Westfield Design & Const P/L v LR & M Const P/L No. Scgrg-96-1550 Judgment No. S6796

[1998] SASC 6796

WESTFIELD DESIGN AND CONSTRUCTION PTY LTD  V  LR & M CONSTRUCTIONS PTY LTD

ACTION NO 1550 OF 1996

[1998] SASC S6796

Judge Burley

1. By application dated 17 April 1998 the defendant seeks the following order:-

   “1..... That the plaintiff’s points of claim in the arbitration proceedings commenced by a reference to arbitration on the 22 May 1997 ... be struck out by reason of the plaintiff having failed to refer the disputes or differences to arbitration within the period of limitation prescribed for such an action under the provisions of the Limitation of Action [sic] Act 1936-1994.”

1. By making that application the defendant, with the consent of the plaintiff, sought, pursuant to Section 39(1)(b) of the Commercial Arbitration Act 1986 (CAA), to have determined a point of law, namely whether or not a six year period of limitation contained in s35(a) of the Limitation of Actions Act (LAA) applied to arbitral proceedings. The parties also sought to have determined whether or not, if the six year period of limitation did apply, the arbitration had been commenced within the relevant six year period.

2. The application arises out of a contract between the parties dated 22 November 1998 for the construction of the North-East Busway interchange and carpark.  The construction work was to be carried out by the defendant.  The defendant was required to supply dolomite fill material for part of the construction work.  Disputes arose between the parties in relation to the suitability of the dolomite for the contract works.  The defendant maintains that the problem first arose at a site inspection on 8 May 1989.  It was submitted by the defendant that the “cause of action” accordingly arose on 8 May 1989.  Because the contract between the parties provided for the arbitration of disputes which arose in relation to the contract works, it may not be appropriate to use the expression “cause of action” in this context.  However, it is clear that the defendant argued that any applicable period of limitation was to be defined by reference to a starting point of 8 May 1989.  The defendant contended that the dispute was not referred to arbitration until, at the very earliest, 28 June 1996.  Consequently, it was argued, the plaintiff was out of time and could not proceed with the arbitration.

3. It was initially argued by the defendant that because the dispute had not been referred to arbitration within the six year period, the plaintiff could not proceed at all with the arbitration, but it was later conceded, correctly in my view, that, if a limitation period of six years applied, it would be open to the plaintiff to apply for an extension of time under Section 48 of the Limitation of Actions Act if there were factual basis for same. In other words, it was conceded that the plaintiff could apply to amend the points of claim in the arbitration so as to plead the appropriate application for an extension.

4. The defendant contended that arbitration proceedings were an “action” for the purposes of LAA. Reference was made to Section 3 of the Act which provides as follows:

   “ ‘action’ includes legal proceedings of all kinds:”

1. Mr Floreani, counsel for the defendant, next referred to Baulderstone Hornibrook Engineering Pty Ltd v State Constructions Pty Ltd (1993) 61 SASR 94. In that case the Court dealt with the question of whether or not an order for security for costs under Section 1335 of the Corporations Law was available to a respondent in arbitration proceedings. The case involved the interpretation of the passage “action or other legal proceeding”. Legoe J referred to Alliance Petroleum NL v Australian Gas Light Co (1983) 34 SASR 215 where King CJ held that an arbitration is a legal proceeding for the purposes of Section 1335 of the Corporations Law. Mr Floreani argued that, by analogy, if arbitration was a legal proceeding for the purposes of the Corporations Law, then it was also an “action” as defined in Section 3 of the Limitation of Actions Act. This was so, he contended, even though Section 35(a) LAA contained the expression “or upon any award”. He did so to counter the submission by the plaintiff that Section 35(a) LAA did not apply to arbitrations.

2. The relevant part of Section 35(a) LAA is as follows:

   “The following actions namely:-

   (a).... actions founded upon any simple contract express or implied, or upon any award where the submission is not by specialty;

   ...

   shall, save as otherwise provided in this Act, be commenced within six years next after the cause of action accrued and not after.”

