Eastern Goldfields Ltd v GR Engineering Services Ltd [2018] WASC 224

JURISDICTION: SUPREME COURT OF WESTERN AUSTRALIA (IN CHAMBERS)

CITATION: EASTERN GOLDFIELDS LTD V GR ENGINEERING SERVICES LTD [2018] WASC 224

CORAM: TOTTLE J

HEARD: 22 JUN 2018

DELIVERED: 27 JULY 2018

FILE NO: ARB 7 OF 2018

BETWEEN:

EASTERN GOLDFIELDS LTD

Plaintiff

AND

GR ENGINEERING SERVICES LTD

Defendant

CATCHWORDS: ARBITRATION – Application to determine arbitrator’s jurisdiction – Where parties referred to arbitration by court – Where arbitrator decided he did have jurisdiction – Whether arbitrator has jurisdiction to hear dispute

LEGISLATION: Commercial Arbitration Act 2012 (WA), s 8, s 16, International Commercial Arbitration Act 1974 (Cth), s 7(5)

RESULT: Application dismissed

CATEGORY: B

Cases referred to in decision:

• Athens v Randwick City Council [2005] NSWCA 317; (2005) 64 NSWLR 58
• Bakri Navigation Company Ltd v Owners for Ship ‘Golden Glory’ Glorious Shipping SA (1991) 217 ALR 152
• GR Engineering Services Ltd v Eastern Goldfields Ltd [2018] WASC 19
• Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10
• Shanghai Foreign Trade Corporation v Sigma Metallurgical Co Pty Ltd (1996) 133 FLR 417

TOTTLE J:

Summary

1. On 24 January 2018 I ordered that the plaintiff, Eastern Goldfields Ltd (EGS), and the defendant, GR Engineering Services Ltd (GRE), be referred to arbitration for the determination of disputes between them.  The order was made following an application by EGS and Investmet in proceedings numbered CIV 2140 of 2017 that had been commenced by GRE against EGS, Investmet Pty Ltd and Squire Patton Boggs.  For the purposes of the referral application the disputes to be determined by arbitration had been identified by EGS as the claims pleaded by GRE against it in an amended statement of claim filed in the proceedings.
2. In March 2018 GRE commenced the arbitral proceedings against EGS.  It served points of claim which plead substantially the same claims against EGS as those that were pleaded in its amended statement of claim in CIV 2140 of 2017.
3. On 30 April 2018 EGS served its points of defence.  This included a plea that the arbitrator does not have jurisdiction to determine a dispute concerning an agreement alleged by GRE described in the points of claim as the Partial Accord and Satisfaction Agreement.  The claim based on the alleged Partial Accord and Satisfaction Agreement had been pleaded in the amended statement of claim in CIV 2140 of 2017.
4. EGS sought the arbitrator’s consent to apply to the court under s 27J of the Act for the determination of the jurisdictional question that it characterised as a question of law.  On 2 May 2018, the arbitrator notified the parties that he declined to give his consent and informed them that in his view he did have jurisdiction to determine the dispute concerning the Partial Accord and Satisfaction Agreement. The parties have proceeded on the basis that the arbitrator has ruled on the jurisdictional issue, not merely that he had declined to give his consent for the court to determine the question as a matter of law.
5. EGS has requested the court to determine whether the arbitrator has jurisdiction to hear the dispute concerning the Partial Accord and Satisfaction Agreement.  Section 16(9) of the Act provides that a party may request that the court decide whether the arbitrator has jurisdiction.  The request must be made within 30 days of the arbitrator’s preliminary ruling.  The present application was made on 10 May 2018 and is thus brought within time.
6. By the present application EGS is seeking to undo, in part at least, the result it achieved by its application for an order referring the parties to arbitration for the determination of all the claims made by GRE in the amended statement of claim in the proceedings.
7. The substantive hearing in the arbitration is scheduled to commence on 13 August 2018.
8. For the reasons explained below I consider that EGS and GRE were referred to arbitration for the determination of all the disputes between them and that the arbitrator has jurisdiction to determine all the disputes, including the claim based on the alleged Partial Accord and Satisfaction Agreement.

