIVERED : 4 DECEMBER 2015

FILE NO/S: CIV 2781 of 2015

BETWEEN: ROY HILL HOLDINGS PTY LTD
First Plaintiff
ROY HILL IRON ORE PTY LTD
Second Plaintiff
ROY HILL INFRASTRUCTURE PTY LTD
Third Plaintiff
AND
SAMSUNG C&T CORPORATION
Defendant

Catchwords:

Arbitration - Construction of arbitration clauses - Termination of underlying contract - Doctrine of separability - Implied contract terms - Waiver

Arbitration - Stay of court proceedings - Reference to arbitration

Legislation:

International Arbitration Act 1974 (Cth)

Result:

Proceedings stayed and referred to arbitration

Category: B

Representation:

Counsel:

First Plaintiff                  :     Mr J Gleeson SC & Ms P Thiagarajan
Second Plaintiff             :     Mr J Gleeson SC & Ms P Thiagarajan
Third Plaintiff                :     Mr J Gleeson SC & Ms P Thiagarajan
Defendant:     Dr A S Bell SC & Mr E M Heenan

Solicitors:

First Plaintiff                  :     Corrs Chambers Westgarth
Second Plaintiff             :     Corrs Chambers Westgarth
Third Plaintiff                :     Corrs Chambers Westgarth
Defendant:     Pinsent Masons (Aust)

Case(s) referred to in judgment(s):

ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896
AED Oil Ltd v Puffin Fpso Ltd (2010) 27 VR 22; (2010) 265 ALR 415
Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570
Houssein v Under Secretary, Department of Industrial Relations & Technology (NSW) (1982) 148 CLR 88
La Donna Pty Ltd v Wolford AG [2005] VSC 359; (2005) 194 FLR 26
Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10
PT Thiess Contractors Indonesia v PT Kaltim Prima Coal [2011] EWHC 1842
Rizhao Steel Holding Group Co Ltd v Koolan Iron Ore Pty Ltd (2012) 43 WAR 91; (2012) 287 ALR 315
Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332
Zhang v Shanghai, Wool and Jute Textile Co Ltd (2006) 201 FLR 178
LE MIERE J:

Summary

The defendant corporation, Samsung, has applied for an order that this proceeding be stayed pursuant to s 7(2) of the International Arbitration Act 1974 (Cth) (the Act) and the parties be referred to arbitration. The proceeding should be stayed and the parties referred to arbitration for the following reasons.

The Contract

I shall first outline the transactions which give rise to the dispute between the parties and the relevant provisions of the agreements.
The first plaintiff, Roy Hill Holdings Pty Ltd (Roy Hill), as agent for and on behalf of the second and third plaintiffs, Roy Hill Iron Ore Pty Ltd and Roy Hill Infrastructure Pty Ltd, entered a contract dated 30 April 2013 with Samsung (EPC Contract) by which Samsung agreed to engineer, procure and construct the works for the Roy Hill Project. The contract comprised a number of documents including the Formal Instrument of Agreement and General Conditions.
Clause 14.1A of the General Conditions provides that Roy Hill may accept the transfer of the care and custody of any system which has achieved the requirements of practical completion that apply to that system before the date of practical completion.
The General Conditions include a dispute resolution provision - cl 42. Clause 42.1 provides that:
If a difference or dispute (together called a dispute) between the parties arises in connection with the subject matter of the Contract, … then either party shall … give the other … a written notice of dispute adequately identifying and providing details of the dispute.
Clause 42.2 provides for the parties to confer to resolve the dispute and:
[I]f the dispute has not been resolved within 28 days of service of the notice of dispute … that dispute shall be and is hereby referred to arbitration.
The arbitration clause, cl 42.3, provides that the arbitration shall be administered by the Singapore International Arbitration Centre in accordance with the UNCITRAL Arbitration Rules, the appointing authority shall be the Singapore International Arbitration Centre, the number of arbitrators shall be three and the place of arbitration shall be Singapore. Clause 42.4 contains a qualification to, or carve out from, the agreement to refer disputes to arbitration:
Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Contract or to seek injunctive or urgent declaratory relief.
The EPC Contract was subsequently amended by Amending Deed No 1, Amending Deed No 2 and Amendment Deed No 3. Each of those deeds amended the EPC Contract from a date subsequent to the date from which the EPC Contract became effective. I will refer to the EPC Contract as amended by the Amending Deeds as the Contract.

