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ACN 112 594 902 Pty Ltd (ACN 112 594 902) formerly L & M Traffic Signals Pty Ltd v Decmil Southern Pty Ltd (ACN 005 412 466) [2021] VCC 1074

ACN 112 594 902 Pty Ltd (ACN 112 594 902) formerly L & M Traffic Signals Pty Ltd v Decmil Southern Pty Ltd (ACN 005 412 466) [2021] VCC 1074

Court: IN THE COUNTY COURT OF VICTORIA
Case No: CI-21-01087
Parties ACN 112 594 902 Pty Ltd (ACN 112 594 902)

formerly L & M Traffic Signals Pty Ltd      Plaintiff

 

v

 

Decmil Southern Pty Ltd (ACN 005 412 466)          Defendant

DIVISION: Commercial Division
List: Arbitration List
JUDGE: Her Honour Judge Brimer
WHERE HELD: Melbourne
DATE OF HEARING: 21 July 2021
DATE OF JUDGMENT: 6 August 2021
CASE MAY BE CITED AS: ACN 112 594 902 Pty Ltd v Decmil Southern Pty Ltd
MEDIUM NEUTRAL CITATION: [2021] VCC 1074
Catchwords: Commercial arbitration – Application for stay of proceeding – Application to refer the parties to arbitration – Arbitration agreement – Whether proceedings brought in ‘a matter which is the subject of an arbitration agreement’ – Where arbitration clause ‘does not prevent either party from instituting proceedings to enforce payment due’ –Whether proceedings brought fall within carve out clause – Whether proceedings brought are capable of summary judgment
Judgment: Stay granted and parties referred to arbitration
Legislation Cited: Commercial Arbitration Act 2011 (Vic) ss 7, 8
Cases Cited: Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (No 3) [2013] VSC 435; Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 3; Rinehart v Rinehart (No 3) (2016) 257 FCR 310; Tianqi Lithium Kwinana Pty Ltd v MSP Engineering Pty Ltd (No 2) [2020] WASCA 201
Representation: Counsel

Mr M Black

For the Plaintiff

&

Mr B Mason

For the Defendant

Solicitors

Willerby’s Solicitors & Conveyancers

For the Plaintiff

 

&

Logie-Smith Lanyon Lawyers / Tottle Partners Lawyers For the Defendant

 

 

 

JUDGMENT

 

1

This is an application by Decmil Southern Pty Ltd (Decmil)[1] for an order under

 

s 8(1) of the Commercial Arbitration Act 2011 (Vic) (the Act) that the proceeding instituted by L & M Traffic Signals Pty Ltd (L&M)[2] be stayed and the parties referred to arbitration (Decmil’s application).[3]

[1]        By Summons dated 15 April 2021.

[2]        Now known as ACN 112 594 902 Pty Ltd.

[3]        Summons dated 15 April 2021.

Background

2            Decmil was the principal contractor for the Plenty Road Upgrade. On 13 June 2018, Decmil entered into Subcontract Number 9458 with L&M (the Subcontract). The Subcontract governed traffic signal and associated works to be performed by L&M and permitted L&M to engage its own subcontractors.

3            Pursuant to the Subcontract, Decmil was to pay L&M the sum of $778,081 plus GST for the works, subject to agreed variations.[4] By Statement of Claim filed 19 March 2021, L&M claims that Decmil has “wrongfully and in breach of the Subcontract… withheld and refused to pay… the sum of $320,312 being part of the price due to [L&M] under the Subcontract”.[5] It claims that as a result of the breach of the Subcontract, L&M has suffered loss and damage in the sum of the amount wrongfully withheld.

[4]        Statement of Claim dated 19 March 2021, [4].

[5] Ibid [5].

4            Decmil submits that the sum of $320,312 “represents the losses Decmil suffered by reason of [L&M]’s failure to comply with its obligations under the Subcontract”,[6] including its obligations under the Subcontract in relation to occupational health and safety.[7]

[6]        Defendant’s Outline of Submissions dated 1 July 2021, [4] (Defendant’s Submissions). No defence in

the proceeding has been filed.

