Morrow v chinadotcom

4 Courts have on many occasions entertained applications for a stay of proceedings on the basis that the dispute the subject of the litigation is one as to which the parties have, by contract, committed themselves to engage in a defined resolution procedure before approaching a court for relief. Mr Macfarlan QC who appeared for CCC as applicant upon the Motion and Mr Walker SC who appeared for the Founders as respondents, put forward somewhat different analyses of the foundation of the particular aspect of the Court's inherent jurisdiction. Whatever may be the precise formulation of that foundation, it is clear that the purpose of such a stay is to require the parties to adhere to their contractual compact to delay going to court until after some agreed dispute resolution process of their choosing has been exhausted. In dealing with the particular case of an arbitration agreement, Dixon J said in Huddart Parker Ltd v The Ship Mill Hill (1950) 81 CLR 502: "But the courts begin with the fact that there is a special contract between the parties to refer, and therefore in the language of Lord Moulton in Bristol Corporation v John Hard & Co , consider the circumstances of a case with a strong bias in favour of maintaining the special bargain or as Scrutton, LJ said in Metropolitan Tunnel and Public Works Ltd v London Electric Railway Co , a guiding principle on one side and a very natural and proper one, is that parties who have made a contract should keep it." 5 While this and other similar statements refer to an agreement to submit to arbitration, there is no reason why the same principles should not and do not apply where the agreement of the parties is to follow some other non-curial process for seeking to resolve their dispute. In Badgin Nominees Pty Ltd v Oneida Ltd 18 December 1998 [1998] VSC 188, Gillard J held that the principle in Mill Hill applied to an application for a stay where the parties had agreed to a dispute resolution involving an expert; and in other cases to be mentioned presently, the same approach has been taken in relation to contractual provisions involving other forms of dispute resolution.

The conditions necessary for a stay 6 For a stay of proceedings to be justified on the basis CCC asserts here three conditions must be satisfied. 7 First, in order to avoid being void as an unlawful attempt to oust the jurisdiction of the Court, the provision must operate as a pre-condition to the parties' freedom to litigate rather than a purported denial of that freedom: cf Scott v Avery (1855) 5 HLC 811. 8 Second, it is axiomatic that the disputes which are the subject of the proceedings sought to be stayed must be within the scope of the contractual provision. 9 Third, the agreed contractual process must possess such a degree of definition and certainty as to enable it to be meaningfully undertaken and enforced. 10 In the present case, the first of these conditions presents no difficulty. The Scott v Avery nature of clause 13.16 is obvious. The second and third conditions are more problematic and require separate discussion.

Does the contractual provision cover this dispute ? 11 The second condition - that the scope of the dispute resolution clause be sufficient to comprehend the subject matter of the proceedings - raises two issues in the present case. The first is that the litigation is not confined to claims based on breaches of the SPA. The second is that there are parties to the litigation who are not parties to the dispute resolution clause. 12 The Founders (plaintiffs in the proceedings and respondents on the Motion) contend that the dispute raised in the Further Amended Statement of Claim goes beyond clause 13.16 which, they say, is confined to contractual claims under the SPA. CCC, on the other hand, contends for a broader and more comprehensive operation of the clause. 13 The real issue here is as to the meaning of "any dispute in relation to this agreement": see paragraph (a) of clause 13.16. 14 In support of the broad construction for which CCC contends, Mr Macfarlan pointed to the decision of the Court of Appeal in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 and, in particular, to the following passage in the judgment of Gleeson CJ (in which Meagher and Sheller JJA concurred) at p.165: "When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument." 15 The question in the Francis Travel case was whether a particular dispute was properly described as one "arising out of" an agency agreement. The dispute involved a claim that a purported termination of the agreement had been wrongful because of representations made during the course of the agreement involving, as particularised, representation, estoppel and misleading conduct ion contravention of the Trade Practices Act 1974. The Court held that that claim was one "arising out of" the agreement and it was in that connection that the Chief Justice's warning against construing such agreements narrowly was made. 16 The authorities supporting a broad construction of this kind are discussed in the judgment of Rolfe J in O'Connor v Leaw Pty Ltd (1997) 42 NSWLR 285 where an arbitration clause referred to any dispute or difference "concerning this agreement". His Honour held that this extended to a claim on a quantum meruit. 17 Whether one thing may be said to exist or arise "in relation to" another is, as Lehane J observed in Australian Securities Commission v Bank Leumi Le-Israel ( 1996) 69 FCR 531, very much a matter of impression to be gathered from the whole of the context. In the context with which the Court is concerned here and bearing in mind the approach taken in the Francis Travel case to similar words, the correct conclusion is that "in relation to this agreement" extends to all controversies about the transactions and processes provided for in the agreement or which flow from it. It is not, in my judgment, confined, as the Founders contend, to claims for breach of the agreement. That being so, I hold that all of the alleged wrongs pleaded in the Further Amended Statement of Claim, in so far as they involve acts or omissions of parties to the SPA, are within the contemplation of clause 13.16 and that that clause applies to them accordingly. 18 There is still, however, the point that the defendants in the proceedings include Ernst & Young who are not privy to clause 13.16. In the particular context, however, I do not regard that as fatal to the stay CCC seeks, assuming other conditions of its availability are met. The role of Ernst & Young is, in a sense, secondary and they have made it clear that they will play their part when necessary factual assurances are received and other pre-conditions have been satisfied.

