Zhang & Anor v Shanghai Wool and Jute Textile Co Ltd [2006] VSCA 133

1 The appellants, Yimin Zhang ("Mr Zhang") and Philip Jones Pty Ltd ("the company"), appeal, by leave, against the decision of a judge of the County Court, made on 13 December 2004, dismissing their summons of 24 September 2004 by which they sought an order, pursuant to s.7 of the International Arbitration Act 1974 (Cth) ("the Act"), that the within proceeding be stayed. The proceeding was commenced by the respondent on 19 March 2004 only against the company. The claim was said to be for the unpaid balance of the purchase price for worsted fabric, produced in China, that was supplied by the respondent pursuant to a contract of sale made in about August 2000. The respondent asserted in the statement of claim that the contract was constituted, in part, by a written agreement entitled "Sales Confirmation," dated 3 August 2000. Clause 5 of it was in the following terms:

"All disputes arising out of the performance of or relating to this contract shall be settled through amicable negotiations. In case no settlement can be reached through negotiation, the case shall then be submitted to the Foreign Economic and Trade Arbitration Commission of the China Council for the Promotion of International Trade, Beijing, China for arbitration in accordance with its Provisional Rules of Procedures. The arbitral award is final and binding upon both parties."

By its defence dated 9 May 2003, the company denied the existence of the alleged contract but claimed in the alternative that, if there was such a contract, it was made between the respondent and Philip Jones, a business name under which Mr Zhang has traded at all relevant times. For some twelve months thereafter, the respondent took no relevant step in the proceeding. On 31 March 2004 it filed an amended writ and statement of claim pursuant to the order of Judge Harbison, made on 24 February 2004, which named Mr Zhang as the second defendant and effectively alleged that the above contract was made with the company or, alternatively, Mr Zhang.

2 At all relevant times Mr Zhang's wife, Xiaoquiong Zhang ("Mrs Zhang"), was the sole director of the company. On 11 May 2004, Mr Zhang, and Mrs Zhang on behalf of the company, personally filed a summons that was drawn by them in which they sought an order "to terminate the proceeding". Their affidavit in support of the summons, that was also drawn by them, asserted that, in light of clause 5 of the Sales Confirmation, "this proceeding should not continue in Australia". The summons was misconceived in the sense that it sought to strike out the action rather than have it stayed. Even a Scott v. Avery[1] clause, which provides for an arbitral award being a condition precedent to the bringing of the action, does not preclude litigation being initiated on a contract containing such a clause, although the clause can be a defence to such a proceeding[2] (and the basis for a stay pending the completion of the contemplated arbitral process). Nevertheless, it is plain enough that Mr Zhang, and Mrs Zhang on behalf of the company, took the view that the dispute between the parties should be determined by arbitration, in accordance with clause 5 of the Sales Confirmation, and not by the court. As will be seen, they continued to insist that the dispute should be resolved by arbitration. In an affidavit in opposition to the summons, sworn 17 May 2004[3] on the respondent's behalf by its solicitor, Sheh How Young, the deponent alleged that, although the respondent was a company that was registered in the People's Republic of China, the balance of convenience dictated that the dispute between the parties should be resolved in the County Court.[4] He said that the goods in question were delivered to Melbourne and a contract between the parties was relevantly performed here. Moreover, it was said, the evidence regarding the dispute is substantially in Melbourne. The solicitor then referred to clause 5 of the Sales Confirmation and said this:

"5 (b) I am instructed by the [respondent] and verily believe that prior to the commencement of this proceeding, it had entered into negotiations with the Defendant and have exhausted all possibilities of settlement through negotiations without success.

(c) I am further instructed by the [respondent] and verily believe that prior to the commencement of this proceeding, the [respondent] had requested the Defendant to return to Beijing in China to participate in arbitration proceedings before the Foreign Economic and Trade Arbitration Commission of the China Council for the Promotion of International Trade there but the Defendant has refused to do so. By reason of the Defendant refusal, the proposed arbitration proceedings before the Foreign Economic and Trade Arbitration Commission of the China Council for the Promotion of International Trade could not be undertaken and the [respondent] was compelled to commence the proceedings herein."

