Stevens Construction Pty Ltd v Zorko

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 from litigating a dispute that falls within the clause. That is, putting it simply, if the clause allows the parties, or one or other of them, to make a choice between litigation and arbitration.
Any doubts on this score were put to rest by the decision of the High Court in PMT Partners. The High Court there dealt with provisions of the Commercial Arbitration Act, 1985 (NT) which are in substantially the same terms as the relevant provisions of the Act. In particular, in the Northern Territory Act the definition of “arbitration agreement” is the same. All members of the Court held that the relevant agreement was an “arbitration agreement”, even though it did not preclude the contractor in question from pursuing its claim in the courts, as an alternative to arbitration: Brennan CJ, Gaudron and McHugh JJ at 310-311, Toohey and Gummow JJ at 323.
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).
Cole JA took a different view. His view sufficiently appears from the following portion of his reasons (at 620):
“If, in respect of a particular dispute, an election has not been made and the other party commences litigation the court may decline to exercise the power given by s 53(1) because it is not persuaded the provisions of s 53(1)(a) or s 53(1)(b) have been satisfied, but in my view there is nonetheless jurisdiction to consider exercising that power because there exists ‘an arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement’.”
In PMT Partners the High Court did not have to decide this point, but three members of the Court (Brennan CJ, Gaudron and McHugh JJ) appear to have preferred the views of Sheller JA. They drew a contrast between the scope of the expression “arbitration agreement” and the terminology found in s 53(1)(a), saying (at 309):
“As well, it has been noted that the power to stay proceedings under s 53 of the Act is, as one might expect, exerciseable only with respect to ‘a matter agreed to be referred to arbitration’, an expression which is apt to describe the situation that occurs when a right of election has been exercised or other preconditions satisfied and which is syntactically and conceptually quite different from that found in the definition of ‘arbitration agreement’ which merely requires that the parties have agreed ‘to refer present or future disputes to arbitration’.” (footnote omitted)
I take their Honours to mean that if the relevant arbitration clause allows a right of election or choice as between litigation and arbitration, the matter or dispute in question will be a matter “agreed to be referred to arbitration” if, but only if, the election or choice for arbitration has been exercised.
It follows that if cl 44(b) of the contract, properly construed, restricts Zorko and Stevens to arbitration as the only means of resolving a dispute between them, the requirements of s 53(1)(a) are met. But if cl 44(b) permitted Zorko to choose between litigation and arbitration, then, when the District Court proceedings were instituted by Zorko, they were not “in respect of a matter agreed to be referred to arbitration”. At the institution of the proceedings neither party had elected for arbitration.
Were the District Court proceedings, after 11 February 2000, proceedings “in respect of a matter agreed to be referred to arbitration”?
I agree with Wicks J that if, when instituted, the District Court proceedings were not “in respect of a matter agreed to be referred to arbitration”, the District Court lacked power to grant a stay. I agree that in that event the notice of 11 February 2000 by Stevens, purporting to be a notice under cl 44(b), with a view to referring the dispute to arbitration, was ineffective. The giving of the notice did not mean that the proceedings then became proceedings of the required kind.
The language of s 53(1)(a) suggests quite strongly that the time at which the nature of the proceedings must be considered is the time when the proceedings are commenced. As well, if Zorko was contractually entitled to litigate its dispute, it is not easy to see why Parliament should have provided for the court to have a power to stay proceedings. In this respect I agree with the observations made by Sheller JA.
It follows that if cl 44(b) allowed Zorko to make the choice that it made, the power to stay the proceedings did not arise. This is not a surprising result. To the contrary, it might be thought surprising if the contract were to allow Zorko to elect to litigate, but give the court a power to stay the proceedings at the instance of Stevens.
The construction of cl 44(b)
As is apparent, the proper construction of cl 44(b) is critical. The District Court Judge did not decide this matter. He was prepared to assume that the clause did not allow a choice between arbitration and litigation.
In my opinion cl 44(b) required the parties to submit any dispute of the type described to arbitration, and did not allow either party to choose between litigation and arbitration.
I accept as my starting point the proposition that a court will not treat a contract as preventing parties from pursing their remedies in the courts unless it is clear that that is what was agreed: PMT Partners at 311 Brennan CJ, Gaudron and McHugh JJ. But I also bear in mind what those Judges went on to say (at 311) about the fact that clauses like cl 44(b) are concerned with dispute resolution:
“Disputes are not readily resolved if there are parallel proceedings permitting of different outcomes. Nor are they readily resolved by procedures which can be set at nought if one party elects to pursue some other course of action.”
