Honeywell Ltd v Acciona Infrastructure Projects Australia Pty Ltd

Supreme Court of NSW|2023-05-03|Before: Rees J

Solicitors: Holding Redlich (Plaintiff/Respondent) Sparke Helmore Lawyers (First and Second Defendants/Applicants) File Number(s): 2021/171877

Judgment

HER HONOUR: The defendants, Acciona Infrastructure Projects Australia Pty Ltd and Lendlease Building Pty Ltd, seek orders pursuant to rule 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) to set aside ex parte orders extending time for service of the Summons. In the alternative, the defendants seek an order pursuant to section 8(1) of the Commercial Arbitration Act 2010 (NSW) that the proceedings be referred to arbitration.
A Summons is valid for service for six months after the date on which it is filed (rule 6.2(4)(a), UCPR) but the Court can extend the time for service: rule 1.12, UCPR. The plaintiff, Honeywell Ltd, had filed the Summons on what was then thought to be the last day of a 12-year contractual limitation period, during which the plaintiff was entitled to look to the defendants to rectify building defects. The plaintiff did not then serve the Summons, as commercial discussions were underway which it was hoped would resolve the problem without the need for litigation. To this end, the Court granted the plaintiff two extensions of time, being a total extension of ten weeks.

FACTS

In November 2005, the parties executed a suite of documents in relation to upgrade works at the Newcastle Mater Hospital, to be undertaken by a public private partnership (PPP). Amongst this documentation: 1. The Health Administration Corporation (HAC) entered into the Newcastle Mater Hospital Project Deed with the "Novacare Solutions Partnership" (Novacare) under which Novacare would finance, design and refurbish various facilities at the hospital and provide facilities management services. 2. Novacare entered into a Design and Construction Deed with the Construction Contractor, Lendlease, to construct the works. (The Construction Contractor was later acquired by Acciona, which retains the rights and liabilities of Lendlease in relation to the works carried out by Lendlease). 3. Novacare entered into a Hard Facilities Management Deed with Honeywell, to provide "Hard Services," being, essentially, to maintain the facility. 4. Novacare, Lendlease and Honeywell entered into an Interface Deed.
Each of these deeds is complex and voluminous. Each deed contains a dispute resolution clause in relevantly identical terms, being a 'tiered' dispute resolution clause: after negotiations between senior executives, disputes are referred to either expert determination or arbitration, apparently depending on whether the parties agree to an expert determination or not. I will return to the specifics of this clause in the Interface Deed at [15].
Under the Design and Construction Deed, Lendlease indemnified Novacare, HAC and others for any claim or loss arising out of its design or construction activities, or the performance or non-performance of its obligations under the Design and Construction Deed: clause 27.2. A claims procedure was prescribed, requiring Novacare to give notice of the claim as soon as reasonably practicable and with full particulars: clause 27.6. Clause 27.7 of the Design and Construction Deed provides: 27.7 Limitation of Liability Period Notwithstanding any statutory limitation of liability period, the Construction Contractor agrees that its liability under or in connection with this deed extends to the date that is 12 years after the Completion Date for the last Stage to reach Completion. That is, the Construction Contractor agreed to take responsibility for problems with the construction for 12 years, rather than the six year limitation period for contract and tort.
Ascertaining the end of the Liability Period is itself complex. "Completion Date" is defined as "the date of the notification by [Novacare] to the Construction Contractor in accordance with clause 14.3 confirming that Completion has occurred": clause 1.1, Design and Construction Deed. Clause 14.3 obliged Novacare, on receiving notice from the Project Director under clause 14.3(a) of the Project Deed, to notify Lendlease that Completion had occurred. The Project Director was the person appointed in accordance with clause 4.2 of the Project Deed: clause 1.1, Project Deed. The Project Director was appointed by HAC: clause 4.1. The identity of the Project Director is not known. Clause 14.3(a) of the Project Deed obliged the Project Director, on "receiving certification from the Independent Certifier … that Completion has occurred," to notify Novacare of this fact. The Independent Certifier was a person appointed under an Independent Certifier Deed: clause 1.1, Project Deed. The Independent Certifier Deed is not in evidence.
Lendlease also gave an indemnity to Honeywell under the Interface Deed. Clause 5.4 obliges the Construction Contractor to indemnify Honeywell in certain circumstances, including where Honeywell "incurs losses, costs, expenses or damages by virtue of … an act … of [Novacare] … to the extent such losses, costs, expenses or damages were caused or contributed to by the Construction Contractor's act, omission or failure to comply with its obligations arising out of the Construction Contract or this deed." The indemnity is a continuing obligation and survives the expiry or termination of the deed: clause 24.9(a). That is, the indemnity is not necessarily limited to 12 years after Completion.
Turning to the Interface Deed in more detail, clause 2 provides: 2 Scope The parties acknowledge and agree that the fundamental objectives of this Deed are to establish the terms relating to the co-ordination and interface between the Construction Contractor and the Services Contractors [including Honeywell] … including: … (b) the facilitation of: … (iv) rectification of Defects … … (d) the apportionment of liability for an Abatement.
As to Defects, Honeywell was required to give notice of Defects to Novacare and the Construction Contractor and, if necessary, to step in, rectify and recover the cost of rectification from the Construction Contractor. Specifically, clause 10 provides: 10 Defects 10.1 Rectification Work not Urgent … (b) If a Defect becomes apparent … before the Limitation Period expires and the Rectification Work is not Urgent, the Hard Services Contractor must give written notice to the Construction Contractor and [Novacare] which includes appropriate particulars of the Defect. "Limitation Period" was the period referred to in clause 27.7 of the Construction Contract, being 12 years after Completion: clause 1.1.
Clause 10.2 concerns urgent rectification works, where such a Defect "becomes apparent before the Limitation Period expires." In that event, Honeywell was required, where practicable, to "give written notice to the Construction Contractor and [Novacare] which includes appropriate particulars of the Defect," why the rectification work was urgent and specifying a reasonable time in which the Construction Contractor must carry out rectification work. If not practicable to give such notice, Honeywell was to carry out the rectification work, notify the Construction Contractor and Novacare of the defect and temporary rectification work undertaken. If the Construction Contractor did not comply with Honeywell's notice, then Honeywell was obliged to undertake the work, followed by giving notice to the Construction Contractor and Novacare of various matters.
Clause 10.3 provided that disputes under subcontracts in relation to the liability of a party to rectify a Defect were to be resolved in accordance with the dispute resolution procedure prescribed by the Interface Deed. Further, clause 10.4 provided: 10.4 Liability of the Construction Contractor for Defects The liability of the Construction Contractor in respect of Defects pursuant to this deed is no greater than the liability of the Construction Contractor to [Novacare] under the Construction Contract.
That is, the Construction Contractor's liability in respect of Defects was no greater than its liability to Novacare, which included a contractual limitation period of 12 years after Completion. During this period, Honeywell's role was to facilitate the rectification of Defects by Lendlease rather than bear responsibility for the Defects itself.
As to Abatement, clause 17 of the Interface Deed entitled Novacare to set-off deductions against Honeywell's Monthly Payment in certain circumstances. Where a Service Failure was due to a Defect or a breach by the Construction Contractor of its obligations under the Interface Deed, the Construction Contractor was obliged to compensate Honeywell for the amount of the Abatement to the extent that the Construction Contractor's breach caused or contributed to the Service Failure: clause 17.3(a). Any disputes in respect of Abatement were to be determined by adjudication: clause 17.4.
Returning to the dispute resolution clause, clause 18.1 of the Interface Deed provides: (emphasis added) 18.1 Dispute resolution procedure (a) Subject to clauses 18.1(b) to (e) below, a Dispute shall be referred to expert determination (with the consent of the other party) under clause 18.2 or arbitration under clause 18.3 (as the case may be). (b) A party to the Dispute may by notice ("Referral Notice") to the other party or parties … refer the Dispute to the chief executive officers of the respective parties (the "Representatives") for resolution. The Referral Notice must specify in reasonable detail the nature of the Dispute. (c) The Representatives or their delegates will meet to resolve the Dispute. (d) The joint decisions of the Representatives in respect of any Dispute referred to them under this clause 18.1 will be reduced to writing and will be contractually binding on the parties. (e) If the Representatives do not resolve the Dispute within the Resolution Period or do not meet prior to the expiry of the Resolution Period (or within such further period as the parties may agree to in writing), a party may notify the other party or parties that it requires: (i) the Dispute to be referred to expert determination under clause 18.2; or (ii) the Dispute to be referred to arbitration under clause 18.3. Any notice under this clause 18.1(e) must: (iii) be in writing; (iv) state that it is a notice under this clause 18.1(e); and (v) include or be accompanied by reasonable particulars of the Dispute. …
Clause 18.2 deals with expert determination. Relevantly, the expert is required to make their determination within 30 business days of appointment, or such further period as may be agreed between the expert and the parties: clause 8.2(d)(ix). Either party is entitled to refer the matter to arbitration after the expert's determination: clause 18.2(k).
Clause 18.3 deals with arbitration, with any arbitral award to be final and binding on the parties: clause 18.3(f). An arbitration is to be conducted in accordance with The Institute of Arbitrators & Mediators (IAMA) Australia Rules for the Conduct of Commercial Arbitrations in force at the time a notice is given and subject to the Arbitration Law (undefined): clause 18.3(b).
Mr Tobin said that, in 2015, IAMA merged with Lawyers Engaged in Alternative Dispute Resolution to form the Resolution Institute. The Resolution Institute Arbitration Rules 2020 in force when these proceedings were commenced relevantly provided: Notice of Arbitration Rule 3 1. The party or parties initiating an arbitration (the claimant) shall by written notice notify the other party or parties (the respondent) of the dispute and request or demand the dispute be referred to arbitration (the Notice of Arbitration). 2. The arbitration shall be deemed to commence on the date on which the Notice of Arbitration is received by the respondent. …
Further, the arbitral rules obliged the arbitrator to use best endeavours to deliver an award within one year of appointment, failing which the arbitrator was obliged to give notice of the further time estimated to be required to deliver the award: rule 16.