3 The appellants' summons of 11 May 2004 first came on for hearing before Judge Shelton on 19 May 2004. The appellant represented himself and, with leave of the court, Mrs Zhang represented the company. On that day, the judge adjourned the summons to 16 June 2004 and gave Mr Zhang and the company leave to file further affidavit material upon which they may seek to rely. Judge Shelton's notes record that the appellants said that they wished the dispute to be determined by arbitration pursuant to clause 5 of the Sales Confirmation. His Honour apparently advised the appellants to obtain representation but they did not act on that advice. Nevertheless, Mr Zhang filed an affidavit, sworn by him on 11 June 2004, which he had drawn, in which he swore that "according to the contract terms no.5 and terms no. 6 [he] went to China to discuss and negotiate with the [respondent]. Now directly amicable negotiations between the respondent, the company and the appellant have already started".

4 When the appellants' summons of 11 May 2004 came on for hearing before Judge F.B. Lewis on 16 June 2004, Mr Zhang and the company again were self-represented. There was no appearance for the respondent and, in the event, his Honour ordered that the proceeding be struck out and that the respondent pay the appellants' costs on the appropriate scale. For reasons that need not be analysed here, on 28 June 2004, his Honour set aside his order of 16 June 2004, effectively reinstating the proceeding, and struck out the appellants' summons of 11 May 2004. It is not surprising that the summons was struck out given that, as I have mentioned, the order sought was misconceived.

5 At the directions hearing that was held on 19 August 2004 the respondent was given leave by Judge Harbison to file a further amended statement of claim. Her Honour also ordered that any application for a stay or for security for costs that the appellants might wish to make was to be made on summons returnable on or before 24 September 2004. On 9 September 2004, the respondent filed a further amended statement of claim that alleged yet another alternative version of the agreement on which it sued, being one that did not contain a compulsory arbitration clause. Thus, as has been noted, prior to the amendment the respondent's pleaded claim was based on an agreement that was said to have been made with the company ("the original sale agreement") or, alternatively, with Mr Zhang ("the alternative sale agreement"). In each case, it was said that the Sales Confirmation formed part of the agreement. The further amended statement of claim of 9 September 2004, however, alleged, by way of alternative, yet another version of the agreement ("the substituted sale agreement") but one that did not include the Sales Confirmation or any other arbitration clause.

6 On 24 September 2004, the appellants' solicitors filed a summons[5] that relevantly sought an order that the proceeding be stayed pursuant to s.7 of the Act. In his affidavit of 24 September 2004 in support of the summons, Mr Zhang swore that he had signed the Sales Confirmation on 3 August 2000 and that there were ongoing disputes between the respondent and himself as to the lateness of delivery and the quality of the goods. He said that he had travelled to Shanghai (where the respondent is located) on 25 May 2004 in an attempt to resolve the disputes, but was unsuccessful and, although he had had further negotiations with representatives of the respondent in Melbourne in July 2004, they, too, were unsuccessful, essentially because the respondent's representatives said that they had no authority to bind the respondent. In the circumstances, he claimed, he referred the matter for arbitration, pursuant to clause 5 of the Sales Confirmation, by the Foreign Economic and Trade Arbitration Commission of the China Council for the Promotion of International Trade ("the Commission") in Beijing. Mr Zhang further said that, on 9 August 2004, he received written confirmation from the Commission of the lodgement of the matter for arbitration and paid the fee of US$4,384.00. Consistently with these claimed developments, in October 2004, the appellants filed a defence to the further amended statement of claim in which they alleged that the agreement with the respondent contained a compulsory arbitration clause and that, accordingly, on 1 July 2004, Mr Zhang commenced an arbitration proceeding in China in respect of the dispute in question.

7 As has been noted, on 13 December 2004, a judge of the County Court dismissed the appellants' summons of 24 September 2004, essentially on two bases. The first was that, by their conduct in the proceeding, the appellants had waived their entitlement to a stay pursuant to s.7 of the Act. The second was that the respondent no longer relied in its claim on an agreement that included the Sales Confirmation and, hence, the arbitration clause. On 18 February 2005, this Court, constituted by Nettle, J.A. and Cummins, A.J.A., granted Mr Zhang leave to appeal against his Honour's decision. Since the company did not seek leave to appeal, no such order was made in its favour.

