BETWEEN : STRZELECKI HOLDINGS PTY LTD (ACN 051 222 523)

ANDROM PTY LTD as Trustee for the K N BUCKINGHAM FAMILY TRUST t/as BUCKINGHAM RE­DEVELOPMENT COMPANY

Practice - Western Australia - Application for stay of proceedings under Commercial Arbitration Act 1985

Commercial Arbitration Act 1985

Manningham City Council v Dura (Australia) Constructions Pty Ltd [1999] VSCA 158

Mulgrave Central Mill Company Ltd v Haggleunds Drives Pty Ltd [2001] QCA 471; [2002] 2 QD R 514

Bayside Civil and Drainage Pty Ltd v Marinestar Holdings Pty Ltd [2000] WASC 17

Hubbart Parker Ltd v The Ship and Her Cargo [1950] HCA 43; (1950) 81 CLR 502

Western Australian Land Authority v Simto Pty Ltd [2001] WASC 136

1 DEPUTY REGISTRAR HEWITT: the writ in this matter was issued on 9 December 2004 and on 15 December 2004 the defendant applied for an order pursuant to s 53 of the Commercial Arbitration Act 1985 staying the proceedings until further order. It is that application I am required to determine.

2 Although the indorsement on the writ simply refers to a building contract the materials before me establish that the plaintiff is the owner of a shopping centre complex known as Dolphin Quay in Mandurah and the defendant the builder of that complex.

3 Put simplistically the disagreement between the plaintiff and the defendant is that the plaintiff contends that the floors on the development are not satisfactory and require remedial attention and the defendant claims that it is due approximately $173,000 being the monies payable under the terms of the contract between it and the defendant in regard to the shopping centre.

4 The contract between the parties is exhibited to the affidavit of K N Buckingham sworn 15 December 2004. It is a substantial document encompassing something in the vicinity of 75 pages of printed material. Relevantly cl 47 appearing at p 49 of the affidavit contains contractual terms concerning dispute resolution. The provisions which are relevant to the application before me are set out in par 47.1 and par 47.2 which are as follows:

47.1 Notice of Dispute

"If a dispute between the Contractor and the Principal arises out of or in connection with the Contract, including a dispute concerning a direction given by the Superintendent, then either party shall deliver by hand or send by certified mail to the other party and to the Superintendent a notice of dispute in writing adequately identifying and providing details of the dispute.

Notwithstanding the existence of a dispute, the Principal and the Contractor shall continue to perform the Contract, and subject to Clause 44, the Contractor shall continue with the work under the Contract and the Principal and the Contractor shall continue to comply with Clause 42.1.

A claim in tort, under statute or for restitution based on unjust enrichment or for rectification or frustration, may be included in an arbitration.

47.2 Further Steps Required Before Proceedings

Alternative 1

Within 14 days after service of a notice of dispute, the parties shall confer at least once, and at the option of either party and provided the Superintendent so agrees, in the presence of the Superintendent, to attempt to resolve the dispute and failing resolution of the dispute to explore and if possible agree of methods of resolving the dispute by other means. At any such conference each party shall be represented by a person having authority to agree to a resolution of the dispute.

In the event that the dispute cannot be so resolved or if at any time either party considers that the other party is not making reasonable efforts to resolve the dispute, either party may by notice in writing delivered by hand or sent by certified mail to the other party refer such dispute to arbitration or litigation.

Alternative 2

A party served with a notice of dispute may give a written response to the notice to the other party and the Superintendent within 28 days of the receipt of the notice.

Within 42 days of the service on the Superintendent of a notice of dispute or within 14 days of the receipt by the Superintendent of the written response, whichever is the earlier, the Superintendent shall give to each party the Superintendent's written decision on the dispute, together with reasons for the decision.

If either party is dissatisfied with the decision of the Superintendent, or if the Superintendent fails to give a written decision on the dispute within the time required under Clause 47.2 the parties shall, within 14 days of the date of receipt of the decision, or within 14 days of the date upon which the decision should have been given by the Superintendent confer at least once to attempt to resolve the dispute and failing resolution of the dispute to explore and if possible agree on methods of resolving the dispute by other means. At any such conference, each party shall be represented by a person having authority to agree to a resolution of the dispute.

In the event that the dispute cannot be so resolved or if at any time after the Superintendent has given a decision to either party considers that the other party is not making reasonable efforts to resolve the dispute, either party may, by notice in writing delivered by hand or sent by certified mail to the other party, refer such dispute to arbitration or litigation."

5 The application seeks orders pursuant to s 53 of the Commercial Arbitration Act 1985 which is in the following terms:

"(1) If a party to an arbitration agreement commences proceedings in a court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement, that the other party may, subject to subsection (2), apply to that court to stay the proceedings and that court, if satisfied -

(a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement; and

(b) that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration,

may make an order staying the proceedings and may further give such directions with respect to the future conduct of the arbitration as it thinks fit.

(2) An application under subsection (1) shall not, except with leave of the court in which the proceedings have been commenced, be made after the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance.

