Stevens Construction Pty Ltd v Zorko - [2002] SASC 42

STEVENS CONSTRUCTIONS PTY LTD v TEODOR ZORKO (TRADING AS ZORKO ROOFING)
[2002] SASC 42
Full Court: Doyle CJ, Lander and Wicks JJ

DOYLE CJ: I would dismiss the appeal against the decision of the District Court. I reach that conclusion by a process of reasoning that requires me to deal with matters not dealt with by Wicks J.
I will not repeat the history of the matter found in the reasons of Wicks J, or the terms of s 53(1) of the Commercial Arbitration Act, 1986 (“the Act”). These can be found in the reasons of Wicks J. In dealing with the matter I will use the same abbreviations as those used by Wicks J.
The issues
The District Court Judge proceeded on the basis that the requirements of s 53(1)(a) of the Act in particular were satisfied, and that he had power to grant a stay. He declined to grant a stay in the exercise of the discretion vested in him.
However, as Wicks J identifies, there are some anterior issues that arise and which should be disposed of.
The first issue is whether the requirements of s 53(1)(a) of the Act are satisfied, because if they are not then, as Wicks J concludes, the Judge did not have power to grant a stay.
Three separate points arise under s 53(1)(a). First, whether Zorko was “a party to an arbitration agreement.” Second, whether the District Court proceedings when instituted were proceedings “in respect of a matter agreed to be referred to arbitration.” Third, if the second question is answered in the negative, whether they became such proceedings on 11 February 2000 or three days later (see cl 44(b) of the contract) as a result of Stevens giving notice of dispute in writing.
The second issue is whether Stevens should have been given leave to make its application for a stay, having regard to the fact that the application was made after Stevens had filed a Defence and Counterclaim in the District Court: see s 53(1)(c)(ii) of the Act. The District Court Judge does not appear to have addressed this question.
The third issue, and one decided by the District Court Judge, is whether a stay should have been granted in the exercise of the Court’s discretion.
Was Zorko a party to an arbitration agreement?
The construction of arbitration clauses like cl 44 has been considered in a number of cases. It has given rise to some diversity of judicial opinion: see PMT Partners Pty Ltd (In Liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 and ABB Power Plants Ltd v Electricity Commission of New South Wales (1995) 35 NSWLR 596.
The expression “arbitration agreement” is defined in s 4(1) of the Act as follows:
“ ‘arbitration agreement’ means an agreement in writing to refer present or future disputes to arbitration”.
Views have differed on the question of whether an arbitration clause is an “arbitration agreement” if the clause does not preclude the parties…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2002] SASC 42
Decision Date: 19 February 2002

CaseChat Overview and Summary

In the matter of Stevens Construction Pty Ltd v Zorko, the primary dispute revolves around the interpretation and application of an arbitration clause within a contractual agreement between Stevens Constructions Pty Ltd and Teodor Zorko trading as Zorko Roofing. The legal issues centre on the validity and scope of the arbitration agreement, specifically whether the District Court had the authority to stay proceedings under section 53(1) of the relevant Act. The court was required to decide whether the arbitration agreement mandated exclusive arbitration or permitted a choice between litigation and arbitration, and whether proceedings could be stayed if they were initiated prior to any election to arbitrate.

The court, in its reasoning, acknowledged two types of arbitration agreements: those that mandate arbitration without providing a choice to litigate and those that allow a choice between arbitration and litigation. The key distinction, according to the court, lies in whether the parties have made an election to refer a dispute to arbitration before litigation is commenced. If the agreement does not mandate arbitration and allows a choice, then proceedings commenced without an election for arbitration are not "in respect of a matter agreed to be referred to arbitration" until such an election is made. The court found that the arbitration clause in the contract allowed for a choice between arbitration and litigation, meaning that proceedings could not be stayed under section 53(1) if initiated before an election to arbitrate was made. The court further determined that the District Court Judge was entitled to exercise discretion in deciding whether to stay the proceedings.