8 When the appeal was called on for hearing before us on 11 May 2006, Mr Zhang represented himself and Mr Sandbach appeared for the respondent. The Court referred the parties to a number of problems that could arise if the company were not bound by any decision that we might make in the appeal. These difficulties had been identified by Nettle, J.A. to Mr Zhang during the leave application, but nothing was done by him, or the respondent, in that regard. To compound the difficulty, the appellant speaks very little English and is not legally qualified.[6] As I understood Mr Zhang, the reason that the company did not seek leave to appeal against the impugned decision was because it was not a party to the agreement in question and, therefore, there was no need for it to challenge his Honour's decision. In the result, with the agreement of the parties, we adjourned the hearing of the appeal so that consideration could be given on the adjourned date as to whether the company should be joined as a party to the appeal and we made orders as to the service of the relevant material on it.

9 When the matter came on for hearing before us again on 2 June 2006, the appellants were represented by Mr Farrands of counsel who sought, on the company's behalf, leave to appeal against the impugned order of 13 December 2004. This application was supported by Mr Zhang and Mr Sandbach. In the circumstances, the Court said that it would grant the company leave to appeal and would order that it be added as an appellant in this appeal.

10 The appellants' essential case on appeal was that it was not open to his Honour to conclude on the evidence that the appellants had waived reliance on the arbitration clause and s.7 of the Act. It was also said that his Honour erred in concluding that the respondent no longer relied on the Sales Confirmation to establish its claim against the appellants. Thus, it was claimed, his Honour's order should be set aside and, in lieu of it, it should be ordered that the proceeding be stayed and that the dispute be referred to arbitration in accordance with clause 5 of the Sales Confirmation. Mr Sandbach, however, argued that there were a number of reasons why his Honour's decision should be upheld. First, it was said, his Honour was correct in his conclusion that a party to a civil proceeding can be taken to have waived its right to rely on an arbitration clause to which the Act applies. Next, counsel submitted that it was open to his Honour to conclude on the evidence that the appellants had waived their right to rely on the arbitration clause. Thirdly, it was claimed that the appellants' evidence below had not established that a condition on which China acceded to the Convention[7] was satisfied, namely, that the dispute be a "commercial" dispute under the law of China. Consequently, so it was said, it would be futile to order that the dispute be referred out as sought by the appellants. Fourthly, counsel said that, in any event, because the substituted sale agreement does not include an arbitration clause and, therefore, cannot be the subject of a s.7(2) order, the claim based on it should proceed to be resolved in court and, in the interim, the remainder of the action should be adjourned. Finally, Mr Sandbach claimed that the application was an abuse of process given that the appellants' summons of 11 May 2004 had been struck out and, in any event, the application was made outside the time limit prescribed by Judge Harbison.

Section 7 of the Act

11 As Mr Farrands pointed out in his submissions, the major issue in the appeal was whether it was open to his Honour to conclude on the evidence that the appellants had waived their right to insist that the dispute be arbitrated in accordance with clause 5 of the Sales Confirmation and, in that respect, call in aid s.7(2) of the Act. In dealing with this question, it is necessary to consider, amongst other matters, the relevant terms of the alleged agreement and the operation of s.7 of the Act. I have already mentioned the relevant terms of the agreement. So far as the Act is concerned, s.7 provides that it applies to an "arbitration agreement", where, relevantly, a party to it "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".[8] It is clear enough, I think, that s.7 applies to the present circumstances. I say this for the following reasons. First, clause 5 of the Sales Confirmation falls within the definition of "arbitration agreement" in s.3 of the Act which defines "arbitration agreement" to mean an agreement in writing of the kind referred to in clause 1 of Article II of the Convention. And clause 1 of Article II relevantly speaks of "an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen ... concerning a subject matter capable of settlement by arbitration." It is plain enough that clause 5 of the Sales Confirmation falls within this clause. Secondly, the respondent is domiciled, or ordinarily resident, in China and the contrary was not suggested by Mr Sandbach. Thirdly, as counsel also accepted, China is a Convention Country for the purposes of the Act.

12 The relevant provision of s.7 is contained in sub-s.(2) which is in the following terms:

"(2) Subject to this Part, where:

(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."

