Heller Financial Services Ltd v Thiess Contractors Pty Ltd

REASONS FOR JUDGMENT 1 This respondent Thiess Contractors Pty Limited ("Thiess") applies under s 53(1) of the Commercial Arbitration Act 1984 (Vic)for a stay of this proceeding, alternatively a stay of the proceeding insofar as it comprises claims by the first applicant Heller Financial Services Limited ("Heller"). This Court has jurisdiction to grant such an order by virtue of s 79 of the Judiciary Act 1903 (Cth): Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 193 at 203-7. 2 Thiess, a building contractor, entered into three sub-contracts with the second applicant KF Airconditioning Pty Ltd (Receivers and Managers appointed) (in liquidation) ("KF Air"). Debts due under the sub-contracts were assigned by KF Air to Heller. Heller and KF Air allege there is an unpaid balance. Heller also claims that it suffered loss and damage as a result of representations by Thiess that were negligent, misleading and deceptive. The applicants' case as pleaded in their statement of claim is as follows. 3 The first sub-contract concerned work at 254-294 Wellington Road, Mulgrave called "the Nestle Project Mother". The sub-contract was dated 30 January 1997. The price was $1,392,219. The sub-contract provided for progress claims on the 22nd day of each month. KF Air performed work and submitted claims between December 1996 and April 1997 totalling $965,000. Thiess paid KF Air $301,033. On 23 April 1997 Thiess represented to KF Air that it was not owed anything further under the sub-contract and that it had been paid in full. KF Air treated the representation as a repudiation and accepted the same. Thiess is indebted to KF Air in the sum of $663,967 or alternatively $256,016.10. Further, the representations of Thiess were made negligently and in contravention of s 52 of the Trade Practices Act 1974 (Cth). 4 It is further alleged that on dates in and between December 1996 and April 1997 Thiess represented that services had been provided and goods supplied and delivered by KF Air under the Nestle Project Mother sub-contract and that sums totalling $965,000 were due. It is alleged that Thiess knew or ought to have known that Heller or a person in the position of Heller would rely on these representations being made with reasonable care and that Heller did so rely. In the circumstances, Thiess was under a duty to Heller to exercise reasonable care. In reliance on the representations Heller purchased from KF Air for $497,975.25 the right to receive payment of $663,967. The representations were also, in contravention of s 52, misleading and deceptive in that the value of the goods and services provided and the sum due and payable did not exceed $301,003. Further, the representations were made negligently in that Thiess failed properly to calculate the value of goods and services provided by KF Air and the amount due to it. As a result of the contravention by Thiess of s 52 and its negligence, Heller has suffered damage in that the payments made by Heller to KF Air are unrecoverable, due to the latter's insolvency. 5 The second sub-contract concerned the HMAS Cerberus Hospital. The sub-contract was dated 9 February 1995. The price was $1,550,000. Thiess owes KF Air $19,375 being retention monies due in respect of that sub-contract. 6 The third sub-contract concerned the HMAS Cerberus Cinema. It is dated 10 November 1995. The price was $265,000. Thiess has failed to pay KF Air retention monies of $6,625. 7 KF Air assigned to Heller debts payable by Thiess under the three sub-contracts. The assignment was partly constituted by two written agreements, one dated 4 April 1996 and the other dated 27 February 1997, and partly to be implied by the application for progress payments by KF Air to Heller, the submission of invoices and the crediting of an account. On 30 April 1997 Heller gave notice to Thiess of the assignment. Heller claims that Thiess is indebted to it in respect of the first sub-contract for $663,967 or alternatively $256,016.10, in respect of the second sub-contract $19,375 and in respect of the third sub-contract $6,625. 8 Each of the sub-contracts contained an arbitration clause as follows: "Where a dispute or difference shall arise between the Builder and the Sub-Contractor either during the progress of the Sub-Contract Works or after the 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 clearly setting out the matters in dispute or difference and at the expiration of [seven/ten] days, unless it shall have been otherwise settled, such dispute or difference shall be and is hereby submitted to Arbitration [Nestle Project Mother Contract only - in accordance with the provisions of the laws relating to arbitration in force in the State of Victoria and shall] to be effected in the following manner:" There then followed detailed provisions concerning the appointment of an arbitrator or arbitrators. 9 Section 53(1) of the Commercial Arbitration Act provides 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 sub-section (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." 10 It was not in dispute that where parties have agreed to submit disputes to arbitration a court will lean towards holding them to their agreement: Huddart Parker Ltd v The Ship "Mill Hill" (1950) 81 CLR 502 at 508-509. 11 In the present case Heller was not a party to the arbitration agreement. It is true that an assignee of a debt arising out of a contract containing an arbitration clause takes the debt subject to the obligation to submit to arbitration: The Leage [1984] 2 Lloyd's LR 259. In that case a shipowner assigned to a finance company all freights and other amounts which might be earned by the ship. The shipowner and the defendants subsequently entered into a charterparty which contained an arbitration clause. The finance company sued the defendants for demurrage and freight due under the charterparty. Bingham J held that the defendants were entitled to a stay of proceedings. The finance company had not entered into an agreement to arbitrate but as an assignee of the debt it was claiming "through or under" a party to an arbitration agreement within the meaning of s 1 of the Arbitration Act 1975 (UK). 12 The same reasoning is applicable in the present case because the definition of "party" in s 4(1) of the Commercial Arbitration Act includes "any person claiming through or under a party to the arbitration agreement". 13 Were the present proceeding confined to KF Air's claims and Heller's claims as assignee of KF Air's debts, there is no doubt that a stay should be granted. However, Heller also has separate claims arising out of the alleged negligence and misleading and deceptive representations of Thiess. These are independent causes of action which Heller has in its own right, they are not derived "through or under" KF Air. 14 Therefore the Heller negligence and s 52 claims cannot be the subject of a stay. They are not caught by the Commercial Arbitration Act because in respect of them Heller is not "a party to an arbitration agreement". 15 If a stay were granted for the remainder of the proceeding there would be a risk of multiplicity of proceedings. There is obviously a substantial overlap in subject matter between the negligence and s 52 claims on the one hand and the debt claims on the other. It is clear on the authorities that this is an appropriate ground for refusing a stay: Tasmanian Pulp and Forest Holdings Ltd v Woodhall Ltd [1971] Tas SR 330 at 345-6, Thomas v Star Maid International Pty Ltd [1999] FCA 911 at par 10. An alternative suggested by counsel for Thiess was to stay the proceeding otherwise than in respect of Heller's negligence and s 52 claims and as a matter of case management postpone the hearing of those claims until the arbitration has been concluded. However, Heller has on the face of it claims which it is entitled as of right to bring in this Court. I do not think it would be reasonable to delay the progress of those claims purely because of a contractual arrangement to which Heller is not a party. 16 For those reasons the application for a stay will be dismissed with costs, including reserved costs. This matter was transferred temporarily from the docket of Finkelstein J. The summons for directions will be adjourned for hearing before his Honour on 23 June 2000 at 9.30 am. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.