[7]        The Affidavit of Paul Visvardis dated 15 April 2021 identifies cls 10 (Protection of people, property

and environment) and 29 (Occupational Health and Safety) of the Subcontract as relevant to its position.

5            On 15 March 2019, an excavator operated by L&M’s subcontractor contacted overhead powerlines and triggered a suppression protection system, causing electricity supply to the local area to be disconnected.[8] Decmil alleges this resulted in its own works being wholly suspended from 15 March to 19 March 2019, and partially suspended from 21 March to 3 April 2019, causing it to suffer loss and damage (the set-off dispute).[9]

[8]        Defendant’s Submissions, [3]. Plaintiff’s Outline of Submissions dated 7 July 2021, [3] (Plaintiff’s

Submissions).

[9]        Defendant’s Submissions, [3].

The Act

6            The following provisions of the Act are relevant to this application:

(a) section 7(1):

“An arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.”

(b) section 7(2):

“An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.”

(c) section 8(1):

“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.”

The Subcontract

7           Clause 33 of the Subcontract reads:

33     Dispute resolution

33.1         Differences or disputes between the parties arising out of or related to the Subcontract or its subject matter (a Dispute) shall be resolved as follows.

(1)          A party claiming that a Dispute has arisen must give written notice to the other party specifying the issue or issues said to be in Dispute.

(2)          Within 10 Business Days of receipt of the notice specified in clause 33.1(1), the parties to a Dispute shall seek to resolve the Dispute by referring the matter to the people specified in Schedule 1 to attend the dispute resolution meeting.

33.2         If the matter is not resolved within 15 Business Days of referral under clause 33.1(2), the parties shall refer the Dispute to mediation …

33.3         If the Dispute is not resolved within 20 Business Days after the appointment of the mediator, the dispute is by this clause referred to arbitration. The arbitration must be conducted in the capital city of the State or Territory specified in Schedule 1 by a single arbitrator, and the following applies:

(1)          If the parties have not agreed upon the arbitrator within 5 Business Days after the expiry of the period referred to in clause 33.3, the arbitrator is the person appointed by the person specified in Schedule 1 or their nominee, acting on the request of any party to the dispute.

(2)          After accepting the appointment and during the arbitration the arbitrator may:

(a)          require the parties to lodge security or further security towards the arbitrator’s fees and expenses; and

(b)          apply any security towards those fees and expenses;

but the arbitrator may not direct a party to the dispute to provide security for the costs of the arbitration to be incurred by any other party.

(3)          The arbitration must be conducted in accordance with the Commercial Arbitration Act of the governing law specified in Schedule 1 except that:

(a)          the arbitrator must only accept evidence which would be accepted in a court of law;

(b)          a party may be represented by a qualified legal practitioner or other representative;

(c)          the arbitrator must include in the arbitration award the findings on material questions of law and of fact, including references to the evidence on which the findings of fact were based; and

(d)          the parties consent to an appeal to the Supreme Court of the governing law on any question of law arising in the course of the arbitration or out of an arbitration award

 

33.4         Clause 33.1 does not prevent either party from instituting proceedings to enforce payment due under clause 25 or to seek urgent injunctive or declaratory relief in respect of a dispute or difference arising under this Subcontract …”[10] (the carve out)

[10]        Emphasis added.

8            Clause 25 of the Subcontract provides:

25    Payment

25.1         At the times for payment stated in Schedule 1, the Subcontractor shall submit to the Contractor a payment claim in a form acceptable to the Contractor. The payment claim must include details and evidence, to the Contractor’s Representative’s satisfaction, of:

(1)          all work done to the date of the payment claim and the corresponding amount of the Subcontract Price which the Subcontractor considers is payable by the Contractor;

(2)          evidence, including a completed statutory declaration in the form contained in Schedule 5 executed by a director of the Subcontractor, the Subcontractors Representative or some other authorised representative as approved in writing by the Contractor;

(3)          in the case of the final payment claims following achievement of Practical Completion and the expiry of the Defects Liability Period only, all Claims the Subcontractor then has against the Contractor and all monies which the Subcontractor considers to be due to it from the Contractor in connection with this Subcontract and the Works; and

(4)          any other requirements for payment claims specified in Schedule 1.

