|Supreme Court of NSW|
|Case Name:||CPB Contractors Pty Ltd v DEAL S.R.L.  NSWSC 820|
|Medium Neutral Citation:||CPB Contractors Pty Ltd v DEAL S.R.L.  NSWSC 820|
|Hearing Date(s):||3 June 2021|
|Date of Orders:||6 July 2021|
|Decision Date:||6 July 2021|
|Decision:||THE COURT ORDERS THAT:
Pursuant to section 7(2) of the International Arbitration Act 1974 (Cth) that these proceedings be stayed and the parties be referred to arbitration, with such arbitration to be commenced in accordance with clause 46.9 of the Services Agreement for Design Services between the Rizzani Leighton Joint Venture and Deal S.R.L. entered into or about 27 July 2015.
The plaintiff to pay the defendant’s costs of the motion filed on 14 April 2021.
|Catchwords:||COMMERCIAL ARBITRATION – claim under the Australian Consumer Law – alleged pre-contractual representations – proceedings commenced on last day of limitation period – application for stay – whether court or arbitrator should determine scope of arbitration clause – kompetenz-kompetenz – principles at - – prima facie approach applied – arbitrator to determine jurisdiction – proceedings stayed.
CONDITIONS OF STAY – plaintiff seeks conditions on stay regarding limitation period and applicable law – principles at -, - – condition regarding limitation period would substantively alter rights – conditions not imposed.
|Legislation Cited:||Commercial Arbitration Act 2010 (NSW)
International Arbitration Act 1974 (Cth) ss 7, 16, 39, sch 1, sch 2
Limitation Act 1969 (NSW) ss 70, 72
Trade Practices Act 1974 (Cth)
|Cases Cited:||A v B  EWHC 2006 (Comm);  1 Lloyd’s Rep 237
Ansett Australia Ltd v Malaysian Airline System Berhad  VSC 109; (2008) 217 FLR 376
Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd  WASCA 66; (2013) 298 ALR 666
Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45;  FCAFC 192
Dialogue Consulting Pty Ltd v Instagram, Inc  FCA 1846
Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160
Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442;  FCAFC 170
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1997) 150 ALR 345
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1
IBM Australia Ltd v National Distribution Services Pty Ltd (1991) 22 NSWLR 466
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd  NSWSC 451
Lepcanfin Pty Ltd v Lepfin Pty Ltd (2020) 102 NSWLR 627;  NSWCA 155
O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601
Orient Overseas Container Line Ltd v APL Co Pte Ltd (No 2)  FCA 606
QH Tours Ltd v Ship Design and Management (Aust) Pty Ltd (1991) 33 FCR 227
Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514;  HCA 13
Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332
Tomolugen Holdings Ltd v Silica Investors Ltd  SGCA 57;  1 SLR 373
Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd  FCA 1102
WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd  NSWSC 894; (2008) 219 FLR 461
|Texts Cited:||Malcolm Holmes and Chester Brown, The International Arbitration Act 1974: A Commentary (3rd ed, 2018, LexisNexis)|
|DIVISION:||Equity – Commercial List|
|Parties:||CPB Contractors Pty Limited (Plaintiff)
Deal S.R.L. (Defendant)
Mr B Kremer (Plaintiff)
Mr J Giles SC / Mr M Sheldon (Defendant)Solicitors:
Corrs Chambers Westgarth (Plaintiff)
Vincent Young (Defendant)
|Appeal from:||Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2)  FCA 1116; Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 3)  FCA 1219|
- HER HONOUR: The defendant, Deal S.R.L., seeks an order under section 7(2) of the International Arbitration Act 1974 (Cth) for these proceedings to be stayed and referred to arbitration in Singapore by reason of an arbitration clause in its contract with the plaintiff, CBP Contractors Pty Ltd (formerly known as Leightons Contractors Pty Ltd). In addition, the defendant says that the issue as to whether the arbitration clause covers this dispute should be referred to arbitration pursuant to the kompetenz-kompetenz principle.
- The plaintiff does not accept that the kompetenz-kompetenz principle applies and says the only question is whether these proceedings, which are said to only concern pre-contractual matters, are covered by the arbitration clause. If the Court is minded to stay these proceedings, the plaintiff seeks the imposition of conditions on the stay to prevent the defendant from raising a limitations defence or denying the applicability of the Australian Consumer Law.
- For the reasons which follow, I have concluded that the defendant is entitled to the orders it seeks.
- The defendant relied on affidavits by its Operations Director, Stefano Fabbro, and solicitor, Phillip Coady. The plaintiff relied on affidavits by its former Commercial Manager, David Simbaqueba, and solicitor, Carla Mills. There was no cross-examination.
- The defendant is an Italian company which designs infrastructure services, in particular, bridges and viaducts, and also supplies specialised equipment for infrastructure construction. According to Mr Fabbro, at all relevant times the defendant was based in Italy, performed its design services there, and had no offices in Australia.
- The defendant is a subsidiary of Italian company, Rizzani de Eccher SpA. Rizzani de Eccher Australia Pty Ltd is also part of a group of companies including Rizzani de Eccher SpA.
Tender Teaming Agreement
- According to the Technology and Construction List Statement, the WestConnex M4 widening project was a major road infrastructure project in Sydney to increase the carrying capacity of the M4 road between Silverwater Road (in the east) and Parramatta (in the west) by increasing the width of the road from three to four through lanes in each direction and improving exit and entry ramps.
- On 13 March 2014, the plaintiff and Rizzani de Eccher Australia were selected by the WestConnex Delivery Authority to submit a tender in respect of various works in connection with the M4 project, being construction of a viaduct, two bridges and the widening of an existing bridge. On 17 April 2014, the WestConnex Delivery Authority issued a Request for Tender in respect of the works.
- On 11 April 2014, a Tender Teaming Agreement was executed between the plaintiff and Rizzani de Eccher Australia. The plaintiff and Rizzani de Eccher Australia agreed to pursue the opportunity to deliver the M4 project as an unincorporated joint venture (the Rizzani Leighton Joint Venture). The parties agreed to work together to lodge a tender and, if selected to proceed to preferred contractor, to negotiate the final terms of the contractual arrangements necessary to deliver the project. The agreement contained an arbitration clause.
- In clause 4, the parties agreed to bear their own internal costs in connection with the tender. In respect of consultants engaged to assist in preparing the tender, clause 4.1(a)(ii)(A) provided:
[Rizzani de Eccher Australia] will bear all costs of engaging DEAL (including any subconsultants to DEAL);
DEAL is not defined in the Tender Teaming Agreement but is, presumably, a reference to the defendant.
- The defendant was not a party to the Tender Teaming Agreement. The plaintiff contended that the defendant had a separate contract with Rizzani de Eccher Australia, relying upon a suggested admission made by the defendant in subsequent correspondence. Whilst that is possible, the admission is unclear and I am not prepared to proceed on the basis that there was such a contract: see -.
- According to the Technology and Construction List Statement, pursuant to the Tender Teaming Agreement, Rizzani de Eccher Australia engaged the defendant to provide designs and advice for bridge and viaduct structures for the M4 project to the plaintiff and Rizanni de Eccher Australia.
Design Management Plan
- On 29 April 2014, Rizzani de Eccher Australia issued a document entitled “Design Management Plan (Tender Phase) – WestConnex – M4 Widening”. According to clause 1 of the Design Management Plan, the document was prepared to define the planning and management of the concept design and its interface with the wider Bid Team. The Bid Team was the Rizzani Leighton Joint Venture team led by Bid Manager, Giammaria Gentile of Rizzani de Eccher Australia.
- Clause 3.1 of the Design Management Plan set out the Bid Team organisation structure, which included Rizzani Leighton Joint Venture personnel comprising:
- a support team;
- the Bid Manager from Rizzani de Eccher Australia; and
- a Construction Manager, Estimating Manager and Engineering Manager from the plaintiff.
According to the organisation structure, the Engineering Manager was supported by five designers, including the defendant as viaduct and structural designer.
