SAMSUNG C&T CORPORATION -v- DURO FELGUERA AUSTRALIA PTY LTD [2016] WASC 193 (28 June 2016)

SAMSUNG C&T CORPORATION -v- DURO FELGUERA AUSTRALIA PTY LTD [2016] WASC 193 (28 June 2016) - WASC 2016 case summary — Zoe

[22]

16 I do not accept Duro's argument. In this case, the relevant issue is whether the Interim Subcontract contains an arbitration agreement in the terms of cl 42 of the Subcontract, not whether cl 42 of the Subcontract has been rendered inoperative. Holmes and Brown 'The International Arbitration Act 1974 a Commentary' (2nd ed), at [S721] refer to Bakri Navigation Company Ltd v Owners of Ship 'Golden Glory' Glorious Shipping SA [1991] FCA 179; (1991) 217 ALR 152. The parties were involved in a dispute arising out of negotiations for the sale of a ship. The plaintiffs sought a declaration that there was a binding contract for the sale of the ship and obtained the arrest of the ship. After the initiation of court proceedings and before the application for a stay under s 7 of the Act was made, the parties entered into a further agreement which allowed the release of the ship which resolved certain claims in proceedings before the court. Gummow J found that there was a concluded contract of sale which contained an arbitration agreement. Gummow J then considered the terms of the subsequent undertaking to the court and the agreement which had been reached between the parties that allowed for the release of the ship. His Honour found that the subject matter of this later agreement was the whole of the proceeding before the court and not merely the release of the ship. In the circumstances the subsequent agreement effected a variation of the arbitration agreement which rendered it 'inoperative or ineffective in respect of the claims involved in the proceedings before the court'. Gummow J was of the view that 'inoperative' describes an arbitration agreement which although not void ab initio has for some reason ceased to have effect for the future. This may be because the arbitration agreement may have ceased to operate by reason of some further agreement between the parties. The court found that the term requiring arbitration had, sofar as the claims of the plaintiff were concerned, become inoperative by reason of the further agreement between the parties.

[50]

[T]here is a burden on the party asserting that there is: (a) a concluded arbitration agreement as defined in the 1996 Act; and (b) that it covers the disputes that are the subject of the court proceedings, to prove that this is the case. This is borne out by the authorities. If the party seeking a stay cannot prove both (a) and (b), then there is no jurisdiction to grant a stay under section 9(1) and (4) of the AA 1996. However, if the court considers that it cannot decide those issues for itself in a summary fashion on the written evidence, it has two other options, as this court made clear in Ahmed Al-Naimi (T/A Buildmaster Construction Services) v Islamic Press Agency Inc. It can direct an issue to be tried, pursuant to CPR Pt 62.8(3), or it can stay the proceedings (under its inherent jurisdiction) so that the putative arbitral panel can decide the issue of the existence of the arbitration agreement, pursuant to section 30 of the AA 1996. If the court decides that it will and can determine whether or not there was a concluded arbitration agreement on the written evidence before it then, in my view, the authorities establish that it is for the party asserting the existence of the concluded arbitration clause to prove it on a balance of probabilities. As I point out below, the position appears to be different if the court decides, on an application for a stay, that it cannot, on the materials before it, determine whether there was a concluded arbitration agreement.

Under section 9(4) the court 'shall grant a stay' unless 'satisfied' that the arbitration agreement is 'null and void, [or] inoperative ... '. This means, in my view, that once the first party has established the existence of an apparently concluded relevant arbitration agreement and that it covers the matters in dispute in the proceedings, it is for the party resisting a stay to 'satisfy' the court that the apparently existing arbitration agreement is 'null and void'. That was the position under the old law, ie section 1 of the Arbitration Act 1975, which provision first gave statutory effect in English law to the New York Convention. This court has said that this remains the position under the AA 1996, albeit without elaborating on its reasoning [73] [74].

