Plaintiff v Defendant

Supreme Court of Victoria|2008-04-11|Before: HOLLINGWORTH J

Practice and procedure - Stay of proceedings - Application for stay under International Arbitration Act 1974 (Cth) s 7 or Commercial Arbitration Act 1984 (Vic) s 53(1) - Whether there is "a matter" capable of settlement by arbitration - Whether conditions should be imposed - Stay granted under s 7 upon conditions

1 The plaintiff ("Ansett") and the defendant ("MAS") were at all relevant times parties to an agreement which governed the provision of airport ground handling services by Ansett to MAS. In this proceeding, which was commenced in late July 2007, Ansett seeks to recover the sum of $534,963.11 in respect of services provided by it under the ground handling agreement, together with interest.

2 By an amended summons dated 14 December 2007, MAS seeks an order staying the further conduct of the proceeding, on the basis that Ansett's claim is covered by an arbitration clause. The stay is sought either pursuant to s 7 of the International Arbitration Act 1974 (Cth) ("IAA") or s 53(1) of the Commercial Arbitration Act 1984 (Vic) ("CAA"). Insofar as leave may be required to bring the application under the CAA, leave is also sought pursuant to s 53(2) of that Act.

3 Section 7 relevantly provides:

(d) a party to an arbitration agreement is a person who was, at the time when the agreement was made, domiciled or ordinarily resident in a country that is a Convention country;

(a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and

(b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;

on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.

4 A stay under s 7 of the IAA is mandatory once its requirements are satisfied,[1] unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.[2] It was not suggested that the arbitration agreement in this case is null and void, inoperative or incapable of being performed.

(a) Ansett is a party to an "arbitration agreement" with MAS, as defined by s 7; and

(b) The proceeding involves the determination of "a matter that, in pursuance of the [arbitration] agreement, is capable of settlement by arbitration".

6 MAS, the applicant for the stay, bears the onus of establishing that the requirements are satisfied.[3]

Ansett and MAS are parties to a relevant arbitration agreement

7 Section 7(1)(d) of the IAA defines an arbitration agreement to which the section applies to include an agreement where "a party ... is a person who was, at the time when the agreement was made, domiciled or ordinarily resident in a country that is a Convention country". Section 3(3) of the IAA provides that "a body corporate shall be taken to be ordinarily resident in a country if, and only if, it is incorporated or has its principal place of business in that country".

8 MAS was incorporated in Malaysia and has had its principal place of business in Malaysia since incorporation. Malaysia has been a Convention country within the meaning of s 7 since 5 November 1985. Accordingly, insofar as MAS is a party to an arbitration agreement with Ansett made on or after 5 November 1985, that arbitration agreement is one to which s 7 applies.

9 It is not disputed that the ground handling agreement was entered into after 5 November 1985 and that, accordingly, the arbitration agreement at Article 9 of the ground handling agreement is one to which s 7 of the IAA applies.

10 The arbitration agreement relevantly provides that:

Any dispute or claim concerning the scope, meaning, construction or effect of this agreement or arising therefrom shall be referred to and finally settled by arbitration in accordance with the procedure set forth below ...

11 Teague J considered a virtually identical provision in an airport ground handling agreement in Precision Watches Pty Ltd and Sixty-Fourth Asteroid Pty Ltd and Singapore Airlines Ltd and Qantas Airways Ltd.[4] That provision was identical to the arbitration agreement in this case, save that the word "or" did not appear before the words "arising therefrom" in the second line. In that case, the party opposing the stay argued that the agreement should be construed narrowly, so as to mean:

Any dispute or claim concerning the scope, meaning, construction or effect of this agreement or arising from any dispute or claim concerning the scope, meaning, construction or effect of this agreement...

12 Whilst acknowledging that the arbitration provision was inelegantly expressed, Teague J said that it should be construed so as to apply both to a dispute arising from the agreement, and a dispute concerning the scope, meaning, construction or effect of the agreement.[5] On the facts of that case, his Honour held that the defendant's claim for contribution and indemnity against the third party under the ground handling agreement[6] was a dispute concerning the "scope" of the agreement.

