Equuscorp Pty Ltd v Wilmoth Field Warne

5. Pursuant to s. 53, a stay may be ordered, in a case such as this, where Equuscorp establishes each of the following matters:

1. The parties are parties to an arbitration agreement.

2. WFW has commenced a proceeding in the Court against Equuscorp.

3. The litigation is in respect of a matter agreed to be referred to arbitration in the arbitration agreement.

5. Equuscorp was at the time the counterclaim was commenced, and still is, ready and willing to arbitrate those matters.

15. By Deed of Costs dated 25 September 2002, WFW and Equuscorp set out the basis upon which Equuscorp retained WFW and WFW agreed to act as the solicitors for Equuscorp with respect to certain matters. As may be supposed, the Costs Deed makes provision for the payment by Equuscorp to WFW of its professional fees and disbursements. By cl.2, WFW is obliged to provide legal services to Equuscorp in respect of the stipulated files until the Deed is terminated by either party giving 90 days' written notice in accordance with the provisions of the Deed. Clauses 17 and 18 provide for the circumstances in which Equuscorp or WFW respectively might terminate the Deed.

18. In the case of termination by Equuscorp it may do so only where there is an unremedied event of default or if, following a referral to arbitration by Equuscorp, an independent arbitrator under cl. 24 determines that the legal services provided have not been provided "in a professional manner". The unremedied event of default occurs only where Equuscorp has given notice in writing of the nature of default, 14 days has then passed without WFW remedying the default and Equuscorp has served a final notice giving a further seven days to remedy.

21. By cl. 18, WFW is entitled to terminate the Deed where Equuscorp has failed to remedy a default of the kind specified in cl. 18(a) after having received a notice setting out the nature of the default, 14 days has passed without Equuscorp remedying the default and WFW has served a further seven day notice to remedy the default.

24. Clause 4 deals with the right to retain files following termination of the Deed. The rights of the parties differ depending upon which of them terminated the Deed. With respect to WFW's solicitors' lien over the files, cl.4 contains the following provision.

"Where this Deed is terminated by WFW, WFW expressly abandons any right to a solicitors lien over the files. Where this Deed is terminated by Equus, WFW is only entitled to exercise a solicitors lien over the files if Equus remains in default under this Deed. If any barrister's fees or WFW accounts are in dispute at the time WFW or Equus terminates the arrangements contemplated by this Deed, then such fees shall be paid into WFW's trust account by Equus until the dispute is otherwise resolved by agreement or by the procedure set out in Clause 24 of this Deed, with such procedure to be invoked within 30 days of the final accounts being rendered by WFW or Counsel and in the interim all files shall be returned to Equus upon such payment."

The reference to Equus in the Deed is a reference to Equuscorp.

29. The Costs Deed contains circumstances other than those concerned with an investigation of professional misconduct which may require the involvement of an arbitrator pursuant to cl. 24. By cl. 6(b), Equuscorp may at its discretion refer any dispute regarding fees to an arbitrator[1]. Other provisions which speak of arbitration are cl. 4 (disputes regarding barrister's fees or WFW accounts following termination) and cl. 15 (adjustment of the normal rate). By cl. 37, the parties agree that the Deed is governed by the law of the State of Victoria and they submit to the not exclusive jurisdiction of the court's exercising jurisdiction in that State. Clause 24 contains the arbitration agreement. It is in these terms:

"24. If a dispute, including a dispute in relation to fees, arises pursuant to this Deed, the complaining party must set out in writing the nature of the dispute and give a notice of the dispute to the other party. The notice of dispute shall be deemed to have been given if left at or sent by prepaid post to the parties' addresses referred to herein. Upon receipt of a notice of dispute the parties must make every reasonable effort to resolve the dispute by mutual negotiation. If the parties are unable to reach a resolution of the dispute within fourteen (14) days after the giving of the notice of dispute either party may, by notice in writing, advise the other party that it seeks to have the dispute resolved by arbitration. The party giving notice of its intention to refer the dispute to arbitration (`the claimant') must deliver to the other party (`the respondent') a written list of three (3) proposed arbitrators setting out their names and addresses and hourly charge out rates. The respondent must within fourteen (14) days notify the claimant in writing of which one (if any) of the proposed arbitrators the respondent has selected and that person shall be the single arbitrator. In the event that the parties cannot agree on the appointment of an arbitrator then the single arbitrator shall be the President of The Institute of Arbitrators & Mediators Australia (Level 18, Rialto Towers North, 525 Collins Street, Melbourne Victoria 3000) or his nominee. The parties agree to be bound by the decision of the arbitrator. The arbitrator's fees shall be shared equally by the parties and the parties agree to bear their own legal costs for any matter referred to the arbitrator."

