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JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : NU-FORTUNE GOLD LTD -v- ROXBURY TRADING PTY LTD [No 3]  WASC 469
CORAM : ALLANSON J
HEARD : 17 DECEMBER 2019
DELIVERED : 20 DECEMBER 2019
FILE NO/S : CIV 2354 of 2019
BETWEEN : NU-FORTUNE GOLD LTD
ECO MINERALS RESEARCH LTD
ROXBURY TRADING PTY LTD
PAUL JAMES KENNEDY
Arbitration – Where applicants seek stay of counterclaim and referral of part of dispute to arbitration – Where applicants filed affidavit and submission in response to application for summary judgment – Whether action brought in a matter the subject of an arbitration agreement – Whether stay of proceedings and referral requested before applicant’s first statement on the substance of the dispute
- In about March 2016, Paul Richard Hanna, Paul James Kennedy, Roslyn May Kennedy, Nu-Fortune Gold Ltd and Robert Alan Jacobs, as administrator of Roxbury Trading Pty Ltd, entered into Heads of Agreement. The effect of the agreement was that Roxbury would come out of administration and Nu-Fortune would acquire various mineral tenements.
- Clause 15 of the Heads of Agreement provided for dispute resolution. Relevantly it applied ‘if a dispute should arise between Kennedy, [Nu‑Fortune] and or Hanna’. The dispute resolution procedure required notice of dispute, with a meeting for the purpose of resolving the issue. By cl 15(c), if resolution could not be achieved, ‘an independent arbitrator shall be appointed to determine a fair and reasonable outcome in the matter’. Further provision was made for the appointment of an arbitrator.
- Nu‑Fortune and Eco Minerals Research Ltd brought an action against Mr Kennedy and Roxbury for breach of the terms of a sublease of land described as the Menzies State Battery.
- Roxbury and Mr Kennedy have counterclaimed against Nu‑Fortune, Eco Minerals and Mr Hanna.
- By summons filed 19 November 2019, the Nu‑Fortune parties sought orders that the parties be referred to arbitration pursuant to cl 15 of the Heads of Agreement and the Commercial Arbitration Act 2012 (WA), and the proceedings be stayed.
- On 20 November 2019, Nu‑Fortune filed a form 14 summons for referral to arbitration pursuant to s 8 of the Commercial Arbitration Act and r 16(1) of the Supreme Court (Arbitration) Rules 2016 (WA).
- On 21 November 2019, I programmed the application through to a hearing.
- On 1 August 2019, the Nu‑Fortune parties brought an action pursuant to a Deed of Sublease entered into between Western Australian Mint as landlord, Roxbury as tenant and the plaintiffs as subtenants over the Menzies State Battery. On 21 August 2019, an interim injunction was granted, giving the Nu‑Fortune parties possession of the Menzies State Battery and restraining the Kennedy parties from interfering with possession.
- On 4 September 2019, the Kennedy parties filed a defence and counterclaim.
- On 12 September 2019, after a contested hearing, the injunction was continued until further order of the court.
- By the counterclaim, the Kennedy parties pleaded terms of the Heads of Agreement, including that, by cl 6, Nu-Fortune agreed to engage Mr Kennedy on an annual salary of $150,000 and reimburse him for all reasonable personal expenses incurred by him in the course of his engagement. The Kennedy parties further pleaded a variation to the agreement by which Mr Kennedy’s services would be provided by Roxbury, and Nu‑Fortune would pay Roxbury.
- The defence and counterclaim have since been amended three times, but the substance of the dispute has not changed.
- On 10 October 2019, Roxbury and Mr Kennedy applied by summons for summary judgment on part of the counterclaim for the payment of money owing by Nu‑Fortune to either Roxbury or Mr Kennedy for his services.