It seems that, in the light of the mandatory terms of the sub-section,[9] once its requirements have been satisfied, the court is generally required to stay the proceeding and refer the parties to arbitration in respect of the dispute, as was recognised, for example, by Gillard, J. in Construction Diving Services (Qld) Pty Ltd v. Van Oord ACZ BV[10] and by Austin, J. in ACD Tridon Inc v. Tridon Australia Pty Ltd.[11] Mr Sandbach did not argue to the contrary, but submitted that s.7(2) has no operation in respect of the proceeding because the appellants waived their right to arbitration and, therefore, made the agreement "inoperative" for the purposes of s.7(5) of the Act.[12]

13 It may be accepted for present purposes that, since the right to arbitration is a private right, a party may waive reliance on it, thereby rendering the arbitration agreement "inoperative" for the purposes of s.7(5) of the Act.[13] The question nevertheless remains, was it open to his Honour on the evidence to conclude that such a waiver occurred here? In arguing for waiver, Mr Sandbach expressly disavowed reliance on waiver in the form of estoppel, election or acquiescence. Counsel contended that waiver in this case was constituted by the appellants' unequivocal abandonment of their right to arbitration. Such abandonment, it was said, was made plain by the following conduct. First, Mr Zhang's refusal to participate in the arbitration process that the respondent instigated before the commencement of the proceeding as was set out in the affidavit of the respondent's solicitor of 17 May 2004 to which I have referred. Secondly, failure by the company to raise this matter in its defence that was filed on 9 May 2003. Next, acquiescence by the appellants at the hearing before Judge Harbison on 24 February 2004, "in the fixing of the trial date of the proceeding" and later seeking security for costs. Such conduct, it was argued, taken individually or collectively, plainly demonstrated the appellants' abandonment of the right to arbitration that is now sought to be enforced.

14 As Nettle, J.A. noted in his reasons for judgment in the leave application, the principles that operate in relation to waiver generally, and in the context of the Act in particular, are helpfully analysed by Austin, J. in Tridon,[14] principally by reference to the various judgments in Commonwealth v. Verwayen[15] in which their Honours examine the inter-relationship between the concepts of estoppel, election and waiver. It is not necessary to analyse here the different emphases that the judgments in that case place on the meaning and operation of the principle of waiver. Suffice it to note the following. As was pointed out in Mann v. Carnell,[16] and by Robert Walker, L.J. in Oliver Ashworth (Holdings) Ltd v. Ballard (Kent) Ltd,[17] "waiver" is a vague or imprecise term that is used in many senses, and often must be defined according to its context. Thus, in Mann, the majority considered that, in the context of legal professional privilege, waiver involved intentional conduct that was inconsistent with the maintenance of the confidentiality**.** And as Austin, J. suggested in Tridon,[18] explained in this way, such waiver of legal professional privilege, could be regarded as the application of the doctrine of approbation and reprobation. This observation is consistent with the recognition by Mason, C.J.[19] and Toohey[20] and McHugh, JJ.[21] in Verwayen that, in most cases where the courts sought to apply waiver, they essentially did so by reference to principles that are applicable in other areas of the law such as contract, estoppel, election or unconscionable conduct. Nevertheless, the common thread that runs through the several judgments in Verwayen that deal with waiver as such is that, in general, waiver is constituted by the deliberate, intentional and unequivocal release or abandonment of the right that is later sought to be enforced.[22] Thus, for example, Brennan, J. said:[23]

"The time when waiver of a right occurs depends on the relationship between a party possessed of such a right and the party whose interests may be affected by exercise of the right. When the party possessed of the right knows that a new legal relationship is to be constituted between him and the party whose interests are liable to affection by the exercise of the right and that the right, if exercised, might affect the new relationship, the party possessing that right must enforce the right before the new relationship is constituted or he will be held to have waived that right."

Similarly, the learned authors of The Law of Waiver, Variation and Estoppel[24] say that the elements that are common to all waiver "in the true sense of the word" are:

"1. an unequivocal representation by X either by words or conduct that it will forgo certain rights;

2. X makes that representation when it is aware of the facts that give rise to the rights which are being forgone, of the right to forgo those rights and the connection between the two."

And Lord Hailsham, L.C. said in Banning v. Wright:[25]

"In my view, the primary meaning of the word 'waiver' in legal parlance is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted."