13 Before me, Ansett sought to raise the same construction argument which did not find favour with Teague J in Precision Watches. I agree with his Honour that the provision should not be construed so narrowly.[7] To do so would be contrary to "the clear tide of judicial opinion as to arbitration clauses, where the fair reading of them is not confined, [which] is to give width, flexibility and amplitude to them."[8] As a matter of general principle, it is the duty of the court to give effect to the purpose which lies behind an arbitration agreement and to respect the intention of the parties as expressed in the agreement.

14 The arbitration agreement should be construed so as to apply both to disputes or claims arising from the ground handling agreement, as well as disputes or claims concerning the scope, meaning, construction or effect of the agreement.

15 A "matter" for the purposes of s 7(2) requires that there be some dispute or controversy, otherwise there is nothing which would be "capable of settlement by arbitration". Ansett points to the fact that MAS has not yet filed a defence, or identified with any reasonable degree of specificity what its defence might be. The highest it is put in MAS's supporting affidavits is that the supporting information provided by Ansett is insufficient proof of the claim made and that MAS "has off-setting claims against Ansett for non-payment of amounts owed for services rendered".[9] In those circumstances, Ansett argues that MAS has not established that there is a dispute or controversy covered by the arbitration agreement.

16 In support of its argument as to the meaning of "matter", Ansett relies upon two judicial statements. In Tanning Research Laboratories Inc v O'Brien[10], Deane and Gaudron JJ said:

To ascertain whether s 7(2) operates in respect of proceedings pending in a court it is necessary to first identify the subject matter of the controversy which falls for determination in those proceedings. Only when that has been done is it possible to identify whether the proceedings "involve the determination of a matter ... capable of settlement by arbitration": s 7(2)(b)

[The expression "matter ... capable of settlement by arbitration"] requires that there be some subject matter, some right or liability in controversy which, if not coextensive with the subject matter in controversy in the court proceedings, is at least susceptible of settlement as a discrete controversy. The words "capable of settlement by arbitration" indicate that the controversy must be one falling within the scope of the arbitration agreement.[11]

17 In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc[12], Merkel J said:

Tanning Research is authority for the view that, for the purposes of s 7(2), the "matter" to be determined in a proceeding is to be ascertained by reference to the subject matter of the dispute in the proceeding and the substantive, although not necessarily the ultimate, questions for determination in the proceeding. The scope of the matter is to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including the defence, are based ...[13]

18 But neither of those cases is, in fact, authority for the proposition that there can be no "matter" until after pleadings have closed. Indeed, in Recyclers, immediately after the passage relied upon by Ansett, Merkel J went on to say as follows:

The manner in which a claim or a defence is pleaded is of importance to, but is not determinative of, the characterisation of the "matter" for the purpose of s 7(2). Once the "matter" is properly characterised the question to be determined is whether that matter is capable of settlement under the arbitration clause.[14]

19 In both the Tanning Research and Recyclers cases, the relevant judges expressly approved the decision of McLelland J in Flakt (Aust) Ltd v Wilkins and Davies Construction Co Ltd[15]. In the Flakt case, McLelland J rejected an argument that the word "matter" in s 7(2)(b) denoted the ultimate subject matter at issue, which could not be ascertained until the pleadings had closed. His Honour said:

In my opinion, the word "matter" in s 7(2)(b) denotes any claim for relief of a kind proper for determination in a court. It does not include every issue which would, or might, arise for decision in the course of the determination of such a claim. The use of the word "settlement" provides support for the view. "Settlement" is an apt term to be used in relation to a claim for relief - it is less apt in relation to a mere issue....

