Plaintiff/First Defendant by Counterclaim v Defendant/Plaintiff by Counterclaim

Supreme Court of Victoria|2015-11-17|Before: VICKERY J

ARBITRATION - Domestic arbitration - Referral to arbitration - Stay of proceedings pursuant to arbitration agreement - Whether arbitration agreement inoperative or incapable of being performed - Difficulty or impossibility of identifying loss or damage before litigation is concluded - Decision of the High Court of Singapore in Sembawang Engineers and Constructors Pte Ltd v Covec (Singapore) Pte Ltd [2008] SGHC 229 followed - Commercial Arbitration Act 2011 (Vic), s 8.

2 The first is an application by Brimbank City Council, the Defendant and Plaintiff by Counterclaim ('BCC'), for leave to further amend the defence and counterclaim. There is no challenge made to that application by any party. I grant leave to amend the defence and counterclaim in the form of the Further Amended Defence and Amended Counterclaim dated 18 August 2015.

3 The second is an application by Arcadis Australia Pacific Pty Ltd (formerly known as Hyder Consulting Pty Ltd), the Second Defendant by Counterclaim ('Hyder'), under s 8 of the Commercial Arbitration Act 2011 (Vic) that certain matters set out in the Further Amended Defence and Amended Counterclaim dated 18 August 2015 be referred to arbitration. For the reasons that follow I will order that the matters set out in paragraphs [80] to [85] of the Further Amended Defence and Amended Counterclaim dated 18 August 2015 be referred to arbitration in accordance with Clause 15 of the contract between BCC and Hyder dated 19 August 2005 (the 'BCC-Hyder Contract').

4 The events that have led to these applications can be summarised as follows.

5 On or about 19 August 2005, Hyder entered into a contract with BCC (the 'BCC-Hyder Contract') by which it was engaged to provide design, tender documentation and contract administration services to BCC in connection with the renewal of urban infrastructure in the North Sunshine Industrial Area. The BCC-Hyder Contract incorporated the provisions of Australian Standard AS4122-2000.

6 In or about December 2007, the Plaintiff, Novawest Contracting Pty Ltd ('Novawest') entered into a contract with BCC for the construction of road, drainage and other services for Stage 2 of the North Sunshine Industrial Estate (the 'Stage 2 Contract').

7 In or about November 2008, Novawest entered into a contract with BCC pursuant to which Novawest agreed to undertake the construction of road drainage, sewer pump stations and a water treatment facility for Stage 3 of the North Sunshine Industrial Area (the 'Stage 3 Contract'). The Stage 3 Contract was an amended version of Australian Standard General Conditions AS2124-1992. The works were comprised of four separable portions (A to D) with varying Dates of Practical Completion and Defects Liability Periods.

8 On 10 November 2008, BCC gave Novawest possession of the Site within the meaning of clause 27.1 of the Stage 3 Contract.

9 By letter to BCC dated 8 April 2011, Novawest requested to divide Separable Portion A into Separable Portions A(i), representing Cromer Avenue to Imperial Avenue, and A(ii), representing Spalsing, Auburn, Baldwin and Davies (Nth) Avenues. By letter dated 3 May 2011, BCC, by the Superintendent approved Novawest's request.

10 On 24 June 2013 a receiver and manager was appointed to Novawest.

11 By Writ dated 28 October 2013, Novawest commenced proceedings against BCC in the Supreme Court of Victoria. It alleges that:

(a) it was critically delayed in reaching Practical Completion of each of the five Separable Portions by reason of delay events referred to in clause 35.5(b) of the Stage 3 Contract;

(b) From time to time between April 2009 and September 2011, it submitted written claims for extensions of time to the Dates for Practical Completion under clause 35.5 of the Stage 3 Contract;

(c) The Superintendent has failed, refused, or neglected to properly consider the extension of time claims and/or grant all extensions of time to which Novawest was entitled to;

(d) It is entitled to claim delay costs in respect of the extensions of time claims;

(e) It was directed by the Superintendent to perform variations works under the Stage 3 Contract and the Superintendent has failed to certify payment of the variation works totalling $691,058.90 (excl. GST);

(f) BCC has failed to pay interest owed to Novawest on the moneys outstanding under the Stage 3 Contract; and

(g) BCC has failed to return to Novawest the Security Moneys paid pursuant to the Letter of Acceptance and clause 5.2 of the Stage 3 Contract.