15 It is true that waiver by election may be established by demonstrating that the party in question had elected to pursue a substantive right that is inconsistent with that which it is now seeking to press. As Laws, L.J. said in Oliver Ashworth,[26] "[c]ommon law waiver, or waiver by election ..., proceeds upon the premise that the party said to be fixed by the waiver must have possessed two or more substantive but inconsistent rights". And in Verwayen Brennan, J.[27] noted that "[e]lection consists in a choice between rights which the person making the election knows he possesses and which are alternative and inconsistent rights." But, as has been noted, the respondent does not press waiver by election and, in any event, it is unlikely that such a claim would be open to it given that a choice between curial and arbitral disposition of the dispute seems not to constitute an election between two inconsistent rights as Austin, J. explained in Tridon. In that case it was alleged that the defendants waived their rights to compulsory arbitration of the dispute and to rely on s.7 of the Act because they conducted the proceeding in relation to the dispute through its various and many interlocutory phases. Austin, J., however, considered that such conduct did not amount to an election that precluded the defendants from pressing their right to arbitration. His Honour said:[28]

"In the present case the defendants had a choice to insist on arbitration or to allow their disputes with Tridon to be determined curially. The making of that choice would not involve election between inconsistent rights. It would simply involve selecting one of two procedures for the adjudication of the dispute."

16 In the present case, I consider that it was not open to his Honour on the evidence to conclude that the appellants waived their right to arbitration in the sense of having intentionally and unequivocally abandoned it. I say this for the following reasons. First, it seems to me that they have consistently pressed that the dispute be sent to arbitration. Thus, in May and July 2004, Mr Zhang sought to resolve the proceeding by negotiations with the respondent's representatives, and, when this was unsuccessful, the appellants filed their summons of 11 May 2004 asserting that the dispute should be resolved by arbitration and not curially. That this was their primary aim is confirmed by Judge Shelton's note of 19 May 2004. Notwithstanding that the summons was struck out they filed a "replacement" summons on 24 September 2004 by which they pressed their right to arbitration. And in July or August 2004, Mr Zhang submitted the dispute to arbitration in Beijing pursuant to clause 5 of the Sales Confirmation. Furthermore, in their defence to the further amended statement of claim the appellants reserved the right to insist that the dispute be resolved by arbitration. Moreover, in the course of the appearances at the interlocutory hearings to which reference has been made - at most of which they represented themselves - the appellants made it plain to the court that they wanted the dispute to be arbitrated.

17 Secondly, an examination of the matters on which Mr Sandbach relies as establishing waiver does not bear out such a claim. Even if Mr Zhang refused to participate in the arbitration proceeding that was proposed by the respondent, such conduct would not, by itself, amount to an unequivocal abandonment of the right to arbitration particularly given the appellants' conduct to which I have referred. In any event, there must be some doubt about the seriousness of the respondent's wish to have the matter resolved by arbitration bearing in mind that it chose not to proceed with it notwithstanding that it could have done so despite the absence of the appellants.[29] The respondent did not explain to the court why it was that it did not adopt such a course. Moreover, I consider that the material in the solicitor's affidavit is unpersuasive. First, it is not clear from its terms what were the circumstances in which the respondent sought Mr Zhang's agreement to participate in the arbitration. Secondly, it provides no information as to who it was at the respondent who gave the deponent the instructions as to the hearsay matters about which he deposed.

18 I also consider that the failure by the company to press for the arbitration in its defence of 9 September 2004 did not amount to waiver. Generally, the mere filing of a defence that does not raise the right to arbitration, although a step in the proceeding, does not necessarily amount to an unequivocal waiver of the right to arbitrate such as to disentitle the defendant from later seeking an order pursuant to s.7(2) of the Act.[30] This is particularly so in this case given that the principal purpose of that defence was to identify to the respondent the fact that the agreement was made with Mr Zhang and not the company.

