Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2019] WASC 90

SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

DURO FELGUERA AUSTRALIA PTY LTD
(Plaintiff)

V

SAMSUNG C&T CORPORATION (ABN 49 160 079 470 WITH REPUBLIC OF KOREA REGISTRATION NUMBER 110111-0015762)
(Defendant)

CORAM: Le Miere J
HEARD: 23 October 2018
DELIVERED: 22 March 2019
FILE NO: CIV 2214 of 2018
CATCHWORDS: Arbitration – International commercial arbitration – Agreement to arbitrate – Stay of proceeding – Matter capable of settlement by arbitration

 

LE MIERE J:

Summary

1. The plaintiff has commenced a proceeding in this court in relation to the defendant’s entitlement or authority to demand and obtain payment under a performance bond. Claims by the plaintiff and the defendant in relation to the contract under which the performance bond was given and called upon have proceeded to arbitration. The defendant now seeks an order under s 7(2) of the International Arbitration Act 1974 (Cth) that the court proceeding be stayed and the parties referred to arbitration.
2. The plaintiff says that the proceeding should not be stayed because the plaintiff’s claims for urgent declaratory relief are outside the scope of the arbitration agreement and further the matter, or a matter, for determination in the court proceeding is not a matter that is capable of settlement by arbitration.
3. For the reasons which follow, I will order that the proceeding be stayed and the parties be referred to arbitration.

The Subcontract

4. In August 2013, an unincorporated joint venture of Forge Group Construction Pty Ltd (Forge) and the plaintiff (Duro) were engaged by the defendant (Samsung) under an engineering, procurement, construction and commissioning contract (the Subcontract) to perform works in relation to the Roy Hill iron ore mining, rail and port project in the Pilbara (the Project). Under the Subcontract, the overall scope of work was split. Forge performed the engineering, construction and commissioning activities and Duro performed the procurement, that is, Duro supplied the major equipment for the Project.

The Interim Subcontract

5. On 21 February 2014, the Subcontract was terminated by Samsung after Forge was placed in administration. Samsung took over Forge’s scope of work and engaged Duro under a new contract to complete work that had been allocated to Duro under the Subcontract. The new contract (the Interim Subcontract) between Duro and Samsung is dated 21 February 2014. It comprises a Subcontract Term Sheet (Term Sheet) and the terms of the Subcontract, as modified by the terms set out in the Term Sheet and its schedules for the performance of the Duro Works.
6. The Interim Subcontract is referred to as the ‘Interim Subcontract’ because, whilst the Interim Subcontract is legally binding on the parties, the parties intended to execute a substitute subcontract. This substitute subcontract was to incorporate the terms and conditions of the Subcontract, as modified by the Schedules to the Term Sheet, together with any other terms and conditions that Samsung and Duro consider are reasonable or necessary that directly relate to the terms and conditions as set out in the Schedules of the Term Sheet. The parties did not agree upon the terms to be included in the substitute subcontract and a substitute subcontract was never executed.
7. Clause 5.2 of the General Conditions, which is a term of each of the Subcontract and the Interim Subcontract, provides that Samsung may at any time convert into money any security where Samsung considers, acting bona fide that it is, or will be, entitled to recover the relevant amount from Duro under or in respect of the Subcontract or Interim Subcontract, respectively. Duro provided security in the form of performance bonds issued by CGU Insurance Ltd (CGU) and AIG Australia Ltd (AIG).

The arbitration

8. Clause 42 of the Subcontract, which is also a term of the Interim Subcontract, contains an arbitration agreement to the effect that if, following the issue of a dispute notice and conferral, a dispute between the parties has not been resolved it will be referred to arbitration.
9. On 23 December 2015, Duro issued notices of dispute under each of the Subcontract (the Subcontract Notice of Dispute) and the Interim Subcontract (Interim Subcontract Notice of Dispute). On 17 February 2016, Duro issued a notice of dispute which consolidated the Subcontract Notice of Dispute and the Interim Subcontract Notice of Dispute.
10. On 17 March 2016, Samsung issued a notice of arbitration against Duro in respect of various claims under the Subcontract (Notice of Arbitration). On 18 March 2016, Duro issued its response to the Notice of Arbitration (Response). The Response included various set off claims and counterclaims against Samsung.
11. The arbitration, which involved claims by Samsung and Duro arising out of the Subcontract and Interim Subcontract, was heard by the arbitral tribunal in Singapore over four weeks in January and February 2018.

