Sarah Constructions Pty Ltd v Phillips - [2005] SADC 47

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Application for Stay of Proceedings)
SARAH CONSTRUCTIONS PTY LTD v PHILLIPS
Reasons of His Honour Judge Bright
13 May 2005
ARBITRATION - CONDUCT OF ARBITRATION PROCEEDINGS
Application to stay litigation ending arbitration. Agreement to arbitrate. Initiation of arbitration. Held: arbitration not initiated.
Building Work Contractors Act 1995 s.37; Commercial Arbitration Act 1986 s.48, referred to.
Leunig v Henley Arch Pty Ltd & Anor [2000] SASC 81, considered.

SARAH CONSTRUCTIONS PTY LTD v PHILLIPS
[2005] SADC 47

The plaintiff contracted with the defendant to build a house for her. Disputes have now arisen. The plaintiff issued proceedings when its last two claims for progress payments were not met and it lodged a workmen’s lien over the property.
The contract between the parties is in a standard form used by the Housing Industry Association (the HIA). It is in what is called plain English. It has a number of clauses dealing with disputes. I set out those which are relevant.
“29.   Dispute resolution procedures
[You should always talk to us first if you have any problem with our work.]
29.1A ‘dispute’ means any dispute between you and us to do with this contract.
29.2A dispute can only be worked out by agreement between you and us or by someone else making a decision on it.
29.3If someone else is to decide a dispute, this contract allows 3 ways to do it.
29.3.1       dispute reference (see clause 34)
29.3.2       arbitration (see clause 35) or
29.3.3       legal action (that is, going to court or tribunal).
29.4This contract also allows for a conciliation (see clause 33) to help you and us work out the dispute by agreement.
29.5A conciliation can be called any time, but also a dispute reference or arbitration must start with a conciliation.
30.How are these procedures started?
30.1Legal action ‘starts’ whenever legal proceedings over a dispute are served.
30.2An arbitration starts whenever an arbitration notice is given.
30.3A dispute reference starts whenever a dispute reference notice is given.
30.4Conciliation starts whenever a conciliation notice is given.
30.5Conciliation also starts whenever a dispute reference or arbitration notice is given.
30.6A notice is a conciliation, dispute reference or arbitration notice depending on the procedure whoever gives the notice wants, as set out in the notice.
30.7The notice must state the nature of the dispute.
31.    Which procedure has precedence?
31.1Resolving disputes by legal action is usually costly and slow.
31.2Arbitration is usually quicker, but can also be costly.
31.3Dispute reference is usually quicker and less costly than arbitration.
31.4Because of this, dispute reference ranks over arbitration, and both rank over legal action.
31.5If one of them starts, then for 14 days another one that outranks it can be started over the same dispute.
31.6If that happens, the one that outranks goes ahead, and the other one stops.
31.7If it does not, ranking no longer matters, and that dispute must be decided by the procedure already started.
32.    Exception for a workers lien action
32.1However, nothing can stop a legal action, or stop us from starting a legal action, to enforce a workers lien.
32.2That legal action will be put off until after any conciliation, dispute reference or arbitration.
[We can put a lien on the title to the site. This gives us a security for any money we claim. See the Workers Liens Act.]
33.    Conciliation
33.1Whoever gives notice starting conciliation must send a copy to HIA with $200.00 for the HIA’s costs of the conciliation.
33.2The HIA’s building services manager or other delegate will be the conciliator.
33.3          The conciliator has the powers like under clause 34.7.
33.4We and you must comply with any other reasonable requirements of the conciliator.
33.5The conciliator will look into the dispute and then help you and us in trying to resolve it by agreement.
33.6If resolved, the agreement is to be written down, and signed by you and us.
33.7You and we can engage lawyers to advise, but they cannot be present at hearings or conferences.
33.8Acts done, things said and offers made in the conciliation may not be revealed in any other proceedings.
34.    Dispute reference
34.1Whoever gives a dispute reference notice must send a copy to HIA with $300.00 towards the cost of the dispute reference.
34.2The $300.00 is extra to the $200.00 mentioned in clause 33.1.
34.3If a conciliation has not already been held, that will take place first, and clause 33 applies.
34.4If it has, or if it does not resolve the dispute, then within 2 business days the HIA will appoint a referee.