19 I am also not satisfied that the evidence shows that the appellants acquiesced in the fixing of the trial date as was claimed by Mr Sandbach or, if they did, that this amounted to waiver of the right to arbitration. It is true that the order of Judge Harbison of 24 February 2004, which gave the respondent leave to add Mr Zhang as a defendant, also set down this matter for trial and that the order was counter-signed by Mrs Zhang. But it is plain enough that the order was an administrative one which gave effect to that court's policy of fixing a trial date very early in the proceeding and then determining the timing of all preceding interlocutory steps accordingly. I note that the trial date that was fixed - 26 March 2004 - was plainly unrealistic given that, amongst other matters, the respondent had, at the time for the order, not even filed its amended statement of claim (and only obtained leave to do so from Judge Harbison on that day). Importantly, the signature of Mrs Zhang was procured, apparently in accordance with standard practice, either by a court officer or a member of the judge's staff in circumstances where the appellants were unrepresented and were plainly unfamiliar with the procedure. In the circumstances, her signature at the foot of Judge Harbison's order does not amount to the acquiescence by the appellants for which the respondent contends. I mention for completeness that, so far as I can see from the material, the appellants' claim in its summons for security for costs was not pursued.

20 Thus, not only does the evidence not disclose that the appellants had, by their conduct, waived their right to insist that the dispute go to arbitration but I think that it demonstrated that at all relevant times they pressed to have the dispute arbitrated in accordance with the arbitration clause in the Sales Confirmation. In the circumstances, it was not open for his Honour to conclude on the evidence that there was waiver as claimed by the respondent.

Whether dispute is " commercial"

21 The respondent's notice of contention claims that his Honour's decision should stand in any event because the evidence did not establish that China was a Convention country for the purposes of the Act and, therefore, it was said, the Act does not operate to compel a reference of the dispute to arbitration. In his oral submissions, however, Mr Sandbach did not press this argument but, rightly, I think, accepted that China was a Convention country. Counsel nevertheless argued that the orders sought should not be made because it would be futile to do so given that it was not established below that the dispute was a "commercial" dispute under the law of China. Unless that were first made out, Mr Sandbach maintained, it was not certain that the matter could be arbitrated in China under the Act and, even if it could be arbitrated there, it was not clear that it could be enforced. In order better to explain this argument, it is necessary to refer to the context in which it was propounded. In the proceeding before the learned primary judge, the appellants tendered without objection a certificate pursuant to s.10 of the Act as prima facie evidence of the fact that China is a Convention country. So far as is relevant, the certificate provided that China acceded to the Convention but declared that it "will apply the Convention only [to disputes] which are considered as commercial under [its] national law ... " It was the respondent's case, as I have said, that the appellants failed to establish that the dispute had the character of a "commercial" dispute under the law of China and, therefore, it would be futile to make the order sought pursuant to the Act for reasons which I have briefly set out. In the circumstances, it was said for the respondent, his Honour's decision not to make the order sought should be upheld.

22 In my view, this argument is plainly misconceived and should be rejected for reasons that include the following. First, given that it was the respondent that contended that an order referring the dispute to arbitration would be futile, it was for it to have led evidence to establish that position, more particularly, that the dispute does not have the relevant character under the law of China. Secondly, irrespective of which of the parties had the onus of proof on this issue, the relevant reservation made by China on its acceding to the Convention can be treated as having been satisfied in this case because it is almost inconceivable that the dispute in question - arising, as it does, out of a commercial dealing in the context of the contractual relationship - would not be treated as a "commercial dispute" under the national law of China. Moreover, the relevant arbitration body in China must have concluded that the dispute is of that character given that it accepted the reference to arbitration and charged the appellants a fee in respect of it. It is plain, therefore, that the dispute is of a nature that can be properly arbitrated pursuant to the Convention and any award made as a consequence would be enforceable in Australia pursuant to s.8 of the Act.