Ultimately, the court dismissed the appeal, agreeing with the Chief Justice that the arbitration agreement was of the type that allows a choice between litigation and arbitration. Consequently, the District Court was within its rights to refuse the application to stay the proceedings. The reasoning underscores the importance of the timing of the election to arbitrate in determining the applicability of section 53(1) and the enforceability of the arbitration agreement.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

Although the District Court proceedings were instituted in October 1999, they have not advanced far. Since February 2000 the parties have been arguing over the stay application. The appeal itself has progressed slowly, due to further procedural skirmishes. It is time for the parties to focus on the main issues and get their case heard.Conclusion I would dismiss the appeal. LANDER J: I have had the advantage of reading the draft reasons of the Chief Justice and Wicks J. In his reasons the Chief Justice has identified the two types of arbitration agreements being agreements which do not allow a choice between litigation and arbitration and those which do allow a choice between litigation and arbitration. Section 53(3) only applies to the first type. That is so of course because if the agreement allowed for a choice between litigation and arbitration the party who chose litigation could not be in breach of the agreement. The draftsman has recognised the point of distinction by the description of the arbitration agreement in s 53(3) which refers to “the matter agreed to be referred to arbitration by the arbitration agreement”. Section 53(1) refers “to the agreement in respect of a matter agreed to be referred to arbitration”. Clearly 53(1) contemplates both types of arbitration agreements and therefore applies to an arbitration agreement which gives the parties a choice between litigation and arbitration. However s53(1) could not apply to that type of agreement if none of the parties to the arbitration agreement had elected to refer the matter to arbitration prior to the institution of proceedings. I agree with the Chief Justice that s 53(1) only applies to the second type of agreement where there has been an election to refer a matter to arbitration prior to the commencement of proceedings. I further agree that s 53(1) cannot apply in circumstances where one party elects to refer the matter to arbitration after the commencement of litigation. The Chief Justice has found that the arbitration agreement is of the first type and s 53(1) applies and it was therefore open to Stevens Constructions Pty Ltd to make the application that it did. He has also decided that the District Court Judge was entitled, in the exercise of his discretion, to refuse the application. Wicks J has concluded that the arbitration agreement is of the second type and therefore no application lay under s 53(1). I think this arbitration agreement is of the first type. I agree with the Chief Justice that although the word “may” is used in cl 44(b) that does not give the parties a right to elect between litigation and arbitration but only gives the parties a right to choose to refer the matter to arbitration. I also agree with the Chief Justice that the District Court Judge was entitled in the exercise of his discretion, to refuse the application. I agree that the appeal should be dismissed.WICKS JArbitration Clause On or about 28 November 1997 Stevens Constructions Pty Ltd (“Stevens”) and Teodor Zorko trading as Zorko Roofing (“Zorko”) entered into an agreement (“the Contract”) whereby Zorko was to carry out certain sub-contract works for Stevens. The Contract contained an arbitration clause which, so far as is material, is in the following terms:"44(a) ... (b)… in case any dispute or difference shall arise between the Contractor [‘Stevens’] and the Sub-Contractor [‘Zorko’] either during the progress of the Work under the Contract or after determination abandonment or breach of this Contract as to the construction of the same or as to any matter or thing whatsoever arising thereunder or in connection therewith THEN either party may give to the other notice in writing of such dispute or difference and at the expiration of three days unless it shall have been otherwise settled such dispute or difference shall be and is hereby submitted to arbitration in accordance with the provisions of the laws relating to arbitration in force in the State or Territory named in the Second Schedule and if no place be named therein in the State or Territory where the Main Contract Works are located in one of the following manners:(i) by either a single arbitrator or by two arbitrators agreed upon in writing between the Contractor and the Sub-Contractor; or(ii) failing such agreement within ten (10) days after receipt by the other party of the notice in writing given under sub-clause (b) of this clause then by either(a)a single arbitrator selected by the President of the organization named in Part A of the Seventh Schedule; or(b)two arbitrators one being selected by the President of the organisation firstly named in Part B of the Seventh Schedule the other being selected by the President of the organization secondly named in Part B of the Seventh Schedule; or(iii) failing such agreement under paragraph (i) hereof within ten (10) days as aforesaid and in the event that no organization is or organizations are named in the Seventh Schedule as provided in paragraph (ii) hereof then by two arbitrators, one being selected by the President of the Master Builders’ Association of the State, Territory or place in which the Main Contract Works are located and the other being selected by the President of the Building Industry Sub-Contractors’ Organisation (or its successor in law) of the State or Territory in which the Main Contract Works are located or if there shall be no such organization then the other Arbitrator shall be selected by the President of the Building Industry Specialist Contractors Organisation of Australia.(iv) no officer or employee of the Principal shall be appointed an Arbitrator or Umpire in any dispute or difference arising between the Contractor and the Sub-Contractor.(c) - (f) ..."Legal Proceedings