Amendment Deed No 4

Roy Hill and Samsung further amended the Contract by an agreement entitled Amendment Deed No 4 and dated 16 April 2015 (the Deed). The Deed provides that the changes in arrangements in the Deed take effect from the Effective Date which is the date that the last party signs the Deed. There is evidence that the last party signed the Deed on 17 April 2015.
Clause 2 of the Deed is entitled 'Condition Precedent'. Clause 2.1 provides that the Deed is conditional on the Intercreditor Agent (on behalf of the financiers) approving the amendments to the Contract set out in the Deed having been satisfied by the Condition Precedent Satisfaction Date, which is six weeks from the Effective Date. Clause 2.5(a) provides that if the Condition Precedent in cl 2.1 has not been satisfied by the Condition Precedent Satisfaction Date then, except as set out in cl 2.5(b) and cl 2.5(c), the Deed terminates automatically and the changes and arrangements in the Deed will be of no effect. It is not necessary to refer to cl 2.5(b) but it is necessary to refer to cl 2.5(c) because, as will be seen later in these reasons, Roy Hill places some reliance on it. Clause 2.5(c) provides that cl 4.4(e) and cl 4.5 will survive the termination of the Deed. Clause 4.4(e) provides that the Commissioning Management Plan, which is the commissioning management plan for the whole of the works, must include certain specified things. Clause 4.5 deals with the Project Control System, that is the control system for the whole of the works, upon the handover of any system.
Clause 4 deals with the Handover Schedule and FOOS (First Ore on Ship). The parties agree to the Handover Schedule which is set out in sch 1 to the Deed. Clause 4.1(d) is important to the dispute between the parties. It provides that at any time after a system is ready for handover Roy Hill may accept the handover and transfer of care and custody in that system. General Condition cl 14.1(a) of the EPC Contract will apply to any such transfer of care and custody. Clause 4.1(d) goes on to provide that for the sake of clarity, Roy Hill is entitled to operate any systems from the date it accepts transfer of care and custody of such system.
Clause 8.4 is entitled 'Governing Law and Jurisdiction'. Clause 8.4(b) is an arbitration clause. It provides:
Any and all disputes arising out of or relating to this Deed or the subject matter hereof shall be finally and exclusively settled by arbitration administered by the Singapore International Arbitration Centre in accordance with UNCITRAL Arbitration Rules. The appointing authority shall be the Singapore International Arbitration Centre. The number of arbitrators shall be three. … The place of arbitration shall be Singapore.
It is necessary to refer to two further provisions of the Deed. Clause 7.2 provides that if there is a conflict between the Contract, that is the EPC Contract as amended by Amendment Deeds No 1, 2 and 3, and the Deed, the terms of the Deed prevail. Clause 8.6(a) provides that the Deed contains the entire understanding between the parties as to the subject matter of the Contract. Clause 8.6(b) provides that, amongst other things, that all previous understandings and commitments concerning the subject matter of the Deed are merged in and superseded by the Deed and are of no effect.

The dispute

On 4 June 2015 Samsung received a letter dated 29 May 2015 signed by the Superintendent's representative. The letter is, or purports to be, formal notification that the Condition Precedent to the Deed had been satisfied. Samsung contends that the Condition Precedent was not satisfied with the effect that the Deed terminated automatically and is of no effect. Samsung contends that in the absence of the Deed Roy Hill is not entitled to operate any systems from the date it accepts transfer of care and custody of such systems. Roy Hill contends that it is entitled to operate those systems by reason of, or in the absence of, cl 4.1(d) of the Deed.
On 23 October 2015 Samsung issued a notice of dispute. The notice of dispute states that it is served on Roy Hill and the Superintendent in accordance with cl 42.1 of the General Conditions. The notice gives particulars of a number of differences or disputes. The first dispute concerns the Deed. The notice claims as follows. Prior to the Deed Roy Hill had no right to operate any system during any period of care and custody. The Condition Precedent to the Deed was not satisfied and the Deed was deemed terminated in accordance with cl 2.5. Roy Hill maintains that it is entitled to operate any system after transfer of care and custody. Samsung denies and disputes such entitlement. The notice of dispute gives particulars of a number of other disputes which do not relate to the Deed or the right of Roy Hill to operate any system after transfer of care and custody.
On 5 November 2015 Roy Hill's solicitors wrote to Samsung's solicitors requesting that Samsung withdraw its allegation that the Deed is deemed terminated and stating that if Samsung failed to do so by 9.00 am on 6 November 2015 Roy Hill would file an application for urgent declaratory relief in this court seeking declarations that the Condition Precedent was satisfied and the Deed remains enforceable. On 6 November Samsung's solicitors responded that it maintained its position that the Condition Precedent to the Deed had not been satisfied. Samsung's solicitors referred to cl 8.4(b) of the Deed and said that cl 42.4 of the Contract did not apply to entitle Roy Hill to seek declaratory relief in this court. Also on 6 November Samsung sent to Roy Hill a notice of arbitration dated 6 November 2015. The notice stated that the dispute the subject of the notice concerns the Condition Precedent in cl 2.1 of the Deed and whether the Deed remains enforceable. The notice states that the notice is given under the arbitration agreement found at cl 8.4 of the Deed.
Also on 6 November 2015 Roy Hill commenced this proceeding by originating summons. Roy Hill seeks a declaration that:
(a)the Condition Precedent in cl 2.1 of the Deed was satisfied by the Intercreditor Agent on 28 May 2015; and
(b)the Deed has not terminated by operation of cl 2.5 of the Deed.