The requirement for certainty of operation 19 Turning next to the third condition, that the dispute resolution clause has the necessary degree of certainty of operation, it becomes necessary to go to some of the case law. Three decisions of this Court have a particular bearing on the matter. They are Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 and Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709, both of which are decisions of Giles J, and the decision of Einstein J in Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236. Also providing guidance is the decision of Warren J of the Supreme Court of Victoria in Computershare Ltd v Perpetual Registrars Ltd, 6 June 2000 [2000] VSC 223. In Hooper Bailie and Computershare, the particular dispute resolution clause was found to have the degree of certain operation necessary to justify a stay, while in Elizabeth Bay and Aiton it was not. 20 Hooper Bailie involved an agreement of the parties to submit to conciliation of their differences by a named conciliator, one Schick. The decision of Giles J on the issue of certainty of operation is summed up in the following passage from his judgment: "[T]here was a clear structure for the conciliation by which Natcon was to attend before Mr Schick, put before him such 'evidence' and submissions as it desired, and receive his determinations. As has been said, ancillary to this arose an exchange of information between the parties for the purposes of the conciliation, and there were no determinations in any sense other than in the sense of suggested solutions. In my opinion Natcon promised to participate in the conciliation by doing those things, and the conduct required of it is sufficiently certain for its promise to be given legal recognition." 21 In Elizabeth Bay, the relevant contractual clauses provided for "mediation administered by the Australian Commercial Disputes Centre ('ACDC')". Giles J had before him evidence of the published mediation guidelines of ACDC but noted that the parties had not purported to contract by reference to those guidelines. He nevertheless accepted a concession that that had been their intention. Even then, however, he found that the guidelines did not identify any applicable form of mediation agreement and contemplated that a number of key features of the agreement in any given case would be as the parties to the mediation agreed. At p.715, Giles J said: "The agreements to mediate were open-ended, indeed unworkable because the process to which the parties had committed themselves would come to an early stop when, prior to the mediation, it was asked what the parties had to sign and the question could not be answered." 22 Earlier, at pp.714-5, referring to the position as it might have been in the absence of the concession as to the applicability of the ACDC guidelines, Giles J said: "The concession makes it … unnecessary to express any view upon whether a mediation clause having no greater content than an agreement to settle the dispute by mediation administered by a named person or body would require of the parties participation in a process of mediation of sufficient certainty for legal recognition of their agreement. It may be that a conclusion favourable to incorporation or sufficient certainty would not be warranted …" 23 The dispute resolution clause before Einstein J in Aiton made reasonably detailed provision for the parties to place their differences before a mediator appointed by the President of the New South Wales Bar Association. The place of mediation was fixed and things the mediator was expected to do were specified. There was also provision as to the order in which the parties might make representations to the mediator. The central clause was: "The Parties agree to use all reasonable endeavours in good faith to expeditiously resolve the Dispute by mediation." 24 At p.252, Einstein J set out what he regarded as minimum requirements which ought to be seen as applying to any stage of a dispute resolution clause, whether for mediation or otherwise. Three of these are: "*The process established by the clause must be certain. There cannot be stages in the process where agreement is needed on some course of action before the process can proceed because if the parties cannot agree, the clause will amount to an agreement to agree and will not be enforceable due to this inherent uncertainty. * The administrative processes for selecting a mediator and in determining the mediator's remuneration should be included in the clause and, in the event that the parties do not reach agreement, a mechanism for a third party to make the selection will be necessary. * The clause should also set out in detail the process of mediation to be followed - or incorporate these rules by reference. These rules will also need to state with particularity the mediation model that will be used." 25 Applying these criteria to the clause before him, Einstein J found that it lacked the necessary certainty. The stumbling block was that there was no provision for determining the costs of the mediator or who was to pay them. 26 In the Computershare case, Warren J emphasised, in holding the particular clause to be sufficiently certain, that there was "a framework to which the parties have agreed including subjecting themselves to an obligation to establish a detailed framework within which a solution may be achieved between them".