Completion of works

On 14 October 2009, an independent certifier issued a certification of completion. The defendants contend that this was the Completion Date under the Design and Construction Deed such that the Liability Period began, ending on 14 October 2021. Honeywell says when Completion occurred is a question of fact, and is not in a position to accept this.
A final occupation certificate was issued on 24 March 2010. This was the starting point for the statutory limitation period prescribed in section 6.20 of the Environmental Planning and Assessment Act 1979 (NSW), ending on 24 March 2020. Honeywell does not necessarily accept this either, or that the long stop applies to a claim for this kind, or that it applies in any arbitral proceedings.
According to the pleadings, in May 2020, HAC and Novacare instructed Honeywell to obtain a report regarding the cladding at the hospital. Honeywell engaged a consultant, which collected 52 cladding samples and prepared a draft location report on 21 May 2020. The samples were tested; a report dated 25 May 2020 identified that the majority of the samples were considered to present a high fire risk. Honeywell retained consultant Formiga1 to advise whether the cladding met regulatory requirements and what rectification work was needed to achieve compliance.
Honeywell received a report from Formiga1 on 16 October 2020. The external cladding of some buildings was considered to be non-compliant. For other buildings, Formiga1 considered it necessary to consult a fire engineer to determine whether the cladding should be replaced or whether it was acceptable, with or without remedial works. The consultant advised, "Further investigation would be required on the sarking and insulation within the external walls to determine the compliance or otherwise of these materials."

Defects notices

On 11 December 2020, Honeywell issued a notice of defects to Lendlease under clause 10.1(b) and 10.2 of the Interface Deed, that is, in respect of both urgent and non-urgent defects. A detailed eight page schedule of defects was enclosed, identifying where Honeywell had performed temporary rectification works, whether permanent rectification works were required by Lendlease, Honeywell's assessment of the urgency of the Defects and the time frame within which Honeywell requested that permanent rectification work should be completed. The schedule largely concerned water leaks and general defects. Honeywell sought reimbursement of costs incurred performing temporary rectification works, with quantification to be provided shortly. In addition, Honeywell advised that a further defect had been identified, being the use of non-compliant combustible cladding; a defect notice would be issued in respect of this defect shortly.
In March 2021, Lendlease replied, advising that the Construction Contractor had been acquired by Acciona, on whose behalf Lendlease responded. (Acciona later advised Honeywell that Lendlease had authority to act on its behalf in the matter). Lendlease advised that the defects claim was out of time given the ten year statutory long stop date prescribed in section 6.20 of the Environmental Planning and Assessment Act 1979 (NSW). (No mention was made of the contractual limitation period). The defects notice was said to fail to comply with the requirements of clause 10.2 of the Interface Deed in respect of the classification, particularisation and notification of, and attendance to, the alleged defects. In any event, Lendlease offered to meet to discuss the matter further.
On 28 May 2021, Honeywell issued a second defects notice to Lendlease and Acciona in respect of the cladding under clause 10.2 of the Interface Deed, that is, the rectification work was said to be urgent. The report from Formiga1 was attached, together with a two-page schedule of defects setting out the interim risk mitigation measures in place. Honeywell also followed up the first defects notice, noting that the Construction Contractor was required to investigate the Defects and give written notice as to whether it agreed that there was a Defect and, if not agreed, to give reasons for its position. As the defects were said to continue to impact on Honeywell achieving its KPIs for the project, confirmation was sought as to whether the Construction Contractor agreed that the items in the notice were Defects and to complete the required rectification work.
On 7 June 2021, Lendlease proposed, on a without admissions basis, to inspect the alleged defects with Honeywell.
On 10 June 2021, HAC served a notice of breach on Novacare under the Project Deed.
On 15 June 2021, Novacare served a notice of breach on Honeywell under the Hard Facilities Management Deed. Novacare also commenced proceedings in this Court against the defendants. The pleadings in the Novacare proceedings were not then served. Novacare informed Honeywell that it had commenced proceedings against the defendants regarding defects. No-one appears to have followed the dispute resolution procedure set out in relevantly identical terms in the PPP deeds.