Section 7 of the Act

Samsung entered a conditional memorandum of appearance and applied for orders that the proceeding be stayed pursuant to s 7(2) of the Act and the parties be referred to arbitration and further, or alternatively, that the proceeding be stayed on the basis of lis alibi pendens.
Section 7 of the Act provides for the enforcement of an arbitration agreement by a court in which a party has commenced proceedings covered by the arbitration agreement staying the proceeding and referring the parties to arbitration. Section 7(1) prescribes the arbitration agreements to which the section applies. The section applies to each of the arbitration agreements at cl 42 of the EPC Contract and cl 8.4(b) of the Deed. That is not in dispute.
Section 7(2) of the Act prescribes when the court will stay an arbitration agreement to which the section applies. It is in these terms:
Subject to this Part, where:
(a)proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in the court; and
(b)the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;
on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that and refer the parties to arbitration in respect of that matter.

Samsung's case

Samsung's case is as follows. Samsung and Roy Hill are parties to the arbitration agreement contained in cl 8.4(b) of the Deed, which is an arbitration agreement to which s 7 applies. This proceeding involves the determination of whether the Condition Precedent to the Deed was satisfied by the Condition Precedent Satisfaction Date and that is a matter that, in pursuance of the arbitration agreement, is capable of settlement by arbitration. Therefore, the requirements of s 7(2) are met and the court must stay the proceeding and refer the parties to arbitration.

Roy Hill's case

Roy Hill says that the arbitration agreement between it and Samsung includes cl 42.4 of the EPC Contract and that entitles Roy Hill to institute proceedings for urgent declaratory relief. Roy Hill puts forward a number of arguments to reach that conclusion.

The one contract argument

Roy Hill says that the contract between it and Samsung - the Contract - comprises the EPC Contract as amended by the Amending Deeds, including the Deed. The Contract must be read as a whole, which means the EPC Contract and the Deed must be read together. Clause 8.4(b) of the Deed does not rescind cl 42 of the EPC Contract. Senior Counsel for Roy Hill, Mr Gleeson SC, said that cl 8.4(b) is a nod to the arbitration agreement in cl 42 of the EPC Contract, by which I understand him to mean that the function or purpose of cl 8.4(b) is to acknowledge or direct attention to the arbitration agreement in cl 42 of the EPC Contract. I do not accept that argument. Clause 8.4(b) does not refer directly or indirectly to cl 42 of the EPC Contract. Clause 8.4(b) is different from and inconsistent with cl 42 of the EPC Contract. First, the scope of the arbitration agreements are different. Clause 42 applies to a difference or dispute between the parties that arises in connection with the subject matter of the Contract. The scope of cl 8.4(b) is both narrower and wider. It is narrower in that it applies only to disputes arising out of or relating to the Deed or its subject matter and does not extend to disputes arising out of or relating to the subject matter of the Contract which is not the subject matter of the Deed. It is wider in that it applies to all disputes arising out of or relating to the Deed or its subject matter and is not confined to disputes arising in connection with the subject matter of the Contract. Secondly, the carve out or exception in cl 42.4 is directly inconsistent with cl 8.4(b). The latter agreement provides that 'all disputes' arising out of or relating to the Deed or its subject matter shall be finally and 'exclusively' settled by arbitration. There is no carve out for proceedings to seek injunctive or urgent declaratory relief.

