Victorian Civil and Administrative Tribunal|2001-11-30

LU Simon Builders v Lubeca Systems Aust Pty Ltd [2001] VCAT 2217 (30 November 2001)

1. In this matter the second respondent GIO Australia Limited has sought orders that the applicant's proceedings as against it be stayed or that it be struck out pursuant to s77 of the Victorian Civil and

3. It commenced construction in November 1999. It engaged Eltrax Pty Ltd as a sub-contractor to do certain portions of the structural work. In turn Eltrax engaged Lubecer Systems Pty Ltd, the first respondent, as a sub sub-contractor. Apparently it is a specialist in erection works and employs what is described as a "Lubecer Mark 2 self climber jump form system".

4. On 18 January 2001 in the course of construction work at the building site an incident occurred whereby the jump form system operated by Lubecer failed when in operation. A subsequent examination disclosed the failure of welds around a plate described as a cover plate to the top of the tilt feed sliders. As a result, both the applicant and Eltrax Pty Ltd suffered damage. The applicant claims that the total quantum of that damage is just under 1.25 million dollars. In these proceedings the applicant seeks recovery of that sum from Lubecer.

5. In June 1999 the LU Simon group of companies of which the applicant is one entered into a "contract works and third party legal liability" insurance policy with the second respondent ("GIO"). It is contended that both the applicant and Lubecer are entitled to be indemnified by that policy in respect of loss occasioned by the incident.

6. Initially GIO accepted the obligation to indemnify but upon the emergence of an issue as to the magnitude of that indemnity that admission has been withdrawn. However the affidavit filed in support of the current application which is an affidavit by Simon Andrew Lee a partner in the Sydney office of Ebsworth and Ebsworth who has the conduct of this application on behalf of GIO, admits the existence of the policy. His affidavit refers to condition 8 of the policy which I will reproduce in full.

"All differences arising out of this insurance shall be referred to the decision of an arbitrator to be appointed in writing by the parties in difference of if they cannot agree upon a single abitrator to the decision of two arbitrators one to be appointed in writing by each of the parties within 1 calendar month after having been required in writing so to do by either of the parties or in case the arbitrators do not agree of any umpire appointed in writing by the arbitrators before entering upon the reference. The umpire shall sit with the arbitrators and preside at the meetings and the making of an award shall be a condition precedent to any right of action against the Insurer. If the Insurer shall disclaim liability to the Insured for any claim hereunder and such claim shall not within 12 calendar months from the date of such disclaimer have been referred to arbitration under the provisions herein contained then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder."

7. Relying upon that clause, GIO seeks a stay of the proceedings upon the basis that the applicant has a contractual obligation to refer the issues that exist between it and GIO to an arbitrator. Its general contention is that the parties have agreed that in the event of differences arising over the policy this should be done.

8. Mr F.J. Tiernan who appeared on behalf of GIO put to me that the policy was given on the basis of a binding agreement that disputes between the parties would be resolved by arbitration. Accordingly, the proper course was to stay the proceedings pending the determination of the issues between the parties in the manner envisaged by clause 8. He contended that the Tribunal had an inherent power to stay proceedings when the circumstances require that course to be taken. He referred to a decision of Ms Cate McKenzie, Deputy President, in Dowie v Northey and Northey Enterprises Pty Ltd delivered on the 22 March 2000. In that case Ms McKenzie said:-

"In my view VCAT has power to stay proceedings. This power is given by a combination of various sections. There is s.80 which is the power, among other things, to do whatever is necessary to facilitate the fair hearing of proceedings. There is the Tribunal's obligation under s.97 to act fairly. There is the Tribunal's power to regulate its own procedure under s.98(3). The principles that ought to be applied in relation to stays are the principles, in my view, which courts apply in the same circumstances.

Those principles are these, applying them to these proceedings. Prima facie a complainant is entitled to have his or her complaint heard in the ordinary course of the procedure and business of the Tribunal. It is a grave matter to interfere with this entitlement by a stay of proceedings which must be justified on proper grounds. The respondent, or the person who seeks the stay, needs to show that it is just and convenient that the complainant's ordinary right should be interfered with. The Tribunal's task is to balance justice between the parties having regard to all relevant factors. Each case must be judged according to its own circumstances. The effect of the stay on both complainant and respondent must be weighed. In appropriate cases proceedings may be allowed to proceed to a certain stage and then stayed_."_

9. Mr Tiernan acknowledged s28(2) of the Instruments Act 1958 which provides that the arbitration of any claim upon the contract of insurance shall not be a condition precedent to the institution of proceedings in any court. Mr Tiernan pointed out that VCAT is not a court for the purposes of s28(2) and thus this application is not governed by that provision. He referred me to a passage from Jacobs "Commercial Arbitration Law and Practice" at para 50.290. The author asserts that "the present judicial climate in England and other jurisdictions such as the United States tends to encourage arbitration as a dispute resolution mechanism." The learned author noted recent decisions in both the New South Wales Supreme Court of Appeal and from the trial division of the Victorian Supreme Court that were against this trend. However, in the most recent decision, Abi Group Contractors Pty Ltd v Transfield Pty Ltd (1998 ) VSC 103 (16 October 1998) Gillard J said:-

"The reason is obvious. The parties have made an agreement to that effect and the Court should enforce it. The general rule should only be departed from if there is good cause."