12 BCC filed its Defence and Counterclaim on 14 March 2014 (amended 29 August 2014, 31 March 2015, 18 August 2015). It alleges that:

(a) Novawest failed to reach practical completion by the Dates for Practical Completion of each of the five Separable Portions and is thereby indebted to BCC for liquidated damages pursuant to clauses 35.6 and 35.7 of the Stage 3 Contract;

(b) the works performed by Novawest did not comply with the requirements of the Stage 2 Contract and the Stage 3 Contract and were defective;

(c) Novawest refused and/or neglected to rectify defects;

(d) Novawest wrongly claimed, the Superintendent mistakenly certified and BCC mistakenly paid, profit on certain variation claims at the rate higher than that provided in Annexure A of the Stage 3 Contract; and

(e) Novawest has wrongly taken possession of plant and equipment that was the property of BCC and failed or refused to return the equipment to BCC.

13 On 3 June 2014, Novawest filed its Reply and Defence to Counterclaim (amended 22 September 2014 and 24 April 2015).

14 On 17 October 2014, Novawest applied for and obtained an order whereby Hyder was joined as Second Defendant by Counterclaim on the basis that Hyder's designs were deficient and therefore Hyder was a concurrent wrongdoer for the purposes of apportionment pursuant to Part IVAA of the Wrongs Act 1958 (Vic).

15 By order made this day, 17 November 2015, BCC was granted leave to file and serve a Further Amended Defence and Amended Counterclaim dated 18 August 2015.

16 The agreement between BCC and Hyder relating to arbitration is set out in the BCC-Hyder Contract. The relevant dispute resolution provision is contained in cl 15 of the BCC-Hyder Contract, which provides for a procedure for the resolution of disputes commencing with a notice of dispute (clause 15.1) and then a compulsory conference (clause 15.2).

17 Clause 15.2 of the BCC-Hyder Contract also provides that:

If the dispute has not been resolved within 28 days of service of the notice of dispute, then unless Clause 15.4 applies, that dispute shall be and is hereby referred to arbitration.

18 Clause 15.4 relates to an expert determination which the parties may agree upon, which is not relevant for present purposes. Accordingly, paragraph 15(2) of the agreement provides for a compulsory arbitration.

19 In these circumstances, s 8 of the Commercial Arbitration Act 2011 (Vic) (the 'CAA') becomes pertinent. It provides, by sub-section 1, that:

A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party's first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

20 Under s 8 of the CAA it is mandatory for the Court to stay proceedings that are commenced in contradiction to an arbitration agreement.[1] This Court observed in Lysaght Building Solutions Pty Ltd (t/as Highline Commercial Construction) v Blanalko Pty Ltd (No 3) that:[2]

The use of the imperative word 'must' in s 8(1), rather than the permissive 'may', which was employed in the superseded Commercial Arbitration Act 1984, removes the court's discretion to refuse to grant a stay, and renders the provision mandatory. The only reason a court can refuse to grant a stay is if the arbitration agreement is found to be 'null, void, inoperative or incapable of being performed'. This means that if the requirements of the section are met the court has no choice but to grant a stay of the proceeding before it and refer the matter to arbitration.

This may result in some inefficiencies in case management in some cases, arising from the potential for litigation on the same project being conducted before different tribunals. Nevertheless the statutory meaning is clear. [Citations omitted]

21 Lysaght was cited with approval by Robson J in Re Form 700 Holdings Pty Ltd.[3] Robson J noted:[4]

[I]f the court finds that there is a matter before the court that is the subject of an arbitration agreement; the party seeking a stay of the court proceeding has made its application no later than when it filed its first statement on the substance of the dispute; and the arbitration agreement is not otherwise null and void, inoperative or incapable of being performed, the Court must stay the proceeding.

22 The issue for consideration becomes whether the arbitration agreement, in light of the circumstances relating to paragraphs [80] to [85] of the Further Amended Defence and Amended Counterclaim dated 18 August 2015, is incapable of being performed.

23 BCC opposes the application of Hyder. It submits that until the Novawest's claims against it for the delay costs and variation claims, which are the subject of the overlap claims against the Hyder, are either resolved or determined in the instant proceedings, BCC will not know what, if any, loss or damage it has suffered as a result of Hyder being successful in those claims or to what extent. Insofar as the overlap claims against Hyder are concerned with breaches of contract, a necessary element of that cause of action, loss and damage, will not be known. In that circumstance, if the overlap claims are referred to arbitration, they are likely to be incompetent or (to use curial process) be struck out for failure to identify and plead, let alone prove, any loss or damage until the litigation is concluded.

24 The Court was referred to the High Court of Singapore decision in Sembawang Engineers and Constructors Pte Ltd v Covec (Singapore) Pte Ltd[5] where an application for stay of a counterclaim pursuant s 6 of the International Arbitration Act (Singapore, cap 143, 2002 rev ed) of Singapore was considered.

25 Section 6(2) of the International Arbitration Act of Singapore provides that:

The court to which an application has been made in accordance with subsection (1) shall make an order, upon such terms or conditions as it may think fit, staying the proceedings so far as the proceedings relate to the matter, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.