The termination argument

Roy Hill says that if the Condition Precedent in cl 2.1 of the Deed is not satisfied then the Deed automatically terminates. Roy Hill says that the arbitration clause is terminated by termination of the Deed.
An arbitration clause is considered to be a contract independent of the underlying contract in which it is contained - and for that reason survives termination of the underlying contract: Rizhao Steel Holding Group Co Ltd v Koolan Iron Ore Pty Ltd (2012) 43 WAR 91; (2012) 287 ALR 315 [165]. This is known as the doctrine of separability. In Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10 Martin CJ said at [42] that an arbitration agreement is generally considered to be a contract independent of the underlying contract in which it is contained, and for that reason in the absence of evidence of a contrary intention of the parties, evident in the language that they have used, survives termination of the underlying contract.
Roy Hill seeks to avoid the consequences of the doctrine of separability by arguing that upon the proper construction of the Deed, cl 8.4(b) does not survive the termination of the Deed. In Pipeline Services Martin CJ said at [43] that the question of whether the parties have, by the language of their contract, manifested an intention that the arbitration agreement is not to survive termination of the underlying contract must be assessed in the context of the commercial transaction as a whole and taking into account the entire text and objects of the agreement. The Chief Justice observed at [44] that in construing the language used by the parties in relation to the arbitration agreement, reference can and should be made to the authorities in Australia and in other comparable jurisdictions which establish that generally the court should adopt a broad, liberal and flexible approach to the construction of such agreements and should favour a construction which provides a single forum for the adjudication of all disputes arising from, or in connection with, that agreement. Having referred to a number of authorities the Chief Justice said at [47] that construction of a commercial agreement to the effect that provisions for the resolution of disputes, such as by arbitration, do not survive termination of the agreement would be inconsistent with the approach indicated in the authorities.
Roy Hill's argument is based upon cl 2.5(c) of the Deed which provides that cl 4.4(e) and cl 4.5 will survive the termination of the Deed. Roy Hill says that this shows the intention of the parties that cl 8.4(b) is not to survive the termination of the Deed. I do not accept that argument. This is a form of expressio unius est exclusio alterius (an express reference to one matter indicates that other matters are excluded) argument. Courts have frequently sounded notes of warning on the application of the maxim. In Houssein v Under Secretary, Department of Industrial Relations & Technology (NSW) (1982) 148 CLR 88, 94 the High Court said that the maxim must always be applied with care, for it is not of universal application and applies only when the intention it expresses is discoverable upon the face of the instrument. The Deed does not evince an intention that cl 8.4(b) shall cease to have effect upon termination of the Deed. The doctrine of separability is that the arbitration agreement is separate from the underlying contract and survives termination of the underlying contract. The fact that cl 2.5(c) provides that two provisions which but for cl 2.5(c) would not survive termination of the Deed are to survive termination of the Deed provides no rational reason for saying that the clause has the effect of terminating on the termination of the Deed the arbitration agreement which put for cl 2.5(c) survives termination of the Deed.
Roy Hill's argument confronts a further obstacle. Its case is not that after the Deed has terminated the arbitration agreement in cl 8.4(b) terminates and has no further operation. Its case is that where there is a dispute whether the Deed has terminated then cl 8.4(b) has terminated and does not apply to the dispute. That assumes that the dispute will be resolved by determining that the Deed has terminated. That difficulty is particularly acute in this case where the declaration which Roy Hill seeks in this proceeding is that the Deed has not terminated.

The implied term argument

Roy Hill further argues that if cl 8.4(b) of the Deed applies to disputes arising out of or in relation to the Deed or its subject matter then, as a matter of construction, or alternatively implication, the carve out or exception in cl 42.4 of the EPC Contract is to be implied in the Deed. I reject that argument. It is sufficient to say that such an implication is directly inconsistent with cl 8.4(b) which provides that 'all' disputes arising out of or relating to the Deed or its subject matter shall be 'exclusively' settled by arbitration.

If cl 42 of the EPC Contract and cl 8.4(b) of the Deed may both apply to the dispute then there is a conflict between the two provisions. Clause 42.4 of the EPC Contract provides a carve out or exception which permits proceedings to seek injunctive or urgent declaratory relief. Clause 8.4(b) provides that all disputes are to be exclusively settled by arbitration. Clause 7.2 of the Deed provides that if there is a conflict between the Contract and the Deed, the terms of the Deed prevail. Accordingly, the carve out or exception in cl 42.4 of the EPC Contract does not apply to 'any and all disputes arising out of or relating to [the] Deed or [its] subject matter'.