- In response, Nu‑Fortune filed two affidavits: an affidavit of Wayne Alan Sims, filed 28 October 2019, as to steps taken by Nu‑Fortune to have the dispute referred to arbitration under cl 15 of the Heads of Agreement; and an affidavit of Mr Hanna, filed on 29 October 2019, setting out a factual response and deposing that Nu‑Fortune has a good defence to the claim. Nu‑Fortune also filed submissions in opposition to the application for summary judgment.
- On 19 November 2019, the Nu‑Fortune parties filed a chamber summons for a stay of proceedings and for an order that the parties be referred to arbitration pursuant to cl 15 of the Heads of Agreement and the Commercial Arbitration Act.
- The present application requires consideration of s 8(1) of the Commercial Arbitration Act.
A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
- It is not in dispute that the Nu‑Fortune parties first requested the court to refer the parties to arbitration by the summons of 19 November 2019. Relevantly, the section raises these questions: is the Kennedy parties’ action brought in a matter which is the subject of the arbitration agreement in cl 15 of the Heads of Agreement; and when did the Nu‑Fortune parties first submit a statement on the substance of the dispute?
- In Four Colour Graphics Australia Pty Ltd v Gravitas Communications Pty Ltd  FCA 224  ‑ , Gleeson J considered the question of what matter was the subject of the proceedings before the court. Her Honour said (citations omitted):
A ‘matter’ for the purposes of s 8(1) means some right or liability in dispute which is susceptible of settlement as a discrete controversy… or a claim for relief of a kind proper for determination in a court.
A ‘matter’ for the purposes of s 8(1) may or may not comprise the whole dispute in any given court proceeding… ‘there may, of course, be more than one “matter” [in the proceeding], and some only of these may be capable of settlement by arbitration’.
Ordinarily, the nature and extent of the ‘matters’ involved in a court proceeding are to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including any defence, are based.
- With respect I adopt that statement.
- At counterclaim , the Kennedy parties plead the making of the Heads of Agreement, and at  the following material terms:
(a) By clause 2 that upon Nu-Fortune giving notice as required by clause 3, Hanna cause the issued capital of Nu-Fortune to be held 30% by a nominee of Kennedy and Mrs Kennedy (Nominee) and 70% by Hanna;
(b) By clause 3 that Nu-Fortune carry out the work specified therein to ascertain whether it wished to commence mining on Called Bank and Oakley or either of them;
(c) By clauses 3 and 4 that if Nu-Fortune was satisfied with the results of the said work and thereby wished to mine the mining leases or either of them:
(i) Nu-Fortune give notice as specified therein and carry out mining operations thereon as set out in clauses 5 to 13 (stage 3);
(ii) Hanna use his shares in Nu-Fortune to fund the work contemplated and required by clauses 3 and 4 and thereby enable Nu-Fortune to fulfil its obligations under the heads of agreement, without affecting the percentage of the issued capital held by the Nominee;
(iii) By cl 4(a) Nu-Fortune cause Roxbury to be released from administration, whereupon inter alia Roxbury transfer Oakley to Nu-Fortune and Kennedy transfer Called Back to Nu-Fortune.
(iv) Nu-Fortune purchase mining equipment pursuant to cl 4(b).
(v) by clause 6 Nu-Fortune engage Kennedy as therein specified for an annual salary of $150,000 and reimburse him for all reasonable personal expenses incurred by him in the course of his engagement.
(vi) By clause 8:
(A) Nu-Fortune have an option to treat the Tailings (on the Battery Land) (Option);
(B) After payment of the costs of any upgrade or modification to the gold processing plant on the Battery Land and operating costs, the proceeds from such treatment be shared equally between Roxbury and Nu-Fortune.
(vii) By clause10 that Kalchoice be paid a [Royalty] of 4% of the gross proceeds from mining of inter alia the mining leases (Royalty).
(viii) By cl 11 the board of directors of Nu-Fortune be comprised of Hanna, Kennedy and an independent director to be determined.