Duro applies for injunction

12. Meanwhile on 18 February 2016, Samsung had given notice of its intention to have recourse to the security by making demand on CGU and AIG for payment under the bonds, by which Duro had provided the security.
13. On 29 February 2016, Duro applied to this court for an interlocutory injunction restraining Samsung from taking any step to obtain payment under the bonds. Duro said that Samsung was not entitled to convert the bonds into money on two grounds. First, demanding payment under the bonds was to disregard, and fail to comply with, binding determinations made under the Construction Contracts Act 2005 (WA) (the Act). Secondly, Samsung failed to apply the terms of the Interim Subcontract in considering that it was, or would be, entitled to recover the relevant amount from Duro.
14. Samsung accepted that the maximum amount of security to which it was entitled under the Subcontract, and which it was entitled to convert into money, was $67,776,256.70.
15. On 15 April 2016, I published my reasons for decision in which I held that Duro had not made out its case and its application for an interlocutory injunction should be dismissed: Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2016] WASC 119. Duro says that on 15 April 2016, during oral argument concerning the orders to be made to give effect to my reasons for judgment, Duro sought an order that Samsung be restrained from calling on the security in an amount in excess of $67,776,256.70. Further, in response to Duro’s application Samsung undertook to the court not to call on the security for an amount in excess of $67,776,256.70.
16. On or about 29 April 2016, Samsung converted the amount of $67,767,256.70 of the bonds into money.

Samsung applies for declaration

17. A fortnight earlier on 5 April 2016, Samsung had commenced proceeding CIV 1552 of 2016 in this court in which it claimed declaratory relief. In substance, Samsung sought declarations to the effect that there is no binding arbitration agreement between it and Duro which covers the claims made by Duro in the Singapore arbitration (the Duro Claims), the jurisdiction clause in the Term Sheet covers those claims and hence this court is the proper forum for the determination of the Duro Claims. No other relief was sought.
18. Duro said that the Interim Subcontract includes an arbitration agreement on the terms of cl 42 of the Subcontract, hence the arbitral tribunal has jurisdiction to determine the Duro Claims and those claims must be determined by arbitration. Duro sought to stay the proceedings pursuant to s 7 of the International Arbitration Act. Alternatively, Duro sought an order that the proceeding be dismissed on the ground that the proceeding concerned the jurisdiction of the duly constituted arbitral tribunal and the court had no jurisdiction to interfere with arbitral proceedings or in the further alternative, that, if it had jurisdiction, the court should dismiss the proceeding as a matter of discretion.
19. The central issue in that proceeding, and in Duro’s application to stay or dismiss the proceeding, was whether the Interim Subcontract includes an arbitration agreement in the terms of cl 42 of the Subcontract.
20. I held that an arbitration agreement in the terms of cl 42 of the Subcontract is a term of the Interim Subcontract, that the proceeding involved the determination of a matter that, in pursuance of the arbitration agreement, was capable of settlement by arbitration. I stayed the proceeding and referred the parties to arbitration.