These proceedings

On 15 June 2021, Honeywell also commenced these proceeding by filing a Summons and Technology and Construction List Statement. Honeywell sought damages in respect of the defective cladding, water and general defects. Honeywell then pleaded that the works reached completion on 15 June 2009 and that the Liability Period under clause 27.7 of the Design and Construction Deed expired on 15 June 2021, which no doubt explained the commencement of proceedings on that date. Since then, of course, it has emerged that the Liability Period had some months to run.
In its pleading, Honeywell set out the water, general and cladding defects, each of which was said to have become apparent before the expiry of the Liability Period and had the potential to impact on Honeywell's revenue and KPIs under the Hard Facilities Management Deed. In respect of the cladding, the pleading set out the results of Honeywell's investigations thus far, the extent to which the cladding was non-compliant or may be able to be addressed with a performance solution. The pleading stated that "the position regarding the compliance of the sarking and insulation … yet to be determined." The defendants were said to be in breach of the Interface Deed, where Honeywell had given notice of the defects but the defendants had not rectified the defects in response to the notices. As a consequence of these breaches, Honeywell was said to have incurred the cost of investigating the cladding and carrying out temporary rectification works. Further: 45. The plaintiff does not know the extent of any sarking and insulation installed and whether this is combustible and will make enquiries to ascertain this. 46. If combustible sarking and insulation is identified in the Works, this will need to be rectified. 47. The Water Entry Defects and the Cladding Defects have the potential to impact the plaintiff's revenue and KPIs under the Hard [Facilities Management] Deed.
Further, Honeywell contended that, if the defendants continued to fail to comply with the defects notices, it may be required to carry out the necessary rectification work and comply with orders issued by regulatory authorities.
The pleadings were not then served on the defendants. The matter was listed for directions on 23 July 2021. On 13 July 2021, Honeywell's solicitor wrote to the Associate to the List Judge, advising that the proceedings had not yet been formally served "to give the parties the opportunity to participate in discussions to resolve the dispute before costs are incurred to progress the litigation." Honeywell requested an adjournment, advising that the defendants had not been copied to the correspondence as the proceedings had not yet been served, "However, should His Honour prefer that we do so before considering the orders to be made please let us know." Ball J stood the matter over for directions on 19 November 2021.

Efforts to resolve defect issues

On 6 August 2021, Lendlease wrote to Honeywell, repeating that the defects claim was time barred by reason of section 6.20 of the Environmental Planning and Assessment Act. (Again, no mention was made of the contractual limitation period). Further, the Public Health (COVID-19 Temporary Movement and Gathering Restrictions) Order 2021 was preventing inspection of the alleged defects. A reasonable time was needed to investigate the alleged defects before written notice could be given to Honeywell and Novacare as to whether the Construction Contractor agreed that there was a defect. Lendlease did not expect to be able to provide such a notice until at least six weeks after an inspection was held.
Lendlease inspected the cladding on 27 August 2021. Novacare informed Honeywell that the defendants had inspected the hospital and were currently in discussions with HAC and Novacare to agree to a process for the rectification of the cladding defect.
On 21 September 2021, Honeywell pressed Lendlease for a response to the two defects notices, where Novacare required Honeywell to submit a Cure Plan regarding the cladding by 9 October 2021.
On 7 October 2021, Novacare advised Honeywell that it was "presently working with the Construction Contractor to agree a process for ACP cladding rectification works." As such, Novacare did not require Honeywell to submit a Cure Plan in accordance with clause 35.1(b) of the Hard Facilities Management Deed.
On 22 October 2021, Lendlease wrote to Honeywell, denying liability for the defects as time barred under section 6.20 of the Environmental Planning and Assessment Act, where an occupation certificate was issued on 24 March 2010 such that the period in which Honeywell could bring an action against the Construction Contractor expired on 24 March 2020. Further: Accordingly, the Construction Contractor does not propose to engage with any further demands of [Honeywell] to provide a response for the First Defect Notice or the Second Defect Notice. Again, the letter was silent as to the contractual limitation period.
On 4 November 2021, Honeywell replied, pointing to a 12 year limitation period prescribed in the Construction Contract. The parties were said to have 'contracted out' of the statutory long stop. The defendants were invited to reconsider their position and provide a substantive response to the defects notices.

First extension

The Summons was valid for service for six months after the date on which it is filed, being, in this case, 15 December 2021. On 18 November 2021, Honeywell's solicitors wrote to the Associate to the List Judge, advising that the proceedings had yet to be formally served, "This was to give the defendants the opportunity to inspect the defects … obtain expert advice and participate in discussions with the asset owners and operators (who are not our client, but who have separate proceedings filed) to resolve the dispute …". Further: Our client's involvement which extends to bringing these proceedings, is as hard facilities manager, with certain contractual obligations regarding notifying and managing defects. The defendants' inspection of the property … was delayed as a result of travel restrictions under NSW public health orders. The inspection has since occurred and the plaintiff has been informed that the defendants are currently working with the owners and operators of the hospital to agree a process for the rectification of at least some of the defects the subject of the proceedings. Honeywell's solicitors also advised that the defendants had not been copied into the correspondence as the proceedings had not yet been served.
Honeywell sought to extend the time by which it was required to serve the proceedings on the defendants from 15 December 2021 to 4 February 2022. In support of the extension, Honeywell provided an affidavit by its solicitor, Marie-Louise Scarf. Ms Scarf described the contractual arrangements between the parties in general terms, and the parties' respective obligations in respect of defects. Ms Scarf described the cladding defect and estimated that the cost of replacing the non-compliant cladding was over $5 million. As Ms Scarf understood it, HAC held Novacare and/or the defendants responsible for the cost of rectifying the defects, while Novacare regarded Honeywell and/or the defendants as responsible.
According to Ms Scarf, Honeywell had been informed by Novacare that it had commenced proceedings against the defendants in respect of the defects, the defendants had inspected the hospital and were currently in discussions with Novacare and HAC to agree a process for the rectification of the cladding defect. Ms Scarf also stated: In their most recent correspondence to Honeywell, the defendants have stated that they have no liability for the Works, as the applicable limitation periods had expired. … This stands in contrast to the discussions which are ongoing between HAC, [Novacare] and the defendants regarding the rectification of the defects. Lendlease's letter of 22 October 2021 was annexed: extracted at [38].
Ms Scarf said that Honeywell had filed the proceedings to avoid the expiry of applicable limitation periods but had decided not to serve the proceedings "to minimise the parties' legal costs while discussions were ongoing" between the defendants, HAC and Novacare. Ms Scarf added that the progress of the discussions between the defendants, HAC and Novacare had been slower than anticipated, as the defendants' ability to inspect the hospital with their experts was delayed as a result of restrictions imposed by Public Health Orders in New South Wales. An extension of time in which to serve the pleadings were sought, to provide time for the defendants, HAC and Novacare to conclude their discussions "to which Honeywell is not a party" and for Honeywell "to reconcile the fact of those discussions with the position taken by the defendants on limitation periods."
On 18 November 2021, Ball J extended the date by which Honeywell was required to serve the defendants from 15 December 2021 to 4 February 2022. On 3 December 2021, Honeywell wrote to Lendlease following up its request for a substantive response to the defects notices.
Novacare did not seek an extension of time in which to effect service of its Summons. On 14 December 2021, Novacare served the defendants in its proceedings.