- Clause 5 of the Design Management Plan described the Design Process, with the design to be developed in four phases: initial concept design and pre-tender deliverables; preliminary concept design and value engineering; finalised concept design; and submission documentation.
Defendant provides drawings for tender
- From 30 May 2014 on, the defendant prepared and circulated engineering drawings in respect of the tender. Mr Fabbro says these drawings were prepared by the defendant as part of its function under the Design Management Plan. The documents were preliminary drawings, being concept drawings which did not provide individual details in respect of each single structure within the drawing. According to Mr Fabbro, if the tender was successful, then the drawings were the starting point to be developed through further design stages before being issued for construction.
- According to the Technology and Construction List Statement, between May and July 2014, the defendant provided Rizzani de Eccher Australia and the plaintiff with designs and advice for bridge and viaduct structures to be used for the tender including: engineering drawings; advice about methods of construction; advice about quantities required for construction; and the cost of construction. In providing these designs and advice, it is said that the defendant represented to the plaintiff that the structures in the designs were compliant with the requirements of the tender “and were suitable to use in a tender for a fixed price contract”; the quantities derived from the designs or advised by the defendant would be sufficient; the method of construction would be suitable and adequate to construct the designs in accordance with the M4 project delivery time requirements, being by 22 December 2016.
- These representations are said to have been made by the defendant in trade and commerce and to have been false, including because the designs could not be developed into a final design without significant alterations and the use of significant additional resources; the designs significantly understated the quantities of resource needed to construct the structures; and it was not possible to construct the structures in the required time frame.
- On 30 July 2014, the plaintiff and Rizzani de Eccher Australia submitted its tender: the joint venture proposed to undertake the work for $261 million, with the works to be completed on 22 December 2016.
- According to the Technology and Construction List Statement, the plaintiff relied on the defendant’s representations when calculating its price and preparing a program for the works. The plaintiff further says that, from July to December 2014, the defendant failed to take any steps to correct the errors and deficiencies in its design or address the suggested falsity of its representations.
- The tender was successful. On 28 November 2014, the WestConnex Delivery Authority selected the Rizzani Leighton Joint Venture as the preferred contractor to enter into a contract for delivery of the project. On 4 December 2014, a Design and Construct Deed was executed between WCX M4 Pty Ltd (the Principal) and the Rizzani Leighton Joint Venture. After negotiating some additions to the scope of works, the lump sum contract price was $287.5 million.
- According to Mr Simbaqueba, the construction program for the M4 project was ‘tight’ and the defendant began producing and supplying designs as soon as the Design and Construct Deed was executed, even though it did not itself have a signed contract. This led to some unhappiness. By February 2015, the defendant was seeking a first payment but the plaintiff was not prepared to pay until a contract had been signed, albeit Mr Simbaqueba and other representatives of Rizzani de Eccher Australia and the plaintiff looked at ways of doing so. The defendant continued to produce work nonetheless.
- On 24 April 2015, the defendant entered into a Supply Agreement with the Rizzani Leighton Joint Venture to supply equipment needed for construction. It contained an arbitration clause.
- On about 29 April 2015, the defendant issued an invoice to the Rizzani Leighton Joint Venture, making a payment claim under the contract then in negotiations. Some comments were made on the invoice on 19 June 2015, which was promptly re-issued, but Mr Simbaqueba says the invoice was not paid as the contract had yet to be signed.
- Finally, on 27 July 2015, a Services Contract was signed between the Rizzani Leighton Joint Venture and the defendant to provide design services for a fixed lump sum of $2.5 million. The Services Contract comprised a Contract Preamble, Contract Instrument, Contract Conditions, Annexures to the Contract Conditions and Special Conditions: clause 2.2, Contract Instrument.
- The Services Contract contained an arbitration clause, which is reproduced and considered at -.
- By clause 2.1(1) of the Contract Instrument, the defendant agreed to perform the Services in accordance with the Contract. (The meaning of Services is considered further at .) In return, the Rizzani Leighton Joint Venture agreed to pay the defendant the Consultant’s Fee: clause 2.1(2), Contract Instrument.
Clause 2 of the Contract Conditions provided: (emphasis added)
If at [the Rizzani Leighton Joint Venture]’s request, the [defendant] performs, before the date of the Contract, any services that are part of the Services, then:
(a) the terms of the Contract apply to any such services;
(b) the terms on which any such services were performed are superseded by the terms of the Contract;
(c) any payments made to the [defendant] by [the Rizzani Leighton Joint Venture] in connection with any such services before the Contract became operative, will be treated as payments under the Contract in part discharge of [the Rizzani Leighton Joint Venture’s] obligation to pay the [defendant’s] Fee.
- The defendant submitted that the drawings provided during the tender phase fall within the definition of “Prior Services”, whilst the plaintiff submitted otherwise, pointing to Mr Simbaqueba’s evidence as supporting a construction of the clause as limited to work done after the tender was successful, rather than work for the tender. This will be considered further at .
Limitation of liability
- Annexure A to the Services Contract contained Special Conditions, including clause 1.2, “Limitation of Liability”. By this clause, the defendant limited its maximum liability under the Contract, whether in contract, tort, equity or otherwise, to $2.5 million, such limitation not to apply to the defendant’s liability inter alia for gross negligence or wilful misconduct. In addition, the defendant excluded liability under the Contract for consequential loss suffered by the Rizzani Leighton Joint Venture. The defendant observed that, if these proceedings are not stayed, then these limitations will be pleaded in any defence filed in these proceedings.
Choice of law
- Clause 4(1) of the Contract Conditions provided that the Services Contract is governed by and must be construed according to the law of New South Wales. Clause 4(2) provided:
The parties irrevocably submit to the non-exclusive jurisdiction of the courts of New South Wales, and the courts competent to determine appeals from those courts, with respect to any proceedings that may be brought at any time relating to the Contract. Nothing in this clause 4(2) affects the operation of clause 46.9 or the enforcement in any place of an award made in an arbitration held under clause 46.9.
Finishing the job
- On 3 August 2015, the Rizzani Leighton Joint Venture issued subcontract progress certificate No 1 to the defendant, approving some $1 million in work on a $2.5 million contract. That is, whilst negotiation of the Services Contract were underway, the defendant had completed almost half of the contracted works.
- On 27 August 2015, a Joint Venture Deed was executed between the plaintiff and Rizzani de Eccher Australia, replacing the Tender Team Agreement. It contained an arbitration clause.
- According to the Technology and Construction List Statement, it is said that the Rizzani Leighton Joint Venture was unable to complete the Works in time, or at the cost estimated when submitting the tender. Construction took a year longer than planned. The joint venture lost some $122 million on the project, of which half (some $61.3 million) was borne by the plaintiff.
- Correspondence has ensued between the parties in which the plaintiff and defendant have articulated positions which are now at odds with their submissions advanced before the Court. Each seeks to rely on the other’s prior inconsistent statements as admissions as to the proper construction of the arbitration clause. What each party said they understood the clause to mean – at an early stage of commercial negotiations when it appears that neither were assisted by legal advice – is, of course, no substitute for construing the clause in accordance with established principles for interpretation of commercial contracts and arbitration clauses, which I will consider further at .
- For completeness, on 3 July 2019, the plaintiff sent a “claim document” to the defendant, in which the plaintiff primarily asserted that the defendant was contractually liable for suggested defects in the tender drawings under the Services Contract and, in the alternative, contended that the defendant was liable under the Australian Consumer Law. The defendant points to the plaintiff’s assertion in the claims document that its claim for loss for work both before and after the Services Contract arose out of, was related to and was in connection with the Services Contract:
1.1.2 [The defendant] was engaged on behalf of [the plaintiff] and [Rizzani de Eccher Australia] to prepare the structural design for the bridge and viaduct structures (and temporary works) of the M4 project. It did so in and prior to July 2014. …
1.1.18 After entry into of the Design and Construct Deed on 4 December 2014, the JV entered into a Services Contract with [the defendant] on 27 July 2015 for the provision of further design and related services in relation to the M4 Project. …
1.1.19 [The plaintiff] is entitled to recover loss from [the defendant] pursuant to the Services Contract in relation to services performed by [the defendant] for the JV both before and after the date of the Services Contract.