The Letter agreement

21. Duro says that on or about 29 November 2016, the parties entered into a written agreement (Letter Agreement) which included the following terms. First, Duro will renew or extend the security to a date on or about 2 June 2018 (Extension Date). Secondly, Samsung agrees not to make any call on the security prior to the parties receiving an award (save as to costs) in the Singapore arbitration (the Arbitration). Thirdly, should the parties not receive an award (save as to costs) in the Arbitration by the date which is 28 days prior to the Extension Date, Duro will further renew or extend the security to a date agreed to by the parties having regard to when an award on the Arbitration is expected. Fourthly, the parties otherwise agreed to immediately suspend the operation of all applicable terms of the Interim Subcontract in respect of the security, with the effect of preserving the security for the outstanding amount of the security, being $8,511,277.70, until the Extension Date and any extension to that date pursuant to the previous term referred to. Duro extended the term of the security to the Extension Date under the Letter Agreement. Duro subsequently extended the term of the security to 21 June 2018.
22. On 16 December 2016, Duro renewed the bond by way of unconditional undertakings by CGU which was provided to Samsung on about that date.
23. On 31 May 2018, the expiry date of the bond was extended by deed poll to 22 June 2018.
24. The parties failed to reach agreement about any extension of the security beyond 21 June 2018. On 21 June 2018, Samsung made a call on the issuer of the bonds to convert a further $8,520,277.70 of the bonds into money, such that the total amount of security it has converted into money is $76,287,534.40.
25. On about 27 June 2018, the proceeds of Samsung’s call to convert the bonds into money were paid into the trust account of Samsung’s lawyers, Herbert Smith Freehills (HSF). HSF has confirmed that Samsung will only deal with the amount of $8,520,277.70 in HSF’s trust account upon the earlier of one of four events occurring, one of which is a final determination of this proceeding.

Duro commences this action

26. On 12 July 2018, Duro commenced this action. Duro pleads:

(a) Samsung had no entitlement or authority, under the Interim Subcontract, to security in an amount in excess of $67,767,256.70;

(b) Samsung’s conversion of a further $8,520,277.70 of the bonds into money was without authority under the Interim Subcontract;

(c) Samsung has no entitlement, under the Subcontract, to the amount of $8,520,277.70;

(d) Samsung is in breach of its undertaking to the court not to call on an amount in excess of $67,767,256.70; and

(e) Samsung is in breach of the term of the Letter Agreement not to make any call on the security prior to the parties receiving an award (save as to costs) in the Arbitration.

Samsung’s application to stay action and refer parties to arbitration

27. By chamber summons of 17 August 2018, Samsung seeks orders that:
    1. the matter be stayed and referred to arbitration pursuant to s 7(2) or Article 8(1) of Schedule 2 of the International Arbitration Act; or
    2. alternatively, the matter be stayed pursuant to the inherent jurisdiction of the court.
28. Samsung says the action should be stayed and the matter raised for determination in it be referred to arbitration pursuant to s 7(2) of the International Arbitration Act because the proceeding involves the determination of Samsung’s right to call upon a performance bond provided by Duro to Samsung pursuant to the terms of the Interim Subcontract and that matter is capable of settlement by arbitration pursuant to the arbitration agreement between the parties.
29. Section 7 of the International Arbitration Act provides for the enforcement of an arbitration agreement by a court, in which a party has commenced proceedings covered by the arbitration agreement by staying the court proceeding and referring the parties to arbitration. Section 7(1) prescribes the arbitration agreements to which the section applies. It is common ground that cl 42 of the Subcontract is a term of the Interim Subcontract and is an arbitration agreement between the parties. It is common ground that the arbitration agreement is an arbitration agreement to which s 7 of the International Arbitration Act applies.
30. Section 7(2) of the International Arbitration Act prescribes when the court will stay an arbitration agreement to which the section applies. It is in these terms:

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.

31. To enliven the court’s power to stay this proceeding, Samsung must establish that this proceeding involves the determination of a matter that, in pursuance of the arbitration agreement in the Interim Subcontract, is capable of settlement by arbitration. Determining whether a matter the determination of which is involved in the proceeding, is capable of settlement by arbitration requires the identification of the matter, or matters, in the proceeding and the scope of the arbitration agreement.
32. Samsung says that the matter for determination in this proceeding is whether Samsung was entitled to call upon the further $8,520,277.70 of the security provided by Duro.
33. Duro says that the proceeding should not be stayed and the parties referred to arbitration for two reasons. First, Duro’s claims for urgent declaratory relief are outside the scope of the arbitration agreement. Secondly, the matter concerning the existence of an undertaking given by Samsung is not a matter that is capable of settlement by arbitration.