Second extension

On 3 February 2022, Honeywell's solicitors approached the List Judge again, seeking a further extension of time in which to serve the defendants, supported by a second affidavit by Ms Scarf, essentially updating her first affidavit. Ms Scarf deposed that the defendants had inspected the hospital and conducted discussions with Novacare and HAC regarding the extent of the defects and who was liable to pay for the necessary repairs.
Ms Scarf again noted that, in its most recent correspondence to Honeywell, the defendants had stated that they had no liability as the applicable limitation periods had expired. Again, this stood in contrast to the discussions between HAC, Novacare and the defendants regarding the rectification of defects. Honeywell was not a party to those discussions and their status at the time of affirming the affidavit was not known.
Novacare's proceedings were listed for directions on 25 February 2022 and an extension to serve the defendants until that date was sought, to provide time for Novacare, HAC and the defendants to conclude their discussion (to which Honeywell was not a party) and for Honeywell to consider whether, having regard to Novacare's pleadings, to amend its own pleadings, "which are intended to pass through to the defendants any liability that it is found to have to [Novacare] in relation to the defects."
On 4 February 2022, Hammerschlag J extended the date by which the plaintiff was required to serve the defendants until 25 February 2022.

Progress of proceedings

Service was effected on 24 February 2022. The defendants filed a Notice of Appearance on 2 March 2022. (The fact that the defendants filed a Notice of Appearance does not detract from their ability to seek a stay, where any such request must be made "not later than when submitting the party's first statement on the substance of the dispute": section 8(1), Commercial Arbitration Act. Ordinarily, "the party's first statement on the substance of the dispute" will be their defence: DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd [2022] WASCA 97 at [91]ff. The defendants have yet to file their defence).
Correspondence ensued in respect of case management to address several matters: amendment of Honeywell's pleadings, allowing the parties further time to engage in discussions, and coordination with the Novacare proceedings. On 16 March 2022, the defendants' solicitor proposed to stand the matter over for a month to "allow the parties to engage in further discussions and for our client to consider its position in relation to the Novacare proceedings. … our consent to stand over the proceedings is expressly without prejudice to our right to argue the proceedings were commenced in the wrong forum or to any other application or defence that our client may have." This was the first indication that the defendants might insist upon compliance with the dispute resolution procedure where, so far as can be told, no-one had observed those procedures to date.
The defendants' solicitor also circulated a proposed cover email to accompany the consent orders, informing the Court that the consent orders were agreed "on the basis that the First Defendant is currently engaged in commercial negotiations in related proceedings which, if resolved, would resolve all matters between the parties in these proceedings." Honeywell's solicitor did not consider that one month's adjournment was sufficient, where Honeywell understood that the defendants proposed to use that time "to enable an expert conference followed by settlement discussions … between [the defendants] and [Novacare]." On 17 March 2022, Hammerschlag J made directions in the terms proposed.
On 29 March 2022, the defendants' solicitors requested copies of the material relied upon by Honeywell in its applications to this Court for an extension of time to serve the pleadings. On 21 April 2022, the defendants applied to the Registrar to inspect the court files. On 27 April 2022, Honeywell's solicitors provided the defendants with the documents sought.
On 27 June 2022, the defendants' solicitors advised Honeywell that the orders extending the time to serve the pleadings should be set aside as it was said that Honeywell did not disclose all material facts relevant to the Court's discretion to extend time. It was said that Honeywell should have disclosed that the proceedings were commenced in breach of an arbitration agreement and, further, that Honeywell had not followed the mandatory dispute resolution procedure in clause 18 of the Interface Deed. Further, Novacare had not commenced proceedings against Honeywell and, because of section 6.20 of the Environment Planning and Assessment Act, was time barred. As such, Honeywell could never be legally liable to Novacare and there was nothing to "pass through" to the Contractor and the Novacare proceedings were irrelevant to these proceedings.
The defendants' solicitors advised that the orders extending time should be set aside; the Summons was stale when served and "The claims are now, on any view, limitation barred." Further the defendants were entitled to have the proceedings referred to arbitration under section 8(1) of the Commercial Arbitration Act 2010 (NSW), the effect of which was that Honeywell could be required to commence fresh arbitral proceedings "which will not be maintainable because the relevant limitation periods have expired." However, the defendants advised that they were committed to reaching a commercial resolution and were "soon to engage in without prejudice discussions" in the Novacare proceedings, which may resolve these proceedings. Honeywell was asked to agree not to rely on any delay by the defendants in bringing an application to set aside the ex parte orders, or to have the proceedings referred to arbitration, whilst these without prejudice discussions were underway. Honeywell agreed.
The parties approached the Court in July 2022 to extend time to comply with directions, where the defendants and Novacare were working to agree on a date for an expert conclave of cladding experts and a later date for a settlement meeting. The Court was informed that additional time was sought where the parties to the Novacare proceedings were "making arrangements for commercial settlement discussions which, if successful, will resolve all or part of the claim in these proceedings."
In November 2022, the defendants' solicitor advised that the timetable in the Novacare proceedings was likely to be extended into the New Year to facilitate the commencement of without prejudice discussions. The Court was informed that a further extension was sought, where there had been some delay by Novacare in commencing settlement discussions in the Novacare proceedings. Those discussions, if successful, would resolve part or all of the plaintiff's claim in these proceedings.
It is apparent from these emails that the Novacare proceedings remained on foot and were also being adjourned from time to time to enable settlement discussions to take place. At the hearing of this application, the without prejudice discussions in the Novacare proceedings remained ongoing.
This application was filed on 9 March 2023. The defendants' solicitor, Paul Tobin, said that the progress of the Novacare proceedings has been slow and, as yet, has not resolved. He considers that it is no longer in the defendants' interest to continue to incur costs in defending a claim which, in his opinion, has been commenced in breach of the arbitration agreement.