1.1.20 Clause 2 of the Services Contract is titled “Prior Services”. It provides that any services performed by [the defendant] prior to the date of the Services Contract (i.e. 27 July 2015) are effectively “picked up” by the Services Contract and the terms of the Services Contract apply to such services.
2.2.4 [The defendant] was firstly engaged and paid for by [Rizzani de Eccher Australia] during the tender phase, as detailed within the Teaming Agreement at Item 4.1 …
3.4.1 [The defendant] was required by the parties to what became the [Rizzani Leighton Joint Venture] to develop the Tender Design in compliance with specifications and all other design requirements of the project … including the provision of the construction methodology.
On 7 August 2019, the defendant replied, noting that it had completed a preliminary review of the claim document and a detailed review was ongoing. As to the suggestion that Clause 2 of the Services Contract applied to conduct before entry into the Services Contract: (emphasis added)
The development of a concept design for use by the [Rizzani Leighton Joint Venture] for its tender does not constitute prior services that form part of the “Services” as defined by reference to Annexure C of the Services Contract. Instead, as noted by [the plaintiff] in paragraph 2.2.4 of the Claim Document, [the defendant] developed the concept design under an earlier Tender Teaming Agreement with [Rizzani de Eccher Australia]. [The plaintiff] was not a party to the Tender Teaming Agreement, and [the plaintiff] (or the [Rizzani Leighton Joint Venture]) did not pay [the defendant] for its work performed under the Tender Teaming Agreement. …
The plaintiff relied on the italicised text as an admission by the defendant that it had a prior contract with Rizzani de Eccher Australia to supply the tender drawings. The admission is tenuous. By this letter, Mr Fabbro, presumably writing in a language other than his first language and with admirable but imperfect English, appears to have “picked up” the plaintiff’s reference to the Tender Teaming Agreement in the claim document. The result is confusing. It may be that the defendant and Rizzani de Eccher Australia had a contract alongside the Tender Teaming Agreement between the plaintiff and Rizzani de Eccher Australia, but the state of the evidence is presently unsatisfactory.
- On 30 July 2020 – being precisely six years after submission of the tender – these proceedings were commenced. By Summons, the plaintiff seeks damages under the Australian Consumer Law or, alternatively, damages for negligence. The Technology and Construction List Statement describes the designs and advice said to have been provided by the defendant, said to be false representations on which the plaintiff relied when finalising the tender.
- The plaintiff claims that, if the defendant had not made these representations, then the plaintiff would not have entered into the Design and Construct Deed at all, or would only have submitted a tender at a higher lump sum price and, if accepted, entered into the contract on different terms such that it would not have suffered a loss on the project of some $61.3 million, being half of the joint venture’s loss. In addition, it is said that the defendant owed the plaintiff a duty to exercise reasonable skill and care in providing designs and advice for the bridge and viaduct structures for the M4 project, which duty is said to have been breached.
Steps were taken for this Court to request service of the pleadings on the defendant in Italy. On 13 November 2020, the plaintiff also sent a letter of demand to the defendant for alleged breaches of the Service Contract, noting:
[The plaintiff] notes that the matters above sit along-side separate proceedings commenced by [the plaintiff] against [the defendant] in the New South Wales Supreme Court in respect of incorrect advice provided by [the defendant] during the tender period.
… in the event that [the plaintiff] does not receive payment … a Dispute will have arisen under the Services Contract, in which case [the plaintiff] intends to issue a Notice of Dispute pursuant to clause 46.2 [and] require that any Dispute be referred to arbitration under clause 46.9.
The defendant notes that the loss claimed in the letter of demand – said to be a claim under the Services Contract – was $61,318,288.50, being the same loss claimed in these proceedings by reason of pre-contractual matters.
- In about March 2021, the defendant was served. On 14 April 2021, the motion presently before the Court was filed.
- Section 7 of the Act provides: (emphasis added)
7 Enforcement of foreign arbitration agreements
(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.
(5) A court shall not make an order under subsection (2) if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.
- When exercising its powers under section 7 of the Act, the Court must have regard to the statement of objects in section 2D and the matters set out in section 39(2) of the Act: section 39(1)(a)(vi), (1)(a)(vii) and (1)(c). The objects of the Act are, relevantly, to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes, to facilitate the use of arbitration agreements made in relation to international trade and commerce, and to give effect to Australia’s obligations under international conventions: section 2D. Section 39(2) requires the Court to have regard to the fact that arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes: sub-section (b)(i).
- The onus of establishing the requirements of section 7(2) rests on the party seeking the stay: Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 353 per Deane and Gaudron JJ. Where the requirements are satisfied, “the court shall” stay the proceedings. A stay is mandatory and there is no discretion: Tanning Research at 350; WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd  NSWSC 894; (2008) 219 FLR 461 at  per Barrett J.
- The plaintiff accepts that the Act applies and section 7(2)(a) is satisfied. The defendant contends that there are two bases on which these proceedings should be stayed:
- the proceedings should be stayed to permit an arbitrator to determine whether they have jurisdiction under the kompetenz-kompetenz principle; or
- a proper construction of the arbitration clause has the consequence that the subject matter of these proceedings “involve[s] the determination of a matter that … is capable of settlement by arbitration”, under section 7(2)(b).
The principle of kompetenz-kompetenz is that the arbitrator may rule on the question of whether they have jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement, without having to resort to a court: Malcolm Holmes and Chester Brown, The International Arbitration Act 1974: A Commentary (3rd ed, 2018, LexisNexis) at [Sch 2 Art 16-1]. This principle is enshrined in Article 16(1) of the UNCITRAL Model Law on International Commercial Arbitration (being Schedule 2 to the Act), which states:
The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. …
- Section 16(1) of the Act provides:
Subject to this Part, the Model Law has the force of law in Australia.
- The plaintiff submitted that section 16 of the Act did not confer power on this Court to make orders. That may be so, but section 7 of the Act does give the Court power to stay the proceedings and the section must be read together with the kompetenz-kompetenz provision in Article 16: Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442;  FCAFC 170 at ; Dialogue Consulting Pty Ltd v Instagram, Inc  FCA 1846 at  per Beach J.
- The plaintiff also submitted that Article 1(2) of the Model Law provides that the provisions of the Model Law “apply only if the place of arbitration is in the territory of this State”, whereas here the place of arbitration is in Singapore. However, as Beach J held in Dialogue v Instagram at :
… the fact that Art 16 of the Model Law does not apply to foreign-seated arbitrations is also irrelevant. The key requirement under Hancock for application of the prima facie test is whether a competence-competence provision exists under the procedural law of the seat of arbitration. If such a provision exists, then the foundation for the prima facie test is established.
- As to how the competence principle is applied in Australia, one need go no further than Hancock, where the Full Federal Court considered the two approaches generally taken around the globe (as comprehensively canvassed by Menon CJ of the Singapore Court of Appeal in Tomolugen Holdings Ltd v Silica Investors Ltd  SGCA 57;  1 SLR 373). (Whilst Hancock concerned the comparable provisions of the Commercial Arbitration Act 2010 (NSW), for ease of reference I have interposed the provisions of the Act.) The first approach is the “prima facie approach”, described in Hancock at :
[This] approach … is to give significant weight to the authority of the arbitrator and to the principle of Kompetenz-Kompetenz recognised by s 16 of the CA Act [being in the same terms as Article 16 of the Model Law]. Under this approach, the Court does not reach a final view on the balance of probabilities in respect of the matters in s [7 of the International Arbitration Act], including the scope of the arbitration agreement. If there appears to be a valid arbitration agreement which prima facie covers the matters in dispute, the matter should be referred to the arbitrator to deal with questions of jurisdiction, including the scope of the arbitration agreement.
- The second approach is the “full merits approach”, where the Court hears evidence and argument and finally determines the existence and scope of the arbitration agreement and whether the disputes fall within it: at .