The matters for determination

34. At [4] to [8] of its amended statement of claim, Duro pleads the relevant terms of the Interim Subcontract. Duro is required to provide performance security in the form of a bank bond in an amount that is equal to 15% of the Interim Subcontract sum. Prior to the date of Practical Completion, the Contractor’s representative may direct decreases to, or omissions from, the Duro Works, and may price the value of that decrease or omission and may reduce the Interim Subcontract sum by that value. Where the Interim Subcontract sum decreases by more than 5%, the amount of Security to which Samsung is entitled decreases to the amount which is 15% of the amount of the new Interim Subcontract sum. Samsung may convert the Security into money if certain preconditions are satisfied.
35. At [9] to [15] of its amended statement of claim, Duro identifies the amount of Security to which Samsung is presently entitled. As at 18 February 2016, that is the date on which Samsung called the Security under the Interim Subcontract, the amount of Security to which Samsung was entitled was $67,776,256.70.
36. At [16] to [23] of its amended statement of claim, Duro pleads facts arising from the hearing of CIV 1317 of 2016 on 15 April 2016 in which Duro unsuccessfully sought an interim injunction restraining Samsung from taking any step to obtain payment under the bonds procured by Duro as the Security under the Interim Subcontract. In its written submissions Samsung accepted that by reason of the reduction in the Interim Subcontract sum to $451,841,711.32, the maximum amount of Security to which Samsung was entitled and which Samsung was entitled to convert into money was $67,776,256.70. On 15 April 2016, during oral argument concerning the orders to be made to give effect to my reasons for judgment in Duro Felguera Australia Pty Ltd v Samsung C&T Corporation, Duro sought an order that Samsung be restrained from calling on the Security in an amount in excess of $67,776,256.70. In response to Duro’s application, junior counsel for Samsung stated that Duro ‘already has that assurance’ in written submissions that stated that ‘Samsung accepts the submissions at paragraph 44 and will not call on the bonds for an amount in excess of $67.7 million’ and that ‘the matter can begin and end right there’. Duro says that by that statement of its counsel Samsung undertook to the court not to call on the Security for an amount in excess of $67,776,256.70.
37. The relief claimed by Duro is:
    1. Declaration that Samsung has no entitlement to any Security issued under the Interim Subcontract in excess of $67,767,256.70.
    2. Declaration that Samsung had no entitlement or authority to convert a further $8,520,277.70 of the Security into money.
    100. Declaration that Samsung has no entitlement to the amount of $8,520,277.70.
    4. Declaration that Samsung is in breach of its undertaking to the Court.
    5. Declaration that Samsung is in breach of the Letter Agreement.
    6. Samsung to make restitution of the amount of $8,520,277.70, within 5 days of the date of these orders.
    7. Alternatively to F, Samsung to pay, or arrange for the payment of, the amount of $8,520,277.70 to an account nominated by Duro within 5 days of the date of these orders.
38. Samsung says that in the Arbitration Duro claims an adjustment of the Subcontract sum for variations and for payment by Samsung to Duro for that adjusted amount for variations, or alternatively as damages. Samsung says that if the Subcontract sum is increased then the amount of Security to which Samsung is entitled is increased by 15% of the increase in the Subcontract sum. Samsung acknowledges that an increase in the Subcontract sum will not result in an increase in the Security amount of $8,520,277.70, even if the Subcontract sum is increased by the full amount claimed by Duro.
39. Samsung’s defence to Duro’s claim that it has breached an undertaking to the court is threefold. First, Samsung did not offer any undertaking to the court. Secondly, if Samsung did offer an undertaking, none was accepted by the Court. Thirdly, if an undertaking was offered and accepted by the Court, it was only an undertaking not to call on the performance bond unless there was an upward adjustment in the Interim Subcontract sum.