33. A number of disputes have arisen between the parties in the early months of this year and perhaps even before that. This has culminated in no less than seven notices of determination of the Costs Deed given by Equuscorp: on 1 May 2003 (two notices), 8 May 2003, 19 May 2003, 26 May 2003, 27 May 2003 and 2 June 2003. It is not for me to express any views upon these disputes except to record that they are numerous and that a determination of the issue whether the Deed has been terminated will have a substantial impact on the amount of fees payable to WFW. This is because, after termination, WFW is entitled to be paid only at a very much reduced discount rate for work done previously rather than at the normal rate[2]. It is perhaps surprising in these circumstances that WFW also has given to Equuscorp a 14 day notice and a 7 day notice pursuant to cl. 18 of the Deed as steps in the process of the termination of the Deed by it.

36. I should mention that I have been provided with some, but perhaps not all, of the correspondence in which these allegations and counter-allegations are made and denied or explained away. In some of these letters Equuscorp has spoken of referring the matters unresolved to arbitration. One of the matters discussed in the correspondence is the right of WFW to assert a lien over the files held for Equuscorp matters, a right which Equuscorp disputes.

39. And so, by writ filed on 17 June 2003, Equuscorp commenced this proceeding. In a comprehensive statement of claim endorsed on the writ, Equuscorp sets out the gist of the Costs Deed and alleges that it has terminated it on 27 May 2003 but that WFW wrongfully refuses to accept that the Deed has been terminated. Notwithstanding this, the pleaders allege, WFW refuses to perform legal work under the Costs Deed so that Equuscorp has required WFW to elect whether Equuscorp's determination is accepted by it or not. It is then alleged that WFW seeks payment of its fees and disbursements at the normal rate with respect to nine specified matters including $125,405.40 with respect to "the Beagle File". The total amount of fees and disbursements said to be claimed by WFW for these nine files is about $940,000. It is alleged further that WFW has refused to deliver up the files unless this sum is paid into an account in the joint names of the parties. It is then alleged that such a demand was contrary to the provisions of the Deed, presumably for reasons which include Equuscorp's contention that WFW was entitled to payment of fees only at the discount rate. Equuscorp then alleges that it has paid or offered to make payment of the money claimed with respect to the Beagle file but that this will be done only following a reconciliation of certain discrepancies. It also alleges that it has paid all that is due on the remaining eight files, but at the discount rate only. This means that $373,969.10 has been paid against the sum of $730,701.35 sought by WFW in respect of these eight files. Finally, it is said that WFW has paid $500,000 into an investment account in trust for the parties pending arbitration of disputes between them regarding the fees of WFW for work done on the Beagle file. In its prayer for relief, Equuscorp seeks a declaration that it owns the files and is entitled to have them delivered up. Interlocutory and final injunctions are sought for the delivery of the files to Equuscorp and damages for their detention.

42. With impressive celerity, a defence to this claim was filed two days later on 19 June 2003. As may be expected, the Costs Deed is admitted and its termination by Equuscorp is denied. With respect to the possession of the files, WFW asserts its lien and says that it will deliver up the files when Equuscorp has secured its right to payment of its costs and disbursements with respect to those files. WFW alleges, then, that Equuscorp itself is in breach of the Costs Deed and has thereby prevented WFW "from fulfilling the conditions under the Deed for payment at the normal rate (as defined in the Deed) as apposed to payment at the discount rate (as defined in the Deed) in respect of work [WFW] has performed for [Equuscorp] under the Deed". The defence goes on to put in issue the details of the payments said to have been made by Equuscorp.

45. Equuscorp has on 11 July 2003 filed a reply to this defence. It joins issue generally. It denies that its termination of the Deed was ineffective. With respect to the assertion of WFW's lien, it says that this is denied and further that Equuscorp "has paid to [WFW] all costs and disbursements it is entitled on such files"[3]. WFW asserts that it has provided sufficient security for the claimed unpaid fees. With respect to the contention of WFW that it is entitled to be paid at the normal rate for the eight files, Equuscorp "denies [Equuscorp] is liable to pay [WFW] the normal rate for those files, nor will it ever be so liable".

48. The WFW pleading of 19 June 2003 includes the counterclaim which Equuscorp would have stayed pursuant to s. 53. In this counterclaim, WFW repeats the admissions and positive averments made in the defence. By way of positive assertion WFW then goes on to make a claim with respect to the proceeds of settlement of the Beagle litigation. It is said that, pursuant to express or implied terms of the Deed, moneys recovered pursuant to such litigation are to be held intact until the entitlement of WFW to its fees and disbursements in respect of the litigation has been determined and satisfied from those moneys. The counterclaim then alleges that Equuscorp has received from the Beagle litigation $1.788M and $500,000 and that it is entitled to recover a further $112,000, which sums it refuses to hold pending determination of WFW's entitlements. The pleading then seeks injunctive orders in effect to have the sums received and to be received from the Beagle litigation frozen pending determination of the entitlement of WFW and an order for payment of that entitlement.