- In Hancock, the Court commended the “prima facie” approach, although not necessarily in all cases. At -: (emphasis added)
145 We think that any rigid taxonomy of approach is unhelpful, as are the labels “prima facie” and “merits” approach. How a judge deals with an application under [section 7 of the International Arbitration Act] will depend significantly upon the issues and the context. Broadly speaking, however, and with some qualification, aspects of the prima facie approach have much to commend them as an approach that gives support to the jurisdiction of the arbitrator and his or her competence, as recognised by the common law and by [Article 16], whilst preserving the role of the Court as the ultimate arbiter on questions of jurisdiction … . Broadly, the approach is consonant with the structure of the [International Arbitration] Act and the Model Law. However, it is difficult to see how the Court can exercise its power under s  without forming a view as to the meaning of the arbitration agreement. Further, it may be that if there is a question of law otherwise affecting the answer to the question of jurisdiction, especially one that is confined, which might be dispositive, it might be less than useful for the Court not to deal with it. …
146 … it will often not be possible fully to delineate the metes and bounds of a dispute without fully hearing the dispute. To do so, that is to hear the facts to decide the width of the dispute, would undermine the practical and effective operation of s . The application must be brought early (not later than when submitting the party’s first statement on the substance of the dispute). The boundaries of the dispute may be unclear, but it will have to be characterised on the material available to be assessed as to whether it can be seen to be the “subject of” the arbitration agreement. That latter assessment will require some stability or clarity as to the meaning of the arbitration agreement. The Court is then required to construe the clause, at least to the point of being satisfied that the disputes forming the matter are the subject of the agreement, or not, as the case may be. …
147 … It can be accepted that as a general rule, unless there is an established legal basis for refusing to do so, a court should, upon legitimate request, exercise jurisdiction conferred on it. However, s  is found in an Act of Parliament the paramount object of which is the facilitation of the work of impartial arbitral tribunals. One of the features of that facilitation is the express recognition of the authority of the arbitral tribunal to rule on its own jurisdiction. This includes, expressly, any objection “with respect to the existence or validity of the arbitration agreement”, including any objection with respect to the existence or validity of the arbitration agreement: s 16(1) [of the Commercial Arbitration Act being in the same terms as Article 16 of the Model Law]. Section  should be read with s 16(1) [of the Commercial Arbitration Act being in the same terms as Article 16 of the Model Law] and thus, the word “finds” should not be read as requiring that the matters in the proviso cannot be part of the reference to the arbitrator. …
- The Court observed, “Of course, if there is no sustainable argument that a matter or dispute can be characterised as falling within the agreement, it should not be referred to arbitration”: at . But the enquiry should not travel into the merits of the case beyond determining whether the argument is sufficiently weak not to be sustainable; “That would be to usurp the role of the arbitrator. The Court’s role in [section 7] is not to act as a court of summary disposal filtering the matters that are suitable for arbitration”: at . The Court should take a broad view characterising the dispute to assess whether it is the subject of the arbitration agreement, rather than engage substantially in the merits of the case: at . Further, at -:
377 The real issue in any case is whether the Court should hear the separate attack or permit the arbitral tribunal to hear it, by staying its own proceeding. The proper answer to this question will depend on the nature of the attack and all the circumstances.
378 Thus, the words of Art 8 and s  should be read and given content against the background, first, that the Court is not required to decide the matters in the proviso [equivalent to s 7(5)]; secondly, that the competence principle is wide enough to permit the arbitral tribunal to decide any question of jurisdiction, including whether the arbitration agreement came into existence; and, thirdly, that that decision by the arbitral tribunal is not final, the Court having the final say on the question. A further consideration is that s  should, conformably with its language, be construed to facilitate, not impede, the process of arbitration: s [39(2)(b)(i)].
- In Hancock (at , ), the Court endorsed A v B  EWHC 2006 (Comm);  1 Lloyd’s Rep 237, where Colman J was concerned with whether to order a trial in respect of the validity of the arbitration agreement (under the equivalent of section 7(5)) or whether a stay should be granted and the question of substantive jurisdiction should be left to the arbitrators. At -:
137 Whether the latter course is adopted may in many cases depend heavily on the extent to which the resolution of that issue will involve findings of fact which impact on substantive rights and obligations of the parties which are already in issue and whether in general the trial can be confined to a relatively circumscribed area of investigation or is likely to extend widely over the substantive matters in dispute between the parties. If the latter is the case the appropriate tribunal to resolve the jurisdictional issues is more likely to be the arbitration tribunal, provided it has Kompetenz-Kompetenz.
138 … The emphasis in modern international arbitration law is to maximise the arbitrators’ opportunity to determine their own jurisdiction: see in particular the judgment of Thomas J in Vale Do Rio Navegacao SA v Shanghai Bao Steel Ocean Shipping Co Ltd  2 All ER (Comm) 70.
- In Hancock, the Court described this passage as of considerable assistance “because it throws up the point that it is a practical question not a logical question with which we are dealing”: at . In A v B, the place of arbitration was Switzerland, the law to be applied was Swiss law, the arbitrator had kompetenz-kompetenz in relation to jurisdiction and his decisions were subject to supervision and review by the Swiss courts. Colman J concluded that this was a typical case where the English court, being unable to resolve to its satisfaction the matters referred to in the equivalent provision to section 7(5), “should stand back and allow the arbitrator to proceed to determine his own jurisdiction”: at .
- Applying the same principles in Dialogue v Instagram, Beach J accepted that the kompetenz-kompetenz principle applied, however, at -:
196 In summary, I accept the respondents’ argument that the competence-competence principle applies … . But the fact that I could apply the principle does not entail that I should. There are no hard and fast rules. Context is everything. I do not propose to apply the principle for the following reasons shortly put.
197 First, there are tricky choice of law questions. What law should be applied to determine the existence of the arbitration agreement? I am best placed to answer this. Further, whatever choice is made I now have all bases covered in terms of being fully informed on Australian law, and by Judge Ware on US law, in order to determine (under whichever law applies) whether there is an arbitration agreement.
198 Second, I now have all the evidence in to make a final assessment on the merits as to the existence of the arbitration agreement. To leave any decision at the lower threshold of the prima facie stage would be a limp effort.
Beach J considered that he was better placed than the Californian arbitrator to deal with a cross-application concerning unfair contract terms and the question of Australian statutory unconscionability and, further, was better placed to deal with the choice of law on a question of waiver. In the result, Beach J decided to determine on a final basis whether an arbitration agreement existed.
- The plaintiff submitted that the competence principle was only invoked when there was a challenge to the arbitration agreement itself, being one of the grounds contemplated by section 7(5). There was no such challenge here but only that arbitration agreement did not cover these proceedings. This submission does not, I think, fairly reflect the structure of section 7 nor the breadth of the competence principle as described in Hancock. Rather, the arbitrator has jurisdiction to determine whether the dispute falls within the scope of the arbitration clause and whether the arbitration agreement exists and is operative. This Court can determine such questions but, generally speaking, should leave these matters to the arbitrator unless the context in which these questions arise make it preferable for the Court to determine such matters. The question is what the context dictates in this case.
- The defendant submitted that, to the extent a question remained about the proper application of the arbitration agreement, particularly to the extent the question remains because of disputed facts as to how the concept designs were used, how it was developed, whether there was an opportunity to rectify the design at an earlier stage under the Services Contract, the parties’ objective intentions and the correctness of any defences under the Services Contract, the scope of the arbitration agreement should be referred to arbitration for determination. The defendant noted, in particular, that the plaintiff relied on extrinsic evidence to construe the Services Contract, and this was best left for an arbitrator to determine.
- The parties did not suggest that an arbitrator in Singapore, conducting the arbitration in accordance with the Rules of the International Chamber of Commerce (as the arbitration clause dictates) will lack kompetence-kompetence in relation to jurisdiction. As there is no suggestion that the arbitration agreement is null and void, inoperative or incapable of being performed, the only question for the arbitrator or this Court is whether the issues the subject of these proceedings fall within the scope of the arbitration clause. Critical to this question is the construction of Clause 2 of the Contract Conditions, “Prior Services”, reproduced at .