Urgent declaratory relief

40. Duro says that its claim is for urgent declaratory relief which is outside the scope of the arbitration agreement. The arbitration agreement is in cl 42 of the Subcontract, which is incorporated into the Interim Subcontract. However, cl 42.5 contains a carve out for summary relief. Clause 42.5 is:

Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Subcontract or to seek injunctive or urgent declaratory relief.

41. The exception in cl 42.5 is similar to an exception clause found in arbitration agreements in AED Oil Ltd v Puffin FPSO Ltd [2010] VSCA 37; (2010) 27 VR 22 and CPB Contractors Pty Ltd v Rizzani De Eccher Australia Pty Ltd [2017] NSWSC 1798.In both cases, there was a carve out from the obligation to refer disputes to arbitration where a party was seeking urgent declaratory relief.
42. In AED Oil, a dispute arose out of a charter contract between the first applicant, a company engaged in oil production and a related company, and the respondent tanker company. The first applicant commenced proceedings in the Victorian Supreme Court against the respondent seeking declarations as to the efficacy of notices of demand served on the respondent pursuant to a related guarantee and charge given to secure performance of the oil producers’ obligations, and an injunction to restrain the respondent from taking any step to enforce the charge. The respondent counterclaimed against both applicants for declaratory relief. Judd J granted the applicants an interlocutory injunction restraining the respondent from relying on the events of default alleged in its demand notices. The charter contract contained an agreement to submit disputes to arbitration subject to the following exception:

Nothing in this Article 33 prevents a party from seeking urgent interlocutory or declaratory relief from a court of competent jurisdiction where, in that party’s reasonable opinion, that action is necessary to protect that party’s rights.

43. In reliance upon the charter contract, the applicants applied for the counterclaim to be stayed under s 7 of the International Arbitration Act, s 53 of the Commercial Arbitration Act 1984  (Vic) and the inherent jurisdiction of the court. The respondent resisted the applications on the basis that, among other things, its counterclaim fell within the exception in the charter contract.
44. Judd J held that the applicants satisfied s 7 of the International Arbitration Act and were entitled to a stay but for the exception. The Court of Appeal allowed the appeal. The court held that the exception in the charter contract required that the relief was urgent, a matter to be determined objectively. The court held that the urgency in the proceedings brought by the first applicant was resolved by the granting of an interlocutory injunction, and the relevant evidence when viewed as a whole did not warrant the conclusion that the respondent’s claim was urgent.
45. CPB Contractors Pty Ltd v Rizzani De Eccher Australia Pty Ltd concerned the design and construction of a motorway being performed by an unincorporated joint venture comprised of CPB Contractors Pty Ltd (CPB) and Rizzani De Eccher Australia Pty Ltd (Rizzani) pursuant to a joint venture agreement (JVA). The JVA provided that disputes between the parties must be resolved by arbitration. However, cl 13.6 provided that:

Nothing in … this clause will prejudice the right of a Party to seek urgent injunctive or declaratory relief from a court of competent jurisdiction in accordance with the provisions … of this deed.

A dispute arose as to whether Rizzani was required to pay a Called Sum of $8,500,000 under the JVA for the purposes of the joint venture. CPB commenced proceedings in the Supreme Court of New South Wales to resolve the Called Sum dispute. Rizzani sought a stay of the proceedings and argued that the Called Sum dispute should be referred to arbitration.