Submissions

The defendant submitted that the plaintiff did not disclose material information on the ex parte applications, being: 1. the fact that the Interface Deed contained an arbitration agreement; 2. the plaintiff's failure to comply with the dispute resolution procedure in clause 18 of the Interface Deed; and 3. the fact that, at the time the ex parte applications were made, if the proceedings were referred to arbitration, it was inevitable (or at least strongly arguable) that the proceedings would be time-barred.
Each matter was said to be material to the Court's exercise of its discretion and should have been put squarely to the Court in accordance with the principle in Walter Rau Neusser Oel Und Fett AG v Cross Pacific Trading Ltd [2005] FCA 955. The Construction Contractor was entitled to receive a notice in "reasonable detail" specifying the nature of the Dispute: clause 18.1(b), Interface Deed. The plaintiff did not comply with this obligation. The consequence was that the proceedings were improperly commenced in breach of contract and liable to be stayed: Ipoh v TPS Property No 2 [2004] NSWSC 289 at [30] (per McDougall J). The applications for ex parte extensions sought to continue and extend this situation. The fact that the proceedings were liable to be stayed was a material matter in the Court's consideration as to whether it should exercise its discretion in favour of the plaintiff, particularly where the Liability Period was said to have expired no later than 14 October 2021.
The defendants submitted that, as at the first extension on 18 November 2021, it was reasonable for the plaintiff to assume that because of the absence of a clause 18.1(b) notice, the defendants were proceeding on the basis that no claim was, and could ever, be brought against them by the plaintiff and that the defendants were conducting negotiations with Novacare on that footing. That the defendants were likely labouring under this misapprehension was said to be a material matter that ought to have been disclosed to the Court and was a matter that weighed against the Court extending time so at to permit this situation to continue. (Whilst it might well be the case that the defendants were negotiating with Novacare on the assumption that Honeywell would not make a claim against them, I doubt that Honeywell's solicitor thought about it in the terms suggested by the defendants. Rather it appears from Ms Scarf's affidavits that Honeywell was hopeful that the settlement discussions between the defendants and Novacare proved fruitful, such that it would not be necessary to prosecute these proceedings at all).
The defendant submitted that the plaintiff also did not disclose that, in seeking to extend the time for service, the plaintiff was seeking to secure for itself a forensic benefit to the significant detriment of the defendants. By extending the time for service, it was said that the plaintiff was seeking to avoid the need to proceed with its case diligently so that it could wait and see the results of discussions between Novacare and the defendants and reframe its case beyond the scope of the Dispute known as at 15 June 2021 to take account of new defects discovered by later investigations. The applications for extensions sought to preserve and extend that advantage. Had the plaintiff complied with clause 18 of the Interface Deed, that forensic advantage would not have been available to it. The plaintiff was required to commence and serve (clause 18.1(b) of the Interface Deed) a notice describing the Dispute. It was that Dispute (clause 18.1(e) of the Interface Deed) that would have had to have been referred to expert determination or arbitration before the expiration of the limitation period.
The defendants complained that the pleadings indicate that the plaintiff had not suffered any loss at the time of filing the pleadings but sought to reserve for themselves, during the six month period in which to serve the pleadings and the subsequent extensions, additional time to see if these losses accrued. As at 15 June 2021, no dispute had crystalised in respect of the suspected defects. Honeywell was not then entitled to refer a Dispute to arbitration but impermissibly commenced these proceedings in breach of contract to effectively extend time to claim for defects. The plaintiff sought to reserve for itself the right to incorporate future loss but did not inform the Court that, under the arbitration agreement, it was not entitled to do this. Rather, the plaintiff would have to have a crystalised dispute by the end of the Liability Period for referral to arbitration, failing which it fell on the plaintiff to rectify the defects. Instead, the plaintiff sought to reserve to itself, by commencing proceedings in time, a right to recover in respect to defects which it did not yet know about. Had the plaintiff followed the dispute resolution clause, the matter could not have been referred to arbitration as there was no crystalised dispute. To make matters worse, the plaintiff proceeded to seek two extensions of time in which to serve the pleadings.
Again, I think the defendants put this matter too highly. The contemporaneous correspondence points to the plaintiff delaying service of the Summons to permit the possibility that commercial negotiations then underway between the principal actors in the PPP - the hospital operator and the builder - might resolve the question of responsibility to rectify the defects such that the Hard Facilities Manager need not pursue the matter at all or, at least, need only pursue its claim in respect of Abatement suffered as a consequence of the defendants' suggested breaches of the Design and Construction Deed.
Further, the defendants submitted that the parties had agreed to a private and confidential regime for the resolution of their dispute, being arbitration or expert determination: clause 18.1(a), Interface Deed. By reason of the plaintiff's breach of contract, the plaintiff had, without the defendants' knowledge, aired a dispute in a public forum. The Summons and List Statement were placed on the Court file for any person to make an application to access. That was in circumstances where the defendants are major builders with a significant reputation, and in circumstances where the pleadings make serious allegations in respect of a very topical issue, namely cladding. The public filing of the Summons and List Statement is of potentially significant reputational detriment to the defendants: Strata Plan 92450 v JKN Para 1 Pty Ltd & Anor [2022] NSWSC 958 at [4] (per Black J). Had the contract been followed, these allegations would not be on the public record. The effect of seeking an extension was to permit the allegations in the List Statement to remain in a public forum (without the knowledge of the defendants) for an extended period of time. There is a strong public policy in holding parties to their agreed dispute resolution regimes: Ipoh v TPS Property No 2 [2004] NSWSC 289 at [30]; Onslow Salt Pty Ltd v Buurabalayji Thalanyji Aboriginal Corporation [2018] FCAFC 118 at [16] - [19] (per Besanko, Barker and Colvin JJ). Because of the plaintiff's failure to disclose the existence of the arbitration agreement, the decision to extend the time for service was made without the opportunity to consider these important matters of public policy.
Again, this rather over-states the matter, where the extension applications were ex parte, the defendants later participated in several consent orders being made by the Court in respect of the progress of the matter without raising this concern, and where the Novacare proceedings appear to have proceeded in open court notwithstanding the existence of an identical arbitration agreement.
The defendant submitted that the Court was not told that the Court was being asked to exercise its discretion in aid of a likely futile end. That was said to be because, in light of the arbitration agreement, the Court would be required to refer the proceedings to arbitration. The consequence would be that the arbitration would not commence until a Notice of Arbitration was received by the defendants. The defendants accepted that, if the plaintiff had served a Notice of Arbitration instead of commencing proceedings, it would have been within time. However, as at 18 November 2021, the limitation period had expired. Therefore, the order was sought in aid of an ultimately futile end, being an arbitration that was limitation barred. It was a matter that went squarely to whether the plaintiff retained an arguable case and therefore whether there was any utility in the Court making the order. Had the matter been brought to the Court's attention, there was a real prospect that the Court would have refused to make the order and required the plaintiff to serve the defendants so that the issue could be rapidly brought to a head without the parties incurring further time and expense, and without occupying further court time. (This submission overlooks the fact that conditions may be placed on a referral where court proceedings are commenced in time but, by the time of the referral, arbitral proceedings may be out of time. I will return to this at [100].)
The plaintiff submitted that it had filed these proceedings to protect its interests in the event that the ongoing negotiations between the defendants and Novacare failed to produce an outcome whereby the Construction Contractor agreed to bear the cost of the further rectification work and the cost of rectification fell on the plaintiff. Ms Scarf deposed that the plaintiff commenced the proceedings when it did in order to avoid the expiry of applicable limitation periods but did not serve the initiating process at the time "in order to seek to minimise the parties' legal costs while discussions were ongoing between the defendants, HAC and Project Partnership." The plaintiff was entitled to assume the claim would be resisted whenever it was served, but there was the prospect that wasted costs could be avoided if the parallel discussions to settle the separate proceedings bore fruit first.
The plaintiff submitted that when court proceedings are commenced in the face of an arbitration agreement, the conventional order is a stay rather than a strike-out, where the courts recognise a party's fundamental right to commence civil litigation in appropriate circumstances. Further, it is always open to parties to waive compliance with arbitration agreements. The extension of time for service did not prejudice the defendants' ability to raise that point when they are eventually served, if they wished to do so. The plaintiff submitted that it was under no duty to tell the Court that (contrary to its own position) its claims were bound to fail before an arbitrator as time barred: whether limitation periods have expired is not amenable to summary disposal but falls to be dealt with as part of the consideration of the dispute as a whole, in the usual way. The plaintiff submitted that it was then in no position to serve a Referral Notice under clause 18.1 of the Interface Deed. Any dispute was then inchoate. (The defendants were in furious agreement; this was precisely the defendants' point).
The plaintiff submitted that the defendants could point to no prejudice since the expiry of the contractual limitation period on 14 October 2021, nor during the 10-week extension granted by the Court. The defendants were expressly on notice of claims in relation to the defects by reason of the separate Novacare proceedings and the defect notices given by the plaintiff under the Interface Deed. Nor could the defendants proceed on the asserted basis that no claim would ever be made by the plaintiff given the indemnity in clause 5.4(b) of the Interface Deed. The plaintiff submitted that it was at least arguable that, if Novacare abated payments to the plaintiff because of an act, omission or failure by the Construction Contractor to step in and correct a defect that had been notified, then the indemnity responded. There was a question as to the operation of the contractual limitation period in respect of the indemnity, such that the proceedings could not be described as futile, whether determined in this Court or before an arbitral tribunal.