25.2         An early payment claim will be deemed to have been made on the date for submission of the payment claim under clause 25.1. A late payment claim will be deemed to have been made on the date in the following month for making a payment claim.

25.3         The Subcontractor is not entitled to payment for any item of unfixed plant or materials not incorporated into the Works.

25.4         Within 10 Business Days of receiving the Subcontractor’s payment claim, the Contractor will issue to the Subcontractor a payment schedule setting out the amount payable to the Subcontractor including details of any adjustments to the amount set out in the Subcontractor’s payment claim to take into account the Contractor’s determination of the value of Works completed, the value of Works included in previous progress payments and any other additions or deductions.

 

 

25.5         Subject to clause 25.7, the Contractor shall pay to the Subcontractor or vice versa (as applicable), the amount set out in the payment schedule issued to the Subcontractor or if no payment schedule is issued the amount of the Contractor’s assessment of the value of the Works completed, by the later of: (1) the expiry of the time period specified in Schedule 1 ; and (2) the date when the Subcontractor has complied with all pre-conditions to payment set out in this Subcontract, including compliance with clauses 5.1, 11.1, 11.2, 11.3 and 25.6, and has provided an original executed copy of the Subcontract to the Contractor.

25.6         The party entitled to receive payment must issue the other party with a valid tax invoice before the due date for payment.

25.7        Despite any other provision of this Subcontract and without limiting the Contractor’s other rights and remedies, the Contractor may, at any time, and from time to time, deduct or set-off from either or both of any money payable by the Contractor to the Subcontractor under this Subcontract or otherwise any money due or claimed to be due from the Subcontractor to the Contractor whether under or in connection with this Subcontract or otherwise, including the amount of any claims or liens that the Contractor has reasonable grounds for believing may be made against the Subcontractor …”

The issue to be determined

9            The issue to be determined is whether the proceeding instituted by L&M is a proceeding “to enforce payment due under clause 25” and therefore falls within the cl 33.4 carve out from the requirement that disputes be resolved in accordance with cls 33.1-33.3 of the Subcontract.

10          At the hearing of Decmil’s application, L&M:

(a)   conceded that if the Court finds the proceeding does not fall within the carve out, the set-off dispute is a dispute between the parties arising out of or related to the Subcontract and the parties must be referred to arbitration in accordance with cl 33.3; and

(b)   took no issue with any failure to comply with cls 33.1 and 33.2 of the Subcontract.[11]

[11]        Mr Black submitted that L&M could not rely on any failure to comply with cls 33.1 and 33.2 to say

that the arbitration agreement was not enlivened and relied on: Lysyght Building Solutions Pty Ltd v Blanalko Pty Ltd (No 3) [2013] VSC 435, [154]–[156] (Vickery J) (Lysaght).

Submissions

11          Decmil submitted that cl 33.3 of the Subcontract constitutes an ‘arbitration agreement’ for the purpose of s 7 of the Act. L&M’s pleaded case is not captured by the carve out at cl 33.4. The Statement of Claim makes no reference to enforcing payment due under cl 25 of the Subcontract, instead L&M alleges that Decmil breached the Subcontract by withholding / refusing to pay the amount claimed. There is no evidence before the Court from which it could be said that the underlying facts bring the proceeding within the carve out. As such, the Court must refer the parties to arbitration pursuant to s 8(1) of the Act.