46. Ward CJ in Eq held that the word ‘urgent’ should be given its ordinary meaning. Her Honour referred to Green v Econia Pty Ltd [2016] SASC 153 at [23] where the court held that a matter is urgent if it has ‘the quality of requiring immediate attention’ andCPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [2017] WASC 112 at [37] where the court described an ‘urgent’ matter as one that is ‘pressing; compelling or requiring immediate action or attention’. Ward CJ found that CPB was seeking urgent injunctive and declaratory relief in the Called Sum dispute because the works had not been completed, there were third party creditors to whom moneys were owed and, unless subcontractors were paid outstanding amounts, there was a risk of disruption to the Project. Rizzani’s stay application was accordingly refused.
47. Duro’s claims for declaratory relief are not urgent. First, there is no risk of the $8,520,277.70 being paid to or used by Samsung or otherwise dissipated or put beyond the reach of Duro if it is established by a court judgment or arbitral award that Duro is entitled to that sum. After Samsung called on the bond there was an exchange of correspondence between the parties’ solicitors. When the bond issuer answered the call, at the direction of Samsung, it paid the proceeds of the call into the trust account of HSF.
48. The funds are being held by HSF in its trust account. The parties have been corresponding about the terms of an escrow arrangement so that an appointed escrow agent would hold the proceeds of the call. The parties have not agreed on escrow arrangement terms. HSF has confirmed that Samsung will only deal with the funds held in HSF’s trust account upon the earlier of one of the following events occurring:
    1. the parties execute the Escrow Deed, in terms substantially consistent with those proposed by Samsung on 30 July 2018 (in which case Samsung will direct the funds to be deposited to the Escrow Account);
    2. a final determination of the Supreme Court proceedings commenced by Duro which is not subject to any appeal;
    3. the receipt of an award in the Arbitration; or
    4. the parties execute a deed which settles all matters the subject of the Arbitration and Supreme Court proceedings commenced by Duro.
49. Secondly, the dispute is in substance a dispute about the entitlement to the amount of $8,520,277.70. That entitlement will be determined by this court or by the arbitral tribunal. There is no evidence that Duro will suffer any prejudice by not receiving the money, if it is held that it is entitled to the money, until a court judgment or arbitral award, other than the prejudice which a party suffers from a delay in receiving money it is entitled to until a court judgment or arbitral award.
50. Thirdly, the events leading to and subsequent to the call by Samsung show that the declaratory relief sought by Duro is not urgent in the sense of requiring immediate attention. On 21 June 2018, Samsung made demand for payment of the amount of the bond issued by CGU. Samsung’s solicitors immediately informed Duro’s solicitors. Duro’s response was not to seek urgent declaratory relief from the court. Duro’s solicitor emailed Samsung’s solicitor saying:

As we discussed, it is also Duro’s preference to not trouble the court. In circumstances where Samsung has the protection of a call having been effected in Sydney this afternoon, we consider it sensible that to protect the status quo and preserve Duro’s ability to argue that Samsung is not entitled to the moneys called, that payment will not be effected by CGU/IAL until that question can be determined. Duro confirms that it would be satisfied with confirmation from HSF that it has written to CGU/IAL to put a stop on the payment whilst the entitlement question is determined. And, in the event the payment is made by CGU/IAL notwithstanding HSF’s request, HSF’s confirmation that those monies will be placed into escrow pending resolution of the entitlement question. As discussed, if HSF is not in a position to provide that confirmation, then Duro intends to seek urgent orders from the court and will be in communication with the court shortly.

51. Samsung’s solicitors responded the same day stating that Samsung will agree to hold the bond money in escrow until the resolution of the entitlement issue provided Duro bears all costs of escrow. The parties then embarked upon correspondence about the terms of escrow. As I have said, the parties could not reach agreement on the escrow terms. Duro commenced this action on 12 July 2018. Duro took no steps to obtain any urgent orders from the court. On 9 August 2018, HSF confirmed that Samsung would only deal with the funds held in HSF’s trust account on the terms set out earlier in these reasons. Duro has still not sought any urgent order from the court.