[79]

57 I have set out earlier in these reasons the circumstances in which the Interim Subcontract was made. Samsung terminated the Subcontract on 21 February 2014. Samsung and Duro then entered into a replacement subcontract for Duro to continue to perform the Duro Works, which was a subset of the Subcontract Works which Duro had been performing under the Subcontract. The Interim Subcontract was to be a temporary contract until they negotiated and executed a replacement contract which was referred to in the Term Sheet as the Substitute Subcontract. The parties agreed that the Interim Subcontract and subsequently the Substitute Subcontract are to be on the same terms as the Subcontract with some modifications. Obviously, the scope of works and subcontract sum had to be modified or altered. Those things and some other key terms and conditions as set out in Schedule 1 to the Term Sheet were modified or altered. The purpose of the Interim Subcontract was to make a temporary contract by which Duro continued to perform part of the original Subcontract Works on the same terms as the Subcontract with modifications until the parties negotiated and executed a replacement contract - the Substitute Subcontract - on the terms and conditions of the Subcontract as modified by the Schedules of the Term Sheet, that is the key terms and conditions set out in Schedule 1, the scope of works set out in Schedule 2 and the new procurement milestones and liquidated damages set out in Schedule 3 and any other terms and conditions the parties consider are reasonable or necessary that directly relate to the terms and conditions as set out in those Schedules. In those circumstances cl 2.1(a) means that the Interim Subcontract is on the same terms as the Subcontract except as modified by the terms and conditions set out in the Schedules to the Term Sheet and any other modifications or alternations made expressly or by necessary implication by the terms of the Term Sheet. To put that another way, the meaning of cl 2.1(a) is that the terms of the Subcontract are modified by the terms of the Term Sheet only to the extent that they are inconsistent with a term or terms of the Term Sheet or a term or terms of the Term Sheet show a clear intention that the term or terms of the Subcontract are not to be terms of the Interim Subcontract or are altered or supplemented by a term or terms of the Term Sheet.

[83]

60 Samsung referred to Monde Petroleum SA v Westernzagros Ltd [2015] EWHC 67 (Comm) (Monde Petroleum), [44] in which Popplewell J said that a new and inconsistent dispute resolution provision raises the presumption that the parties intended to impeach the dispute resolution agreement within the earlier agreement. In Monde Petroleum Westernzagros engaged Monde under a consultancy services agreement (CSA) to assist Westernzagros in conducting and maintaining an exploration and production sharing agreement which Westernzagros was negotiating with the Kurdistan Regional Government in Iraq. The CSA contained an arbitration clause. Westernzagros stopped paying the monthly fee invoiced by Monde under the CSA and purported to terminate it. Westernzagros disputed that the unpaid amounts invoiced by Monde, which included a milestone payment, were due. The parties then entered into a termination agreement, under which Westernzagros was to pay Monde's disputed invoices in full and there was a mutual release and waiver of all claims by each party against the other in respect of the CSA. The termination agreement included a clause that the agreement shall be governed by and construed in accordance with the laws of England and Wales and the parties 'herein irrevocably attorn to the exclusive jurisdiction of the courts of England and Wales'. Monde brought proceedings in the Commercial Court and also commenced arbitration proceedings but later withdrew its arbitration claims. Westernzagros counterclaimed in the arbitration seeking declarations of nonliability under the CSA. The arbitral tribunal held that it had no jurisdiction to determine Westernzagros' counterclaims for declaratory relief. Westernzagros contended that the arbitration agreement and the CSA was not terminated or superseded by the termination agreement. Monde contended that it was. Popplewell J held that the arbitration clause in the CSA was superseded by the jurisdiction clause in the termination agreement. Popplewell J held that where there was more than one agreement between the same parties, and they contained conflicting dispute resolution provisions, the presumption of one stop adjudication dictated that the parties would not be taken to have intended that a particular kind of dispute would fall within the scope of each of two inconsistent jurisdiction agreements. The provisions would fall to be construed on the basis that they were mutually exclusive in the scope of their application, rather than overlapping, if the language and surrounding circumstances so allowed. The jurisdiction clause in the termination agreement had to be construed on the basis that the parties were likely to have intended that it should supersede the clause in the earlier agreement and apply to all disputes arising out of both agreements. The language of the termination agreement was supportive of the presumption that the parties had intended to supersede the arbitration clause in the first agreement. It had been expressed to be an exclusive jurisdiction clause, its wording suggested that the parties had intended a formulation that would include disputes as to what rights were extant under the first agreement at the time of the termination agreement and the verb 'attorn' suggested a transfer of jurisdiction, not merely a conferral of jurisdiction.