Waiver

Roy Hill says that Samsung has waived any argument that the dispute is not one to which cl 42 of the General Condition applies. The argument is as follows. The right to seek a stay under s 7(2) of the Act is a private right and can be waived: La Donna Pty Ltd v Wolford AG [2005] VSC 359; (2005) 194 FLR 26 [21]. Waiver of an arbitration agreement renders it inoperative for the purposes of s 7(5) of the Act: ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896 [53]. In its Notice of Dispute Samsung set out, amongst others, its dispute over the validity of the Deed as a dispute to which cl 42 of the General Conditions applied. Accordingly, it cannot now argue that the dispute is confined to the four corners of the Deed and governed solely by cl 8.4 of the Deed. The waiver is no mere oversight without significance. If left to proceed, the Notice of Arbitration will result in concurrent arbitration proceedings on the same subject matter as the Notice of Dispute which, pursuant to par 6.2 of the Notice of Dispute, is automatically referred to arbitration having not been resolved with 28 days of service. No new substantive issues are raised by Samsung in the Notice of Arbitration which were not already part of the Notice of Dispute. The parties' intention was not that multiple arbitrations covering the same subject matter be instituted. Rather, the intention was to distinguish between urgent relief to which cl 42.4 of the General Conditions applies and the usual operation of the arbitration clause in relation to non‑urgent relief.
Section 7(5) of the Act provides that a court shall not make an order under s 7(2) if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed. An arbitration agreement may not be enforceable and therefore 'inoperative' for the purposes of s 7(5) because the party seeking a stay has waived its rights under the agreement or has elected to abandon the arbitration agreement.
In Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 Gummow, Hayne and Kiefel JJ said that 'waiver' is a word applied in a variety of senses. It has been used in senses synonymous with election or estoppel. At [52] their Honours said that it has been used where what has occurred is 'an entire abandonment and dissolution of the contract'.
In Zhang v Shanghai, Wool and Jute Textile Co Ltd (2006) 201 FLR 178 the Court of Appeal of Victoria allowed an appeal from a decision dismissing the appellants' application for a stay of proceedings pursuant to s 7 of the Act on the basis that the dispute should be determined by arbitration according to an arbitration agreement. The primary judge had dismissed the application on two grounds, one of which was that by their conduct in the proceeding the appellants had waived their entitlement to a stay pursuant to s 7 of the Act. Chernov JA, with whom Ashley JA and Bongiorno AJA agreed, reviewed authorities concerning waiver and said at [14] that, in general, waiver is constituted by the deliberate, intentional and unequivocal release or abandonment of the right that is later sought to be enforced. His Honour said at [15] that waiver by election may be established by demonstrating that the party in question had elected to pursue a substantive right that is inconsistent with that which it is now seeking to press. His Honour noted that the respondent did not press waiver by election and said that in any event 'it is unlikely that such a claim would be open to it given that a choice between curial and arbitral disposition of the dispute seems not to constitute an election between two inconsistent rights as Austin J explained in ACD Tridon:
In the present case the defendants had a choice to insist on arbitration or to allow the disputes with Tridon to be determined curially. The making of that choice would not involve election between two inconsistent rights. It would simply involve selecting one of two procedures for the adjudication of the dispute [58].
Chernov JA found that in Zhang it was not open to conclude that the appellants waived their right to arbitration in the sense of having intentionally and unequivocally abandoned it. His Honour came to that conclusion based on his findings that the appellants had consistently pressed that the dispute be sent to arbitration and their conduct did not amount to an unequivocal abandonment of the right to arbitration.
Samsung did not elect for the dispute to be determined in this court, or acquiesce in it. Samsung has at all times actively opposed that course. Samsung has not waived its right to arbitration in the sense of having intentionally and unequivocally abandoned it. To the contrary, Samsung has insisted upon the dispute being resolved by arbitration. The fact that Samsung issued a notice of dispute that referred to the arbitration agreement in cl 42 of the EPC Contract is not, and cannot be, an election that the dispute be determined curially nor an intentional and unequivocal abandonment of its right to have the dispute resolved by arbitration.

The proceedings involve the determination of a matter

Before deciding whether the proceeding involves the determination of a matter that is capable of settlement by arbitration it is necessary to identify the matter or matters for determination in the proceeding.
Roy Hill says that the dispute in this proceeding concerns the identification of the proper content of the parties' rights and obligations under the Contract by determining whether the EPC Contract has been amended by the Deed.
The court must consider the substance of the controversy as it appears from the circumstances in evidence and not just the particular terms in which it has been formulated in the court process: PT Thiess Contractors Indonesia v PT Kaltim Prima Coal [2011] EWHC 1842 [35] following Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332, 352 ‑ 353.
The matters for determination in this proceeding are readily ascertainable from the originating summons. Roy Hill has identified the matters for determination to be whether:
(a)the Condition Precedent in cl 2.1 of the Deed was satisfied by the Intercreditor Agent on 28 May 2015; and
(b)the Deed has not terminated by operation of cl 2.5 of the Deed.
The evidence discloses that the determination of that matter or matters may affect the right of Roy Hill to operate the systems that comprise the Works once they have been handed over to Roy Hill upon FOOS but before Practical Completion. I say that the determination may affect, rather than resolve, Roy Hill's rights because Roy Hill maintains that it is entitled, upon the proper construction of the EPC Contract or otherwise, to operate those systems once they have been handed over even if the Deed has terminated and therefore cl 4.1(b) does not apply. The right of Roy Hill to operate the systems in the circumstances postulated may be a consequence of, or affected by, the outcome of this proceeding but it is not a matter in controversy in the proceeding. The matter in controversy in this proceeding is whether the Condition Precedent in cl 2.1 of the Deed was satisfied and consequentially whether the Deed has terminated.