12          L&M submitted that the proceeding falls within the carve out. Although the Statement of Claim does not reference cl 25 of the Subcontract, L&M’s claim is for non-payment of invoices rendered to Decmil pursuant to the provisions of cl 25.[12] There is no evidence that any payment schedule was provided by Decmil under cl 25; it is open to the Court to infer that a payment schedule was provided and deem no deductions leading to an amount payable under cl 25.4.

[12]        Thirteen invoices were rendered by L&M between 31 December 2019 and 5 September 2019 and are

set out in a table in paragraph 23 of the Affidavit of Paul Visvardis dated 15 April 2021. The first seven invoices were paid, whilst payment of L&M’s last six invoices has been withheld by Decmil.

13          Decmil withheld payment of the sum of $320,312[13] in reliance upon cl 25.7 of the Subcontract, which provides that Decmil may deduct or set-off sums it is owed from payment to L&M. Mr Black contended the set-off dispute is a separate claim from L&M’s claim for payment. The proceeding is not the subject of an arbitration agreement, no stay should be granted, and the parties ought not be referred to arbitration under s 8(1) of the Act.

[13]        Affidavit of Paul Visvardis dated 15 April 2021, exhibit 52–53.

14          Mr Black sought leave to amend the Statement of Claim, if necessary, to make it clear that the proceeding falls within the carve out.

 

Material to be considered

15          Both parties agreed that in construing cl 33 for the purpose of considering whether the action is brought in a matter the subject of an arbitration agreement under s 8(1) of the Act or falls within the scope of the carve out, the Court ought have regard to the material before it, including the Statement of Claim.[14]

[14]        “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.”: Tianqi Lithium Kwinana Pty Ltd v MSP Engineering Pty Ltd (No 2) [2020] WASCA 201, [78] (Tianqi) citing Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 3, [146] (Reinhart v Hancock).

16          Decmil has the burden to show that the action is brought in a matter which is the subject of an arbitration agreement

“… the correct approach is to decide on the balance of probabilities whether, on the proper interpretation of the relevant arbitration agreement, a matter arising in the proceeding falls within the scope of the agreement.”[15]

[15]        Rinehart v Rinehart (No 3) (2016) 257 FCR 310, [115].

Legal principles and analysis

17          The usual principles regarding the interpretation of commercial contracts apply to the construction of arbitration agreements.[16] These principles require that contracts are interpreted objectively by reference to the contract’s text, context and purpose.[17] However, the courts have taken a ‘liberal approach’ to the construction of arbitration clauses by “giving meaning to the words chosen by the parties and giving liberal width and flexibility to elastic and general words of the contractual submission to arbitration.”[18]

[16]        Rinehart v Hancock, [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ).

[17]        Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, [35] (French CJ, Hayne,

Crennan and Kiefel JJ), which was cited in this context in Rinehart v Hancock, footnote 25 (Kiefel CJ, Gageler, Nettle and Gordon JJ).

[18]        Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45, [164] (Allsop J, with

whom Finn and Finkelstein JJ agreed).

18          For the following reasons, I do not consider the proceeding is “to enforce payment due under clause 25” and accordingly, it does not fall within the carve out.

19          The following, almost identical ‘carve out’ clause was considered in the Western Australian Supreme Court of Appeal case of Tianqi Lithium Kwinana Pty Ltd v MSP Engineering Pty Ltd (No 2) (Tianqi):[19]

42.4 Summary relief

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

[19] [2020] WASCA 201.

20          The Court considered three constructional choices in respect of the carve out clause:

“(a)         A party may institute proceedings to enforce payment due under cl 37.2 only so long as the obligation to make the payment is undisputed, irrespective of the merits (or lack thereof) on which the obligation to make the payment is disputed. On this construction, proceedings may not be instituted where the defendant disputes the obligation to make the payment, even if the defendant does not raise an objectively triable issue by way of defence…

(b)          A party may institute proceedings to enforce payment due under cl 37.2 irrespective of whether the obligation to make the payment is disputed or the grounds on which the existence of the payment obligation is disputed. On this construction, proceedings may be instituted even where the defendant does raise an objectively triable issue by way of defence.

