Makool Brothers Pty Ltd v. Business Compass Pty Ltd & Anor [2014] VCC 1708 (16 October 2014)

1. There is no dispute on the present application that:

1. clause 23 of the joint venture agreement made 1 August 2002 is an "arbitration agreement" for the purpose of the section; 2. the defendants by a letter from their solicitors dated 15 September 2014, and by their defence of the same date made a relevant request under the section to refer the dispute between the parties to arbitration;

1. the dispute referred to arbitration by the defendants: 1. is the dispute the subject of the present proceeding; 2. was canvassed by the defendants in a letter from their solicitors to the plaintiff's solicitors dated 11 February 2014, responding to a letter from the plaintiff's solicitors dated 21 January 2014.
2. The issues in dispute on the application are:

1. whether the defendants' solicitors' letter dated 11 February 2014 was the defendants' "first statement on the substance of the dispute" as that phrase is used in s.8, or whether the phrase refers to a statement first made after the proceeding is issued; 2. whether the parties agreed that the defendants would forego their right to refer the dispute to arbitration and instead have the matter determined by court proceedings. In this regard the plaintiff relies upon correspondence between the parties as follows: 1. plaintiff's solicitors' letters dated 21 and 27 February and the defendants' solicitors' letters dated 24 February and 7 March 2014; or 2. plaintiff's solicitors' letter dated 1 April 2014 and the "silence" or lack of response by the defendants' solicitors to that letter;

1. alternatively, whether the correspondence referred to in (b) and the subsequent steps in the proceeding by the defendants constituted a waiver which now prevents the defendants relying upon their rights under

s. 8 of the Act to bring the present application. The steps in the proceeding by the defendants relied upon by the plaintiff are as follows:

1. filing an appearance on 14 August 2014; 2. indicating in a further letter dated 1 September 2014 that the defendants required the "opportunity to inspect all joint venture financial documents" before they were able "to properly plead their defence in the matter"; 3. the inspection of the relevant documents by defendants' counsel on 9 September 2014.

First statement of the substance of the dispute

1. It is clear that, as Vickery J said in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSC 435 at paragraph 128, "Section 8 also has an inbuilt time limit. It operates only when a party makes a request (to refer the matter to arbitration) not later than when submitting the party's first statement on the substance of the dispute".
2. Section 8 does not refer specifically to the statement needing to be a statement made in the proceeding, as defendants' counsel, Mr Stirling, contended.
3. He submitted that, nonetheless, this was the only sensible construction to be given to the section. He relied upon the following matters:

1. The relevant "request" to refer the dispute to arbitration referred to in the section must be one made after the proceeding has commenced; 2. The "dispute" to which the request refers cannot be fully known until after the proceeding is commenced, particularly if the "statement" is to address the "substance of the dispute".

1. the "statement" envisaged by the section should refer to a party's defence, answering affidavit(s) or other formal response required in the proceeding;

1. a reliance upon a statement prior to the proceeding would introduce uncertainty in what is intended as an "inbuilt time limit"; 2. a "statement" would otherwise be capable of including pre-action correspondence (or even oral discussion) concerning the dispute; 3. such a broad interpretation of the word "statement", apart from leading to uncertainty, might hinder the parties' participation in sensible pre-litigation dispute resolution processes. In the present case, the defendants' solicitors were responding to a letter from the plaintiff's solicitors which requested an "immediate" response if "legal recourse" was to be avoided.
2. Mr Stirling submitted further, that in the present case, the defendants' solicitors' letter dated 11 February 2014 specifically stated, in the 4th paragraph, "May we address a number of issues that are not intended to be a complete review of our client's claims and entitlements but rather as an invitation for your client on whose behalf you make the claim on the 21st January last to respond..."
3. Plaintiff's counsel, Mr Ravech, made the following submissions:

1. the time limit in s.8 is not simply a reference to a "statement" made in the proceeding, as it might have been if that limited had been expressed. The section uses the terms "action" and "matter" in the opening words. These words are not repeated in the phrase "the party's first statement on the substance of the dispute". 2. the reference in the section to "party" is defined in the Act as a party to the arbitration agreement rather than a party a court action;

1. the "dispute" canvassed comprehensively in the defendants' solicitors letter dated 11 February 2014 was the same dispute raised in the plaintiff's solicitors' letter to which the defendants' solicitors responded and, in the statement of claim attached to the writ;

1. the emphasis in the reference in the section to the "statement" is to the "dispute" and not to the "action" or "matter"; 2. the defendants' solicitors' letter addressed "the substance of the dispute" in some detail;
2. In my view, the defendants' construction of s.8 is to be preferred. The courts have always paid regard to the parties' intention, expressed in arbitration clauses, that the disputes on differences between them should be resolved by the processes to which they have agreed.
3. Section 8 of the Act was not intended to divest a party of its rights to refer a dispute to arbitration save in the circumstances which are provided for. Those circumstances should be clear and as free from uncertainty as possible. In my view, that is only possible if the "first statement" referred to in the section is read as referring to a statement made as required by the particular "action", such as the filing of a formal defence to the statement of claim.
4. At the conclusion of oral submissions, counsel were given the opportunity of providing further written submissions if they were able to find any relevant authority which might assist in the construction of s.8. Counsel were unable to find any such authority.