The undertaking matter

52. Duro claims that Samsung is in breach of its undertaking to the court not to call on an amount in excess of $67,776,256.70. Duro seeks declarations to that effect. Duro also seeks an order for restitution of the bond money, or payment of the bond money.
53. Duro says that the matter concerning the undertaking is not a matter that is capable of settlement by arbitration for the following reasons. An undertaking is given to the court, and may be accepted in lieu of the grant of injunctive relief against the party giving the undertaking. Because the undertaking is a promise to the court, it does not of itself confer any personal right or remedy on the other party. The power to accept and enforce an undertaking is an ‘invariable attribute’ of a superior court whose proceedings are protected by rules relating to contempt of court: Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150, 164 (Gibbs CJ, Stephen, Mason, Wilson JJ). The giver of an undertaking may assume not only an obligation to the court, but also a contractual obligation to the other party, the breach of which may give rise to a personal remedy: Re Hudson [1966] Ch 209; Fitzroy All Pty Ltd v Mansfield [2014] WASC 498 [98] – [100] (K Martin J). The question of whether an undertaking was given to the court, the terms of any undertaking, and the consequences of Samsung’s conduct after giving any undertaking is a matter involving an ‘invariable attribute’ of this court. A matter that relates to ‘rights which are … required to be determined exclusively by the exercise of judicial power’ is not arbitral: Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332, 351 (Deane, Gaudron JJ). The matter of the undertaking involves an ‘invariable attribute’ of this court. It is a matter that must be determined exclusively by the exercise of judicial power.
54. Samsung says that in this action, although there are a number of subsidiary issues for determination, there is but one ‘matter’ in controversy for determination. That is, whether Samsung was entitled to call upon a further $8,520,277.70 of the security provided by Duro.

The matter for determination

55. The High Court considered the concept of ‘matter’ in s 7(2) of the International Arbitration Act in Tanning Research Laboratories v O’Brien. The liquidator of a company rejected a proof of debt lodged by Tanning Research Laboratories Inc (Tanning), a Florida corporation. Tanning applied to the Supreme Court of New South Wales for an order that the liquidator’s rejection be reversed. The primary judge ordered that the liquidator’s rejection be varied by allowing the proof in the sum of $55,502.63. That order was set aside by the Court of Appeal which ordered that the proceedings be stayed pursuant to s 7(2) of the Arbitration (Foreign Awards and Agreements) Act 1974 (Cth), (now the International Arbitration Act s 7(2)) and the determination of the matter of the amount, if any, by which the company in liquidation was indebted to Tanning be referred to arbitration in accordance with the arbitration agreement between the parties.
56. The High Court affirmed the decision of the New South Wales Court of Appeal. Deane and Gaudron JJ considered, at 351, the word ‘matter’ in s 7(2) of the International Arbitration Act. Their Honours made the following observations and holdings:
    1. In any context ‘matter’ is a word of wide import.
    2. In context of s 7(2) of the International Arbitration Act the expression ‘matter … capable of settlement by arbitration’ may, but does not necessarily, mean the whole matter in controversy in the court proceedings.
    3. ‘Matter’ may, but does not necessarily encompass all the claims within the scope of the controversy in the court proceedings.
    4. ‘Matter … capable of settlement by arbitration’ indicates something more than a mere issue which might fall for decision in the court proceedings or might fall for decision in arbitral proceedings if they were instituted. It requires that there be some subject matter, some right or liability in controversy which, if not coextensive with the subject matter in controversy in the court proceedings, is at least susceptible of settlement as a discrete controversy.
    5. The words ‘capable of settlement by arbitration’ indicate that the controversy must be one falling within the scope of the arbitration agreement and, perhaps, one relating to rights which are not required to be determined exclusively by the exercise of judicial power.
57. Their Honours held that the controversy between Tanning and the liquidator was the amount, if any, enforceable as a debt for goods sold and delivered to the company. That controversy was susceptible of settlement as a discrete controversy. Further, the controversy was encompassed within the arbitration agreement and it did not require determination only by the exercise of judicial power.
58. In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; (2000) 100 FCR 420 Merkel J considered that the judgment of Deane and Gaudron JJ was authority for the view that ‘matter’:

is to be ascertained by reference to the subject matter of the dispute in the proceeding and the substantive, although not necessarily the ultimate, questions for determination in the proceeding. The scope of the matter is to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including the defence, are based [18].