MATERIAL NON-DISCLOSURE

On an ex parte application, the applicant has a duty of candour as described by Gageler J in Aristocrat Technologies Australia Pty Ltd v Allam (2016) ALR 595; [2016] HCA 3 at [15]: It is an elementary principle of our ordinarily adversarial system of justice that full and fair disclosure must be made by any person who seeks an order from a court ex parte, with the result that failure to make such disclosure is ordinarily sufficient to warrant discharge of such order as might be made. The principle is not confined to particular types of interlocutory orders. Its rationale lies in the importance to the administration of justice of the courts and the public being able to have confidence that an order will not be made in the absence of a person whose rights are immediately to be affected by that order unless the court making the order has first been informed by the applicant of all facts known to the applicant which that absent person could be expected to have sought to place before the court had the application for the order been contested. See likewise Walter Rau at [38] (per Allsop P).
The Court will be astute to deprive an applicant of any advantage obtained by proceeding ex parte without disclosing all material facts to the Court; the duty to disclose must be complied with on pain of a penalty that the order will be set aside: Mineralogy Pty Ltd v The State of Western Australia [2020] QSC 344 at [86] (per Martin J). The question is not whether the order would have been made, or should be made, on the evidence, but whether there has been material non-disclosure. In Savcor Pty Ltd v Cathodic Protection International APS (2005) 12 VR 639; [2005] VSCA 213, Gillard AJA explained at [22]: … The order is set aside because of some irregularity and not on the merits. When this jurisdiction is enlivened, the court's function is to determine on the material that was placed before the judicial officer at first instance, whether a party has failed to discharge the obligation which rests upon any party seeking an order ex parte, namely, making a full and fair disclosure of all matters within its knowledge and which are material, to the court. The court is not concerned whether the order should have been made on the material before the court. … See likewise Palaris Mining Pty Ltd v Short [2012] QSC 224 at [26] (per Applegarth J).
A respondent who applies to set aside an ex parte order on the basis of a material non-disclosure bears the onus of showing that there has been such a non-disclosure: Brags Electrics Ltd v Gregory [2010] NSWSC 1205 at [10]. The test for determining whether a non-disclosure is "material" was explained by Ball J in Principal Financial Group Pty Ltd v Vella [2011] NSWSC 327 at [17]: In order for information to be material for this purpose, I do not think it is necessary that the information would have or was likely to have made a difference to the orders of the court. It is sufficient if the information is information that it could be expected that the opposing party would have wanted to bring to the court's attention and the court would have wanted to consider before making an order. It is only if the requirement of materiality is interpreted in that way that full disclosure is an adequate substitute for a party's right to be heard.
Put differently, a material fact is a matter of substance in the decision making process: Savcor at [35], (per Gillard AJA, with whom Ormiston and Buchanan JJA agreed). It is sufficient that the matter is relevant and of such a nature that it might have been regarded by the Court as of weight: Natural & Gray Pty Ltd v Lane Cove Business Park Pty Ltd [2022] NSWSC 274 at [93] (per Ward J) citing Spry, The Principles of Equitable Remedies: specific performance, injunctions, rectification and equitable damages (6th Ed, Sweet & Maxwell, 2001).
The Court has a general discretion whether to discharge an ex parte order despite a material non-disclosure. As to how the discretion is to be exercised, Gillard AJA explained in Savcor at [33]: Setting aside does not follow as a matter of course. Relevant to the discretion is whether the material non-disclosure was serious or otherwise the importance or weight that should be attached to the omitted fact in the decision making process and also any hardship if the order was set aside. The approach is different if the plaintiff has acted culpably in the sense that the omission to disclose relevant matters was done deliberately to mislead the court. The most likely result in those circumstances would be that the order would be vacated.
The innocence or otherwise of the non-disclosure and the failure to understand its relevance are important factors to take into account: Savcor at [36], citing Brink's Mat Ltd v Elcombe [1988] 3 All ER 188; [1988] 1 WLR 1350 at 1356 (per Ralph Gibson LJ). In Brink's Mat v Elcombe, Ralph Gibson LJ emphasisd that innocence is assessed in the context of an applicant's duty to make inquiries before bringing an ex parte application. At 1356-1357: The applicant must make proper inquiries before making the application. … The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries. The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making … (b) the order for which the application is made and the probable effect of the order on the defendant … and (c) the degree of legitimate urgency and the time available for the making of inquiries … Followed in Locker Group Pty Ltd v HEA Australia Pty Ltd [2015] VSC 752 at [44] and the authorities there cited.
Additionally, as Slade LJ also observed in Brink's Mat Ltd v Elcombe, the application of these principles to the practical realities of any case before the Court cannot be overlooked, "Particularly, in heavy commercial cases, the borderline between material facts and non-material facts may be a somewhat uncertain one. While in no way discounting the heavy duty of candour and care which falls on persons making ex parte applications, I do not think the application of the principle should be carried to extreme lengths": at 1359. In that case, Slade LJ agreed that there was material, albeit innocent, non-disclosure but was also satisfied that discharge of an ex parte injunction would be out of all proportion to the offence and would cause serious potential injustice.
Another example of exercise of this discretion is Principal Financial Group v Vella, where an ex parte Anton Piller order permitted an independent computer expert to examine the defendant's computer. During execution of the orders, the defendant objected to the expert undertaking the task, as the expert had done contracting work for companies associated with the plaintiff in the past. Whilst Ball J concluded that it was material for the Court to know that the expert had been so employed, nonetheless his Honour was not prepared to set aside the search order where there was no deliberate breach of the duty of full disclosure. There was no evidence that the expert had not discharged the duties expected of an independent expert. On discovering the expert's earlier association with the plaintiff, the defendant's legal representatives were present but made no application to the duty judge, where the orders made clear that such an application could be made, by telephone if necessary. Further, a discharge of the Anton Piller order was disproportionate to the breach; justice would not be served by setting aside the orders in the circumstances.