Background

9. On 22 September 2016, EGS and GRE entered into a design and construct contract under which GRE agreed to design and carry out certain refurbishment works on EGS’s Davyhurst Gold Plant (the Contract).  The contract sum was $12,487,638.00.
10. Disputes arose between EGS and GRE.  GRE claimed that EGS did not pay invoices submitted for progress claims and that EGS would not pay for work that GRE contended amounted to variations under the Contract.
11. GRE served a demand on EGS under s 459E of the Corporations Act 2001 (Cth) in which it stated that $6,601,496.68 was owing to it in respect of three invoices that were particularised in the demand. EGS commenced proceedings to set aside the statutory demand. The application to set aside the statutory demand was compromised and GRE consented to an order setting it aside.
12. In its points of claim in the arbitration, in addition to its claims for monies due for progress claims and variations, GRE alleges that it reached an agreement with EGS – the Partial Accord and Satisfaction Agreement – the terms of which included terms to the effect that it would consent to an order for the setting aside of the statutory demand and that EGS would pay it $5 million. GRE alleges that it was agreed that:
    

    (a)          Investmet would provide an irrevocable guarantee to GRE in respect of the obligation to pay $5 million;

    (b)          the payment would be secured by a transfer of 18,461,538 shares in the capital of EGS held by Investmet;

    (c)          Investmet would execute a share transfer of the shares in favour of GRE; and

    (d)          the transfer would be held in escrow by the law firm Squire Patton Boggs.

13. It is common ground that GRE, EGS and Investmet executed a deed of guarantee and an escrow agreement to which Squire Patton Boggs was also a party.  In summary, the terms of the escrow agreement required Squire Patton Boggs to deliver up the share transfer to GRE in the event that EGS failed to pay the $5 million on the stipulated date.
14. EGS did not pay the $5 million to GRE.  In its points of defence in the arbitration, subject to its objection to jurisdiction, EGS’s primary pleaded case is the agreement alleged by GRE was not made and thus it was under no obligation to pay GRE $5 million or any sum.  It pleads that the deed of guarantee and the escrow agreement are of no legal effect.[4]  EGS pleads alternative defences but it is not necessary to refer to them.

The issues

15. EGS defines the issues raised by its application as follows:
    

    (a)          Was the dispute concerning the alleged Partial Accord and Satisfaction Agreement as it relates to EGS and GRE stayed by the order made on 24 January 2018?

    (b)          If it was not stayed, should an order be made staying the dispute and referring it to arbitration?

    (c)          If it was stayed (and referred to arbitration) should an order be made to the effect that the arbitrator does not, in fact, have jurisdiction to determine that dispute?

16. GRE submitted that the dispute concerning the alleged Partial Accord and Satisfaction Agreement as it relates to EGS and GRE had been stayed and referred to arbitration and that the doctrines of res judicata, waiver or estoppel prevented EGS from contending otherwise.  As I have come to the conclusion that the parties were referred to arbitration for the determination of GRE’s claim based on the Partial Accord and Satisfaction Agreement and that the arbitrator has jurisdiction to determine that dispute, it is not necessary for me to address GRE’s submissions in relation to res judicata, waiver and estoppel.

The dispute about the alleged Partial Accord and Satisfaction Agreement stayed and referred to arbitration

17. The material paragraphs of the order made on 24 January 2018 read as follows:
    

    1.           The proceedings between [GRE] and [EGS] be stayed.

    2.           [GRE] and [EGS] be referred to arbitration for the determination of the disputes between them.

18. The order must be construed in the context of the reasons for decision. When it is so construed it is clear that the order had the effect of staying all disputes between EGS and GRE – the disputed claims arising under the Contract and the disputed claim arising under the alleged Partial Accord and Satisfaction Agreement.
19. In the reasons for decision I noted that a difference or dispute between the parties arising in connection with the subject matter of the Contract was within the ambit of the arbitration agreement constituted by cl 41 of the Contract and stated:
    

    The words ‘arises in connection with the subject matter of the Contract’ are words of wide import.  A reasonable business person would understand those words to mean that all disputes having some degree of connection with the Contract should be resolved by the process set out in cl 41.  (footnote omitted)

20. In their submissions EGS and Investmet expressly accepted that the claim based on the alleged Partial Accord and Satisfaction Agreement was a claim that arose in connection with the subject matter of the Contract and I concluded that:
    

    It follows from what I have said that [GRE’s] claims against [EGS] should be stayed and [GRE] and [EGS] should be referred to arbitration for the resolution of the disputes between them.