Application of the principles to this contract 27 Where does clause 13.16 of the SPA fit within the range of possibilities presented by these cases? The clause provides for a series of steps and it is necessary to trace those steps to see how the clause works. 28 Clause 13.16(a) lays down the general rule that the parties "must attempt to settle by negotiation any dispute in relation to this Agreement in accordance with this clause before resorting to external dispute resolution mechanisms". Clause 13.16(b) then says that a party claiming that a dispute has arisen under this agreement must immediately notify the other parties' Nominees (a party's "Nominee" is, according to the definition clause, the person specified in relation to the party in clause 13.1 or subsequently nominated in writing). Clause 13.16(b) is thus a means whereby the party claiming there is a dispute notifies the other parties of that dispute. Clause 13.16(c) begins with the words "If the dispute is not resolved by the Nominees with seven (7) business days of it being referred to them" - thus implying (but not explicitly saying) that the first step after that referral is for the Nominees to make some attempt among themselves to resolve the notified dispute. Failing that, the remainder of clause 13.16(c) requires that the dispute be referred by the Nominees "in the case of a referral by one or more of the Founders, to the Purchaser's Chief Executive Officer and in the case of a referral by the Purchaser, to one of the Founders". This, on its face, appears to require notification by the Nominees to a particular person within one of the parties only, apparently with the intention that that person will make a unilateral decision as to the stance of the party he represents with respect to the disputed matter. The final stage in the process (which arises from clause 13.16(d) and is to occur if the steps so far mentioned have not produced resolution) is that "the matter must be referred by the Nominees for dispute resolution to the Australian Commercial Disputes Centre or its successors". Finally, and failing successful resolution by any of these means, either party may institute legal proceedings without further notice, provided that at least two months (or any longer period the parties have agreed) has passed since referral to the ACDC. 29 The actual workings of so much of clause 13.16 as involves decision making by the Nominees and either the Purchaser's Chief Executive Officer or one of the Founders is somewhat obscure. But the kernel of the process clearly lies in clause 13.16(d) and the requirement that an unresolved matter "be referred by the Nominees for dispute resolution to the Australian Commercial Disputes Centre or its successors". 30 There is in evidence a volume of material obtained from the web site of ACDC. It was conceded by CCC at the hearing that clause 13.16(d) operates by reference to ACDC and its activities in the dispute resolution arena as they exist from time to time. It was not contended that some ACDC regime existing at the time of the contract was intended to be adopted by the parties in frozen form. Hence, current ACDC material is properly regarded as relevant to the construction of clause 13.16(d). 31 That material makes it clear that the function of ACDC is to promote interest in the resolution of commercial disputes by processes outside the Court system. Further, ACDC is prepared to assist parties in particular cases to adopt alternative dispute resolution measures. The web site material deals with no less than five distinct categories of dispute resolution process, with some of the five having sub-categories within them. Disregarding those sub-categories, the material refers to and discusses mediation, expert appraisal, expert determination, expert recommendation and arbitration. Some of these obviously involve the imposition of a solution by a third party, while others are processes under which parties in dispute are encouraged and assisted to find their own solution by discussion and compromise. 32 Also in evidence was a file note on which Ms Atkins, of Allen Allen & Hemsley, CCC's solicitors, had recorded telephone conversations of 22 and 23 March 2001 between herself and Ms Marks of ACDC. In the first conversation, Ms Atkins outlined the nature of the dispute, referred to the present application and asked whether ACDC would become involved. Ms Atkins' note also says: "We would prefer mediation not arbitration."