(3) Notwithstanding any rule of law to the contrary, a party to an arbitration agreement shall not be entitled to recover damages in any court from another party to the agreement by reason that that other party takes proceedings in a court in respect of the matter agreed to be referred to arbitration by the arbitration agreement."

6 For the purposes of simplicity I shall take it that the breach of contract the subject of the plaintiff's action concerns the alleged defects in the floor at Dolphin Quay. There are one or two other issues but they are relatively minor compared to that central issue. It is clear from the materials which have been filed in this matter that the differences between these parties have been outstanding for the better part of 2004 and culminated in the issue by the defendant of a notice of dispute pursuant to cl 47 on 8 October 2004 and a responsive notice of dispute from the plaintiffs dated 22 October 2004.

7 The progress of both of these notices of dispute appears to have followed the procedure set out in alternative one of s 47.2. That process requires the parties to confer at least once. There is however a proviso that if at any time either party considers that the other party is not making reasonable efforts to resolve the dispute that party may by notice in writing delivered by hand or sent by certified mail to the other party refer the dispute to arbitration or litigation. The issue is then whether the plaintiff in these circumstances was justified in reaching the conclusion that the defendant was not making reasonable efforts to resolve the dispute. On that score the progress of the matter is worth attention. In the first instance Messrs Lawton Gillon solicitors for the plaintiff in response to the defendant's notice of dispute explained that the directors of their client were overseas and would not be returning until 13 November and sought time to take instructions and to confer in an attempt to resolve the dispute. That letter also referred to the need to confer. The next step was that on 19 November the plaintiff proposed that there be a meeting on site at Dolphin Quay at 10.00 am on Wednesday 1 December with the stated purpose to enable the floors to be viewed during the meeting. In response to that letter the solicitors for the defendant stated:

"Our client is more than happy to meet with your client and with solicitors being present however our client does not agree to a meeting being held on site at Dolphin Quay, Mandurah. Our client would like the meeting pursuant to Clause 47.2 alternative 1 to be held either at your offices or our offices in the morning of either Tuesday, 30 November 2004 or Friday, 3 December 2004. We are also prepared to meet in the morning on any day of the following week except on Monday, 6 December 2004. We also intend having present at the meeting Robin Salter from Robin Salter & Associates."

8 On the 29 November 2004 the plaintiff's solicitors wrote a letter in the following terms:

"29 November 2004

Messrs Jackson MacDonald

140 St Georges Terrace

PERTH WA 6000

Dear Sirs,

Re: DISPUTE - DOLPHIN QUAY DEVELOPMENT

We refer to your letter of 24 November 2004.

The primary issue in dispute between the parties is the finish of the concrete floors for the Dolphin Quay Development.

In order for the parties and their advisors to fully appreciate the finish of those floors and accordingly the nature of the dispute between the parties, we consider that it is essential for the parties and their advisers to meet on site at Dolphin Quay.

We do not consider that the parties will be able to have a meaningful discussion in relation to the floors unless everyone involved in those discussions is able to view the floors for themselves.

In addition we have spoken to the superintendent who considers that given the nature of the dispute between the parties the meeting needs to be held on site.

We note that no place for the meeting between the parties is specified in clause 47.2 alternative 1 of the contract and in your letter of 24 November 2004 you do not state any reason why the meeting should not be held on site.

A meeting room is available at Dolphin Quay which we would propose to use once the parties and their advisors have inspected the finish of the floors.

We suggest that the meeting take place on site at 9.30am on Tuesday, 9 December 2004. Please advise if this is acceptable to your client.

Could you please also advise who Robin Salter is and what his intended contribution to any meeting between our clients would be.

Yours faithfully

LAWTON GILLON"

9 That led to a response from the defendant's solicitors dated 1 December 2004 as follows.

"1 December 2004

Lawton Gillon

3rd Floor

19 Pier Street

PERTH WA 6000

BY FAX: 9221 4224

Dear Sirs

DISPUTE - DOLPHIN QUAY DEVELOPMENT

We refer to your facsimile of 29 November 2004.

We do not agree that the primary issue in dispute is the finish of the concrete floors. The primary issue in dispute is the failure of your client to pay our client the sum $173,682.68 under the Contract.

We similarly do not consider that it is essential for the parties and their advisors to meet on the site at Dolphin Quay. Our client has seen the site numerous times and has also had its expert, Mr Robin Salter, inspect the same.

We respectfully disagree that the parties will be unable to have a meaningful discussion unless everyone is able to view the floor themselves.

In respect of the second last paragraph on page 1 of your facsimile, we see that it is appropriate and convenient for the meeting to be held in Perth at either your offices or ours.

We also suspect that the date that you have referred to on page 2 of your facsimile should be Thursday, 9 December 2004 not Tuesday, 9 December 2004.

Finally, our client is not available to meet on Monday to Wednesday, 13 to 15 December 2004 if, the meeting cannot be held on Thursday, 9 December 2004.

We look forward to hearing from you.