Claim based on substituted sale agreement should proceed to curial resolution

23 At one stage, Mr Sandbach sought to argue that, because the respondent now relies on the substituted sale agreement which does not contain an arbitration clause, s.7(2) of the Act has no operation in respect of such a claim, and, therefore, the dispute as a whole could not be "settled by arbitration" within the meaning of s.7. It follows, so it was suggested, that the proceeding could not be properly stayed under that provision. In his oral submissions, however, Mr Sandbach did not press this argument, and rightly so. But he did contend that in a case such as the present, where the dispute is said to arise from a contract, the constituent elements of which are pleaded in a number of alternatives, the claim based on the version of the contract that does not contain an arbitration clause should be litigated first, and the resolution of the balance of the dispute should be stayed in the interim. It was said that such an order was made in Hi-Fert Pty Ltd v. Kiukiang Maritime Carriers Inc.[31] But the relevant order in that case was made in circumstances that were materially different from those operating here. So far as is relevant, the plaintiffs in Hi-Fert claimed that the defendant was liable for damages for breach of Part V of the Trade Practices Act 1974 (Cth) and for negligent performance of the contract, which provided that all disputes that arose "from it" were to go to arbitration. Emmett, J., with whom Branson, J. agreed, concluded[32] that the circumstances giving rise to the Trade Practices complaint arose before the contract was made and, therefore, the arbitration clause was inoperative in relation to it. Consequently, it was held that the defendant was not entitled to an order under s.7(2) of the Act staying the proceeding in respect of the Trade Practices claim. His Honour considered,[33] however, that the defendant should succeed in its claim for a stay of that part of the proceeding that involved the determination of the claim based on negligent performance of the contract on the basis that the claim should be determined by arbitration. In order to avoid parallel proceedings in two tribunals, however, the court imposed a condition on the stay of the contractual claim to the effect that the arbitration proceeding not be progressed until the final determination of the proceeding in court in respect of the Trade Practices complaint.

24 It does not follow, however, that the proceeding here, in so far as it involves the claim based on the substituted sale agreement, should proceed to be determined by the court and, in the meantime, the arbitration of the dispute based on the other versions of the contract be stayed. The respondent's primary claim is based on the original sale agreement or the alternative sale agreement and both parties contend that the first two versions of the contract contain the Sales Confirmation. In the circumstances, I consider that, contrary to counsel's submissions, the Court should order a stay of the whole of the proceeding and that the dispute, in so far as it arises out of the Sales Confirmation, be referred to arbitration. Such an order could be made, I think, partly pursuant to s.7(2) of the Act and partly in the exercise of the Court's general jurisdiction.

Abuse of process

25 Mr Sandbach next argued, also under cover of the notice of contention, that his Honour's decision should be affirmed on the basis that the appellants' claim, made in their summons of 24 September 2004, was an abuse of process given that the same case was determined against them by Judge F.B. Lewis who struck out their summons of 11 May 2004. Counsel claimed that the appellants' later summons was "unjustifiably vexatious and oppressive for the reason that it sought to litigate anew a case which has already been disposed of by earlier proceedings".[34] In my view, this claim should be rejected for at least two reasons. First, the summons of 24 September 2004 did not raise the same "case" as that which was sought to be pursued by the appellants in their summons of 11 May 2004. The earlier summons was, as I have mentioned, misconceived. It effectively sought a dismissal of the respondent's proceeding. When this was made apparent to Judge F.B. Lewis on 28 June 2004, his Honour understandably struck it out. Mr Sandbach, however, claimed that the appellants told his Honour on 28 June 2004 that they wished the dispute to go to arbitration pursuant to clause 5 of the Sales Confirmation and that this claim was rejected by the judge. Thus, it was said, it was an abuse of process for the appellants to litigate the matter again. But I think that the learned primary judge below was clearly correct in his conclusion that there was no hearing by Judge F.B. Lewis of the merits of the appellants' summons of 11 May 2004. As I have said, his Honour recognised that the claim, as formulated, was defective so that he had little choice but to strike it out. It is apparent from Mr Zhang's affidavit of 9 November 2004 that all that he put to Judge F.B. Lewis, that arguably bore on the issue whether there should be a reference to arbitration, was that he had attempted to negotiate a settlement but had failed so that the matter should be referred to arbitration. In my view, this plainly does not give rise to appellants' real claim being considered on its merits as counsel would have it. I note for completeness that his Honour did not dismiss the summons but ordered that it be struck out, thereby implicitly recognising that the appellants' real complaint has not been considered on its merits. Usually, such an order does not reflect a curial determination of the merits of the proceeding.[35] Secondly, nothing was put forward by Mr Sandbach that could sensibly lead to the conclusion that the hearing of the appellants' summons of 24 September 2004 was oppressive to the respondent and should be rejected for that reason.

Application out of time

26 Finally, Mr Sandbach contended that his Honour's decision should not be disturbed because the appellants' summons of 24 September 2004 was issued outside the time limit prescribed by Judge Harbison on 19 August 2004 as I have mentioned. I can see no relationship between the lateness of the issue of the summons and the merits of the claim raised by it. Moreover, it is plain that the respondent does not assert that it was prejudiced by the delay. In the circumstances, this complaint should be rejected.