EXTENSION OF TIME FOR SERVICE

To assess whether any non-disclosure was "material", it is necessary to understand the matters to which the Court will have regard on an application to extend time for service under rule 1.12 of the UCPR. The rule requires the exercise of a judicial discretion which is not 'at large' but to be exercised in the context of the rationales for the existence of limitation periods: Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (In Liq) [2009] NSWCA 104 at [28], [30] (per Ipp JA, with whom Tobias and McColl JJA agreed), citing Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541 at 554 (per McHugh J). An important aspect of the public policy behind the limitation period is that potential defendants should be made aware of claims against them within a reasonable time; delay in service of proceedings is particularly serious if it occurs after the expiration of limitation periods: Buzzle at [37], citing Tolcher v Gordon [2005] NSWCA 153 at [3] (per Hodgson JA).
The Court must also have regard to the overriding statutory mandate for the just, quick and cheap resolution of the real issues in the proceedings: Buzzle at [36]. As Ipp JA summarised the position at [43]: Accordingly, the Court should consider, when exercising a discretion such as that under UCPR r 1.12, the attempts that have been made at service, the length of the delay, the reasons for the delay, whether the delay was deliberate, whether notice was given to the defendant, the conduct of the parties generally, and the hardship or prejudice caused to the plaintiff by refusing the renewal or to the defendant by granting it.
The Court should determine the question of extending the time for service by reference, at least, to whether the plaintiff has "good reason" for not serving the originating process within time: Hunter v Hanson [2014] NSWCA 263 at [59] (per McColl JA, with whom Macfarlan JA agreed). Whether or not there is good reason depends on all the circumstances of the particular case; the selection of factors constituting "good reason" is a matter of discretion, as is the relative significance to be given to the selected matters: Hunter v Hanson at [60].
For example, in Buzzle, Ipp JA concluded that it was inappropriate to allow an extension of time for service of the statement of claim where a significant cause of the delay was the plaintiff's willingness to do nothing about service while awaiting a litigation funder's decision as to whether to provide funds. His Honour considered, "Were that to be regarded as a good reason to extend time, the Court would be allowing plaintiffs to arrogate to non-parties the right to decide the period by which the time for service of a writ should be extended. That would be fundamentally in conflict with the Court's duty to exercise, alone, the discretion conferred upon it": at [82].

CONCLUSION

The evidence before the Court on this application was far more extensive than that provided in support of the applications for an extension of time to serve the Summons. The arguments advanced by the parties as to the operation of the Interface Deed were also extensive and complex, presumably having been formulated with the benefit of far greater time and resources than that spent preparing the extensive applications. Whether those arguments should be accepted, however, turns on the circumstances at the time the extension applications were made.

Was there material non-disclosure?