At the hearing of the motion, the plaintiff relied on the evidence of Mr Simbaqueba as pointing to a conclusion that Clause 2 was drafted with the object of ensuring that work done by the defendant after winning the tender but before entry into the Services Contract was covered by the Services Contract, but not work which the defendant did in preparing designs for the tender. Mr Simbaqueba’s evidence was proffered in fairly general terms – perhaps unsurprisingly given the nature of the interlocutory hearing – and not squarely addressed by the defendant’s evidence, again, presumably by reason of the nature of the interlocutory hearing. I expect that the defendant would wish to, and could, bring forward detailed evidence in answer to Mr Simbaqueba’s version of events, being evidence more usually received at a final hearing.
- I am most reluctant to construe Clause 2 having regard to extrinsic evidence, in circumstances where I have only a partial picture. Whilst there is no doubt that this Court can determine this matter on a final basis, the question is whether it should, where the arbitrator may also rule on this question.
- Having regard to the statement of objects in section 2D and the matters set out in section 39(2) of the Act, the issues and the context in this case, there is no unique issue of law arising which points to this Court as being the obvious and convenient place to determine this issue. There is nothing particularly unusual about the context in which the scope of the arbitration clause is to be considered. These proceedings, for practical purposes, have just commenced. The evidence before the Court on this application appears incomplete. There is no question of law arising which, if disposed of by this Court, will dispose of the proceedings. It is not necessary to hear and determine the dispute in order to determine whether it falls within the arbitration clause. The prima facie approach should be followed here. The arbitral tribunal should rule on its own jurisdiction.
- All that remains to be satisfied is that the arbitration agreement prima facie covers the matters in dispute. As explained in Hancock, the Court needs to construe the clause “at least to the point of being satisfied that the disputes forming the matter are the subject of the agreement”, taking a broad view and not travelling into the merits of the case beyond determining whether the argument that the dispute falls within the arbitration clause is unsustainable: at , .
The principles concerning the construction of an arbitration agreement, and whether a “matter” is within the scope, or in pursuance, of an arbitration agreement were recently reviewed by Bell P (Payne and McCallum JJA agreeing) in Lepcanfin Pty Ltd v Lepfin Pty Ltd (2020) 102 NSWLR 627;  NSWCA 155 at -. In short, a dispute resolution clause is to be construed like any other clause of a commercial contract, in accordance with the parties’ intention, objectively ascertained by reference to the language used by the parties, the circumstances known to them and the commercial purpose of the contract. The context in which the dispute resolution clauses have been entered into is important and may assist in interpreting the intended reach of dispute resolution clauses. Arbitration clauses are generally afforded a broad and liberal construction. In construing such clauses, it will generally be presumed that the parties intended that all aspects of their relationship would be determined by a single forum, rather than some disputes being dealt with by an arbitrator and others dealt with by the courts. Such an approach will obviously give way to the clear language of a clause identifying certain matters as being excluded from the arbitrator’s jurisdiction.
- Clause 46 of Contract Conditions dealt with dispute resolution. “Dispute” was defined in clause 1.1 of the Contract Conditions as follows:
“Dispute” means any dispute or difference between the parties in respect of any fact, matter or thing arising out of, or in any way in connection with, the Contract or the Services, including:
(a) any disputed claim for additional payment, adjustment of the Consultant’s Fee, an extension of time or breach of contract or for rectification, termination, frustration or invalidity of the Contract;
Clause 46.2 and 46.3 provided for Notices of Dispute to be served, followed by negotiations, with the Rizzani Leighton Joint Venture – but not the defendant – having the right to refer a Dispute to arbitration:
46.2 Notice of Dispute
(1) If a Dispute arises, either party may give a written notice to the other party that:
(a) states that it is a notice under this clause 46.2;
(b) adequately describes and gives particulars of the alleged Dispute, including the amount of the Dispute;
(c) in the case of a notice from the [defendant], is signed by a director or company secretary of the [defendant]; and
(d) in the case of a notice from [Rizzani Leighton Joint Venture], states whether [Rizzani Leighton Joint Venture] requires the Dispute to be referred to arbitration under clause 46.9 if not resolved by negotiation under clause 46.3
(“Notice of Dispute”).
(2) Within 20 Business Days of a Notice of Dispute being given by the [defendant] to [the Rizzani Leighton Joint Venture], [the Rizzani Leighton Joint Venture] may give a written notice to the [defendant] stating that [the Rizzani Leighton Joint Venture] requires the Dispute to be referred to arbitration under clause 46.9 if not resolved by negotiation under clause 46.3. …
Within 5 Business Days of service of a Notice of Dispute, a senior representative of each of the parties must confer at least once to attempt to resolve the Dispute, and if they cannot resolve the Dispute, they must endeavour to agree upon a procedure to resolve the Dispute. Unless the parties agree otherwise, the meeting will be held in Sydney, New South Wales.
The arbitration clause is clause 46.9(1), which provided: (emphasis added)
Any dispute, controversy or claim arising out of, relating to, or in connection with this Agreement, including any question regarding its existence, validity or termination must be resolved by arbitration to be conducted in accordance with the Rules of the International Chamber of Commerce. The seat of the arbitration will be Singapore. …
- The defined terms “Dispute” and “Contract” are not used in the arbitration clause, whilst “Agreement” – which is not a defined term – is used. It may be that clause 46.9 is a ‘boilerplate’ clause which has not been amended to incorporate the defined terms used in the Contract Conditions, as has occurred elsewhere in clause 46. More likely, the Notice of Dispute and negotiation regime applies to Disputes, as defined, whilst the arbitration clause applies more broadly. Whilst it may be argued before the arbitrator that the definition of “Dispute” should be used to construe clause 46.9, I will consider the clause 46.9 on its face for the purposes of this application. I will also proceed on the basis that “Agreement” means “Contract”, although it is arguable that it does not and, by referring to “Agreement”, the arbitration clause is not limited to the Contract but applies to disputes arising from the parties’ agreement considered more broadly.
- By the arbitration clause, the parties agreed to arbitrate “any dispute, controversy or claim arising out of, relating to, or in connection with this Agreement”. These phrases are “of the widest import and should not, in the absence of compelling reasons to the contrary, be read down”: IBM Australia Ltd v National Distribution Services Pty Ltd (1991) 22 NSWLR 466 at 483. In IBM Australia, Clarke JA considered these words to be sufficiently wide to encompass claims of pre-contractual misrepresentations, said to be misleading or deceptive conduct in breach of section 52 of the Trade Practices Act. At 483:
There are no indications in the contract that the words should be construed narrowly. Nor, in my opinion, are there any compelling reasons in favour of reading down the meaning of the phrase. On the contrary there are powerful considerations in favour of the contrary view. The consequence of an interpretation of the arbitration clause which excludes the claims under the Act would be that the causes of action based upon breaches of the contract would remain with the arbitrator, and be decided by him, and those in which reliance were placed upon ss 52, 82 and 87 of the Act would be determined in a court of law. As I earlier pointed out this conclusion would follow even in a case in which the same representations were said to ground claims in breach of contract and under the Act.
The parties could hardly be thought to have contemplated that the arbitration clause would work in that way. It is far more likely that they intended that all disputes between them concerning the terms of the contract, the performance of it and matters connected, in a real sense, with the contract should be referred to the one tribunal for determination. For my part I would find it difficult to ascribe to the parties to a contract an intention to submit only part of a dispute to an arbitral tribunal reserving the remainder for consideration by the Court as this would, on any view, be inefficient and costly.
- Likewise in Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45;  FCAFC 192, the Full Court held that an arbitral clause requiring disputes “arising out of this contract” to be arbitrated in London was sufficiently wide to encompass a claim for misleading or deceptive conduct in contravention of the Trade Practices Act: at , , , - and . See likewise Westrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd at ; Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1; QH Tours Ltd v Ship Design and Management (Aust) Pty Ltd (1991) 33 FCR 227.