The matter is capable of settlement by arbitration in pursuance of the agreement

The requirements of s 7(2)(b) of the Act are met if the matter I have identified, whether the Condition Precedent in cl 2.1 of the Deed was satisfied, is capable of settlement by arbitration in pursuance of the arbitration agreement in cl 8.4(b) of the Deed. A dispute between the parties whether the Condition Precedent in cl 2.1 of the Deed has been satisfied is a dispute arising out of or relating to the Deed or its subject matter and hence falls within the scope of the arbitration agreement in cl 8.4(b) of the Deed.
Roy Hill submits that the dispute in this proceeding is not a matter capable of settlement by arbitration because of its urgency, that is the dispute cannot be resolved in a timely fashion by arbitration. Roy Hill says that there is no way that an arbitral tribunal can be convened to hear the matter before the date at which the obligations in the EPC Contract, as amended by the Deed, fall to be performed. This date is the achievement of FOOS. FOOS is currently expected to commence on 10 December 2015 or as early as 1 December 2015. An arbitration under UNCITRAL Rules cannot be concluded in that time.
The dispute whether the Condition Precedent in cl 2.1 of the Deed has been satisfied is not incapable of settlement by arbitration because of the urgency of the matter. in Tanning Research Laboratories Inc v O'Brien Deane and Gaudron JJ said at 351 that:
The words 'capable of settlement by arbitration' indicate that the controversy must be one falling within the scope of the arbitration agreement and, perhaps, one relating to rights which are not required to be determined exclusively by the exercise of judicial power.
Circumstances which render arbitration a less attractive mode of resolving a dispute or rendering the procedural rules chosen for any reason unattractive do not render a matter not capable of settlement by arbitration. Whether the Condition Precedent to the Deed has been satisfied is a matter capable of being settled by arbitration. The mere fact that the matter might be resolved more quickly by the court and a quicker resolution is desirable or advantageous to one or both parties does not render the matter not capable of settlement by arbitration.

Proceedings do not seek urgent declaratory relief

I have found that cl 42.4 of the EPC Contract does not apply to the matter for determination in this proceeding. Therefore, it is not necessary to decide whether or not Roy Hill seeks urgent declaratory relief in this proceeding. Nevertheless, in case the matter should go on appeal, I will state my findings on that matter in a summary manner.
Clause 42.4 contains two requirements. The first is that the relief is in fact urgent, a matter to be determined objectively. The second is that the party claiming the relief formed the reasonable opinion that the relief is necessary to protect that party's rights: AED Oil Ltd v Puffin Fpso Ltd (2010) 27 VR 22; (2010) 265 ALR 415 [27]. Roy Hill has not discharged the burden on it of satisfying those requirements. It is not necessary that the question of whether the Condition Precedent to the Deed was satisfied be determined before any particular date. Roy Hill will not lose the right to operate the systems handed over to it because a declaration has not been obtained that it is entitled to do so. It is commercially desirable for Roy Hill to have the question of its entitlement to operate the systems after handover but before practical completion determined so that it may decide whether to operate the systems without the risk of breaching the Contract if it operates the systems and it is subsequently determined that it had no right to do so. However, its right to do so is not dependent upon any declaration being made. Furthermore, the evidence is not sufficient to discharge the burden upon Roy Hill of establishing that the dispute cannot be resolved urgently by arbitration under UNCITRAL Rules in Singapore.

Conclusion

This proceeding involves the determination of a matter, whether the Condition Precedent in cl 2.1 of the Deed was satisfied and whether the Deed has terminated, that, in pursuance of the agreement in cl 8.4(b) of the Deed, is capable of settlement by arbitration. The proceeding must be stayed and the parties referred to arbitration.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: ROY HILL HOLDINGS PTY LTD -v- SAMSUNG C&T CORPORATION [2015] WASC 458 (S)

CORAM: LE MIERE J

HEARD: ON THE PAPERS

DELIVERED : 3 MAY 2016

FILE NO/S: CIV 2781 of 2015

BETWEEN: ROY HILL HOLDINGS PTY LTD
First Plaintiff
ROY HILL IRON ORE PTY LTD
Second Plaintiff
ROY HILL INFRASTRUCTURE PTY LTD
Third Plaintiff
AND
SAMSUNG C&T CORPORATION
Defendant

Catchwords:

Costs - Application for a stay of proceedings under International Arbitration Act 1974 (Cth) - Whether costs should be awarded on indemnity basis for proceedings brought in breach of arbitration agreement - Turns on own facts

Legislation:

International Arbitration Act 1974 (Cth), s 7

Result:

Plaintiff to pay costs of defendant on party and party basis

Category: B

Representation:

Counsel:

First Plaintiff                  :     No appearance
Second Plaintiff             :     No appearance
Third Plaintiff                :     No appearance
Defendant:     No appearance

Solicitors:

First Plaintiff                  :     Corrs Chambers Westgarth
Second Plaintiff             :     Corrs Chambers Westgarth
Third Plaintiff                :     Corrs Chambers Westgarth
Defendant:     Pinsent Masons (Aust)

Case(s) referred to in judgment(s):

A v B [2007] EWHC 54 (Comm); [2007] 1 Lloyds LR 358
Ansett Australia Ltd v Malaysian Airline System Berhad [No 2] [2008] VSC 156
Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52(S)
Civil Properties Pty Ltd v Miluc Pty Ltd [2011] WASCA 195
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 797
J‑Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) [No 2] [1993] FCA 42; (1993) 46 IR 301
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [No 2] [2015] NSWSC 564
KNM Process Systems SDN BHD v Mission New Energy Ltd formerly known as Mission Biofuels Ltd [2014] WASC 437(S)
Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10(S)
Quancorp Pty Ltd v McDonald [1999] WASCA 101
Re Ikon Group Ltd [No 3] [2015] NSWSC 982
Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2015] WASC 458
Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [No 2] [2015] FCA 1046
Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129(2)
LE MIERE J:

Judgment dismissing Samsung application

The defendant (Samsung) applied for an order that this proceeding be stayed pursuant to s 7(2) of the International Arbitration Act 1974 (Cth) and the parties be referred to arbitration. On 4 December 2015 I ordered that the proceeding be stayed and the parties referred to arbitration: Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2015] WASC 458. I ordered that the parties file and serve submissions in relation to costs and the question of costs orders be determined on the papers. I have decided that Roy Hill should pay Samsung's costs on a party and party basis for the following reasons.

Parties' positions

Samsung says that Roy Hill should pay its costs of the application on an indemnity basis. Roy Hill says that it should pay Samsung's costs on the ordinary party and party basis.

Principles

Samsung submits that as a matter of general principle a party commencing legal proceedings in relation to a dispute falling within an arbitration agreement should be ordered to pay reasonable costs actually incurred, that is indemnity costs, by an innocent party applying for a stay of those proceedings. In its reply submissions Samsung says that the court has a general discretion as to costs but the starting point in these circumstances is that indemnity costs should be ordered as opposed to the starting point being that costs should be ordered on a part and party basis. Samsung says that the unsuccessful party, Roy Hill, has an onus to show why indemnity costs should not be awarded.
Roy Hill says that the proposition that there is a general principle that a party commencing legal proceedings in relation to a dispute falling within an arbitration agreement should be ordered to pay the costs incurred by a party successfully applying for a stay of those proceedings on an indemnity basis is wrong. Roy Hill says that the court has a general discretion with respect to orders relating to costs and the accepted starting point in all cases is that costs should be ordered on an ordinary basis. Costs should only be awarded on an indemnity basis if there are special or unusual features in the case to justify departure from ordinary practice and the onus of establishing the special or unusual feature is on the party seeking the indemnity costs order.