Did the defendants agree to forego its right to request arbitration?

1. The defendants' solicitors' letter dated 11 February 2014, made the surprising claim that clause 23 of the joint venture agreement "should refer to mediation rather than arbitration". In response, the plaintiff's solicitors letter dated 21 February 2014 declined "to comment on your interpretation of clause 23 of the joint venture agreement at this stage".
2. In their letter dated 24 February 2014, the defendants' solicitors disputed matters raised about the dispute and stated, "should you have instructions to commence proceedings [we] are instructed to accept service of those proceedings".
3. The plaintiff's solicitors responded on 27 February 2014, noting that, in view of the defendants' solicitors' view of clause 23, and in the absence of advice to the contrary, that they "will presume your client agrees that the appropriate forum is either the County Court of the Supreme Court, and that your client will not object to the jurisdiction of either of these Courts".
4. The next letter from the defendants' solicitors was dated 7 March 2014. It does not specifically refer to the "presumed agreement" the plaintiff's solicitors had referred to in their letter dated 27 February. The letter did note that mediation would "at least narrow down the issues and the parties will be able to litigate the specific issues in dispute".
5. I do not consider, at that stage, that an agreement had been reached that the parties would litigate their disputes and that the defendants had given up on their rights to refer the dispute to arbitration or to make an application under s.8 if proceedings were issued. I do not consider that the necessary elements of such an agreement were present, particularly the intention to enter legal relations, or certainty of terms.
6. The plaintiff's solicitors were, apparently, not sure at that stage whether the defendants had foregone their rights to refer the dispute to arbitration. Their letter dated 1 April 2014 noted the defendants' solicitors previous "assertions that the references to 'arbitration' in the joint venture agreement should be references to 'mediation'" and asked, "should your client subsequently object to the jurisdiction of the court on the basis that arbitration should have been commenced, this letter will be produced and costs of appearing on the return of such application will be claimed on an indemnity basis".
7. I do not consider that the defendants' solicitors' "silence" by their absence of response to this letter could be capable of resulting in the formation of an agreement which prevents the defendants from pursuing the present application.

Have the defendants waived their rights to proceed to arbitration?

1. In Zhang v Shanghai Wool and Jute Textile Co Ltd [2006] VSCA 133, the Court of Appeal considered whether a party had waived its rights to proceed to arbitration and was thereby precluded from making an application for a stay of a court proceeding in relation to the same dispute, pursuant to s. 7(2) of the International Arbitration Act 1974 (Cth).
2. At paragraph 13, Chernov JA (with whom the other members of the Court agreed) said, "it may be accepted for present purposes that, since the right to arbitration is a private right, a party may waive reliance on it, thereby rendering the arbitration agreement 'inoperative'".
3. At paragraph 14, Chernov JA noted that "waiver is constituted by the deliberate, intentional and unequivocal release or abandonment of the right that is later sought to be enforced", and at paragraph 15, that "waiver by election may be established by demonstrating that the party in question had elected to pursue a substantive right that is inconsistent with that which it is now seeking to press".
4. At paragraph 16 Chernov JA considered that it was not open "on the evidence to conclude that the appellants waived their right to arbitration in the sense of having intentionally and unequivocally abandoned it", and at paragraph 18 noted that the taking of "a step in the proceeding, does not necessarily amount to an unequivocal waiver of the right to arbitrate such as to disentitle the defendant from later seeking an order pursuant to s.7(2) of the Act".
5. In my view, the argument in the present application must also fail for the following reasons:

1. there was no "deliberate, intentional and unequivocal release or abandonment of the right" of the defendants to refer the dispute to arbitration; 2. the defendants had not been seeking "to pursue a substantive right that is inconsistent" with the right to refer the dispute to arbitration;

1. the steps taken after the proceeding was commenced, even in conjunction with the earlier correspondence, did not "amount to an unequivocal waiver of the right to arbitrate".

1. Accordingly, the proceeding will be stayed until the resolution of the dispute by arbitration, or further order.
2. I will hear the parties further as to the form of the order and on the question of costs.

I certify that these 6 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 16 October 2014.