Ratio Decidendi

Legal Principle Established

It follows that even if cl 44(b) allowed Zorko to litigate its dispute rather than give notice of dispute with a view to arbitration, Zorko was a party to an arbitration agreement.Were the District Court proceedings when instituted, proceedings “in respect of a matter agreed to be referred to arbitration”? The meaning of this aspect of s 53(1)(a) has also given rise to some conflicting views. Courts have distinguished between two types of arbitration agreement. First, agreements under which the parties must arbitrate a dispute of a kind that falls within the agreement, unless the parties come to an agreement and resolve their contractual dispute. That is, arbitration agreements which do not allow a choice between litigation and arbitration. The second type of arbitration agreement are agreements which allow a choice to be made between litigation and arbitration. In the case of agreements of the first kind, it appears that the view has generally been taken that if a dispute should arise that falls within the scope of the arbitration clause, the dispute is “in respect of a matter agreed to be referred to arbitration”, even if the relevant party has not taken the steps that that party is contractually obliged to take to refer the dispute to arbitration. Accordingly, a party to such an agreement who commences court proceedings in respect of a dispute will have commenced proceedings “in respect of a matter agreed to be referred to arbitration”: see the decisions referred to by Sheller JA in ABB Power Plants at 601-606. In the case of agreements of the second kind, views have differed. In ABB Power Plants Sheller JA favoured the view that if the arbitration agreement allows a choice between litigation and arbitration, and a party to the agreement issues court proceedings before it or the other party has made a valid choice or election for arbitration, then at the institution of the proceedings they are not proceedings “in respect of a matter agreed to be referred to arbitration.” This view appears to rest on, or be substantially influenced by, the fact that if the agreement confers a choice or election between litigation and arbitration, then prior to any such election or choice neither party is contractually obliged to arbitrate and cannot easily be said to have agreed to refer the matter or dispute to arbitration: ABB Power Plants at 604C-D. The views of Sheller JA are reflected in the following passage from his reasons (at 609-610):“In Hammond v Wolt, the builder did take steps to refer the dispute to arbitration but it did so after the proprietor had commenced proceedings. The decision meant that the contractual opportunity to refer to arbitration was lost when the other party decides to commence proceedings in court. Furthermore if one party elects to refer a dispute to arbitration before the other party has commenced proceedings can it then be said that the parties are parties to an arbitration agreement within the meaning of s 53(1)? No further agreement has been reached between the parties. One has simply taken a step contemplated by the original agreement. In terms analogous to one of the option theories, it might be said that each party contractually offered to the other the opportunity to refer a dispute to arbitration and that the election by one party to do so amounts to acceptance of that offer which gives rise to an arbitration agreement within the meaning of s 53. It is unfortunate that the choice of one party may be pre-empted by the decision of the other but that flows from the language chosen by the parties. If the parties wish to avoid this they can do so by making it plain that one or all parties are obliged by the contract to refer disputes to arbitration; compare Allied Constructions. However in this case it is unnecessary finally to resolve this question.”Handley JA was inclined to agree with Sheller JA, but did not express a final view on the point: at 599. I should add that the relevant provision of the New South Wales Act is slightly different, referring to “a matter agreed to be referred to arbitration by the agreement” (emphasis added).