(c)          The reference to ‘proceedings to enforce payment due’ under the contract is to proceedings which are capable of summary determination: ie, proceedings in which there is no objectively triable issue which would form a proper basis for defending a summary judgment application.”

21          The Court found that the third constructional option is to be preferred:

“In other words, it is a remedy which does not require the forum to undertake an assessment (often time-consuming and complex, particularly in construction disputes) of the consequences of the relevant breach in terms of damages. These considerations tend to indicate that cl 42.4 is not designed to refer the resolution of complex money claims and damages to the court.”[20]

[20]        Tianqi, [100].

22          This interpretation fits with the commercial purpose, which is to enable the party expeditiously to obtain judgment on the sum due, at least typically by summary judgment.

23          The Court found that the relevant clause operated to preserve rights to curial relief in the circumstances addressed in the ‘carve out’ notwithstanding the width of the disputes otherwise referable to arbitration. The parties had not ‘submitted to arbitration’ within the meaning of s 7(1) of the Act the three matters in cl 42.4 to which they had reserved their rights of recourse to the Court.[21]

[21]        Ibid [107].

24          In Tianqi, the effect of the payment process provided for in cl 37.2 was, in summary:

“… that a net payment in favour of one party, derived from the operation of the certification process under cl 37.2 and any exercise by the principal of its contractual right of set-off thereunder, is a payment on account which is due and payable without recourse by the other party to equitable set-off. That net payment (which for convenience may be referred to as a ‘certified progress payment’) is, at least in the ordinary course, amenable to enforcement by summary judgment.”

25          Any counterclaim sought to be raised by the other party was taken into account when the Superintendent issued a final certificate pursuant to cl 37.4, evidencing the moneys finally due and payable between the contractor and the principal.

26          In that case, the amount certified by the Superintendent was a net payment which was due and payable:[22]

“The payment for which it provides is not only due and payable, but it is due and payable without set-off or deduction.”[23]

 

 

[22] Ibid [91].

[23] Ibid [105].

27          The Court in Tianqi held that “the word ‘due’ in this context meant ‘due and payable’. There could be no institution of proceedings to ‘enforce’ a payment which was due, but not payable.”[24] In those circumstances, the payment that was due and payable without set-off or deduction was readily amenable to curial enforcement.

[24] Ibid [103].

28          Clause 25 of the Subcontract sets out the process involved in L&M submitting payment claims to Decmil for work performed, including the paperwork required and what Decmil must be satisfied of before payment is made.

29          Under cl 25.4, within 10 days of receiving the Subcontractor’s claim, “the Contractor will issue to the Subcontractor a payment schedule setting out the amount payable to the Subcontractor…”. There is no evidence before the Court as to whether any payment schedule was provided.[25]

[25]        Mr Black contended that in Tianqi, there was an ‘independent supervisor’ who issued the certificate.

Here, Decmil issues that payment schedule. Insofar as the defendant has failed to do what it should have done, equity deems that which ought to have been done as having been done. The Court ought infer that the payment schedule “had been effectively provided by the defendant”. For the reasons set out below, I reject that submission.

30          Clause 25.5 is the provision which requires the Contractor to pay the amount set out in the payment schedule[26]. It is subject to cl 25.7, a broad clause which provides for deduction or set-off by the Contractor from any money payable to the Subcontractor under the Subcontract or otherwise “…any money due or claimed to be due from the Subcontractor to the Contractor whether under or in connection with this Subcontract or otherwise, including the amount of any claims or liens that the Contractor has reasonable grounds for believing may be made against the Subcontractor.”

 

[26]        Or if no payment schedule is issued the amount of the Contractor’s assessment of the value of the

Works completed.

31          In a letter from Decmil to L&M dated 19 August 2020,[27] Decmil stated “… in accordance with Clause 25.7 of the Subcontract, Decmil will be deducting and setting-off the amount of $320,312.00 (excluding GST) from any money which is or may be due to L&M.”[28] Consistent with that position, Mr Black submitted that “The Defendant has withheld payment of the sum of $320,312 in reliance upon clause 25.7…”[29]

[27]        Affidavit of Paul Visvardis dated 15 April 2021, exhibit 52–53.