A matter capable of settlement by arbitration

59. The court may stay a court proceeding on the ground that the proceeding involves the determination of a matter that is capable of settlement by arbitration, notwithstanding that a remedy sought in the court proceeding is exclusively the exercise of judicial power. In Tanning Research Laboratories Inc v O’Brien, the High Court upheld the decision of the New South Wales Court of Appeal staying the court proceedings notwithstanding that in the court proceedings Tanning applied for an order reviewing the liquidator’s rejection of a proof of debt. The High Court held that the substance of the controversy between the company and the liquidator was the amount, if any, enforceable as a debt. That controversy was susceptible of settlement and arose out of the arbitration agreement between the parties.
60. The relevant arbitration agreements between Samsung and Duro are the arbitration agreement in cl 42 of the Subcontract which was incorporated into the Interim Subcontract as a term of that agreement. Clause 42 of the Subcontract is relevantly:

42.1 Notice of dispute

If a difference or dispute (together called a ‘Dispute’) between the parties arises in connection with the subject matter of the Subcontract, including Dispute concerning:

…

(b) a Claim,

Then either party shall, … give the other … a written notice of Dispute adequately identifying and providing details of the Dispute.

…

42.2 Conference

Within 14 days after receiving a notice of Dispute, the parties shall confer at least once to resolve the Dispute or to agree on methods of doing so. …

If the dispute has not been resolved within 28 days of service of the notice of Dispute or such longer period as the parties may agree in writing, that Dispute shall, … be and is hereby referred to arbitration.

61. Claim is defined to include:

any claim for an increase in the Subcontract Sum, for payment of money (including damages) …:

(a) under, arising out of, or in any way in connection with, the Subcontract, …;

(b) arising out of, or in any way in connection with WUSC, the Subcontract Works, or either party’s conduct before the Subcontract; or

(c) otherwise at law or in equity, including by statute, in tort (for negligence or otherwise, including negligent misrepresentation) or for restitution;

62. The arbitration agreement in the Interim Subcontract is in the same terms, except that Interim Subcontract and Interim Subcontract Sum should be substituted for Subcontract and Subcontract Sum.
63. Duro’s claims, set out in its prayer for relief are set out in [37] above.
64. Those claims may properly be seen as a single controversy – whether Samsung has any entitlement to Security under the Interim Subcontract in excess of $67,767,256.70, any entitlement to convert a further $8,520,277.70 of the Security into money, any entitlement to that sum and whether Samsung must pay that amount to Duro. The claims constituting that controversy are claims under the Interim Subcontract and constituted a Dispute as defined in the arbitration agreement in the Interim Subcontract. That controversy is a matter capable of settlement by arbitration. That matter must be referred to arbitration pursuant to s 7(2) of the International Arbitration Act.
65. Duro’s claim that Samsung is in breach of its undertaking to the court is arguably not a Dispute falling within the arbitration agreement in the Interim Subcontract.
66. The court has power to order a stay in circumstances where a proceeding includes matters that are not capable of being referred to arbitration. The court has a general power to control its own proceedings which extends to ordering a stay of its own proceedings. In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc Merkel J said:

In the event that a proceeding includes matters that are not capable of being referred to arbitration, but the determination of which is dependent upon the determination of the matters required to be submitted to arbitration, a court may, in the exercise of its discretion, stay the whole proceeding: see Tanning Research at 216 per Brennan and Dawson JJ. A court may also exercise a discretion to impose terms that the arbitration of the arbitrable claims not proceed prior to the determination of the nonarbitrable claims where the arbitrable claims are seen to be subsidiary to or significantly less substantial than, but overlapping with, the nonarbitrable claims: see HiFert at 1678: cf Dodwell & Co (Aust) Pty Ltd v Moss Security Ltd (Fed C of A, Wilcox J, 11 April 1990, unreported) at [5] and [7]. The discretion may also be exercised to stay the proceeding where the nonarbitrable claims are the ancillary claims.

The broad discretion arises as part of the exercise of a court’s general power to control its own proceedings. The basis for the discretion is that the spectre of two separate proceedings one curial, one arbitralproceeding in different places with the risk of inconsistent findings on largely overlapping facts, is undesirable …[65] [66].

67. In this matter the substantive claims are arbitral. The nonarbitrable claims are ancillary claims. In the exercise of its discretion to control its own proceedings, the court should stay the whole of this proceeding pending the outcome of the arbitration.