3. Mr Ross-Smith, counsel for the plaintiff, argued, on the authority of Board of Trade v Cayzer, Irvine and Company Limited [1927] AC 610, that no cause of action arose until an award was handed down. In that case the House of Lords had to consider a provision in a charterparty which was as follows:-

   “Any dispute arising under this charter shall be referred, under the provisions of the Arbitration Act, 1889, or any amendment thereof, to the arbitration of two persons ... and it is further mutually agreed that such arbitration shall be a condition precedent to the commencement of any action at law.”

1. Their Lordships followed the decision of the House of Lords in Scott v Avery 5 HLC 811 where it was held that no action would lie until the arbitrators had brought down a determination.

2. Their Lordships were of the view that the arbitration clause before them was the same in substance as that considered by the House of Lords in Scott v Avery and that consequently any period of limitation did not commence until the award was handed down.

3. It seems to me that cases such as The Board of Trade v Cayzer, Irvine and Company Limited and Scott v Avery, rather than support the contention that statutory periods of limitation do not apply to arbitration proceedings, are authority to the contrary.  Viscount Cave LC in the Board of Trade case, said (at 614):-

   “My Lords, I am far from wishing to throw doubt upon the view which has been commonly held, and which was affirmed by the decision of a Divisional Court in the case of In re Astley and Tyldesley Coal and Salt Co. and Tyldesley Coal Co. [68 L.J. (Q.B.) 252], that an arbitrator acting under an ordinary submission to arbitration is bound to give effect to all legal defences, including a defence under any statute of limitation. A decision against that view might seriously prejudice the practice of referring disputes to arbitration; and, while I am unwilling to pronounce a final opinion upon a question which does not really arise in this case, I certainly say nothing which is adverse to the view to which I have referred.”

4. Similar views were expressed by Lord Phillimore at 628-629.

5. In my view, the Board of Trade case can be taken as deciding no more than that if resort to arbitration is a condition precedent to a cause of action arising, the relevant period of limitation does not commence to run until the arbitrators hand down an award.

6. It is common ground that the arbitration clause under consideration in this application is not a Scott v Avery clause and, in any event, even if it were, Section 55(1) CAA has the effect of overriding the condition precedent so that the cause of action accrues in the normal way.

7. Mr Ross-Smith drew my attention to part of the summary of argument at the commencement of the report in the Board of Trade case.  It was stated:-

   “At common law there is no limitation of the period within which a claim may be enforced: Llanelly Railway and Dock Co. v. London and North Western Ry. Co. (1875) L.R. 7 H.L. 550, 567.”

8. However, it appears from the summary of argument that it was accepted that if there were to be a bar imposed by a statute, the bar must be found within the actual words of the statute.  In my view, the bar may be found in the relevant provisions of LAA because I consider that the approach taken by the Court in Baulderstone Hornibrook Engineering Pty Ltd v State Constructions Pty Ltd and Alliance Petroleum NL v Australian Gas Light Co (supra) is equally applicable to this case. This is so, in my view, even where Section 35(a) LAA refers to an action being founded “upon any award”. The inclusion of those words recognises the position reached in the Board of Trade case in 1927, namely that if, contractually, no cause of action arises until an award is handed down, then any action taken to enforce the award must be commenced within the relevant six year period.  The fact that the provision of the words “or upon any award” is now unnecessary because of Section 55(1) CAA does not, in my view, preclude such a construction.

9. For the above reasons I hold that Section 35(a) LAA applies to the commencement of arbitrations at least to the extent that, as in this case, the arbitration involves a dispute in respect of breach of contract. I must therefore deal, if it is open to me, with the question of whether or not the arbitration between the parties was commenced within the relevant six year period.