- Kalchoice Pty Ltd is the trustee of a superannuation fund of which Kennedy and Mrs Kennedy are beneficiaries, and appears to be the entity referred to in the Heads of Agreement as ‘Kennedy Entity’. References to ‘Kennedy’ in the Heads of Agreement mean any, all of or any two of Mr Kennedy, Mrs Kennedy and Kennedy Entity: cl 1.
- At , the Kennedy parties plead a variation to the Heads of Agreement by which Mr Kennedy’s services were to be provided by Roxbury.
- At , the Kennedy parties plead a further term that ‘in effect by clause 4(a)(iii)’ Nu-Fortune have the exclusive right to mining certain other tenements owned by Mr and Mrs Kennedy, and Roxbury for so long as Nu-Fortune met all expenditure required thereon.
- The Kennedy parties plead matters arising out of an arrangement between Nu‑Fortune and CSIRO to enable Nu‑Fortune to treat the tailings pursuant to cl 8 of the Heads of Agreement:  – .
- The Kennedy parties also plead a case in misleading or deceptive conduct causing them to execute the sub-lease of the Menzies State Battery:  ‑ .
- The Kennedy parties claim damages for breach of the Heads of Agreement ( ‑ ); damages for conversion of a quantity of the tailings and specified equipment from the Menzies State Battery ( ‑ ); and relief pursuant to the Australian Consumer Law.
- Significantly, the Nu‑Fortune parties accepted that this is not a case where a stay would be granted as a matter of discretion. The court should only refer the parties to arbitration if the matter comes within s 8 of the Commercial Arbitration Act.
- The Nu‑Fortune parties’ oral submissions departed substantially from their written submissions.
- In written submissions, it was argued that all of the matters raised by the counterclaimants arise out of the Heads of Agreement, except for the challenge to the sublease of the Menzies State Battery. Further, the Nu‑Fortune parties submitted that Roxbury was a party to the Heads of Agreement and bound by the terms of cl 15; alternatively, Roxbury’s claim for payment was derived from a claim originally held by Mr Kennedy and was pleaded in the alternative to his claim. In summary, all of the claims in the counterclaim were subject to the arbitration provision.
- At the hearing of the application, however, the Nu‑Fortune parties submitted, in effect, that the only parts of the dispute that were subject to the arbitration agreement in cl 15 were in counterclaim  ‑  and  ‑ . That is:
(1) failure to continue to mine one or both of the Called Bank and Oakley mining tenements:  ‑ ;
(2) failure to treat the tailings at the Menzies State Battery:  ‑ ;
(3) allowing Kalchoice’s share of the issued capital of Nu‑Fortune to fall below 30%: [58(a)];
(4) failing to account for the gold recovered from its mining operations or tailings: [58(b)];
(5) failure to pay royalty or account to Kalchoice: [58(c)]; and
(6) causing Mr Kennedy to be removed from the board of Nu‑Fortune and failing to appoint an independent third director: [58(d)].
- The Nu‑Fortune parties further conceded that the part of the counterclaim on which the Kennedy parties had applied for summary judgment was not within the arbitration agreement. I doubt that concession was correctly made, and it is not how I understood the position initially put in the summary judgment application, but it is immaterial to my decision on the application for referral.
- The Nu‑Fortune parties submitted that the affidavit of Mr Hanna, filed in opposition to the summary judgement application, was not a statement on the substance of the dispute and that they had made no statement on the substance of the dispute.
- The Nu‑Fortune parties also submitted that, while they had filed an affidavit and submissions in the summary judgment application, they had, in effect, reserved their position with regard to s 8 of the Commercial Arbitration Act.
- The arbitration agreement in cl 15(a) of the Heads of Agreement provides for the resolution of ‘a dispute … between Kennedy, [Nu‑Fortune] and or Hanna’. As a matter of construction I would read cl 15 as confined to a dispute related to the Heads of Agreement.