Conclusion

27 To reiterate, I consider that the company should be given leave to appeal and be added as an appellant. I would uphold the appeal and set aside his Honour's order. In lieu of it, I would order that such part of the proceeding as is concerned with the respondent's claim that is said to arise out of the original sale agreement or the alternate sale agreement be referred to arbitration pursuant to clause 5 of the Sales Confirmation. I would also order that there be a stay of the proceeding pending the hearing and determination of the arbitration or further order. The latter part of the order will enable the respondent to move the court to vacate this order in the event that the proposed arbitration cannot be effected or for some other appropriate reason.

28 I agree with Chernov J.A., for the reasons which his Honour gives, that this appeal should be allowed; and that orders should be made as his Honour proposes.

29 Philip Jones Pty Ltd should be given leave to appeal and be added as an appellant. The appeal should be upheld and orders made as proposed by Chernov, J.A. for the reasons given by his Honour.

[1] (1856) 25 L.J. Ex. 308.

[2] See Viney v. Bignold (1887) 20 QBD 172; Russell on Arbitration (22nd ed., 2003) at 32.

[3] The front page of the affidavit incorrectly shows the date as 17 April 2004.

[4] In terms, the deponent said that, because of the factors just mentioned that related to the balance of convenience, the court had "jurisdiction to hear and to determine this dispute between the parties."

[5] The front page of the summons wrongly states that it was filed on behalf of "the plaintiff".

[6] The same position, it would seem, applies to Mrs Zhang.

[7] The Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty fourth meeting, a copy of the English text of which is set out by way of Schedule 1 to the Act ('the Convention").

[8] See s.7(1)(d).

[9] This position may be contrasted with s.53 of the Commercial Arbitration Act 1984 which gives the court a discretion whether to stay a proceeding that has been brought notwithstanding a compulsory arbitration clause.

[10] Unreported, Supreme Court of Victoria, 12 June 1998 at 2.

[11] [2002] NSWSC 896 at [22].

[12] Section 7(5) is in the following terms: "A court shall not make an order under subsection (2) if the court finds that the arbitration agreement is ... inoperative or incapable of being performed."

[13] See, for example, Australian Granites Ltd v. Eisenwerk Hensel Bayreuth Dipl-Ing Burkhardt GmbH [2001] 1 Qd R 461 at 466-467 per Pincus, J.A. with whom the other members of the Court agreed and Tridon at [53] per Austin, J.

[14] At [53]-[64].

[15] (1990) 170 C.L.R. 394 at 406 per Mason, C.J., 421 per Brennan, J., 456 per Dawson, J., 472 per Toohey, J., and 480 per Gaudron, J.

[16] [1999] HCA 66; (1999) 201 C.L.R. 1 at 13 per Gleeson, C.J., Gaudron, Gummow and Callinan, JJ.

[17] [2000] Ch. 12 at 28.

[18] At [63].

[19] At 407.

[20] At 471-473.

[21] At 491.

[22] Per Brennan, J. at 423-424, Toohey, J. at 473, Gaudron, J. at 482 and McHugh, J. at 497.

[23] At 427.

[24] Wilken and Villiers, The Law of Waiver, Variation and Estoppel (2nd ed., 2002) at 68 [4.45].

[25] [1972] 1 W.L.R. 972 at 979. See also Verwayen at 472 per Toohey, J.

[26] At 32.

[27] At 421, see also Gaudron, J. at 481 and Sargent v. ASL Developments Ltd [1974] HCA 40; (1974) 131 C.L.R. 634 per Stephen, J. at 641.

[28] At [58].

[29] See, the China International Economic & Trade Arbitration Commission (CIETAC) Arbitration Rules.

[30] See, for example, Australian Granites at 469 per Pincus, J.A.

[31] (1998) 159 A.L.R. 142.

[32] At 161-162, 168.

[33] At 168.

[34] Walton v. Gardiner (1993) 177 C.L.R. 378 at 393 per Mason, C.J., Deane and Dawson, JJ.

[35] See, for example, Aiken v. Aiken [1941] VicLawRp 27; [1941] V.L.R. 124 and R v. McGowan**;** ex parte Macko & Sanderson [1984] VicRp 78; [1984] V.R. 1000 at 1002 per Kaye, J.