I see no reason to read into s 7 an unexpressed qualification as to the time when an application thereunder can be made. If, before the pleadings are closed, a party can show that the conditions of the section are satisfied, then the prescribed consequence should follow.[16]

20 McLelland J's comments were also approved by Foster J in Elders CED Ltd v Dravo Corporation[17], by Slicer J in Origin Energy Resources Limited v Benaris International NV,[18] and by Allsop J (with whom Finn and Finkelstein JJ agreed) in Comandate Marine Corp v Pan Australia Shipping Pty Ltd.[19]

21 In Comandate, Allsop J said that it is clear that the phrase "a matter" in s 7 of the IAA "cannot have the full connotation of the phrase in the Constitutional sense" and is "to be understood at a level of generality by reference to the arbitration agreement".[20]

22 Ansett claims to be entitled to payment for services rendered under the ground handling agreement. Although no defence has been filed, it is clear that MAS disputes Ansett's entitlement to payment of the total amount claimed. It is true that MAS has not gone through each and every invoice referred to in the schedule to the statement of claim and said which ones it disputes and which ones, if any, it admits. But that does not detract from the fact that there is clearly a "dispute or claim" arising from the ground handling agreement as to Ansett's entitlement to claim $534,963.11 under the agreement, which is a "matter" capable of settlement by arbitration for the purposes of s 7(2) of the IAA. It follows that there must be a stay of Ansett's claim in this proceeding.

23 I agree with Ansett that MAS's alleged off-setting claims would not appear to arise under the ground handling agreement, as that agreement only relates to the provision of services by Ansett. MAS has not identified any agreement pursuant to which it allegedly provided the services for which Ansett has failed to pay. However, whether MAS's alleged off-setting claim would be required to be arbitrated is not a matter about which I can, or need to, draw any conclusion. During the course of oral submissions, MAS expressly abandoned any claim to a set-off in respect of Ansett's claim in this proceeding.

24 As I am satisfied that the proceeding must be stayed under the IAA, it is not necessary for me to consider MAS's alternative application for a stay under the CAA.

25 If the court is minded to grant a stay under s 7(2) of the IAA, Ansett argues that the following conditions should be imposed on the grant of stay:

(a) The arbitration be treated as if it had been commenced with the appointment of the arbitrator or the first arbitrator (as the case may be) on the same day as the commencement of this proceeding;

(b) Such stay may be terminated upon application by Ansett in the event that MAS does not do all things necessary to be done on its part to have the matters referred to arbitration hereunder determined in accordance with the arbitration agreement between the parties with reasonable expedition;

(i) rely upon a time bar or limitation defence to all or any of the claims made by Ansett in these proceedings other than a time bar or limitation defence that would have been available to MAS had Ansett's claims been determined by this court in this proceeding;

(ii) raise or seek to raise any set-off or like defence in the arbitration;

(d) Such stay may be terminated upon application made by Ansett in the event that MAS does not comply with either of the undertakings referred to in sub-paragraphs (c)(i) and (c)(ii) above;

26 The power of the court in s 7(2) to impose "such conditions (if any) as it thinks fit" is, on its face, unfettered. Of course, the power must be exercised judicially.

27 It is clear from the authorities, including those discussed below, that the court has power to impose conditions which will affect the rights of the parties under the relevant arbitration agreement.

28 This proceeding concerns a claim for payment for services rendered by Ansett under the ground handling agreement between October 1999 and May 2002, primarily during late 2001. The writ was issued on 20 July 2007 and served on 1 August 2007.

29 If Victorian law applies, then the relevant limitation period for Ansett's claims is six years. When this proceeding was instituted, the relevant Victorian limitation period for most of Ansett's claims had not expired; however, it has since expired.

30 Ansett chose to commence this proceeding, rather than referring its claims to arbitration. MAS says that to the extent to which Ansett may now be prejudiced by the grant of a stay, Ansett is the author of its own misfortune and should not be assisted by the court. It is true that the administrators of Ansett chose, for reasons unknown to the court, to issue this proceeding towards the end of the limitation period in Victoria. But MAS's submission completely ignores its own contribution to Ansett's current predicament, through repeated delays in this proceeding:

(a) The first directions hearing, scheduled for 17 August 2007, was adjourned by consent on the papers until 7 September 2007, primarily because MAS's solicitor was on leave.