10. I start by considering when the arbitration was commenced. This is dealt with in Section 3(5) of the Commercial Arbitration Act, the relevant parts of which are follows:-

    “... an arbitration shall be deemed to have been commenced if -

    (a).... a dispute to which the relevant arbitration agreement applies has arisen;

    and

    (b).... a party to the agreement -

    ...

    (iii).. has taken any other step contemplated by the agreement, or the law in force at the time the dispute arose, with a view to referring the dispute to arbitration or appointing, or securing the appointment of, an arbitrator in relation to the dispute.”

1. A copy of the contract between the parties which contains the arbitration clause is Exhibit “DGH5” to the affidavit of Mr Hardy filed on 1 October 1997.  Clause 10 of that agreement deals with disputes and arbitration.  The relevant parts of Clause 10 of the agreement are as follows:-

   “10(b)....... In case any dispute or difference shall arise between the Company and the Contractor ... as to the construction of the [agreement] or as to any matter or thing whatsoever arising thereunder or in connection therewith either party may give notice in writing to the other party 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 herein submitted to arbitration ... in one of the following manners ...”

1. Clause 10(b) also requires the person serving the notice of dispute to provide evidence that he has deposited with the relevant association a sum of money by way of security for the costs and expenses of the arbitration.

2. It is apparent from Mr Floreani’s written submission dated 6 November 1997 (paragraph 5) that, although the defendant contends that the cause of action arose as early as May 1989, for the purposes of argument before me it was accepted that the date contended for by the plaintiff, namely 6 July 1990, was the date at which the cause of action accrued.  On that assumption the plaintiff contended that the arbitration proceedings were commenced by notice of dispute dated 28 June 1996 which was within the relevant six year period.  The defendant contended that the notice of 28 June 1996 was not an effective notice in the sense that it could not bring about a commencement of the arbitration in accordance with the provisions of Clause 10 of the agreement.  It was the defendant’s contention that the earliest date at which the arbitration might be regarded as having been commenced was on 22 May 1997 because by letter of that date the plaintiff by its solicitor confirmed that a cheque by way of security deposit had been paid on 22 May 1997.  I understand Mr Floreani’s argument to be that, whatever notice may have been given on 28 June 1996, there had been no payment of the security deposit nor was any evidence provided as to the payment of same, both of which were required by the provisions of Clause 10(b) of the agreement.

3. A copy of the notice dated 28 June 1996 is Exhibit “DGH3” to the affidavit of Mr Hardy filed on 1 October 1997.  The last paragraph of that notice specifically invokes Clause 10 of the agreement and contends that the dispute was thereby submitted to arbitration.  The defendant, in its response to the notice of dispute of 28 June 1996 recites that the notice was served on 1 July 1996.  Thus, if the notice of dispute was effective the arbitration was instituted by force of Clause 10 as at 5 July, which was within the relevant six year period.

4. In my view the notice was an effective notice for the purposes of Clause 10 and, as provided in that clause, the arbitration should be deemed to have been commenced three days after the giving of the notice.  The fact that the security deposit had not been paid at that time nor had evidence of same been provided when the notice was given does not, in my view, preclude an effective commencement of the arbitration.

5. In my view Clause 10(b) of the agreement enabled a submission to arbitration by the giving of the notice.  The clause additionally provides that in serving notices of dispute evidence had to be provided that the security deposit was paid.  There is no specific requirement to pay a security deposit but it is implicit in the requirement that evidence of same should be provided that it must be done.  In my view a proper reading of the effect of Clause 10(b) is that the submission to arbitration is not dependent upon the payment of that amount.  The amount provided for in the agreement was $100.00 and the failure to pay that amount and provide evidence of such payment cannot, in my view, have the effect of precluding a reference to arbitration if the notice given as required in the first part of Clause 10(b) is otherwise given.

6. For the above reasons I hold that the arbitration between the parties was effectively commenced before the expiry of the six year period.

7. It must follow that the defendant’s application to have the points of claim filed in the application struck out must be dismissed.  I will hear counsel as to costs.