21. This conclusion did not draw a distinction between the disputes between EGS and GRE about the claims made under the Contract on the one hand, and the dispute between them about the claims made under the alleged Partial Accord and Satisfaction Agreement on the other, because no such distinction was drawn by EGS and Investmet.  They submitted that all the claims should be stayed and referred to arbitration.  Against that background it was unnecessary for the reasons to draw any distinction between the different claims.
22. To explain further, reference needs to be made to GRE’s amended statement of claim in CIV 2140 of 2017, and the written submissions relied upon by EGS and Investmet for the purposes of the referral application.

23. As noted above, in its amended statement of claim in CIV 2140 of 2017 GRE advanced claims for monies due in relation to progress claims made by it, claims for monies due for variations and, additionally, GRE claimed $5 million due to it under the alleged Partial Accord and Satisfaction Agreement.
24. In their written submissions EGS and Investmet submitted:
    

    35.          The causes of action identified in GR Engineering’s statement of claim ‘arise in connection with the subject matter of the Contract’. 

    And

    39.          The broad scope of the Dispute Resolution Clause demonstrates that the parties did not intend to limit the issues that would be subject to arbitration: Cable & Wireless plc v IBM United Kingdom [2002] 2 All ER (Comm) 1041 at 1052.

    And

    43.           The Dispute Resolution Clause applies to Disputes between the parties in connection with the subject matter of the Agreement.  Having regard to the purpose and subject matter of the Agreement and the breadth of the Dispute Resolution Clause, GR Engineering and Eastern Goldfield’s allegations fall within the scope of the Dispute Resolution Clause.

25. It should be noted that GRE accepted that its claim based on the Partial Accord and Satisfaction Agreement was a claim which arose in connection with the subject matter of the Contract.
26. Thus, the orders of 24 January 2018 resolved the application by EGS and Investmet in their favour in accordance with the submissions advanced by them.  I held that all GRE’s claims fell within the ambit of the arbitration agreement and all GRE’s claims should be referred for determination by arbitration and that was the effect of the order.