51. Equuscorp has not, of course, pleaded to this counterclaim.

54. It is worth remarking at this point that WFW does not in its counterclaim seek orders with respect to termination of the Deed or with respect to its right to stop performing its legal work until it is paid or with respect to its entitlement to be paid further amounts for work done in the Beagle litigation or on the other eight files referred to in the statement of claim. Nor does it raise any of the very numerous matters contained in the contentious correspondence to which I have referred.

Litigation in Respect of Issues Referred to Arbitration

58. The first of the Equuscorp proofs that was put in issue was whether the counterclaim was "in respect of a matter agreed to be referred to arbitration by the agreement".

61. I have in some detail set out the contentions raised in the counterclaim. Argument before me did not raise any issue that each of these contentions, when put in issue, was "a dispute, including a dispute in relation to fees, [arising] pursuant to this Deed" within the meaning of the opening words of cl. 24. I need say nothing about this.

64. What was pressed before me was the submission of WFW that this part of s. 53 required that the questions in the counterclaim should have actually been referred to arbitration before the counterclaim was filed on 16 June. It was put that cl. 24 contained an agreement to arbitrate in the future which may be activated by either party at its election. The clause involved a three stage process and two of these stages had to be completed with respect to a given dispute before such an election might occur.

(a) The complaining party must set out in writing the nature of the dispute and give notice of the dispute to the other party.

(b) The parties must attempt to resolve the dispute by negotiation. This negotiation period is 14 days.

(c) If the parties are unable to reach a resolution within the 14 day negotiation period, either party may advise the other that it seeks to have the dispute resolved by arbitration.

70. It was submitted on behalf of WFW, and I think not disputed, that the reference to arbitration would occur upon the giving of this stage three notice. Prior to that, each party had simply a right to elect to refer the dispute to arbitration. Again, I do not understand this to be a matter of controversy. No argument was presented that the available courses under cl. 24 were other than that of arbitration, or litigation or to leave the dispute unresolved[4].

* whether, as a matter of law, s. 53 operated only where the right to refer the dispute to arbitration had been exercised prior to the commencement of the litigation; and

* whether as a matter of fact in this case there had been an actual exercise of that right before the counterclaim was filed on 19 June 2003.

78. It is necessary to identify what precisely is the point of law. It will be recalled that the proofs of a party seeking a stay under s. 53 include a proof that the would-be litigator is "a party to an arbitration agreement". This may require a consideration of the meaning of the expression "arbitration agreement" which is defined in s. 4. In the case of an agreement which merely confers on one or both parties a right to refer the dispute to arbitration if it chose, there has been, historically, some debate as to whether such an agreement could, prior to the exercise of this right, be classified as an agreement to refer present or future disputes to arbitration and is therefore an arbitration agreement. This debate has arisen in the context of an application to extend time under s. 48. In such a case the applicant must be a party to an arbitration agreement. This debate has now ceased since the High Court has determined that such an agreement is an arbitration agreement and, accordingly, that such a party is a party to an arbitration agreement[5]. So long as that debate was alive, this was the point at which a stay application under s. 53 encountered difficulty where the agreement to arbitrate was of this kind. The section operated only where "a party to an arbitration agreement" commenced a proceeding in court. This was the point at issue before the New South Wales Court of Appeal in ABB Power Plants Ltd v Electricity Commission of New South Wales[6], decided some eight months before the PMT Partners' case. Now that this point is no longer arguable, attention in stay applications has shifted to the subject matter of the litigation. Is the litigation "in respect of a matter agreed to be referred to arbitration by the agreement"? In the PMT Partners' case the majority of the High Court expressed the view that this expression did not encompass a matter which a party to an arbitration agreement might, if it elected to do so, refer to arbitration, but had not yet done so[7]. This is the view also adopted by the Full Court in South Australia[8].