In the second conversation, Ms Marks confirmed that ACDC would accept a referral and discussed choice of mediator. 33 Correspondence between Ms Atkins and Ms Marks was in evidence. By her letter of 22 March 2001 to Ms Marks, Ms Atkins outlined the background and continued: "Our client has instructed us to make enquiries of the Australian Commercial Disputes Centre (ACDC) in relation to the referral of the matter to the ACDC for dispute resolution pursuant to clause 13.16 of the Stock Purchase Agreement or a referral from the Supreme Court of New South Wales under Rule 72C(1) of the Supreme Court Rules and section 110K of the Supreme Court Act 1970 (NSW) to mediate. We attach a copy of clause 13.16 for your reference. We would appreciate it if you could let us know the following: (i) whether ACDC would be willing to accept referral of this matter; (ii) the likely costs involved in ACDC's provision of dispute resolution services in relation to this matter; (iii) the availability and identity of persons able to be nominated by ACDC to her the matter; and (iv) whether ACDC would be willing to provide a list of proposed individuals to broker an agreement between chinadotcom and the Founders (and potentially Ernst & Young) by 9:00 am on Monday, 26 February 2001 before the payment of a security deposit or registration fee."

In her reply, Ms Marks of ACDC confirmed that ACDC was "willing to accept a referral in this matter to provide a suitably qualified panel of mediators". She also said that if the parties could not agree on a mediator "we can select the person most highly ranked". She then referred to the usual process under which, after "the mediator is selected", there is a preliminary conference "to explain the process, briefly canvass the issues and set a mutually suitable date for the mediation". Ms Marks' letter went on to deal with costs and said: "We expect that ACDC will receive an undertaking either from yourselves or from the parties concerned that the costs mentioned above will be met."

She also sent a copy of the ACDC guidelines for commercial mediation. 34 The evidence about ACDC and its functions generally, as well as the evidence about CCC's approach to ACDC and ACDC's response, make it clear that ACDC is not itself a resolver of disputes, in the sense that it performs the function of making binding decisions, even though it might advise parties to resort to such a third party decision maker. Nor does ACDC purport to have any function of directing parties into one of the possible resolution processes. It is purely a facilitator, assisting parties to choose and implement their own regime for resolution of their dispute. The expressed willingness of ACDC to facilitate one particular method (mediation) in the present case, rather than any other form of resolution, was not the result of any ACDC decision. It resulted rather from CCC's expressed preference for that method both through Ms Atkins' telephone conversation with Ms Marks where CCC's wish to have mediation rather than arbitration was stated and from item (iv) of Ms Atkins' letter which, by referring to "proposed individuals to broker an agreement", also contemplated mediation or something very much like it. 35 I should interpolate here that Mr Macfarlan referred to cases in which parties to a contract leave some important element of their bargain or relationship to be fixed by a named third party. An example in the High Court of such a contract being upheld as sufficiently certain is Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600. But this line of authority is not relevant to the matters now under consideration. Clause 13.16 does not refer to dispute resolution "by" ACDC or cast ACDC in the role of a decision maker who is, by the parties' agreement, to fill a gap they have consciously left. Rather, the clause speaks of a dispute being referred "for dispute resolution to" ACDC without seeking to define its role. 36 In the light of the evidence, it is not possible to ascribe to clause 13.16(d) the kind of certainty as to procedure and process which the authorities make an essential ingredient of positive exercise of the jurisdiction to order a stay upon an application of the kind now before the Court. The outcome, therefore, must be that the application for a stay of proceedings is dismissed.