26. The arbitrator has jurisdiction to determine GRE’s claim based on the alleged Partial Accord and Satisfaction Agreement
27. EGS advances three reasons as to why the arbitrator lacks jurisdiction to determine GRE’s claim based on the alleged Partial Accord and Satisfaction Agreement.
28. First, EGS submits that whatever the scope of the arbitration agreement, it ceased to operate in relation to the dispute about the Partial Accord and Satisfaction Agreement because, paraphrasing EGS’s contentions, that is not a dispute arising in connection with the Contract but a dispute arising in connection with the Partial Accord and Satisfaction Agreement – a settlement agreement.  EGS contends that this aspect of GRE’s case rests on the proposition that the dispute arising in connection with the Contract was compromised.  Therefore, EGS argues, it ceased to exist, at least in relation to the claims constituted by the invoices particularised in the statutory demand.  EGS submits that as a consequence there was no longer any dispute capable of being referred to arbitration in accordance with the arbitration agreement.  In support of its contention EGS relies on the decisions in Bakri Navigation Company Ltd v Owners for Ship ‘Golden Glory’ Glorious Shipping SA and Shanghai Foreign Trade Corporation v Sigma Metallurgical Co Pty Ltd.
29. In Bakri, after hearing evidence as to whether an arbitrable dispute had been settled, Gummow J reached the conclusion that a settlement had been agreed between the parties. As a consequence of that finding Gummow J held that the settlement rendered the arbitration agreement ‘inoperative’ for the purposes of s 7(5) of the International Commercial Arbitration Act 1974 (Cth).
30. In Shanghai Foreign Trade Corporation Bainton J held that the court should determine a question about whether there had been a settlement of a dispute falling within an arbitration agreement as a preliminary issue rather than stay that question and refer the parties to arbitration.  His Honour reasoned that if an arbitrable dispute had been resolved, the arbitration agreement, that would otherwise have applied, was ‘inoperative’ for the purposes of s 7(5) the International Commercial Arbitration Act 1974 as there was no longer a dispute on which its provisions could operate.
31. In my view, the principle applied in Bakri and Shanghai Foreign Trade Corporation does not apply in this case.  The compromise alleged by GRE involved the setting aside by consent order of the statutory demand that had been served by it.  GRE does not allege that there was a settlement of its claims under the Contract.  Unlike the factual situations in Bakriand Shanghai Foreign Trade Corporation the factual connection between the Contract and the Partial Accord and Satisfaction Agreement that satisfies the requirement that the dispute or difference between GRE and EGS ‘arises in connection with the subject matter of the Contract’ will not be broken even if GRE succeeds on its claim under the Partial Accord and Satisfaction Agreement. In that event it will still be entitled to pursue all of its claims under the Contract, though, as it acknowledges, if successful it would have to give credit for the amount received in respect of the Partial Accord and Satisfaction Agreement claim.
32. As I have observed, not only does GRE not allege that there was a settlement of all its claims under the Contract but it does not allege its claims based on the invoices particularised in the statutory demand were settled.  It is not possible therefore for EGS to identify discrete claims that were compromised and argue that the question of whether those claims have been settled should be determined by the court as a preliminary question.
33. The second reason why EGS contends that the arbitrator lacks jurisdiction is that choice of law and choice of jurisdiction provisions in the deed of guarantee and the escrow agreement evidence an intention on the part of the parties that disputes arising from those documents would be resolved by the court and not by arbitration.
34. In support of its argument EGS points to GRE’s plea that the Partial Accord and Satisfaction Agreement was constituted by a number of documents including the deed of guarantee and the escrow agreement each of which contain a choice of law clause specifying that it is governed by the laws of Western Australia and recording that each party submits to the non-exclusive jurisdiction of the courts of Western Australia.  In addition, the relevant clause in the guarantee records that each party waived the right to object to an action being brought in the courts of Western Australia.  EGS submits that these provisions make it clear that the parties intended any dispute arising out of the guarantee or the escrow agreement would be resolved by litigation and that is why the parties submitted to the non-exclusive jurisdiction of the courts.  EGS contends that the provisions are inconsistent with an agreement between GRE and EGS to refer any dispute in connection with the alleged Partial Accord and Satisfaction Agreement to arbitration.
35. The existence of the choice of law and non-exclusive jurisdiction clauses in the guarantee and escrow agreement are not inconsistent with the continued operation of the arbitration agreement constituted by cl 41 of the Contract.  A non-exclusive jurisdiction clause does not expressly preclude the parties from implementing an arbitration agreement nor does it do so impliedly.  Even when parties have agreed to refer their disputes to arbitration, a non-exclusive jurisdiction provision serves a purpose because the court retains supervisory and ancillary jurisdiction with respect to arbitrations under the Act as demonstrated by both the referral application and the present application.  As was submitted on GRE’s behalf, the existence of the choice of law clauses and the non‑exclusive jurisdiction provisions are harmonious with the existence of an arbitration agreement.
36. The third reason advanced by EGS as to lack of jurisdiction is that the dispute about the existence of the Partial Accord and Satisfaction Agreement is not within the scope of the arbitration agreement because it is not a bipartite dispute between GRE and EGS but is a multi-party dispute between GRE, EGS, Investmet and Squire Patton Boggs.  I do not accept that this is a basis for concluding the arbitrator does not have jurisdiction.  As GRE submits, the fact that the Partial Accord and Satisfaction Agreement is alleged to be an agreement between more than two parties and is an agreement that gives rise to multiple obligations does not mean that a dispute between GRE and EGS in relation to the latter’s obligations under the alleged agreement is not a difference or dispute between them in connection with the subject matter of the Contract for the purposes of cl 41 of the Contract.   To hold otherwise would be to adopt a restrictive approach to the construction of the arbitration agreement, which is one inconsistent with a ‘broad, liberal and flexible approach’ which ‘favours a construction which provides for the adjudication of all disputes arising from, or in connection with, that agreement’.
37. I will hear the parties as to costs.