Loss of the benefits of arbitration
91 The primary judge held (at [588]) that the Meta parties' conduct in the proceeding below will have caused unnecessary expense, delay and inefficiency to Dialogue if the stay application were acceded to. In other words, Dialogue would have lost the benefits of arbitration, which is precisely one of the effects that, on Judge Ware's evidence, establishes prejudice.
92 As canvassed above, PFM spent significant time conducting work in responding to the various notices to produce, the RFP and Gadens' correspondence on discovery, all of which covered both arbitrable and non-arbitrable claims. In addition to the delay, it can be inferred that undertaking this work also caused Dialogue to incur significant expense. The Meta parties submit that if the arbitration agreement had been raised at an earlier time, not a single thing different would have occurred and, as such, there is no prejudice. That submission is premised on the complaint that the primary judge did not undertake a rigorous delineation of whether the steps taken by the parties were referrable to arbitrable or non-arbitrable claims. They say that those steps which are referrable to the non-arbitrable claims would have been taken in any event and that any expense or delay referrable to those claims is entirely irrelevant to whether Dialogue suffered prejudice.
93 Support for the proposition that the steps and delay in respect of non-arbitrable claims is irrelevant can be found in Fisher v AG Becker Paribas Inc, 791 F 2d 691 (9th Cir, 1986). Fisher concerned a complaint filed in the US District Court of Idaho alleging violations of US federal securities laws, which were non-arbitrable, as well as state and common law claims. The plaintiffs, the Fishers, had signed a number of agreements with Becker, a stock brokerage firm, each of which contained an arbitration clause. Because of the acceptance of the intertwining doctrine at the time the complaint was filed, which doctrine held that arbitration should be denied where common law claims are intertwined with securities law violations, Becker did not move to compel arbitration. That doctrine was subsequently rejected by the US Supreme Court in Dean Witter Reynolds, Inc v Byrd, 470 US 213 (1985). Consequently, Becker moved to compel arbitration three-and-a-half years after the Fishers' complaint was filed, during which time the parties had engaged in extensive discovery.
94 The Ninth Circuit held, first, that the failure of Becker to move to compel arbitration earlier was not inconsistent with its right to arbitration because the acceptance of the intertwining doctrine had the result that the arbitration agreement was unenforceable until Byrd was decided; Becker had properly perceived that it was futile to file a motion to compel arbitration until Byrd was decided. The Ninth Circuit further held that Becker's late assertion of its right to arbitrate was not prejudicial to the Fishers because the extensive discovery they had undertaken would be available for the trial of the non-arbitrable claims, which claims would remain in the US District Court. As such, the time, money and effort expended in conducting that discovery did not constitute sufficient prejudice.
95 The Meta parties' submission assumes that the non-arbitrable claims would continue in the Court parallel to any arbitral proceedings. If that would be the case, then Fisher might have been of assistance. However, the submission that the steps referrable to the non-arbitrable claims would nonetheless have been taken by Dialogue if an application to compel arbitration was filed earlier rings hollow in circumstances where the Meta parties seek a stay of the entire proceeding, either permanently or temporarily pending determination of the arbitration. That is to say, if the Meta parties' application was acceded to, there would be no parallel proceedings. The proceeding in the Court would have been stayed and, depending on the outcome of the arbitration, the steps in fact taken by Dialogue might not have been required or the scope of what was required of it might have been different. At the very least, it would not have been required to participate in ongoing litigation in the Court and the preliminary steps that entails. As such, the belated reliance by the Meta parties on the arbitration agreement caused Dialogue to lose the benefits of arbitration, namely the expedient, efficient and cost-effective resolution of disputes and it caused Dialogue to engage in time-consuming and costly litigation steps that might be wasted. Accordingly, the primary judge was correct to find that Dialogue was prejudiced by the Meta parties' litigation conduct, whatever US test is applied.
96 Further, as mentioned at [68] and [77] above, even if there were to be parallel proceedings, the notices to produce, the RFP and the categories of documents for discovery relate to both arbitrable and non-arbitrable claims. The work undertaken in responding to the integers of those notices and the RFP and the categories of documents that relate to the arbitrable claims would be wasted in respect of the trial of the non-arbitrable claims in the Court.
97 The Meta parties also rely on Newirth v Aegis Senior Communities, LLC, 931 F 3d 935 (9th Cir, 2019), in which Fisher was cited with approval. In that case, the plaintiffs filed a class action complaint in a Californian state court in breach of an arbitration agreement. The defendant, Aegis, removed the complaint to the US District Court and filed a motion to compel arbitration and a motion to dismiss. Aegis did not pursue those motions and, pursuant to an agreement between the parties, the plaintiffs filed an amended complaint. Aegis then filed a second motion to dismiss.
98 In the intervening period, whilst the second motion to dismiss was pending, the parties actively participated in pre-trial steps, including submitting a joint report with a proposed schedule for discovery, a class certification briefing and hearing dates for trial. The second motion to dismiss was finally denied eight months after it was filed. Two months later, Aegis filed another motion to compel arbitration.
99 In relation to prejudice, the Ninth Circuit held that the plaintiffs were not prejudiced by Aegis' participation in discovery, scheduling conferences, and developing proposed orders. Rather, they were prejudiced by the costs incurred in defending Aegis' motion to dismiss on the merits. The Meta parties submit that that is the only way in which a party resisting arbitration can establish waiver. (See also Saint Agnes Medical Center v PacifiCare of California, 31 Cal 4th 1187 (SC Cal, 2003).)
100 However, as the US authorities before the Court explain, a plaintiff who commences a proceeding in court in breach of an arbitration agreement may nonetheless show prejudice if the defendant has engaged in acts that are inconsistent with its right to arbitrate and the plaintiff has incurred costs due to such acts. This is satisfied not only where the plaintiffs would be forced to re-litigate an issue on the merits (such as when the defendant has filed, and the court has determined, a motion to dismiss), but also when the defendants have sought and received an advantage from litigation in court that they would not have received in arbitration. See Newirth at 944; Saint Agnes at 1204. That requires consideration of the second of Judge Ware's factors.