[95]

67 It is possible to construe cl 3.2(b) of the Term Sheet and cl 42 of the Subcontract in a way that allows them to coexist. Clause 42 can be read harmoniously with cl 3.2(b) by construing the 'proceedings' to which cl 3.2(b) refers to be proceedings which a party may institute under the terms of the dispute resolution clause in the terms of cl 42 of the Subcontract or other proceedings which a party may commence consistently with cl 42. Clause 3.2(b) of the Term Sheet does not provide that each party submit to the jurisdiction of Western Australian courts in respect of any difference or dispute arising out of or in connection with the Interim Subcontract but rather provides for submission in respect of 'any proceedings' arising out of or in connection with the agreement. That is, if a party commences in a Western Australian court a proceeding which arises out of or in connection with the agreement then the other party submits to the jurisdiction of the Western Australian court. The dispute resolution clause, cl 42 of the Subcontract, whilst providing that any difference or dispute between the parties which arises in connection with the subject matter of the Subcontract is to be referred to arbitration, at cl 42.5 provides for three instances where a party may institute proceedings - a party may institute proceedings to enforce payment due under the Subcontract or to seek injunctive or urgent declaratory relief. Duro has twice within the last few months commenced such proceedings for an interlocutory injunction restraining Samsung from taking any step to enforce the Security under the Subcontract: Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2015] WASC 484; Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2016] WASC 119. There are other proceedings which the parties to the Interim Subcontract might commence consistently with the arbitration agreement in cl 42 of the Subcontract including proceedings to enforce any arbitration award or to confirm the jurisdiction of the Western Australian courts on the merits in the event that the parties agree to dispense with or waive the right to arbitration.

[97]

69 Considerations of commercial convenience favour construing the Term Sheet to incorporate an arbitration agreement in the terms of cl 42 of the Subcontract. Indeed, the result of construing the jurisdiction clause, together with cl 2.1(a) of the Term Sheet to displace the arbitration agreement results in a commercially inconvenient outcome which should not be readily attributed to rational business people. The arbitration agreement in cl 42 survived the termination of the Subcontract. Therefore, any disputes falling within that arbitration agreement must be referred to arbitration. The Interim Subcontract provides for Duro to continue to perform some of the work that was the subject of the Subcontract. It would be inconvenient if disputes concerning work under the Subcontract must be referred to arbitration and disputes concerning the continuation of the work under the Interim Subcontract must be resolved by litigation. Furthermore, the Term Sheet provides by cl 2.2(b), subject to clause 2.1(a), if directed by Samsung, Duro will execute a Substitute Subcontract that incorporates the terms and conditions of the Subcontract as modified by schedules of the Term Sheet together with any other terms and conditions that Samsung and Duro consider are reasonable or necessary that directly relate to the terms and conditions as set out in the schedules of the Term Sheet. That is, in the absence of any other terms and conditions agreed by Samsung and Duro, Samsung may direct Duro to execute a Substitute Subcontract that incorporates the terms and conditions of the Subcontract as modified by schedules of the Term Sheet not as modified by cl 3.2 of the Term Sheet. Therefore, such a Substitute Subcontract would include an arbitration agreement in the terms of cl 42 of the Subcontract. The result, if the arbitration agreement in those terms is not part of the Interim Subcontract would be that disputes concerning works under the Subcontract would be referred to arbitration, the continuation of the works under the Interim Subcontract would be resolved by litigation in Western Australian courts and the continuation of the works under the Substitute Subcontract would be referred to arbitration. That is an outcome business people are unlikely to have intended.

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