[28]        Emphasis added.

[29]        Plaintiff’s Submissions, [12].

32          L&M’s lawyers, Willerby’s, in a letter to Decmil dated 7 October 2020,[30] stated in respect of the set-off dispute: “Decmil have withheld a sum of $320,312 from payments due to L&M under its contract with Decmil claiming that L&M is responsible for the incident and claiming that the sum of $320,312 represents losses incurred by Decmil from the incident… L&M disputes the quantum of Decmil’s claim on two grounds… L&M denies liability to Decmil for the losses Decmil claims to have incurred.”[31]

[30]        Affidavit of Jason Coppard dated 23 April 2021, exhibit JC1.

[31]        Affidavit of Paul Visvardis dated 15 April 2021, exhibit 56–57.

33          The material before the Court, including the Statement of Claim, does not provide a basis for a finding that the proceeding is to enforce a payment due and payable without set-off or deduction that is readily amendable to summary judgment. Mr Black asserted that Decmil failed to comply with cl 25 and submitted that in the absence of evidence one way or the other, I ought to infer a failure to comply with cl 25.4, order that a payment schedule has effectively been provided by Decmil, deem no deductions under cl 25.4[32] leading to an amount payable under cl 25.5.  I do not accept that submission. There is no factual basis for that inference in the material before the court.[33]

[32]        Due to an asserted failure to identify deductions in accordance with cl 25.4.

[33]        For example, in his Affidavit of 23 April 2021, Jason Coppard deposed to the circumstances of the

outage incident  and the parties likely to be joined to the proceedings, the quantum of the set-off dispute,

the inappropriateness of arbitration due to the complexity of the dispute, the terms of the subcontract and the defendant’s summons. No factual basis for the contention that it is a proceeding to enforce a payment due under cl 25 is deposed to.

34          Mr Black contended that the set-off dispute is a separate and distinct claim.  I do not agree. Clause 25.5 is, as Mr Black submitted ‘where the money becomes payable.’ It is subject to cl 25.7 which provides for the Contractor to deduct or set-off from any money payable to the Subcontractor, any money due or claimed in accordance with the clause.

35          Mr Black submitted that “we don’t appear to have any deduction under cl 25.4, we seem to have a set-off under 25.7.” Even if the amount of the deduction or set-off claimed under cl 25.7 is picked up by the words “… any other additions or deductions” in cl 25.4 to arrive at an ‘amount payable’, L&M’s claim is for the sum of $320,312.00 being part of the price due to the plaintiff under the Subcontract  which, wrongfully and in breach of the Subcontract, the defendant withheld and has refused to pay. It is an amount before deduction or set-off, not a ‘certified’ net position. The dispute raised by this proceeding is the wrongfulness or otherwise of the deduction or set-off under cl 25.7.

36          Mr Black submitted that “The live issue is determining what is due, or which amount can be offset.”[34] That requires resolution of the set-off dispute which Mr Black accepted is amenable to arbitration.

[34]        “…look at what is the dispute between the parties. You can look at the background circumstances, look

at the contract. We say, what that leads to, the real dispute is whether or not the defendant has this offsetting claim. That is the aspect that is the only portion which could be referred off to arbitration, because that is the matter.”

37          This circumstance is distinguishable from that in Tianqi where the only permissible set-off against the amount of the progress claim was the amount certified by the Superintendent under the relevant clause.[35] In that case, there was no dispute as to the validity of certification and no available set-off for any damages claim.[36] The net amount due and payable to the subcontractor was ascertained.

[35]        Tianqi, [134]. The claim for equitable set-off could not deprive the progress certificate of having

crystallised the amount due and payable.

[36]        Tianqi, [145].