- In Hancock, the Full Court considered it important in construing such clauses to bear in mind that “sensible parties do not intend to have possible disputes that may arise heard in two places. Effect is given to that assumption by interpreting words liberally when they permit that to be done”: at . I note that, according to the plaintiff’s letter of demand (see -), the plaintiff intends to refer the dispute under the Services Contract to arbitration whilst maintain these proceedings in this Court. In the absence of a stay, two disputes in relation to the same project will be dealt with in two venues. It seems unlikely that the parties would have considered such an outcome as desirable when negotiating the terms of the Services Contract, including the arbitration clause.
- Clause 46.9 extends to “any question regarding [the Contract’s] existence [or] validity”. Such questions will usually require consideration of pre-contractual dealings. This supports a construction of the clause as including disputes which encompass pre-contractual conduct: see likewise Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514;  HCA 13 at .
- For the purpose of the exercise I am here undertaking, I do not think it much matters whether the misleading and deceptive conduct is said to have induced a party to enter into the contract containing the arbitration clause or whether it is said that such conduct induced the plaintiff to enter into a contract with a third party (the Design and Construct Deed) on particular terms, or at all. “[F]ine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument” should not determine which tribunal resolves the parties’ disputes: Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165.
Thus, while not definitively construing the arbitration clause, on its face it is broadly worded to encompass pre-contractual representations such that the disputes the subject of these proceedings – viewed broadly – are the subject of the clause.
The plaintiff submitted that, while clause 46.9 uses words of broad reach, the clause does not extend to disputes concerning work done by the defendant long before entry into the Services Contract and which could not be considered on any view to be “Prior Services” or “Services” under the Services Contract. The Services Contract did not require the defendant to produce the tender drawings. The defendant’s work under the Services Contract was to take those designs and develop them and the plaintiff made no complaint in these proceeding about the designs produced by defendant under the Services Contract. A complaint about the tender drawings did not arise out of or relate to, and nor is it in connection with, the Services Contract. The complaint concerned alleged errors in producing the tender design, that made them unfit for use in a tender and led to a deficiency in its tender price. This was not a claim under the Services Contract and had nothing to do with that contract. However, this distinction appeared to me to be artificial and unlikely to be maintainable if these proceedings continue in parallel with an arbitration in respect of losses said to be sustained under the Services Contract.
The defendant submitted that, when the parties entered into the Services Contract, they were aware that previous design work had been performed by the defendant. With that knowledge, the parties chose not to limit the ambit of the arbitration agreement to a dispute to work performed after entry into the Services Contract, but rather one arising out of, relating to, or in connection with that contract. They chose broad words of submission to arbitration with the knowledge that previous design work relating to or connected with the Services Contract had already been performed. They did not expressly seek to exclude that earlier work from the scope of the Services Contract. Reading the Services Contract as a whole, the language of the arbitration agreement was apt to encompass a claim of misleading or deceptive conduct in relation to the tender design.
- This submission requires a brief review of the relevant contractual provisions. It will be recalled that, under the Prior Services clause, the Services Contract applied to “any services that are part of the Services” which were performed by the defendant at the request of the Rizzani Leighton Joint Venture before the date of the Contract.“Services” was defined in clause 1.1. of the Contract Conditions as: (emphasis added)
“Services” means all the services, activities, tasks and other things that the [defendant] is or may be required to perform under the Contract and includes the services set out in and reasonably inferred from Annexure C, Variations, rectification work and the provision of Contract Material;
- Annexure C to the Services Contract, entitled “Brief and Services”, noted that the Brief comprised the Design and Construct Deed and the “DEAL Scope of Works”, which was annexed to the Services Contract. The DEAL Scope of Works noted in paragraph 2.9:
The detailed design will in principle be developed from the Tender Design.
- Paragraph 2.11 of the DEAL Scope of Works, “Design Input”, noted that, throughout the entire design phase, the defendant was responsible for ensuring that all the required input was included in the design.
As a minimum the following input will be incorporated:
• Tender design; …
- Paragraph 2 of Annexure C described the defendant’s role, including:
The Services include all design and engineering work required for the Main Contract Works, including but not limited to:
(a) all design work as detailed in the DEAL Scope of Works document (referred to in the Brief 1(1)); and
(d) All design works required in the DEAL Scope of Works document (Section 5).
- Paragraph 2.5 of Annexure C provided:
2.5 Concept Designs
To the extent relevant to the Services, the Consultant must:
(a) prepare an outline design solution (including alternative proposals where required) examining Site options for review with other contractors (including design consultants) and [the Rizzani Leighton Joint Venture];
(b) further develop the approved outline design solution:
(i) ensuring all feasible concepts are reviewed; and
(ii) preparing all necessary drawings, schedules and other material;
for review with other contractors (including design consultants and [the Rizzani Leighton Joint Venture];
(i) Any other requirements specified in the DEAL Scope of Works document …
- Clause 1.1. of the Contract Conditions provided: (emphasis added)
“Contract Material” means any documents (including specifications and drawings), software, designs, samples, models, prototypes, patterns, videos and other things prepared by or on behalf of the [defendant] for or in connection with the Contract, the Services or the Project (whether in electronic format or hard-copy format or both);
- As to interpretation of the Contract, clause 1.2(j) of the Contract Conditions provided:
the words ‘include’, ‘including’ and ‘includes’ and the expressions ‘for example’ and ‘such as’, are not words or expressions of limitation;
- By reference, in particular, to the italicised portions of these provisions, the definition of “Services” is widely cast and inclusive such that the work done by the defendant in the tender phase may fall within “Prior Services”. But I consider this to be the wrong debate. The focus must be on the drafting of the arbitration clause, which is not limited to “Services” or, for that matter, “Prior Services” but to “any dispute, controversy or claim arising out of, relating to or in connection with this Agreement …”. Viewed broadly, the sequence of events from the defendant preparing the tender designs with a view, if the tender was accepted, to developing those designs for construction is consistent with the arbitration clause recording an agreement between the parties to submit all disputes, including in relation to the tender drawings, to arbitration.
- The provisions of the Services Contract on which the plaintiff relied do not provide a compelling reason to read down the arbitration clause. Nor do I think it can be said that there is no sustainable argument that the dispute falls within the arbitration agreement such that this Court should refrain from staying these proceedings and referring the matter to the arbitrator. Thus I conclude that these proceedings should be stayed pursuant to section 7(2) of the Act.
- The plaintiff sought that the stay be made subject to the following conditions:
- The defendant cannot raise any limitation point, in particular, any limitation defence that was unavailable to it when the proceeding was filed.
- The defendant will not argue that the Australian Consumer Law is inapplicable and will accept that, insofar as its conduct is alleged to contravene section 18 of the Australian Consumer Law or entitles the plaintiff to any remedy, the Australian Consumer Law is a mandatory law that the arbitrator must apply.
- The plaintiff submitted that both conditions were for the purpose of promoting and enforcing the agreement of the parties to resolve their disputes by arbitration, rather than by making orders which would be inconsistent with, or subversive of that agreement (Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd  WASCA 66; (2013) 298 ALR 666 at ).
- The defendant submitted that section 7(2) does not give the Court power to impose conditions, nor would it be appropriate to do so. The conditions sought are directed to substantive defences which the defendant has or may have: O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601. Where the plaintiff commenced these proceedings in breach of the arbitration agreement and the defendant has a right to have the proceedings determined by an arbitral tribunal, it would be wrong to only enforce that right subject to a condition that defeated a defence that the defendant may otherwise be able to establish.
Power to impose conditions
The oft-cited principle as to how the power to impose conditions is to be exercised is that of Kirby P in O’Brien at 622: (emphasis added)
It is true that the subsection is expressed in apparently wide terms (“upon such conditions (if any) as it thinks fit”). But it is obvious that the conditions are incidental and ancillary to the achievement of the main purpose of s 7(2). This is to hold the parties to international commercial agreements to an agreement to arbitrate. I do not consider, in this context, that it would be proper to impose a condition which effectively distorted the agreement initially entered between the parties. Nor should such a condition be imposed as would manipulate the rights of the parties under that agreement, notwithstanding their agreement to arbitrate. Nor should conditions frustrate the achievement of the policy of the statute to enforce that agreement. The “conditions” which s 7(2) of the Act contemplates are machinery conditions. They relate to hearing and the like procedures and not to conditions which determine, in effect, the substantive rights of the parties. Those substantive rights were, relevantly, fixed by the agreement. The Court should neutrally hold the parties to that agreement. In my opinion it would be wrong for the Court to distort and frustrate that agreement (whilst requiring the stay necessitated by the statute) to impose conditions which were not within the agreement which it is the purpose of the Act to enforce.