(b) On 7 September, I made various directions, including a direction that MAS file and serve its defence and counterclaim by 21 September 2007. MAS did not object to such an order being made, it merely sought more time to do so. MAS completely ignored that order and has still not descended to particularity as to its defence. No stay application was foreshadowed at that time.

(c) At the next directions hearing, on 12 October 2007, MAS foreshadowed that it intended to make an application for a stay under s 53 of the CAA. As the parties wanted to spend some time seeing if they could narrow the issues in the proceeding (and another Commercial List proceeding between the same parties), I allowed MAS until 5 November to file and serve a summons and any supporting affidavit, which it did.

(d) On 9 November 2007, I directed Ansett to file and serve material in reply by 10 December 2007 and fixed the stay application for determination on 14 December 2007, the last directions date for the year.

(e) Immediately prior to the hearing on 14 December, MAS informed Ansett, for the first time, that it wished to amend its summons, to seek a stay under the IAA, in the alternative to the CAA. Over Ansett's objection, I granted MAS leave to make such an amendment to its summons, made directions for the delivery of any further affidavits by either side and fixed the amended summons for hearing on 15 February 2008.

31 The affidavit of MAS's lawyer, Raini Tara Zambelli, sworn 5 November 2007, explains some of the problems within MAS's "camp" in providing initial instructions to their lawyers. However, those problems are not something for which Ansett can fairly be said to be responsible.

32 Ansett properly commenced this proceeding in this court and, unless MAS applied for a stay, the proceeding would have continued in this court. Had MAS acted promptly in making an application for a stay under the IAA, and abandoning its alleged set-off claim, the stay application could have been heard and determined before the limitation period for most of the claims had expired under Victorian law.

33 In the circumstances, I would impose conditions necessary to ensure that Ansett is not prejudiced by MAS's delaying conduct. That is to say, Ansett should not now be faced in an arbitration with any limitation periods which it did not face at the time it commenced this proceeding.

34 In coming to that conclusion, it is not necessary for me to make any finding as to whether or not Victorian law, including limitation periods, will in fact apply to the arbitration. It is therefore not appropriate to require an undertaking in the form proposed by Ansett in paragraph 25 (c)(i) above, as that implicitly assumes that the Victorian limitation period applies.

35 MAS should be entitled to rely at the arbitration on any limitation period which was applicable under the proper law of the agreement at the time this proceeding was commenced. However, it should not be able to benefit from its own delays in making a stay application under the IAA.

36 This case is distinguishable from the case of The Jemrix,[21] upon which MAS sought to rely. In that case, Sheen J was faced with a situation in which if he granted a discretionary stay, the defendants would be unable to claim indemnity from the third party, but if he did not grant the stay, then the third party would be unable to claim indemnity from a fourth party. Given that Sheen J was satisfied that the relevant limitation period had expired due to the defendants' delays, his Honour had no doubt that the defendants and not the third party should suffer; accordingly, a stay was ordered.

37 I agree with Ansett that, if such a condition is not imposed, it would provide an incentive to defendants, when served with court proceedings in respect of a dispute covered by an arbitration agreement, to sit on their hands and allow time limits to expire before applying for a stay. The evidence does not enable me to find that MAS deliberately delayed in this case, with a view to ensuring that Ansett would thereby be prejudiced. But there are nevertheless sound public policy reasons for imposing such a condition.

38 The appointment of an arbitrator or arbitrators under the ground handling agreement requires the participation of both parties. Given MAS's conduct to date, I agree that there should be a condition requiring MAS to act promptly to enable the arbitration to commence and proceed with due expedition. Ansett should be entitled to apply to have the stay terminated if MAS does not comply with the condition. This type of condition was imposed in McLelland J in Flakt and Lockhart J in White Industries Ltd v Trammel.[22]

39 Ansett seeks to have the arbitration conducted in Victoria.

40 I agree with the learned author of Jacobs, Commercial Arbitration: Law and Practice at [12,925], that one of the conditions that may be imposed on the grant of a stay is the determination of the venue of the arbitration.

41 I do not accept that the mere fact that Ansett chose to issue in a Victorian court is sufficient reason to require the arbitration to be conducted here.