In my opinion it is not surprising that the parties should provide for only one means of dispute resolution. As well, it is not difficult to explain the presence of the word “may” in the provision in cl 44(b) that “either party may give to the other notice in writing of such dispute or difference ...” The explanation is that the clause reflects the fact that if there is a dispute each party has the option of acquiescing in the view of the other party, or giving notice with a view to arbitration. There is also a practical consideration which supports the view that the clause was not intended to give a choice between litigation and arbitration. If the clause is read as giving such a choice, the clause would encourage a hasty, and perhaps precipitate, giving of notice with a view to arbitration or institution of proceedings. I say this because the effect of the clause so construed is that the institution of proceedings by one party before the other party gives notice in writing will mean that the court does not have power to stay the proceedings. Accordingly, a party wishing to preserve the right to arbitrate would be inclined to give notice under cl 44(b) immediately, to prevent the other party depriving it of that right by first issuing proceedings. Conversely, the institution of proceedings immediately after the giving of a notice under cl 44(b) is likely to result in the court staying the proceedings, provided the stay is sought promptly. Thus, far from encouraging the parties to explore their differences and attempt to reach an agreement, to read the clause as giving a choice between litigation or arbitration is to encourage hasty tactical action.
My views in this respect are reinforced by cl 44(e) which provides as follows:
“The award made by the Arbitrator or Arbitrators or Umpire appointed by them or by the Court as the case may be shall be final and binding on both the Contractor and the Sub-Contractor and neither party shall be entitled to commence or maintain any action upon any such dispute or difference until such matter shall have been referred and determined as herein provided and then only for the amount of relief to which the Arbitrator or Arbitrators or Umpire by their or his Award shall find either party is entitled.”
Although I would have expected the latter part of clause (e) to be part of clause (b), or immediately following it, it is a clear example of a standard provision intended to have the effect of requiring arbitration rather than litigation over disputes under the relevant contract. Such a clause no longer acts as a bar to litigation: see s 55 of the Act. However, it can operate as imposing an obligation to arbitrate, and at least gives an indication of the meaning to be given to cl 44(b).
For those reasons I conclude that cl 44(b) did not permit Zorko to institute proceedings in the District Court. The institution of those proceedings was a breach of the contract, but gives Stevens no right to recover damages: s 53(3).
Was the Judge wrong to refuse a stay?
I am not persuaded that the Judge erred. It is not for me to make the decision that I would have made, but only to determine whether or not the Judge erred in concluding, on an assumption as to the meaning of cl 44(b) which I have found to be correct, that he should not grant a stay.
If Stevens had applied for a stay as soon as it entered an appearance, it is likely that a stay would have been granted. In the course of submissions before this Court nothing was identified which, as far as I can see, would cause the Court to conclude that there was no sufficient reason why the matter should not be referred to arbitration. The Court should lean in favour of holding Zorko to its contractual obligation to arbitrate: see Transaustralian Constructions Pty Ltd v Northern Territory of Australia (1991) 104 FLR 358 at 366
But Stevens did not oppose the course of action followed by Zorko. Stevens filed a defence and counterclaim, and participated in a number of pretrial proceedings. The proceedings had been on foot for some four months before Stevens changed course, and applied for a stay. I have considered the material before the Judge. There is no suggestion that Stevens was not aware of its rights. Nor is there any suggestion that there has been an unexpected change in the nature of the dispute, with the result that what previously seemed suitable for litigation is now no longer suitable for litigation. Stevens appears to have been concerned over the slow pace of the proceedings, blaming Zorko for this. As well, Stevens was influenced by a remark made by a different Judge at a conciliation conference to the effect that the parties might be better off arbitrating their dispute. Whether it was appropriate for Stevens to put this suggestion in evidence, having regard to the terms of r 56.08 of the District Court Rules, was not the subject of submissions before us. Be that as it may, the fact remains that Stevens had chosen to permit the case to progress some way towards trial and, in substance, had no reason for making a late application for a stay other than its change of mind as to the preferable way in which to deal with the dispute.
If the matter were to be stayed and referred to arbitration there would probably be some costs thrown away on both sides. I am not satisfied that the matter cannot conveniently be dealt with by way of litigation, even though I accept that there may be advantages in having it arbitrated.
As I see it, the matter was finely balanced, but at the end of the day I cannot find any particular reason why Stevens should be permitted to make a late application for a stay of the proceedings. Accordingly, in my opinion the Judge was entitled to refuse leave to make the application, if that is what he intended to do. Alternatively, if he ignored or overlooked that issue, and focused simply on the exercise of the discretion, I am not persuaded that he erred in reaching the conclusion that he did, because in my opinion in reaching that conclusion he was entitled to take into account all of the factors to which I have referred.
For those reasons I am not persuaded that the Judge is wrong, and I would dismiss the appeal.