- This statement was approved in WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd, where Barrett J noted that it was thus clear that it was not open to the Court to impose conditions upon a stay which would detract from the integrity of the arbitration process the Act mandates: at . See likewise Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd at ,  per Martin CJ (Buss JA agreeing), at  per McLure P; Orient Overseas Container Line Ltd v APL Co Pte Ltd (No 2)  FCA 606 at  per Stewart J.
- In Cape Lambert Resources, Martin CJ considered that the legislature intended that the power to attach conditions “should be utilised for the purpose of promoting and enforcing the agreement of the parties to resolve their disputes by arbitration, rather than by making orders which would be inconsistent with, or subversive of that agreement”: at . The Chief Justice considered that courts should refrain from imposing conditions which may pre-empt the decision of the arbitrator and the operation of the arbitration cause, observing at :
This approach to the ambit of the powers conferred upon the court by s 7 of the Act is consistent with the limited role which national courts play when parties have agreed to resolve their disputes by international commercial arbitration. National courts are not properly regarded as competitors or rivals for the jurisdiction which the parties have agreed to confer upon an arbitral tribunal. As I have already noted, the exercise of judicial power to facilitate the agreement of the parties to resolve their disputes by arbitration, and the strictly limited supervisory role usually conferred upon national courts by the lex arbitri, which is generally limited to containing arbitral tribunals within the jurisdiction conferred upon them by the parties and ensuring that the jurisdiction is exercised, is fundamentally different in character to the role of the arbitral tribunal in resolving the dispute by making an award defining the substantive rights and obligations of the parties. International comity requires national courts to faithfully respect these limitations upon their role – in this case by appropriately construing the ambit of the powers conferred upon the court by s 7 of the Act having regard to such limitations.
- Martin CJ considered that conditions should not be imposed which usurp the powers of the arbitrator in circumstances where there is no pressing need or justification for such conditions. Facilitative machinery orders, on the other hand, did not usurp or subvert the powers of arbitrators in a resolution of a dispute which the parties had agreed to refer to arbitration: at .
- Most recently, in Orient Overseas Container Line, Stewart J observed that there is nothing in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (set out in Schedule 1 to the Act and with which Part II of the Act is concerned to enforce) giving power to the Court to impose conditions upon a stay of proceedings and referral to arbitration, “That is an indication that the power to impose conditions is to be read in a restricted way”: at . Further, at : (emphasis added)
The principle underlying Art II [of the Convention], and hence s 7, is that arbitration agreements should be recognised and enforced by staying court proceedings in favour of arbitration where the subject of the proceedings is covered by the arbitration agreement. There is no justification for construing the power to impose conditions on such a stay as including conditions which interfere with the jurisdiction and power of the arbitral tribunal or which alter the rights of the parties under their arbitration agreement; the purpose is, after all, to uphold and enforce that agreement, not to alter or undermine it or the parties’ rights under it.
- Stewart J was therefore hesitant to exercise any power under section 7(2) to impose conditions that would “trespass upon the arbitration which the parties agreed to and which this Court is bound to support, not undermine”: at .
Statute of limitations
- Section 70 of the Limitation Act 1969 (NSW) provides:
70 Application of this Act
(1) This Act applies to an arbitration in like manner as it applies to an action.
(2) An arbitration for any difference or matter under any provisions for arbitration is not maintainable if commenced after the date of the expiration of the period of limitation fixed by or under this Act for a cause of action in respect of the same difference or matter.
- As such, the time within which an arbitration must be commenced is the same as the limitation period applicable to the cause of action pursued in proceedings in this Court.
- As to when an arbitration is commenced, section 72(1) of the Limitation Act provides:
(1) For the purposes of this Division:
(a) where the provisions for arbitration require or permit a party to the arbitration to give notice in writing to another party:
(i) requiring the other party to appoint or concur in appointing an arbitrator, or
(ii) requiring the other party to submit or concur in submitting a difference or matter to a person named or designated in the provisions for arbitration as arbitrator, or
(b) where, in a case to which paragraph (a) does not apply, a party to the arbitration takes a step required or permitted by the provisions for arbitration for the purpose of bringing a difference or matter before an arbitrator and gives to another party notice in writing of the taking of the step,
the arbitration is commenced, as between the party giving the notice and the party to whom the notice is given, on the date on which the notice is given.
- Here, the arbitration clause does not provide for a notice in writing; a Notice of Dispute may be served in respect of a Dispute, but the arbitration clause does not incorporate this mechanism. Thus section 72(1)(b) applies, such that an arbitration is commenced on the date on which the plaintiff “takes a step required or permitted by the provisions for arbitration for the purpose of bringing a difference or matter before an arbitrator and gives to another party notice in writing of the taking of the step”. Commencing proceedings in this Court is unlikely to satisfy this requirement.
- Similar to the case at hand, in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd  NSWSC 451, the plaintiff commenced proceedings in this Court the day before a limitation period expired, notwithstanding an arbitration clause. As to whether this had the effect of preventing the limitation period from expiring if the matter was referred to arbitration, Hammerschlag J observed at :
This raises issues of significant complexity concerning, amongst others, the status of an action subject to a request under [s 7(2)], and the juridical effect of the court referring the parties to arbitration and the interplay between ss [7 of the Act] and [s] 14 of the [Limitation] Act, and ss 70(1) and 72 of the Limitation Act, the latter sections having been in force for many years prior to s  coming into force. Counsel informed the court that they had been unable to find any pertinent authority on these issues.
(Whilst John Holland concerned the comparable provisions of the Commercial Arbitration Act 2010 (NSW), for ease of reference I have again interposed the provisions of the Act.) Ultimately, it was unnecessary for Hammerschlag J to “delve into the intricacies” of this issue: at .
- This complex issue was not the subject of argument during the hearing before me, nor canvassed in subsequent written submissions which the plaintiff sought leave to make. Nor does it appear that the issue has been the subject of judicial consideration since John Holland. Rather, the problem has been addressed from time to time by the imposition of conditions similar to the condition now sought by the plaintiff.
- Such a condition was sought, but refused, in O’Brien as the condition would have had the effect of extending the limitation period to that which would apply if the arbitration agreement was adhered to. There, the contract between a New South Wales company and a Florida company had an arbitration clause and provided that the agreement was governed by the laws of Florida. The New South Wales company went into liquidation, which had the effect of suspending the limitation period in respect of claims against the company. The liquidator commenced proceedings against the Florida company in Florida, which were determined by arbitration (four years later), with no damages awarded to either side.
- The Florida company then lodged a proof of debt (which was rejected) and commenced proceedings seeking to review the liquidator’s decision. The liquidator sought, and was granted, a stay of the proceedings by reason of the arbitration clause. If the arbitration took place in Florida – for which the liquidator contended – the Florida company’s claim was arguably statute barred. The trial judge had posited that, if a stay was granted, it should be subject to conditions so that the liquidator could not take advantage of a statute of limitation in the forum in which the arbitration was to be heard. Kirby P did not agree. At 622:
The parties should be held to the arbitration to which they agreed. That arbitration should take place in Florida, according to the terms of the agreement and by arbitrators appointed as the agreement specified. I see nothing in the slightest wrong with the conduct of the liquidator in seeking to invoke the Act. On the contrary, I believe that in doing so he is acting properly to protect the assets of the company because he believes that he may, by asserting this legal right, secure for [the NSW company], and its creditors, the protection against the claim of [the Florida company] of a limitation bar. Whether he succeeds or fails in this respect will be determined by the arbitrators. But there is nothing improper in the liquidator’s claiming the right which he derives through [the NSW company] from the agreement with [the Florida company].