The plaintiff relied on the evidence of Ms Scarf on the two applications for an extension of time, and also on this application. Ms Scarf clearly stated the "good reason" for not serving the Summons within time: "to minimise the parties' legal costs while discussions were ongoing" between the defendant, HAC and Novacare. I have no reason to doubt the veracity of that "good reason." Indeed, the defendants took the same position after the Summons was served, informing the Court that commercial negotiations between Novacare and the defendants, if resolved, would resolve all matters between the parties in these proceedings: see [52]. Ms Scarf's description of the state of discussions was accurate, albeit that Honeywell knew little of the detail, where the discussions were largely between Novacare and the defendants.
Ms Scarf disclosed that the defendants were contending that the claims against them were time-barred and annexed the defendants' most recent letter on the subject. Ms Scarf did not set out the contractual provisions in respect of the 12 year Liability Period. A number of defendants' submissions turn on a detailed examination of these provisions. Beyond giving a broad overview of the contractual relations between the parties, Ms Scarf did not go into this level of detail in her affidavit, nor exhibit the relevant PPP deeds. Nor would one ordinarily expect a plaintiff to go into that level of detail on such an application. The practical realities of "heavy commercial cases" should not be overlooked: Brink's Mat v Elcomb at 1353 (Slade LJ). What was disclosed, however, was that the defendants took the position that the claims against them were out of time; this was a factor to be taken into account in considering whether the extension of time should be granted.
Ms Scarf did not refer to, or annex, clause 18 of the Interface Deed, that is, the parties' agreement to deal with disputes by conferral between senior executives, then by expert determination or arbitration. On this application, Ms Scarf did not explain why the arbitration agreement was not disclosed to the Court when seeking the extensions. That is, I do not know whether Ms Scarf turned her mind to the dispute resolution procedure at the time.
As far as can be told, at the time no-one appears to have followed the dispute resolution procedure set out in relevantly identical terms in the PPP deeds. Rather, following issue of the defects notices, the parties engaged in informal and without admissions meetings, inspections and negotiations, being primarily conducted between Novacare and the defendants. The defendants' correspondence at the time suggests that they had not then examined the detailed of the PPP deeds sufficiently to reveal the 12 year contractual limitation period: see [25], [34] and [38]. In these circumstances, I infer that any failure to inform the Court of the existence of clause 18 of the Interface Deed was innocent rather than deliberate.
Similarly, I infer that any failure to inform the Court that, if the matter was referred to arbitration, the arbitral proceedings may be time-barred, was an innocent and not deliberate non-disclosure. For Ms Scarf to form a view on that subject would have required her to locate the Resolution Institution Arbitration Rules 2020. It seems unlikely that Ms Scarf would have gone to those lengths at the time.
Turning then to whether any non-disclosure was material, I accept that the existence of an arbitration agreement is information that it could be expected that the defendants would have wanted to bring to the Court's attention and that the Court would have wanted to consider before making an order: Principle Financial v Vella at [17]. It was a matter that was relevant and might have been regarded by the Court as of weight: Natural & Gray v Lane Cove at [93]. The fact that no-one was following the dispute resolution procedures falls into the same category, and may have indicated that the parties would be content to resolve their disputes in Court proceedings, that is, to waive their rights under the arbitration agreement.
As to the suggestion that the plaintiff should have disclosed that, if the proceedings were referred to arbitration, it was inevitable (or at least strongly arguable) that the proceedings would be time-barred, the matter which it is suggested that Ms Scarf should have disclosed is not as straight-forward as the defendants suggest. Whether commencing proceedings in this Court has the effect of preventing the limitation period from expiring if the matter is referred to arbitration has been described as an issue of significant complexity: John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [130] (per Hammerschlag J); CPB Contractors Pty Ltd v DEAL S.R.L. [2021] NSWSC 820 at [92]-[111]. The problem has been addressed from time to time by the imposition of conditions.
If Ms Scarf was aware of this potential problem, then it would have been incumbent upon her to bring it to the attention of the Court; a party making an ex parte application is obliged to make full and fair disclosure of all matters within their knowledge: Savcor at [22]. For the reasons at [89], [90] and [91], I infer that Ms Scarf was not aware of this potential problem.
Even if Ms Scarf did not appreciate this potential problem, it is also relevant to consider whether Ms Scarf fulfilled her obligation to make all proper inquiries prior to commencing an ex parte application. To form a view on whether proceedings would be time-barred if a referral to arbitration was made, Ms Scarf would have needed to locate the arbitral rules. Given the merger of IAMA into the Resolution Institute, this may not have been straightforward. Having regard to the nature of the orders ought, being an extension of time for service rather than, say, more draconian orders in the nature of Anton Piller orders or an ex parte Mareva injunction, I do not consider Ms Scarf's duty to make proper inquiries extended so far.
Absent an actual appreciation of this potential issue, I do not consider that failure to raise the matter was material non-disclosure where I am not satisfied that an applicant, acting reasonably, would have formed a view on this matter at the time of the extension application. The Court was informed that limitation issues would arise in the proceedings. The suggested non-disclosure was of an additional limitation issue, where the Court had already been informed that this was a factor to take into account in considering whether the extension of time should be granted. Accordingly, I am not satisfied that there was material non-disclosure of this matter in the circumstances of this case.

Should the orders be set aside?

Turning then to whether the extension orders should be discharged, I have inferred that non-disclosure was innocent and not deliberate. I do not regard the non-disclosure as serious, where a party to an arbitration agreement may commence proceedings in a range of circumstances, for example, where part of the dispute is thought not to be covered by the arbitration agreement or where the party anticipates (or hopes) that the defendant is amenable to having the dispute determined in the Court notwithstanding the arbitration agreement. The extensions were relatively short, totalling 10 weeks straddling the Christmas period. The extensions were sought for "good reason", with a view to minimising the costs of litigation in light of the parallel negotiations that all parties hoped would bear fruit.
Had the Court been informed of the existence of the arbitration agreement, the Court would likely have proceeded on the basis that, when ultimately served, the defendants may seek a stay and would not be prejudiced in doing so by the delay in service. As the defendants accepted, issues regarding the applicability of arbitration agreements and whether a building defects claim is time-barred occur frequently in this list. Had the application to extend time for service been heard inter partes and both issues had been agitated, the issues would most likely have been reserved for determination at a later point in the proceedings, once proper service had been effected.
Significant hardship will be suffered by the plaintiff if the extension orders are set aside. The plaintiff's claim for some $5 million for building defects cannot be pursued in fresh proceedings commenced today, given the passage of time.
Having regard to these considerations, I consider that a discharge of the extension orders would be disproportionate to the breach of the plaintiff's duty of candour failing to disclose the existence of the arbitration agreement. Justice would not be served by setting aside the order in the circumstances.

ORDERS

The parties agreed that the arbitration agreement is operable and that the scope of the dispute falls within it. Ultimately, the plaintiff did not resist these proceedings being referred to arbitration. The parties were also amenable to a costs order in these circumstances: that the costs of these proceedings would be each party's respective costs in the arbitration.
One matter which was not canvassed at the hearing was what conditions, if any, should be placed on the referral, where it is apparent that the defendants will contend, in the arbitration, that the arbitral proceedings are time-barred. I would be assisted by submissions from the parties as to what conditions, if any, should be imposed on the referral, having regard to these factors set out in CPB v DEAL at [111] or other authorities relevant to this issue.
For these reasons, I make the following orders: 1. Dismiss prayers 1 to 3 and 5 of the Notice of Motion filed on 9 March 2023. 2. Direct the parties to confer and provide Short Minutes of Order, preferably by consent, by 4.00 pm on 27 June 2023 as to: 1. referral to arbitration under section 8(1) of the Commercial Arbitration Act 2010 (NSW), conditions to be imposed on the referral, and costs as envisaged by the judgment delivered by Rees J on 20 June 2023 at [99]; or 2. failing agreement on conditions, a timetable for the service of any affidavits or submissions in respect of conditions sought, whether the parties are content for this matter to be determined on the papers and, if not, available dates in the coming month for counsel to appear.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 June 2023

Uniform Civil Procedure Rules 2005(NSW)r 1.12, 6.24, 36.16(2)(b)

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (18 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (21)