Other matters
After the conclusion of the appeal, Mr Hackett-Jones QC, counsel for Stevens, forwarded a written submission to the court seeking, if necessary, an extension of time within which Stevens might give notice of dispute under cl 44(b).
In my opinion the court should not entertain that submission. As I understand it, no such application had been made at an earlier stage of the proceedings. It would not be fair to Zorko for the court to entertain the submission without listing the matter for further hearing and, possibly, for further evidence. As well, on the approach that I have taken, that application could not provide an answer to the obstacle that Stevens faces, the obstacle being its own acquiescence in the proceedings until they were reasonably well advanced.
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 J
Arbitration 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
On 7 October 1999, Zorko commenced proceedings on the Contract against Stevens in the District Court.
In his statement of claim, Zorko alleged that in the course of performing his obligations under the terms of the Contract, he was precluded from carrying out the activities which formed part of the scope of works by reason of Stevens, in breach of the contract, employing others to carry out substantial parts of the sub-contract works. According to the sub-contract, Zorko had been required to purchase further materials and carry out a portion of the scope of works in an efficient manner, as specified in the original sub-contract. However, Zorko was required to fulfil these requirements in co-ordination with the alternate sub-contractors employed by Stevens. This situation caused difficulty for Zorko by reason of the delays in commencement of the sub-contract works, poor workmanship of the alternate sub-contractors and the time and manner in which the alternate sub-contractors were interposed.
On or about 20 April 1998 on the basis of the breach referred to above Zorko repudiated the Contract.
Subsequently to the repudiation, Zorko and Stevens entered into an arrangement under which Zorko would carry out the balance of the scope of works with certain exceptions. Such arrangement did not constitute a contract or a variation of the repudiated contract.
In the statement of claim, Zorko alleged that he was entitled to be paid for the work he actually carried out and for the materials actually supplied at the defendant’s request together with a reasonable margin.
In its counter-claim filed on 22 June 2001, Stevens claimed that Zorko breached the sub-contract and also breached certain statutory warranties as a result of which Stevens suffered expense, loss and damages. In the counter-claim, Stevens claimed the cost incurred by it in the completion of the contract works. No reply appears to have been filed.
Section 53 of the Commercial Arbitration Act 1986
So far as is material, s 53 of the Commercial Arbitration Act 1986 is as follows:
"Relationship between judicial and arbitral powers
53. (1) If -
(a)a party to an arbitration agreement commences proceedings in a court against another party to the agreement in respect of a matter agreed to be referred to arbitration;
(b)an application for a stay of the proceedings is made by another party to the arbitration agreement;
(c)the application is made -
(i)     before the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance;
or
(ii)    by leave of the court - at some later stage in the proceedings;
(d)the court is satisfied -
(i)     that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement;
and
(ii)that the applicant was at the commencement of the proceedings and still remains ready and willing to do all things necessary for the proper conduct of the arbitration,
the court may make an order staying the proceedings and may give such directions with respect to the future conduct of the arbitration as it thinks fit.
(2)...
(3)     Notwithstanding any rule of law to the contrary, a party to an arbitration agreement shall not be entitled to recover damages in any court from another party to the agreement by reason that that other party takes proceedings in a court in respect of the matter agreed to be referred to arbitration by the arbitration agreement."
Stevens wrote to Zorko on 11 February 2000 in relation to the Contract. So far as is material, the letter was as follows:
"Re Berri Glossop High School Redevelopment.
In pursuance of cl 44 of the Contract, Notice is hereby given that we are in Dispute with you regarding our Contract for the above Project. We seek that the Dispute be referred to Arbitration. Failing your agreement to set [sic] this matter to Arbitration, we intend to lodge notice with the Master Builders Association for them to appoint an Arbitrator."
Application to appoint arbitrator
On 15 February 2000, in the proceedings referred to above, the solicitors for Stevens made application to the District Court to stay Zorko’s claim and Stevens’ counter-claim and for an order that the dispute between them be determined by arbitration pursuant to cl 44 of the Contract.
Correspondence was exchanged between the solicitors for the parties in relation to the prospect of resolving the dispute between the parties by arbitration rather than by litigation having regard to the terms of cl 44(b) of the Contract.
Judge’s ruling
The application before the District Court dated 15 February 2000 seeking a stay of the plaintiff’s claim and the defendant’s counterclaim and referring the dispute between the parties to arbitration came before a Judge of that Court. The learned Judge prepared a detailed ruling on the matter which he delivered on 21 July 2000. The following is an extract containing the substance of the ruling:
"As can be seen this application has been made after the applicant [Stevens] has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance. That is not fatal to this present application if I give leave and also I am satisfied that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement. In my view and in the exercise of my discretion the order to stay proceedings should not be made because matters in this Court have gone too far.