Should the Court order mediation ? 37 The applicant seeks, in the alternative, an order for compulsory mediation under the provisions of the Supreme Court Act 1970 and the Supreme Court Rules providing for such orders to be made. That jurisdiction is, of course, discretionary. 38 CCC's desire to see a Court ordered mediation is not shared by the Founders. They, in fact, vigorously oppose any such move, mainly on the basis that, as they see it, the matter is urgent and can best be dealt with by the ordinary processes of the Court. 39 The jurisdiction CCC seeks to invoke is created by s.110K of the Supreme Court Act which has been in its present form only since 1 August 2000 when the Supreme Court Amendment (Referral of Proceedings) Act 2000 commenced. Before that, the Court could not order mediation unless all parties to the proceedings agreed. Counsel drew my attention to two decisions of Perry J of the Supreme Court of South Australia in which the implications of the jurisdiction to order mediation over a party's opposition were briefly considered: see Hopcroft v Olsen, 21 December 1998 [1998] SASC 7009 and Baulderstone Hornibrook Engineering Pty Ltd v Dare Sutton Clarke Pty Ltd, 7 June 2000 [2000] SASC 159. Apart from confirming that, in an appropriate case, the Court should order compulsory mediation against the will of one or more parties, I do not think these authorities provide any particularly useful guidance. As Perry J said in the earlier case, after noting that there was a dearth of precedent to guide him: "Be that as it may, it does not appear to me that precedent is of much assistance in determining the present application. Every case involves different circumstances. What might be an appropriate procedure in one case, may clearly be inappropriate in another." 40 It is appropriate, therefore, to turn to the circumstances of the present case and to the considerations which counsel submitted have relevance to the exercise of the Court's discretion. 41 Mr Macfarlan for CCC saw it as particularly relevant that the parties have, by clause 13.16 of their agreement, shown a predisposition towards alternative dispute resolution. He also says that the matter as a whole is not attended by such urgency that it would be unreasonable for the parties to spend time on a mediation before seeking to have the Court adjudicate. 42 Mr Walker, on the other hand, said that if, as has transpired, clause 13.16 is found not to be a source of an obligation to engage in mediation, the argument based on the presence of clause 13.16 in the SPA falls away, the reality being that the parties have not agreed to a mediation process at all. Mr Walker characterises the power of the Court under s.110K as a power to defer adjudicating the dispute between the parties. Before a Court does that, he says, there needs to be something to single the particular controversy out from the ordinary course and to justify the parties being subjected to the burden of the additional time and money that a mediation involves. 43 The fact that the parties showed in their agreement a desire to adopt some alternative dispute resolution procedure which, as in the present case, has been found to be of uncertain operation is, at most, of marginal relevance to the question whether the Court should impose some such regime against the will of one of them. That question has to be determined by reference to the circumstances which exist at the time of the proceedings, not at the time the parties contracted. 44 The clearly stated preference of one party to continue with the litigation which that party sees as the most appropriate means of dispute resolution must cause a Court to think very carefully before compelling what, on the face of things, may well turn out to be an exercise in futility attended by delay and expense. There will no doubt be some cases where such a course will be justified: where, for example, the Court perceives that emotional or other non-rational forces (including unreasonable intransigence) are at work and a proper sense of proportion may be introduced into the picture by the efforts of a third party skilled in conciliation. 45 The present proceedings involve commercial parties engaged in a commercial transaction. They may be taken to possess a reasonable degree of business sophistication and acumen. Presumably they (and certainly their respective solicitors) are well aware of the potential benefits, in many cases, of mediation and other non-curial resolution processes. If, with the benefit of that knowledge and the advice of their solicitors, they do not all see sufficient value in resort to some alternative procedure of their own choosing there is, it seems to me, very little, if anything, that is likely to be gained by the Court compelling them to pay at least lip service to it. 46 While the abstract pros and cons of compulsory mediation have been discussed elsewhere (see, for example, D. Spencer, "Mandatory Mediation and Neutral Evaluation: A Reality in New South Wales", (2000) 11 ADRJ 237), the Court's task in a particular case is to assess the situation before it. My assessment in this case is that mediation forced upon one of the parties, rather than voluntarily embraced by all of them, would be unlikely to achieve anything useful. I note in passing that a similar assessment by Cox CJ in Burke v Humphrey 18 December 2000 [2000] TASSC 178 caused him to observe that an order for compulsory mediation would have been inappropriate, even if the Tasmanian rule of Court purporting to allow the making of such an order had not been ultra vires. 47 For these reasons, CCC's alternative application based on s.110K of the Supreme Court Act and rule 70C of the Supreme Court Rules is also dismissed. Access to mediation or any other form of dispute resolution may be obtained at any time through a simple agreement among the parties to pursue such a course.

Conclusion 48 The Notice of Motion is dismissed with costs. **********

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