- The counterclaim should be regarded as the action for the purposes of s 8. By reference to the counterclaim, that action includes the disputes pleaded in  to , being disputes as to alleged breaches by the Nu‑Fortune parties of the terms of the Heads of Agreement.
- The chamber summons seeking summary judgment on part of the counterclaim is limited to only part of the action: the liability of the Nu‑Fortune parties to pay amounts owing under the Heads of Agreement, or a variation of it, to Roxbury, alternatively to Mr Kennedy.
- The affidavit of Mr Hanna in opposition to the application for summary judgment was sworn 24 October 2019 and filed on 29 October 2019. The substance of Mr Hanna’s answer to the summary judgment application was that Nu‑Fortune entered into the Heads of Agreement in reliance on representations made by Mr Kennedy about what capital and working capital was required for Nu‑Fortune to generate a profit. The Heads of Agreement did not contain all of the matters agreed, and did not include a term that the payment to Mr Kennedy or Roxbury would only continue beyond the amount budgeted if the company was at that time generating profits from the treatment of ore through the Menzies State Battery. Mr Kennedy was not able to arrange for the gold bearing ore that he claimed was on the tenements to be treated profitably.
- Mr Hanna deposed that Nu‑Fortune expended considerable amounts of money at the direction of Mr Kennedy and Roxbury endeavouring to explore, mine and treat the claimed gold bearing ore at the tenements and the tailings at the Menzies State Battery, but was not able to generate a profit and generated significant losses. In about February 2019, Mr Kennedy ceased to provide services and commenced taking steps that were detrimental to the interests of Nu‑Fortune; in particular he sought to prevent the transfer of tenements to Nu‑Fortune.
- Mr Hanna stated that, as a result of false and misleading conduct of Mr Kennedy or Roxbury, Nu‑Fortune had suffered significant loss and damage. Mr Hanna stated his belief that Nu‑Fortune has a counterclaim against Mr Kennedy and Roxbury for engaging in false and misleading conduct, breach of contract, and negligence, and that the Nu‑Fortune parties have a good defence to the claim.
- The Nu‑Fortune parties filed submissions in opposition to the application for summary judgment on 5 November 2019. The submissions were consistent with Mr Hanna’s affidavit including submissions that the Heads of Agreement did not set out all of the terms and conditions, and that Nu‑Fortune had suffered loss and damage in excess of the claim now made by the Kennedy parties in reliance upon misleading representations. The Nu‑Fortune parties submitted that they had an equitable set off against any claim, exceeding the amount of the claim, and ‘such that it is bound up with and impeaches the claim’.
- Section 8 of the Commercial Arbitration Act requires the court to consider whether Nu‑Fortune has submitted its first statement on the substance of the dispute, that is, a statement about how the substantive dispute in the primary proceedings should be determined: see Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd  WASC 52  ‑ ; CPB Contractors Pty Limited v Celsus Pty Limited (formerly known as SA Health Partnership Nominees Pty Ltd)  FCA 1620; (2017) 353 ALR 84  ‑ .
- The affidavit of Mr Hanna, together with the submissions filed on the application for summary judgment, in my view, go well beyond the limited basis on which summary judgment was sought and set out what the Nu‑Fortune parties have to say on the substance of the dispute.
- Although the Nu‑Fortune parties submitted that they had reserved their position regarding arbitration at the time of their response to the summary judgment application, the affidavit of Mr Sims and the letter attached to it cannot be properly construed as a reservation of rights. In any event, the terms of s 8 do not, in my opinion, allow for a party to reserve its rights. A party that wishes for a dispute to be referred to arbitration, should seek a stay or protest jurisdiction in respect of the dispute.
- If there is a discretion to stay, in circumstances where a party has submitted its first statement and cannot rely on the mandatory terms of s 8, the Nu‑Fortune parties conceded at the outset that a stay should not be ordered on that basis.
- The application for an order staying the proceedings and referring the matter to arbitration should be dismissed.
Associate to the Honourable Justice Allanson
20 DECEMBER 2019