I find that the defendant has clearly adopted the present proceedings and become involved in them. Irrespective of what the defendant’s motives are to now change to having the matter heard by arbitration I find that to do so would be clearly prejudicial to the plaintiff. The plaintiff [Zorko] has obviously proceeded on the basis to this late stage that the matter will be dealt with in this Court. From the date of the filing of the Statement of Claim until the bringing of this stay application over four months have expired during which important procedural events have occurred and there has been no hint that the matter should be dealt with by arbitration.
Consequently the application for stay of proceedings is refused."
Extent to which legal proceedings have gone
From this ruling, I think it is clear that the learned Judge was concerned at the fact that the pleadings in the action had closed, some discovery of documents had been made, discussions about the alleged lack of particularity in the defence and counterclaim had been pursued, discussions about a Scott Schedule had taken place and an application made to strike out the defence and counterclaim. The learned Judge found that the defendant had clearly adopted the present proceedings and become involved in them.
Appeal to this Court
Stevens appealed to this court against the ruling of the learned Judge and an order was made referring the appeal to the Full Court for its consideration.
The elements of s 53 of the Commercial Arbitration Act
Under s 53(1) of the Commercial Arbitration Act 1986 (“the Act”), there are four matters which have to be complied with before a Court can make an order staying the action so that the matter can proceed to arbitration.
The first requirement is that a party to an arbitration agreement must have commenced proceedings in a Court against another party to the arbitration agreement in respect of the matter agreed to be referred to arbitration. In PMT Partners Pty Ltd (In Liquidation) v Australian National Parks and Wildlife Service (1995) 184 CLR 301, Brennan CJ and Gaudron and McHugh JJ said at p 309: “... the power to stay proceedings under s 53 of the Act is, as one might expect, exercisable only with respect to ‘a matter agreed to be referred to arbitration’, an expression which is apt to describe the situation that occurs when a right of election has been exercised or other preconditions satisfied and which is syntactically and conceptually quite different from that found in the definition of ‘arbitration agreement’ which merely requires the parties have agreed ‘to refer present or future disputes to arbitration”. The High Court continued at p 310 of the report:
"… The words ‘agreement … to refer present or future disputes to arbitration’ in s 4 of the Act are in their natural and ordinary meaning, quite wide enough to encompass agreements by which the parties are bound to have their dispute arbitrated if an election is made or some event occurs or some condition is satisfied, …"
In the present case, the operation par 53(1)(a) of the Act must be viewed from the instant in time immediately after the exercise of the right of election in respect of the Contract. At that stage, the Contract became an agreement in respect of a matter agreed to be referred to arbitration. That is something different from an arbitration agreement or an agreement to refer present or future disputes to arbitration. It is more limited in scope. The sequence of events in par 53(1)(a) of the Act in its application to the present case is that there must first be a notice in writing of a dispute or difference under cl 44(b) of the Contract submitting the dispute or difference to arbitration. That is the right of election and it occurred on 11 February 2000 when Stevens wrote to Zorko about the matter. The election must then be followed by the commencement of legal proceedings. However, in the present case at that point Zorko had already commenced proceedings in relation to the dispute or difference.
Paragraph 53(1)(a) would present no difficulty if the dispute or difference under consideration were referred to arbitration automatically. It is only where a dispute or difference is referred to arbitration at the election of a party to the Contract or on some other contingency rather than automatically that a difficulty arises: PMT Partners Pty Ltd (In liquidation) v Australian National Parks and Wildlife Service (1995) 184 CLR 301, at p 309.
In my opinion, par 53(1)(a) presents an insurmountable difficulty in its application to the present case.
The second requirement is that a party to the arbitration agreement must apply to the Court to have the legal proceedings stayed. This has occurred.
The third requirement is that the application must be made before the applicant files a pleading or takes any other step in the proceedings (except the entry of an appearance). Alternatively, an application to stay legal proceeding may be taken at some later stage in the litigation if leave is given by the Court. Stevens, as applicant, did not make application for a stay of the legal proceedings in time and will need an extension of time from the District Court.
The fourth requirement is that the Court must be satisfied that there is no sufficient reason why the matter should not be referred to arbitration. This requirement is independent of the third requirement to make the application to stay the legal proceedings within the time allowed. In addition, the Court must be satisfied that the applicant for a stay of proceedings in the Court was at the commencement of the proceedings and still is ready and willing to do everything necessary for the proper conduct of the arbitration.
Conclusion
If there is to be a stay of the proceedings in the District Court in this matter, all four of the requirements to which I have referred above must be satisfied. In fact the first requirement cannot be satisfied with the consequence that a stay of the kind referred to in par 53(1)(a) cannot be ordered in this case.
In my opinion, this appeal should be dismissed.

[2002] SASC 42

19 February 2002