Arbitration - The submission and reference - Submission as a defence and as a ground for stay of proceedings - Stay of proceedings - Order or refusal to stay - Burden of satisfying court.

Tasmanian Pulp and Forest Holdings Ltd v Woodhall Ltd (1971) Tas SR 330 and Winter v Somers (2000) TASSC 33 applied.

Judgment Number: [2003] TASSC 62

trading as DIGITAL CARE SYSTEMS ACN 009 342 885

1 Glenview Home Incorporated ("Glenview") by writ filed 30 April 2003 has commenced proceedings against Digital Telecommunications Systems Pty Ltd ("Digital") claiming damages for breach of a contract to supply and install communications equipment at Glenview's premises at Windsor Court, Glenorchy. Attached to the writ was a statement of claim identifying the contract and its relevant terms and alleging that Digital failed to complete the work in accordance with the contract. Glenview claims damages particularised in the sum of $27,514.50, being the completion costs and liquidated damages for the failure of Digital to complete in time in the sum of $125,000. Digital entered an appearance and before taking any other step in the proceeding filed an interlocutory application seeking an order that the action be stayed.

2 The contract incorporates a document "AS4305-1996 Australian Standard Minor works contract conditions". An arbitration clause is included. Digital seeks to invoke the Commercial Arbitration Act 1986 ("the Act"), s53, which is as follows:

"(1) If a party to an arbitration agreement commences proceedings in a Court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement, that other party may, subject to subsection (2), apply to that Court to stay the proceedings and that Court, if satisfied:

(a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement; and

(b) that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration -

may make an order staying the proceedings and may further give such directions with respect to the future conduct of the arbitration as it thinks fit.

(2) An application under subsection (1) shall not, except with the leave of the Court in which the proceedings have been commenced, be made after the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance.

(3) Notwithstanding any rule or 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 a matter agreed to be referred to arbitration by the arbitration agreement."

3 The same principles apply in exercising the discretion under the Act, s53, as applied to its predecessor, namely, the Arbitration Act 1892: s6. Winter v Somers (2000) TASSC 33. In Tasmanian Pulp and Forest Holdings Ltd v Woodhall Ltd (1971) Tas SR 330, Burbury CJ, speaking of s6, of the 1892 Act said at 332:

"However, Courts of highest authority, in considering the nature of the discretion exercisable under the section, have regarded the upholding of the `sanctity of contract' as such a dominant consideration that it must be taken as established that once it appears there is a binding contract to refer the subject matter of the action to arbitration, the Court should prima facie be `satisfied that there is no sufficient reason why the matter should not be referred to arbitration' (ie that prima facie it is just to keep the parties to their contract) and it is then for the party opposing the stay to displace that prima facie judicial satisfaction by pointing to the existence of strong countervailing considerations showing that justice between the parties requires that the stay should be refused."

4 The evidence of a director of Digital is that the company is and has at all times been prepared to go to arbitration. I accept this assertion notwithstanding the fact that it has been within the power of both Digital and Glenview to pursue an arbitration since the notice of dispute issued in January 2002 and neither have taken steps to have an arbitrator appointed. There is no evidence of Digital doing anything to prevent, delay or obstruct an arbitration and without such evidence I am not prepared to discount the assertion now made to the effect that Digital has been since the writ issued ready and willing to do all things necessary for the proper conduct of an arbitration. Accordingly, the only questions left for consideration are, firstly, whether the dispute falls within the ambit of the arbitration clause in the contract and, secondly, if it does, whether there are "countervailing considerations showing that justice between the parties requires that the stay should be refused".

5 Clause 31 of AS4305-1996 provides that if a dispute or difference arises between Glenview and Digital in connection with the contract then "either party shall deliver ... to the Superintendent ... a notice of dispute". It goes on to provide that subject to any claim to suspend or terminate the contract or the court otherwise ordering the parties shall continue to perform their obligations notwithstanding the existence of the dispute and that in the meantime the parties are to confer with the Superintendent to endeavour to resolve the dispute. The clause continues: "If the dispute has not been resolved within 28 days of the giving of a notice of dispute, that dispute shall be and is hereby referred to arbitration". Provision is then made for the nomination of an arbitrator and in its final paragraph the clause provides: "Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Contract or to seek injunctive or urgent declaratory relief in respect of a dispute under this Clause 31 or any matter arising under the Contract".

6 Counsel for Glenview submits that the liquidated damages claimed for late completion, namely, the sum of $125,000 satisfies the description of a "payment due under the Contract" and so falls within the exclusion contained in the final paragraph of clause 31. So far as is relevant the contract provides for Digital to submit periodic claims for payment to the contract superintendent who is then to certify an amount and issue a payment certificate including the superintendent's calculations and the reasons for any difference between the amount claimed and the amount certified. Thereafter the amount certified is to be paid. Damages for late completion are dealt with in clause 20 which is as follows:

"If the Contractor fails to reach Practical Completion by the Date for Practical Completion, the Contractor's liability to the Principal shall be limited to liquidated damages at the rate stated in Item 20 for every day after the Date for Practical Completion to and including the Date of Practical Completion or the date that the Contract is terminated pursuant to Clause 29, whichever first occurs.