Authority

There are two competing lines of authority as to the proper approach to costs on a successful application to stay proceedings commenced in breach of an arbitration agreement. In A v B [2007] EWHC 54 (Comm); [2007] 1 Lloyds LR 358 (A v B) Colman J advocated the following general approach:
Provided that it can be established by a successful application for a stay or an anti‑suit injunction as a remedy for breach of an arbitration or jurisdiction clause that the breach has caused the innocent party reasonably to incur legal costs, those costs should normally be recoverable on an indemnity basis [11].
That approach was approved and applied by Martin CJ in Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10(S) (Pipeline Services) and KNM Process Systems SDN BHD v Mission New Energy Ltdformerly known as Mission Biofuels Ltd [2014] WASC 437(S) where the Chief Justice said:
In Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd, I applied the reasoning of Colman J in A v B to conclude that as a guide to the exercise of discretion in relation to the costs of an application for a stay of a dispute falling within an arbitration agreement, a party commencing legal proceedings in breach of the arbitration agreement should generally be ordered to pay all costs reasonably incurred by an innocent party applying for a stay of those proceedings. However, I emphasise that the principle was no more than a guide, and that the ultimate exercise of the discretion in any particular case would depend critically upon its particular circumstances. Nevertheless, for the reasons which I then expressed, that guiding principle provides an appropriate starting point for the consideration of the order most appropriately made with respect to the costs of those proceedings [2].
That general approach was doubted by Hollingworth J in Ansett Australia Ltd v Malaysian Airline System Berhad [No 2] [2008] VSC 156 [22], and disapproved by Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [No 2] [2015] NSWSC 564 [31] ‑ [39], by Brereton J in Re Ikon Group Ltd [No 3] [2015] NSWSC 982 and by Eldelman J in Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [No 2] [2015] FCA 1046.
The conflict between these single judge decisions was confronted by Mitchell J in Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52(S). Mitchell J said that the conflict between the single judge decisions had not been resolved by any decision binding on his Honour, or by the decision of an intermediate appellate court which his Honour was bound to follow unless satisfied it is plainly wrong. His Honour concluded it was therefore necessary to identify the proper approach by reference to first principles. Having considered the arguments in favour of the general approach that fairness ordinarily requires an award of indemnity costs in litigation commenced in breach of an arbitration agreement his Honour disagreed with the proposition that the court should adopt the general approach advocated in A v B and Pipeline Services. His Honour said at [25] that the court should not adopt the general approach of awarding indemnity costs where proceedings commenced in breach of an arbitration agreement are stayed. I find the reasoning of Mitchell J persuasive. Furthermore, the preponderance of authority is against the general approach advocated in A v B and Pipeline Services.

The costs of an application for a stay of a dispute falling within an arbitration agreement will ordinarily be awarded against the unsuccessful party on a party and party basis unless the successful party can establish special circumstances. Special circumstances, if they exist, are to be found in the facts of the case. The fact that a party commences legal proceedings in breach of an arbitration agreement and unsuccessfully resists an application for a stay of the proceedings does not, of itself, constitute special circumstances.

Special circumstances

Samsung says that the circumstances of this case justify an order for indemnity costs. Samsung relies upon the following factors. First, on 6 November 2015 Samsung put Roy Hill on notice that the arbitration clause applied and that if Roy Hill elected to persist with their application Samsung would seek indemnity costs. Secondly, after Roy Hill commenced legal proceedings, Samsung promptly applied for a stay of the proceedings before taking any substantive step in the proceedings and the only steps taken by Samsung were in support of its application for a stay. Thirdly, as soon as Samsung's application for a stay was brought, Roy Hill should have reconsidered their forensic strategy having regard to the real likelihood that a stay of proceedings would be ordered. Fourthly, not only did Roy Hill persist in their opposition to Samsung's application for a stay but they relied on a range of arguments, many of which could be described as technical and some of which were worthy of being described as 'redolent of desperation': see [2015] WASC 458 [22] ‑ [36], [39] ‑ [41] and see also Pipeline Services [32]. Fifthly, Roy Hill's failure in opposing the application for a stay was absolute. Not only was every argument as to the inapplicability of cl 8.4(d) of the Deed rejected, they also failed in establishing that the relief they sought was urgent within cl 42.4 of the EPC Contract.
It is sufficient to enliven the discretion to award indemnity costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 797, 400 (Woodward J); J‑Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) [No 2] [1993] FCA 42; (1993) 46 IR 301, 303 [5] (French J); Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129(2) [10] (Pullin JA & Kenneth Martin J).
Indemnity costs may be awarded where an action has been commenced or continued in circumstances where the plaintiff, properly advised, should have known that the action had no prospect of success but a court must not be too ready to find that a case was hopeless: Quancorp Pty Ltd v McDonald [1999] WASCA 101 [7] (Wheeler J); Civil Properties Pty Ltd v Miluc Pty Ltd [2011] WASCA 195 (Miluc) [84] ‑ [85] (Newnes JA, Murphy JA & Hall J agreeing). What is apparent at the end of a trial may not have been so obvious beforehand. Whether or not a case was hopeless is not to be determined with the benefit of hindsight: Miluc [85].
Roy Hill advanced arguments based on the construction of the EPC Contract and Amendment Deed No 4. Whilst I rejected Roy Hill's arguments I am not satisfied that they were hopeless in the relevant sense. Similarly, whilst I rejected Roy Hill's arguments that Samsung had waived any argument that the dispute is not one to which the arbitration clause in the EPC Contract applies and Roy Hill's characterisation of the dispute in this proceeding, Roy Hill's contentions were not hopeless in the relevant sense.
It is relevant that the application was for a stay of proceedings brought in breach of an arbitration agreement and that I found that the proceedings were commenced in breach of the arbitration agreement. However, I am not persuaded that there are special circumstances in this case justifying an indemnity costs order. The appropriate order is that Roy Hill pay Samsung's costs on a party and party basis.