34.5The HIA will try to consult you about who they will appoint. However, the final decision rests with HIA.
34.6The referee will notify you and us of the appointment within a further 2 business days.
34.7The referee can
34.7.1inspect or copy any documents of yours or ours
34.7.2take any sample or make any test or
34.7.3require you and us to attend any meeting and appoint a time and place for it.
34.8The referee can hire consultants to advise him or her.
34.9The dispute reference will go ahead speedily and without formality.
34.10The referee will properly consider the dispute and will decide based on justice and fairness.
34.11The referee’s costs (including consultants’ costs) must be paid half by you and half by us.
34.12Otherwise, we and you must pay our own costs of the dispute reference.
34.13The referee can order that costs be paid differently from clauses 34.11 and 34.12, but only if there are special reasons.
34.14You and we can engage lawyers to advise, but they cannot be present at hearings or conferences.
34.15Clause 36 has more rules for the handling of the dispute reference.
37.    Notices
37.1          All notices must be in writing.”
It will be noted that, whatever else is provided for, by clause 32, the plaintiff was entitled to bring its action, with that action to be held in abeyance until dispute resolution or arbitration is complete.
The plaintiff also prepared a dispute reference notice, purportedly in compliance with clause 34. It sent a copy to the HIA, with its cheque. It acknowledges that it did not send a copy (or, if it matters, the original) of that notice to the defendant.
On receipt of the workmen’s lien proceedings the defendant’s solicitor asserted the right, pursuant to s.37 of the Building Work Contractors Act to institute proceedings against the plaintiff in relation to the dispute in the Magistrates Court. Section 37(2) provides:
“A party to a domestic building work contract … may apply to the Magistrates Court for the determination of a dispute arising out of a contract …”.
Clause 31 of the contract purports to rank litigation, arbitration and dispute resolution. Each allegedly cheaper way of resolving a dispute outranks each allegedly more expensive way, except that “dispute reference” and “arbitration” are automatically preceded by “conciliation”. All of this is in the contract, is agreed to by the parties and binds them.
It is agreed that a party can institute any of the methods of dispute resolution (clause 29.3). However, clause 31 provides that, for a period of 14 days after commencement of legal proceedings by one party, the other may institute a “cheaper” method, such as “dispute reference”. If that happens, legal action will be “stopped”.
By clause 30, “legal action” is “started” by serving proceedings. In this case the defendant started legal action when it began its workmen’s lien action, but that action is, as I noted earlier, specifically excepted from the usual scheme. The right of the defendant to nominate which form of resolution she might wish to invoke is not affected or triggered by that.
The contract does not purport to dictate which court jurisdiction must be selected. The Building Work Contractors Act 1995, s.37(2), confers jurisdiction on the Magistrates Court. Insofar as it provides that a person may commence action there, that appears to be a right which cannot be taken away by agreement between the parties. If so, that may conflict with the provisions of the Commercial Arbitration Act 1986, which covers arbitration proceedings dealing with, inter alia, building disputes.
The parties’ advisers were well aware of this argument, which, despite Leunig v Henley Arch Pty Ltd & Anor [2000] SASC 81, seems to me not to be resolved by authority. That case dealt with an action brought in the Supreme Court. The reference to what might have been the outcome in the Magistrates Court is at least ambiguous and is obiter.
By agreement between the parties, the defendant commenced relevant legal action by way of counterclaim to the workmen’s lien action. This was thought more expedient than commencing in the Magistrates Court and then seeking to transfer to this court and to consolidate with the workmen’s lien proceedings. Thus, for what it may be worth, the right to argue the primacy of the Magistrates Court was preserved.
The counterclaim was served on the plaintiff on 11 March 2005. For purposes of this case, that is when “legal action” “started”. That triggered the right for the plaintiff to commence a cheaper proceeding and, subject to argument about the inalienability of the right to sue in the Magistrates Court, to “stop” that “legal action”. What happened next is that an appropriate notice to start a “dispute reference” was prepared and forwarded to the HIA. Unfortunately it was not, and still has not been, forwarded to the defendant. By clause 30.3, a “dispute reference” starts whenever a “dispute reference notice” is given. Clause 34.1 requires a copy of that notice to be given to the HIA, but compliance with that requirement has nothing to do with whether a “dispute reference” has “started”.
