STEVENS CONSTRUCTIONS PTY LTD v TEODOR ZORKO

Supreme Court of SA|2002-02-19|Before: Doyle CJ, Wicks JJ

The application before the District Court dated 15 February 2000 seeking a stay of the plaintiff's claim and the defendant's counterclaim and referring the dispute between the parties to arbitration came before a Judge of that Court. The learned Judge prepared a detailed ruling on the matter which he delivered on 21 July 2000. The following is an extract containing the substance of the ruling:

"As can be seen this application has been made after the applicant [Stevens] has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance. That is not fatal to this present application if I give leave and also I am satisfied that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement. In my view and in the exercise of my discretion the order to stay proceedings should not be made because matters in this Court have gone too far.

I find that the defendant has clearly adopted the present proceedings and become involved in them. Irrespective of what the defendant's motives are to now change to having the matter heard by arbitration I find that to do so would be clearly prejudicial to the plaintiff. The plaintiff [Zorko] has obviously proceeded on the basis to this late stage that the matter will be dealt with in this Court. From the date of the filing of the Statement of Claim until the bringing of this stay application over four months have expired during which important procedural events have occurred and there has been no hint that the matter should be dealt with by arbitration.

Consequently the application for stay of proceedings is refused."

From this ruling, I think it is clear that the learned Judge was concerned at the fact that the pleadings in the action had closed, some discovery of documents had been made, discussions about the alleged lack of particularity in the defence and counterclaim had been pursued, discussions about a Scott Schedule had taken place and an application made to strike out the defence and counterclaim. The learned Judge found that the defendant had clearly adopted the present proceedings and become involved in them.

Stevens appealed to this court against the ruling of the learned Judge and an order was made referring the appeal to the Full Court for its consideration.

The elements of s 53 of the Commercial Arbitration Act

Under s 53(1) of the Commercial Arbitration Act 1986 ("the Act"), there are four matters which have to be complied with before a Court can make an order staying the action so that the matter can proceed to arbitration.

The first requirement is that a party to an arbitration agreement must have commenced proceedings in a Court against another party to the arbitration agreement in respect of the matter agreed to be referred to arbitration. In PMT Partners Pty Ltd (In Liquidation) v Australian National Parks and Wildlife Service [1995] HCA 36; (1995) 184 CLR 301, Brennan CJ and Gaudron and McHugh JJ said at p 309: "... the power to stay proceedings under s 53 of the Act is, as one might expect, exercisable only with respect to 'a matter agreed to be referred to arbitration', an expression which is apt to describe the situation that occurs when a right of election has been exercised or other preconditions satisfied and which is syntactically and conceptually quite different from that found in the definition of 'arbitration agreement' which merely requires the parties have agreed 'to refer present or future disputes to arbitration". The High Court continued at p 310 of the report:

"... The words 'agreement ... to refer present or future disputes to arbitration' in s 4 of the Act are in their natural and ordinary meaning, quite wide enough to encompass agreements by which the parties are bound to have their dispute arbitrated if an election is made or some event occurs or some condition is satisfied, ..."

In the present case, the operation par 53(1)(a) of the Act must be viewed from the instant in time immediately after the exercise of the right of election in respect of the Contract. At that stage, the Contract became an agreement in respect of a matter agreed to be referred to arbitration. That is something different from an arbitration agreement or an agreement to refer present or future disputes to arbitration. It is more limited in scope. The sequence of events in par 53(1)(a) of the Act in its application to the present case is that there must first be a notice in writing of a dispute or difference under cl 44(b) of the Contract submitting the dispute or difference to arbitration. That is the right of election and it occurred on 11 February 2000 when Stevens wrote to Zorko about the matter. The election must then be followed by the commencement of legal proceedings. However, in the present case at that point Zorko had already commenced proceedings in relation to the dispute or difference.

Paragraph 53(1)(a) would present no difficulty if the dispute or difference under consideration were referred to arbitration automatically. It is only where a dispute or difference is referred to arbitration at the election of a party to the Contract or on some other contingency rather than automatically that a difficulty arises: PMT Partners Pty Ltd (In liquidation) v Australian National Parks and Wildlife Service [1995] HCA 36; (1995) 184 CLR 301, at p 309.

In my opinion, par 53(1)(a) presents an insurmountable difficulty in its application to the present case.

The second requirement is that a party to the arbitration agreement must apply to the Court to have the legal proceedings stayed. This has occurred.

The third requirement is that the application must be made before the applicant files a pleading or takes any other step in the proceedings (except the entry of an appearance). Alternatively, an application to stay legal proceeding may be taken at some later stage in the litigation if leave is given by the Court. Stevens, as applicant, did not make application for a stay of the legal proceedings in time and will need an extension of time from the District Court.

The fourth requirement is that the Court must be satisfied that there is no sufficient reason why the matter should not be referred to arbitration. This requirement is independent of the third requirement to make the application to stay the legal proceedings within the time allowed. In addition, the Court must be satisfied that the applicant for a stay of proceedings in the Court was at the commencement of the proceedings and still is ready and willing to do everything necessary for the proper conduct of the arbitration.

If there is to be a stay of the proceedings in the District Court in this matter, all four of the requirements to which I have referred above must be satisfied. In fact the first requirement cannot be satisfied with the consequence that a stay of the kind referred to in par 53(1)(a) cannot be ordered in this case.

In my opinion, this appeal should be dismissed.

Commercial Arbitration Act 1986

Judgment No. [2002] SASC 42

The construction of arbitration clauses like cl 44 has been considered in a number of cases. It has given rise to some diversity of judicial opinion: see PMT Partners Pty Ltd (In Liq) v Australian National Parks and Wildlife Service [1995] HCA 36; (1995) 184 CLR 301 and ABB Power Plants Ltd v Electricity Commission of New South Wales (1995) 35 NSWLR 596.

If Stevens had applied for a stay as soon as it entered an appearance, it is likely that a stay would have been granted. In the course of submissions before this Court nothing was identified which, as far as I can see, would cause the Court to conclude that there was no sufficient reason why the matter should not be referred to arbitration. The Court should lean in favour of holding Zorko to its contractual obligation to arbitrate: see Transaustralian Constructions Pty Ltd v Northern Territory of Australia [1991] NTSC 40; (1991) 104 FLR 358 at 366

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