Yours faithfully

Jackson McDonald"

10 The correspondence then proceeded by way of letter dated 2 December 2004 from the plaintiff's solicitors and a responsive letter dated 3 December 2004 from the defendant's solicitors. The meeting did not take place although it appears the plaintiff's representatives were present on site at the time and date they had nominated. The next step taken by the plaintiff's solicitors was the issue of the writ and a letter enclosing it dated 9 December 2004 by way of service. From this scenario I draw the following conclusion.

11 The dispute which existed between the parties arose from the defendant's claim to payment and the plaintiffs withholding of that payment apparently on the basis of the need for remedial work to the premises. In my view both of the notices of dispute reflect different facets to the same issue namely and to what extent the plaintiff was entitled to set-off monies due under the contract against the anticipated costs of remedial work to the premises. It is clear on the materials that the defendant intended to proceed by way of arbitration and that this litigation stands as an obstacle to the factual disposal of all issues in dispute between the parties at an arbitration.

12 The defendant has referred me to the case of Mulgrave Central Mill Company Ltd v Haggleunds Drives Pty Ltd [2001] QCA 471; [2002] 2 QD R 514. That case and the case of Manningham City Council v Dura (Australia) Constructions Pty Ltd [1999] VSCA 158 involved interpretation of clauses very similar, in fact nearly identical, to the clauses in question in this case. In each of those instances the Court found that those clauses constituted arbitration agreements within the meaning of the Commercial Arbitration Acts in force in those states. In my view those decision are authority for the proposition that the clause before me is an arbitration agreement within the meaning of the Commercial Arbitration 1985 which appears to be on all fours with the equivalent legislation in those states.

13 The power to order a stay of proceedings pursuant to the Act is discretionary. As a general principle the right to arbitrate is not a race such as that if one party gets in first with litigation the entitlement of the other to arbitrate is necessarily defeated. In both Manningham City Council and Mulgrave Central Mill Company the defendant was the party which issued the notice and the plaintiff the party which instituted proceedings thereby preventing the defendant from pursuing the arbitration.

14 In my view that is the position in the present case. The defendant initiated the matter and the plaintiff merely responded. It is clear from the letter written by the plaintiff's lawyers dated 22 October 2004 that the plaintiff's notice was purely responsive to that issued by the defendant. In reaching that conclusion I rely on the third paragraph of the letter which is in the following terms:

"The directors of our client are currently overseas on holidays and will not be returning to Perth until on or about 13 November 2004, except as to the existence of the disputes we do not have any instructions from our client in relation to the resolution of those disputes."

15 In my view those comments justify me in characterising the plaintiff's notice of dispute as being responsive to that issued by the defendant and effectively a step taken by the plaintiff to put forward its position in the dispute resolution procedure initiated by the defendant.

16 The situation prevailing in this case looks very similar to that prevailing in both Mulgrave and Manningham City Council in that the defendant has been shut out of an arbitration which it intended to proceed by the actions of the plaintiff.

17 In my view the correspondence between the parties makes it clear that the point of issue between the plaintiff and defendant as to the meeting was its location the plaintiff insisting that the meeting take place at Dolphin Quay and the defendant stating otherwise.

18 Is it open for a party to insist on a particular site being the place at which a meeting for the purposes of the contract should take place? The object of the meeting is to confer. The meeting is not stated to be some kind forensic exercise in which evidence is to be taken. The meeting is intended to be an occasion when the parties are able to be express their views and achieve a settlement of their claims if that is possible. I am unable to agree that task would have as a necessary component the fact that the meeting take place at Dolphin Quay in Mandurah. I also note that it was the intention of the parties to be assisted by various other at the meeting and necessarily the expense of attending Mandurah would be greater than in Perth. The defendant expressed a willingness to either conduct the meeting at its premises in Perth or the plaintiff's premises in Perth which ever it might choose. In summary therefore I take the view that the defendant took steps intended by it to lead to an arbitration of the differences between it and the plaintiff in the event they could not be resolved at a meeting. That process was delayed by the absence of the plaintiff's directors and the defendant gave latitude to the plaintiff to allow the directors to return and to properly instruct their solicitors. Thereafter the plaintiff chose to impose as an absolute term that the meeting take place in a place of its choosing and chose to regard the failure of the defendant to accede to that as evidence of the defendant not making reasonable efforts to resolve the disputes. I do not agree. In my view the plaintiff should not be entitled by its actions and the precipitate issuing of the writ be able to shut out the defendant from its right to arbitrate. Additionally, in my view even if the meeting had taken place without a resolution of the differences between the parties the balance would still lie in favour of the defendant. The clause does not create a scenario where it is the quick and the dead but the thrust of the provision is to provide recourse to arbitration should a party wish to avail themselves of it. In my view the balance should lean in favour of arbitration rather than against it. In that respect in reaching that conclusion I rely on the words of Winneke P in Manningham City Council opposite at page 24 where he state:

"But I am unable to accept that under cl 13.03 where each party has a right to elect to refer a dispute to arbitration, one party loses the right to make that election simply because the other has earlier opted not to exercise that right but rather to proceed by way of litigation."

19 Clause 13.03 in that case is in very similar terms, in my view materially identical, to the relevant provisions in the present cases.

20 On that basis I conclude that the defendant has a proper case to apply for and to be granted a stay of this action and that is the order which I make.