26 In relation to the term 'incapable of being performed' the High Court of Singapore said:[6]

[T]his term would relate to the capability or incapability of parties to perform an arbitration agreement. In Mustill & Boyd, Commercial Arbitration , it is stated the expression would suggest "something more than mere difficulty or inconvenience or delay in performing arbitration". There has to be "some obstacle which cannot be overcome even if the parties are ready, able and willing to perform the agreement". (...)

An arbitration agreement could be incapable of being performed, if, for example, there was contradictory language in the main contract indicating the parties intended to litigate. Moreover, if the parties had chosen a specific arbitrator in the agreement, who was, at the time of the dispute, deceased or unavailable, the arbitration agreement could not be effectuated. In addition, if the place of arbitration was no longer available because of political upheaval, this could render the arbitration agreement incapable of being performed. If the arbitration agreement was itself too vague, confusing or contradictory, it could prevent the arbitration from taking place. [citations omitted]

27 The focus in these examples is on the administration of the arbitration itself rather than on the merits of what is to be referred to arbitration. I am mindful of the observations of Croft J in Robotunits Pty Ltd v Mennel[7] where his Honour referred to the Singapore Court of Appeal decision in AKN v ALC[8] and observed:[9]

The policy of minimal curial intervention referred to by Menon CJ in the context of the enforcement of arbitral awards is equally applicable to applications of the kind presently before the Court (...) [e]ven though the merits of the case are necessarily yet to be canvassed by an arbitration tribunal, courts are no more entitled to delve into the merits of the case in the context of a stay application, then they are in the context of enforcement or setting-aside proceedings. [citations omitted]

28 Accordingly, I am not satisfied that the purported difficulties that BCC might face in presently addressing an arbitration is a relevant consideration. To my mind, it does not amount to the arbitration agreement being incapable of being performed.

29 I am mindful however of the inconvenience to the parties of referring to arbitration an element of the matter that is presently before the Court, which will result in the hearing and determination of different elements of the present proceeding being split between two tribunals, the Court on the one hand and an arbitration on the other.

30 In the light of the Civil Procedure Act 2010 (Vic), the clear overarching purpose will not be achieved in this case because, as the material presently demonstrates, the splitting of the case in the manner foreshadowed will not lead to an efficient, timely and cost effective resolution of the real issues in dispute. Nevertheless, the parties have agreed that they ought to proceed in the way they have and have not agreed to vary that agreement. Further, s 8 of the CAA makes it obligatory for the Court to make the order in the circumstances as I have found them and the way in which that section is to be construed. Accordingly, a stay will be ordered.

31 Hyder seeks the costs of the application to stay the proceedings on an indemnity basis. It refers to two letters sent by its solicitors to BCC's solicitors on 24 September 2015 and 8 October 2015. The letters foreshadow that, should BCC proceed with the application to amend its defence and counterclaim, Hyder would proceed with the application to stay the proceeding and seek costs on an indemnity basis.

32 BCC submits that the letters referred to by Hyder do not contain anything by way of compromise and, as the state of the law in Australia on the question determined is underdeveloped, it was reasonable for BCC to proceed as it has.

33 I accept the submissions of BCC on this issue. The letters referred to by Hyder do not amount to Calderbank letters. Further, the words 'incapable of being performed' in s 8 of the CAA have not hitherto been the subject of judicial attention in Australia and are of broad compass. They can include a variety of elements of conduct that would render s 8 of the CAA inoperative. It was not unreasonable for BCC to maintain its position and to bring its application before this Court.

1. BCC be granted leave to amend its defence and counterclaim in the form of the Further Amended Defence and Amended Counterclaim dated 18 August 2015.

2. The matters set out in paragraphs [80] to [85] of the Further Amended Defence and Amended Counterclaim dated 18 August 2015 be stayed in the proceeding and are referred to arbitration.

3. BCC pay Hyder's costs of the application to stay the proceeding insofar as it relates to the reference of paragraphs [80] to [85] of the Further Amended Defence and Amended Counterclaim dated 18 August 2015 to arbitration.

4. No costs are ordered in relation to the BCC application to amend its defence and counterclaim.

[1] J Hockley, C Croft, K Hickie, W KQ Ho, Australian Commercial Arbitration (LexisNexis Butterworths, 2015) 71.

[2] [2013] VSC 435 [125]-126] ('Lysaght').

[4] Re Form 700 Holdings Pty Ltd [2014] VSC 385, [60].

[6] Sembawang Engineers and Constructors Pte Ltd v Covec (Singapore) Pte Ltd [2008] SGHC 229 [42].

[7] [2015] VSC 268 ('Robotunits').

[9] Robotunits [2015] VSC 268, [14].

Arbitration Act 2011

Arbitration Act 1984

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