81. In Manningham City Council v Dura (Australia) Constructions Pty Ltd[9] the Court of Appeal considered a stay application where the arbitration agreement was contained in Section 13 of the JCC-D 1994 form of building of contracts. Under cl. 13.03, either party may at the conclusion of the negotiation period give a notice referring the dispute to arbitration or to litigation. Such a notice was a precondition to the commencement of either arbitration or litigation. At the time when the proprietor commenced the proceeding in court cl. 13.03 notices had been given by both parties; the proprietor's referring the dispute to litigation, the builder's referring it to arbitration. The principal issue before the Court was whether Section 13 was an arbitration agreement. The Court held that it was, applying the PMT Partners' case. The subsidiary question was as to the exercise of the discretion of the primary judge and this involved a consideration of the effect of the builder's notice to arbitrate which was given after the proprietor's notice to litigate and before the proceeding was commenced. The Court rejected the proprietor's contention that, after its notice had been given, the builder was no longer a party to an arbitration agreement. In the course of his judgment Phillips JA, having concluded that the proprietor remained a party to an arbitration agreement which, upon completion of the necessary steps would become operative, continued:

"If it becomes operative, the dispute in question is referred by force of the parties' contract to arbitration and ordinarily it will not be appropriate to allow one party to depart from the bargain previously struck. That is not to say that, when one party commences litigation, the stay will be granted if the other has taken no steps to render the arbitration agreement operative."

In the context in which this was written, it is clear that his Honour was not addressing the point presently under consideration. In the case before the Court of Appeal the necessary steps to render the arbitration agreement operative had been taken. His Honour was there concerned only with the discretionary phase of the s. 53 application.

86. The Commercial Arbitration Act is part of a uniform scheme in operation in all Australian jurisdictions. It is therefore desirable that it be interpreted and applied uniformly. In these circumstances, I have regard not only to the authority of the views expressed by the High Court in the PMT Partners' case, but also to the South Australian Appellate Court decision. I should add, if I may respectfully say so, that I agree with the views which they express. The text of s. 53(1) shows this to be correct. Moreover, until a party has enlivened the arbitration agreement by electing to arbitrate, it is difficult to see how the Court should under s. 53 act to give effect to a course which no party has set in train. Furthermore, if the agreement is one where one party only may elect to arbitrate and that party has commenced litigation, it would be surprising if s. 53 would operate to permit the Court to entertain an application to stay the litigation in favour of arbitration which the applicant has no right to institute.

89. I conclude from this that that I may not grant a stay of the litigation in this case unless the subject matter of the dispute has been included in a third stage notice which has been given following the completion of the second stage negotiation.

92. On 10 July 2003, Equuscorp gave a notice setting out a list of disputes and concluding with a statement that it intended to refer the disputes to arbitration. It then identified three persons as proposed arbitrators. This notice, which is clearly drawn with the requirements of the third stage of the cl. 24 process in mind, is too late because the counterclaim was commenced nearly a month earlier on 16 June.

95. Faced with this, counsel for Equuscorp submitted that a notice meeting the third stage requirements of cl. 24 had been given in earlier correspondence. They identified this correspondence as being the Equuscorp letters to WFW of 22 January 2003 and 14 February 2003. They also mentioned letters from WFW to Equuscorp dated 21 January 2003 and 3 March 2003, but this cannot be correct since a letter from WFW cannot be construed as a notice given by Equuscorp to WFW.

98. Before I turn to these letters, I remind myself what it is I am looking for. The letter must contain a statement which may fairly be understood as amounting to a statement of intention to refer to arbitration the disputes which are those contained in the counterclaim and which I have summarised above. In neither of the two letters written by Equuscorp is there any mention of the moneys received from the Beagle litigation. This is not surprising since this litigation was not settled until March 2003, according to the counterclaim. In case I have misunderstood how the Equuscorp case is put, I have also examined the correspondence up to and including 7 June 2003 which is before me, in order to see if any letter from Equuscorp may contain a statement of the necessary intention. I find nothing. This correspondence appears to form part of or perhaps is in part preliminary to the negotiating stage of the cl. 24 process.

101. It follows from this that the application must fail. It is not necessary that I consider the further issues which were argued before me - whether Equuscorp had taken a step in the proceeding, whether at the relevant times Equuscorp was and is ready and willing to arbitrate the subject matter of the counterclaim and matters pertaining to my discretion.

104. I propose therefore that the application of the plaintiff brought by summons filed on 11 July 2003 be dismissed with costs.

[2] See cl. 16 (termination by WFW) and cl. 17(b) (termination by Equuscorp).

[4] Compare the judgment of Doyle CJ in Stevens Construction Pty Ltd v Zorko [2002] SASC 42; (2002) 81 SASR 316 at 321, where his Honour construed the arbitration agreement as excluding the litigation option.

[5] PMT Partners Pty Ltd v Australian National Parks and Wildlife Service [1995] HCA 36; (1995) 184 CLR 301.

[6] (1995) 35 NSWLR 596.

[7] PMT Partners Pty Ltd v Australian National Parks and Wildlife Service [1995] HCA 36; (1995) 184 CLR 301 at 309 and 310, per Brennan CJ, Gaudron and McHugh JJ.

[8] Stevens Construction Pty Ltd v Zorko [2002] SASC 42; (2002) 81 SASR 316 at 321.

[9] [1999] VSCA 158; [1999] 3 VR 13.