10. On behalf of the applicant Mr Foxcroft SC disputed the inherent power to stay proceedings in the Tribunal. He referred to Adelaide Steamship Industries Pty Ltd v Commonwealth of Australia (1974) 8 SASR 425 in which at 439 Bright J said:-

"For the present it is sufficient to say that in my opinion the only power in either South Australia or New South Wales to stay an action on the ground of an agreement to refer disputes to arbitration is a statutory power. The High Court held in Anderson v GH Michell & Sons Ltd that the rule which I quoted earlier from Holworth still prevails.

An agreement to refer disputes whether existing or future to arbitration could, apart from statute, be enforced only by an action for damages against the party who refused to carry it out."

"The absence of a right to a stay, apart from statute, in case in which parties have agreed to arbitrate, was expressed by the Full Court of NSW... in Murphy v Benson"

11. Despite that view I have little doubt there is an inherent jurisdiction in the Tribunal to stay proceedings in an appropriate case. I accept the reasoning of McKenzie DP in Dowie. The question is whether in the circumstances of this case this is the course that I should take. Mr Foxcroft's argument to the contrary was based upon a contention that the evidence did not disclose:-

(i) the existence of an applicable arbitration agreement;

(ii) whether GIO was ready and willing to arbitrate;

I have already set out the text of clause 8 upon which GIO relies. Mr Foxcroft contended that there was an inconsistency between that clause and clause 5. It provides:-

"The Insurer hereon agrees that in the event of a dispute arising under the policy, the Insurer at the request of the Insured will submit to the jurisdiction of any competent court in Australia. Such dispute shall be determined in accordance with the law and practice applicable in such court."

12. Mr Foxcroft's argument is that the only way the two clauses can be reconciled is to discern a difference between "a dispute" (clause 5) and a "difference" (clause 8). It is only the latter that the parties have agreed to refer to arbitration, not the former. Remarkably, in respect of the former, the insurer submits to the jurisdiction of any competent court in Australia by which the dispute shall be determined in accordance with the law and practice of such court.

13. Mr Foxcroft's point is that a "difference" is not of so high an order as a "dispute". He submits that now that the concession of indemnity has been withdrawn, the issue between the parties is fundamental. Therefore, it is a "dispute" in respect of which clause 5 applies and not a mere issue of no fundamental substance which would be governed by clause 8.

14. In my opinion there is some logic in this contention. The use of the words "dispute" and "difference" in virtually adjacent clauses in the policy must have some significance. In the absence of a definition of what is meant by either term, however, that significance is far from clear. I accept the contention that a "dispute" suggests a much more fundamental issue between the parties than a "disagreement". If that is the rational way of distinguishing between the two, the situation that exists here, ie. where there is no agreement to indemnify despite apparent acceptance of the existence of the policy, must be characterized as fundamental and, therefore, a "dispute".

15. If that be the case then the arbitration clause has no current application. That being my view there is no warrant for the granting of the current application to stay the proceedings. Accordingly it will be refused.

16. That is sufficient to dispose of the current application. However, in the light of the argument I think I should express my views as to the exercise of discretion. It appears to me that the passages quoted from Gillard J above and also from Rogers J in Dupal v Packett and Son Construction Pty Ltd (21 July 1983) and Quantas Airways v Dillingham Corp (1985) 4 NSW LR 113 at 118 quoted in Jacobs (at para 50.1300) support the existence of a discretion.

17. If I have a discretion, I would express it in favour of allowing the current application to proceed. What seems to me to be the important consideration is the existence of the claim against the first respondent. If the issues between the applicant and the second respondent are referred to arbitration this will leave on foot the applicant's claim against the first respondent. It is clear from the correspondence that there is a significant difference as to the scope of the indemnity that the policy offers the applicant. At present the parties value their version of the scope of the indemnity at $105,000 as against 1.25 million dollars.

18. If GIO is even partially successful in its claim for some limit in the scope of the indemnity the proceedings against the first respondent will remain on foot. There must necessarily be substantial duplication in the issues canvassed at arbitration and in these proceedings. Such duplication is expensive and undesirable. There is the risk of inconsistent verdicts. The position of further complicated by reason of Lubecer being a co-insured under the same policy. If the present applicant was unsuccessful on arbitration and the applicant sought to recover against Lubecer, it would have the right to seek to enforce the policy. It could not be bound by an arbitration to which it was not a party. That would require either separate arbitration involving Lubecer or the issue being resolved by this Tribunal. In either event it is a significant complication. The better course it to allow this application to proceed.

19. In the circumstances, it seems unnecessary to refer to the other points made by Mr. Foxcroft, ie, his contention that I could not be satisfied that G.I.O. ready and willing to arbitrate. The issue was whether it ought to have taken the initiative in the matter. Mr. Tiernan's response is that it was not obliged to do so. The onus was on the party seeking indemnity. In my opinion, this is not a complete answer. In any event, the point is relevant only to the exercise of the discretion. As I have indicated, for other reasons I decline to exercise the discretion in favour of a stay. For the same reasons, I decline to exercise the power given by s.77.

LU Simon Builders v Lubeca Systems Aust Pty Ltd [2001] VCAT 2217

At a glance

Court

Decision date

Source

Judgment (32 paragraphs)

LU Simon Builders v Lubeca Systems Aust Pty Ltd [2001] VCAT 2217 (30 November 2001)

Parties

Cases Cited (2)