If after the Contractor has paid or the Principal has deducted liquidated damages, the time for Practical Completion is extended, the Principal shall forthwith pay to the Contractor any liquidated damages paid or deducted in respect of the period up to and including the new Date for Practical Completion."

7 The clause arguably does not impose upon Digital an obligation to pay the amount specified in item 20 in the event of late completion. It may be that all it does is put a ceiling on the amount of damages which might otherwise be recovered for late completion with the effect that if there is late performance Digital can completely resolve any claim or possible claim by Glenview by paying the amount specified in item 20 or by not challenging its deduction from the contract sum. However, in my opinion , whether or not the exception to the arbitration agreement specified in the final paragraph of contract clause 31 applies is to be determined by considering not whether in fact the liquidated damages are a payment due under the contract, but whether that is what has been claimed in the proceedings. Counsel for Digital submitted that the exception to arbitration only applies to undisputed claims, but I can find nothing in the contract to support the contention that clause 31 is concerned at all with undisputed claims. In fact it would be odd for a contract to make provision for the handling of undisputed claims. If a party alleges that at the time of the issue of the writ money has already become payable to it the final paragraph of clause 31 authorises the commencement of an action to recover that money. Whether or not money had in fact become payable is a matter to be determined on the trial of the action. Secondly, counsel for Digital submitted that Glenview by issuing a notice of dispute in January 2002 in respect of liquidated damages has agreed to an arbitration of the issue. I do not think, however, that by issuing the notice Glenview abandoned its entitlement to commence court proceedings for liquidated damages. All that Glenview has done in consequence of its notice of dispute is to confer with the superintendent and Digital in an attempt to resolve the matter. It has taken no steps to secure the appointment of an arbitrator or to progress resolution by arbitration. It was not suggested that the issue of the notice amounted to an unequivocal election to pursue one of two inconsistent courses from which Glenview cannot now resile.

8 I now turn to the pleadings which so far are relevant are as follows:

"13 Further, or in the alternative, express terms of the contract were that:

13.1 The specified date for practical completion of stage 1 was 17 June 1999;

13.2 The specified date for practical completion of stage 2 was 17 June 1999;

13.3 The specified date for practical completion of state (sic) 3 was 11 October 1999;

13.4 By clause 20 if the defendant failed to reach practical completion by the date for practical completion, the defendant's liability to the plaintiff shall be liquidated damages at the rate of $100.0 for every day after the date for practical completion to and including the date of practical completion.

14 Stages 1, 2 and 3 reached practical completion on 4 October 2000.

15 The superintendent certified the date of practical completion of stages 1, 2 and 3 to be 4 October 2000.

16. The defendant has incurred liquidated damages as follows:

Here what is claimed is a payment due under the contract to which the arbitration clause does not apply. I cannot compel a plaintiff who has not agreed to go to arbitration on a particular issue to do so and there will be no order staying the proceedings insofar as they concern the claim for liquidated damages in the sum of $125,000.

9 The balance of the claim is for "Damages in the sum of at least $27,514.50". According to the statement of claim Digital did not undertake some of the work it had contracted to do and Glenview engaged other contractors to complete the installation of the communications equipment at a cost of $27,514.50. As, because of this application, a defence is yet to be delivered I do not know whether Digital will dispute that the works undertaken by the other contractors were works which Digital agreed to perform. I do not know whether Digital will dispute the allegation that the works were not performed. If either of these matters are put in dispute there is a clear potential for that to affect the claim for liquidated damages. The affidavit of a director of Digital contains the uncontested evidence that Glenview issued a notice of dispute in respect of this part of the claim; that the parties met with the superintendent in an attempt to resolve the dispute and that a resolution was not reached. There was no suggestion that Digital has or will admit that the works performed by the other contractors were part of the original contract and left unattended to. Whilst these matters remain in dispute they have the potential to impact upon when the works reached a stage of practical completion and, accordingly, the potential to impact upon the amount of liquidated damages, if any, which are recoverable. This being so the issues which the parties, by their contract, have agreed to arbitrate are interwoven with Glenview's claim that the liquidated damages are a payment due under the contract. As I have already said clause 31 expressly preserves the right of Glenview to bring the latter claim to the court and arbitration cannot be compelled in respect of that claim.

10 It is undesirable for the same issues to be litigated in separate proceedings because this will increase cost and carry with it the risk of inconsistent findings. This is a sufficient reason why that part of the dispute which the contract provides is to go to arbitration(namely, the claim for $27,514.50) should not be referred to arbitration. I do not consider that refusing the stay will cause any injustice to Digital. There is no injustice in having the whole of the dispute determined in the one forum at the one time. An arbitration is yet to commence. It has not been suggested that arbitration would be quicker or cheaper than court action. Although the notice of dispute issued in January 2002 the matter has not even reached the stage where an arbitrator has been appointed whereas there is already Glenview's action pending in this court. The justice between the parties is that the stay should be refused. The application accordingly will be dismissed.