- In Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1997) 150 ALR 345, such a condition was imposed where the proceedings were stayed and referred for arbitration in London. (As recorded in the appeal judgment, the claim concerned negligence, breach of contract, misrepresentations and contraventions of the Trade Practices Act 1974 (Cth): Hi-Fert (No 5) at 7 per Emmett J). The plaintiff had sought a condition that the defendant “shall take no objection as to the time within which the arbitration has been commenced”: at 346. The defendant sought a more confined condition, saying that it should be in no worse position as a result of its successful stay application than it would have been if the arbitration proceedings had been commenced at the same time as court proceedings. Tamberlin J agreed, at 347: (emphasis original)
In my view, this submission should be accepted because it preserves the rights of the parties. It operates to avoid the conferring of any possible additional benefit on either party beyond the rights and obligations which would have prevailed if the arbitration proceeding provided for in the agreement had been commenced.
- In the result, Tamberlin J imposed a condition that the arbitration “be treated as if it had been commenced with the appointment of the … arbitrator on the same day as the commencement of these proceedings”. The condition may be explicable by the fact that the proceedings concerned claims which were subject to the arbitration clause and claims which were not. The Full Court made an order that the arbitration not commence until after the non-arbitrable claims had been determined by the Federal Court. Where the applicant had properly commenced proceedings in the Federal Court, at least in respect of the claims not the subject of the arbitration clause, and where, by reason of the passage of time until determination of the Federal Court proceedings and commencement of the arbitration, limitation issues may arise, the condition preserved the status quo.
- A condition similar in form to that ordered in Hi-Fert was made by Hollingworth J in Ansett Australia Ltd v Malaysian Airline System Berhad  VSC 109; (2008) 217 FLR 376. In that case, Ansett commenced proceedings in time. By the time the defendant obtained a stay, after a series of procedural delays, the limitation period has expired. The defendant argued that Ansett chose to commence the proceedings rather than refer its claim to arbitration and, to the extent that Ansett was now prejudiced by the grant of a stay, Ansett was the author of its own misfortune and should not be assisted by the Court: at . Hollingworth J considered that this submission “completely ignores [the defendant’s] own contribution to Ansett’s current predicament, through repeated delays in this proceeding”: at . Had the defendant acted promptly in seeking a stay, the stay application could have been heard and determined before the limitation period expired. At  and :
33 In the circumstances, I would impose conditions necessary to ensure that Ansett is not prejudiced by [the defendant]’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.
35 [The defendant] 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.
- Hollingworth J considered that, if such a condition was not imposed, defendants would have an incentive 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”. Thus, there were sound public policy reasons for imposing such a condition: at .
- The same condition was made in Orient Overseas Container Line, albeit by consent. Therefore, Stewart J did not determine whether it was otherwise appropriate to impose the condition: at .
Having reviewed the case law, and bearing in mind that the imposition of conditions involves the exercise of judicial power (Hi-Fert (No 5) at 14) conferred by the Act, the following considerations may be relevant to whether a condition should be imposed in respect of limitation periods:
- whether the plaintiff has properly commenced proceedings in this Court, at least in respect of part of its claim;
- whether the potential expiration of limitation period is referable to the defendant’s delay or other events beyond the parties’ control, such as an order that the arbitration not take place until court proceedings are concluded;
- whether the condition will substantively alter the rights of the parties or preserve the status quo; and
- whether the condition will change the bargain between the parties to arbitrate.
- Here, the Services Contract provides that the law of contract is the law of New South Wales. Thus, the application of any limitation period will likely be the same, whether determined by this Court or by the arbitrator. However, as the plaintiff commenced these proceedings on – perhaps – the last day of the limitation period, the plaintiff’s claim may not be brought in time if the starting point is taken to be the date when the arbitral proceedings are commenced.
- The defendant submitted that Hollingworth J’s reasoning in Ansett did not engage with the scope of the power to impose conditions but, in any event, the circumstances of this case were very different. The defendant was not served with the originating process until March or April 2021. An application for a stay was made promptly, before the first directions hearing and before the time to file a List Response had expired. There was no delay by the defendant. Any delay was occasioned by the plaintiff given the time it took to file the originating process and the time after that for the plaintiff to effect service. The defendant submitted that, if the plaintiff established at the arbitration that the defendant had engaged in disentitling conduct which, for example, gave rise to an estoppel, then the arbitral tribunal would be able to prevent reliance on a limitation period.
- To be fair to the plaintiff, delay in effecting service overseas cannot readily be laid at the plaintiff’s door. This is an inter-Court process relying on a request to be issued by this Court and actioned, in this case, by the Italian Central Authority. Sometimes this process just takes time. That said, the fact that the plaintiff commenced these proceedings six years after the tender was submitted likely has the consequence that the conditions sought by the plaintiff will substantively alter the rights of the parties rather than preserve the status quo. The defendant is presently entitled to argue before the arbitrator that the plaintiff’s claim is out of time whilst, if I impose the condition sought, then the defendant will be deprived of this defence notwithstanding that, if the arbitrator finds that this dispute falls within the arbitration clause, the commencement of these proceedings was in breach of that clause. If the arbitrator determines that this dispute does not fall within the arbitration clause, then the plaintiff will be entitled to lift the stay and pursue its claims in this Court.
- The condition sought by the plaintiff is not incidental or ancillary to the achievement to the main purpose of section 7(2) but will distort the agreement initially entered into between the parties. I decline to impose the condition sought. I may have come to a different decision if the plaintiff had commenced these proceedings earlier and/or subsequent delays had been referrable to the defendant or delays inherent in the Court’s processes. But having left it to the last moment, I am not minded to affect the substantive rights of the parties. Of course, whether in fact an arbitration now commenced by the plaintiff is time-barred is a matter for the arbitrator to decide.
Australian Consumer Law
A condition in the form of the second proposed condition was made by Allsop J (as his Honour then was) in Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd  FCA 1102 at :
… I would impose a condition upon the parties to the arbitration to consent to all aspects of any [Trade Practices] Act claims, which would have been justiciable in this Court, being litigated in the arbitration irrespective of any conclusion as to the proper law. Such a condition would solve the potential conflict of Australian domestic statutory public policy and the operation by a foreign arbitrator of the rules of conflicts of law to set at nought governing Australian law. The arbitration agreement is a contract about submission. Its enforcement should not undermine the operation of a statute such as the [Trade Practices] Act.
His Honour noted that he had not heard the parties on this condition, and would do so: at .
A year later, however, in Comandate Marine Corporation v Pan Australia Shipping Pty Ltd, Allsop J referred to the condition made in Walter Rau and noted at :
Having had the benefit of argument in the appeal here I would not impose such a condition. At least in the circumstances here, I do not see such a term as appropriate. It would, to use the expression of Gleeson CJ in Francis Travel 39 NSWLR at 167, pre-empt the decision of the arbitrator and the operation of the arbitration clause. In any event, here, Comandate Marine has undertaken to the Court to agree to the determination in the arbitration of the Trade Practices Act claims.
There, the dispute was to be governed by English law.
- The defendant submitted that there was no need for the second condition as it would not make inconsistent submissions to this Court and to an arbitral tribunal. In this Court, the defendant submitted that the plaintiff’s claim for damages under the Australian Consumer Law fell within the scope of the arbitration agreement. The defendant would not contend otherwise in any arbitration.
- Given the choice of law clause and the defendant’s contention that the plaintiff’s claim under the Australian Consumer Law falls within the arbitration clause, the second proposed condition is not appropriate. It is a matter for the arbitrator.
- The plaintiff and defendant each sought their costs of the motion. The defendant, however, has succeeded and should have its costs. For these reasons, I make the following orders:
- Order pursuant to section 7(2) of the International Arbitration Act 1974 (Cth) that these proceedings be stayed and the parties be referred to arbitration, with such arbitration to be commenced in accordance with clause 46.9 of the Services Agreement for Design Services between the Rizzani Leighton Joint Venture and Deal S.R.L. entered into or about 27 July 2015.
- The plaintiff to pay the defendant’s costs of the motion filed on 14 April 2021.