Clause 37 deals with notices. They must be in writing. They must be given to the other party. That has not occurred. On 21 March 2005 (10 days after legal action started) the plaintiff’s solicitors wrote to those for the defendant. I do not know when it was received, but assume it was on 22 or 23 March, which is within 14 days of the start of the legal action. In that letter they advise that their client “has referred” the matter to dispute reference. It is not the case that that letter was intended to be the notice. The intended notice was the original of that given to the HIA on 16 March.
Nevertheless, at least the defendant’s solicitor was aware of the purported start of a dispute reference within 14 days. There is no evidence the defendant was so aware, though she may have been. If it was a valid form of notice, by clause 37.6 it was deemed to have been served two days after posting, which may, therefore, have been within 14 days.
However, clause 37 also deals with service of notices. They may be given in person, or they may be left at or posted to the recipient’s last known address. There is no provision that they may, as of right, be served by post on a party’s solicitor. I conclude that posting the letter of 21 March did not amount to giving notice. It was immediately asserted by the defendant’s solicitor that dispute reference had not been validly started. Obviously, the point could have been waived; but it was not.
It was argued that, pursuant to the provisions of the contract, “dispute reference” is a form of arbitration subject to the Commercial Arbitration Act. That is probably so. Section 48 of that act empowers a court to extend the time fixed by agreement between the parties for doing any act in relation to an arbitration. It was argued that time could be extended for starting a dispute reference.
The 14 day limitation is in clause 31. It provides that an “outranking” form of dispute resolution can be started for 14 days after another form has started. It does not expressly say that such a form of dispute resolution cannot be commenced later. However, it does expressly provide that, if started within 14 days, it will cause the other to stop. It seems to me that, even if I assume I have power to extend the time for giving notice, or if that can be done without leave, the giving of notice more than 14 days after institution of proceedings will not stop those proceedings. That result is not the “doing of an act … in relation to an arbitration”. For that reason, I doubt that giving an extension would be of any use.
In fact, if I had the power to extend, I doubt I would do so. Section 48(3) provides that an extension is only to be given if the court is satisfied that “undue hardship would otherwise be caused”. In this case the hardship is alleged to be the loss to the plaintiff of the right to attempt to resolve the dispute more cheaply and quickly than by litigation. No evidence was tendered to support this. Assertions by counsel were conflicting.
As time for argument ran out before counsel for the defendant had fully addressed this issue, I note that there may be more that could be said in favour of the defendant. Essentially it is asserted that she, a lay person with no building experience, with no expertise in building disputes and with a now firmly held emotional attitude of antipathy to the plaintiff would be at great disadvantage if forced to represent herself at a dispute reference against the plaintiff, who may be taken to have relevant experience.
It is not necessary for me to explore alleged disadvantage to her any further. It seems to me that I could only extend if I were to hold that resort to this court constituted undue hardship. I am not prepared to hold that. Accordingly, even if I have power to extend time, I would not exercise it.
It follows that the defendant is not bound to play any part in the dispute reference planned for 20 May. That has not been validly started. Because it has not been started, there is no need to decide whether, if it had been, it would have affected action brought in the Magistrates Court. There is no reason to stay the action in this court.
Having said all of that, I commend to the parties the possibility of finding a person who could, in terms agreed by the parties, attempt to resolve this dispute. It could even be the case that, on terms to be agreed, the proposed conciliation could still be useful.
On the plaintiff’s application FDN5, orders have been made in respect of proposed orders 1, 2 and 3. Proposed order 4 is for a stay. I dismiss that part of the application. Proposed order 5 is in respect of costs of the stay application.
I have not heard counsel in respect to costs. It appears that the appropriate order would be that the plaintiff pay to the defendant her costs of and incidental to the stay application.
The defendant filed a complementary application dated 6 May, but not yet bearing a FDN number. Having regard to the orders I have already made, there is no need to make any of the orders sought by the defendant, except that I would expect to award her her costs of and incidental to that application, limited to the cost of preparing and filing the application and supporting affidavit. Other costs would be covered by an order for costs on the plaintiff’s application.
If counsel are content for me to make the suggested costs orders, they may so advise my chambers and I will make them. If not, they have liberty to apply by 20 May and to argue that question.