42 I am also not in a position to conclude that Victoria is "clearly the most convenient and appropriate forum" for the determination of Ansett's claims, as it asserts. I accept that Ansett, its administrators and all of its relevant documents are located in Victoria. An unidentified proportion of the disputed services were apparently provided in Victoria; the rest were provided elsewhere in Australia. Whilst MAS clearly conducts some business in Australia, and has engaged Victorian solicitors, there is no evidence before me as to the number or location of its witnesses and documents.

43 In Bliss Corporation Ltd v Kobe Steel Ltd[23], Smart J refused to make it a condition of a stay that the arbitration be conducted in NSW. Whilst acknowledging that the power to impose conditions was a wide one, his Honour refused to impose the requested condition, because the relevant arbitration agreement expressly provided for the arbitration to be conducted in Tokyo.

44 Ansett seeks to distinguish this case from Bliss, on the basis that the arbitration agreement here is silent as to the venue of the arbitration. It is true that a particular venue is not specified in the agreement. However, Article 9.1(5) of the ground handling agreement provides that the arbitral tribunal is to "settle its own procedure and if necessary decide the law to be applied." For this court to use its power to impose conditions so as to require the arbitration to occur in Victoria would be to strike a bargain different from that to which the parties had previously agreed, namely, that such a decision should be left to the arbitral tribunal to determine.

45 It follows that I am not prepared to impose Ansett's proposed condition as to venue.

46 Ansett also seeks the imposition of a condition requiring MAS to undertake that it will not in the arbitration rely or seek to rely on any "set-off or like defence" to all or any of Ansett's claims. It says that this would be consistent with MAS's abandonment of any such defence before me.

47 I agree with MAS that it is inappropriate for this court to pre-empt the role of the arbitral tribunal, which must decide which defences, if any, are available to MAS under the relevant law. I am not prepared to impose the proposed condition.

48 I agree with Ansett that it is appropriate to reserve liberty to apply, particularly to ensure that MAS acts promptly in relation to the arbitration.

49 I will hear from the parties on the precise form of orders and conditions, and on the question of costs, after they have had a chance to consider my reasons.

[1] Abigroup Contractors Pty Ltd v Transfield Pty Ltd & Anor [1998] VSC 103 at [79]- [80]; Origin Energy Resources Ltd v Benaris International NV [2002] TASSC 50 at [20]; Transfield Philippines Inc & Ors v Pacific Hydro Limited [2006] VSC 175 at [55]; Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; (2006) 238 ALR 457 at [35].

[2] Section 7(5) of the IAA.

[3] _Recyclers of Australia Pty Ltd v Hettinga Equipment In_c [2000] FCA 547; (2000) 100 FCR 420 at 426, citing Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332 at 353.

[4] Unreported, Supreme Court of Victoria, 10 October 1989, BC8900514.

[6] The precise nature of the claim is not apparent from his Honour's brief reasons.

[7] Indeed, the inclusion of the word "or" in the provision before me makes the wide construction even clearer than in Precision Watches.

[8] Incitec Ltd v Alkimos Shipping Corporation and Anor [2004] FCA 698; (2004) 206 ALR 558 at [36] per Allsop J. See also IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466; Qantas Airways Ltd v Dillingham Corp (1985) 4 NSWLR 113 at 117; Hooper Bailee Associated Ltd v Natcon Group Pty Ltd (1989) 6 BCL 142 at 144; QH Tours Limited v Ship Design and Management (Aust) Pty Limited [1991] FCA 637; (1991) 33 FCR 227 at 235.

[9] Affidavit of Raini Tara Zambelli sworn 5 November 2007 at [21].

[11] Ibid at 350-1. The other three members of the court, Brennan, Dawson and Toohey JJ, did not find it necessary to discuss what constituted a "matter".

[20] Ibid at [235], citing with approval the views of the High Court in Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332 at 344-5.

[21] [1981] 2 Lloyds Law Reports 544.

[23] Unreported, Supreme Court of NSW, 29 September 1987, BC8701113.

Arbitration Act 1984

Arbitration Act 1974

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