38          Mr Black relied on Vickery J in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (No 3) (Lysaght)[37] in support of his submission that the plaintiff’s claim ought be considered a proceeding “to enforce payment due” and remain in the Court. He contended that the dispute can be split into that part capable of being heard by the Court, and that which must be referred to arbitration, as occurred in Lysaght. Decmil would be free to initiate arbitration proceedings in respect of the set-off dispute.

[37] [2013] VSC 435.

39          In Lysaght, the contractor sought summary judgment in respect of three progress payments.[38] The principal filed a defence denying liability and a counterclaim which, amongst other things, sought summary judgment on an alleged certified payment sum due to it.[39] The principal “sought payment of a debt in the sum of $1,984,880.71 relying on a certificate purportedly issue by the Superintendent on 2 January 2013.”[40] The principal also alleged waiver by and an estoppel against the contractor in relation to the principal’s claimed entitlement to payment under the alleged payment certificate.[41] The contractor sought to stay the principal’s claims on the basis that they were required to go to arbitration.[42] The relevant arbitration agreement was subject to the following carve out clause:

“Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Contract or to seek injunctive or urgent declaratory relief in respect of a dispute under clause 47 of any matter arising under the Contract.”[43]

 

 

[38]        Lysaght, [5].

[39]        Ibid [6].

[40]        Ibid [6(c)].

[41] Ibid [169]. The principal also had claims involving damages for breach of contract which Vickery J held

were required to be referred to arbitration.

[42] Ibid [8].

[43] Ibid [121].

40          Vickery J held that the payment sought by the principal fell within the carve out clause because it was a proceeding to enforce payment due under the contract.[44] His Honour appears to have found that once the court was seized of a progress payment claim in accordance with the relevant ‘carve out’ provision, the parties objectively intended that any triable issue in relation to certification would be determined by the court and was not a matter required to be submitted to arbitration.[45]

[44] Ibid [113]. Paragraph 67 of the Counterclaim was identified as “a debt in respect of the January

Certificate.”

[45]        As discussed in Tianqi, [125].

41          Lysaght is distinguishable from the present case.  In Lysaght, the relevant question was the validity of the payment certificate that was issued; whether the Superintendent was entitled to issue the payment certificate.[46] The relevant payment clause provided for calculations to be done and allowances to be made for amounts including amounts due from the contractor to the principal or the principal to the contractor. The process resulted in the balance that was ‘due’ to the contractor or to the principal, as the case may be, as stated in the certificate.[47]

[46]        And whether it failed to set out the matters it was required to in the certificate.

[47]        Clause 42.1 of the relevant contract set out in Lysaght, [21].

42          For the reasons set out above, on the material before the Court, there is no pleading or evidence of a payment ‘due and payable’ under cl 25 capable of summary determination. Accordingly, the plaintiff’s proceeding is not a proceeding “to enforce payment due under clause 25” within the relevant ‘carve out’ provision.

43          Mr Black contended that if Decmil’s argument takes the dispute outside the exclusion in cl 33.4, then all Decmil would have to do to circumvent cl 33.4 would be to deduct a single dollar from any amount claimed by L&M and assert that, but for that one dollar deduction, L&M could have taken the dispute to Court. Having regard to the interpretation of the equivalent clause in Tianqi; that the words such as those found in clause 33.4 refer to “proceedings which are capable of summary determination: ie, proceedings in which there is no triable issue which would form a proper basis for defending a summary judgment application”, should such a spurious attempt to circumvent the payment provision be made, the Court would likely conclude that the postulated defence raises no objectively triable issue. Such an attempt would not prevent the matter from being amenable to summary judgment.

44          Mr Black sought leave to amend the pleading if the Statement of Claim, as drafted, does not capture “the essence of the dispute”, so that it is “brought within the auspices of clause 25.” Mr Mason opposed leave to amend and submitted that no amendment would assist as the substance of the dispute lies outside cl 25.  It would be a triumph of procedure over substance.

45          I consider that the Statement of Claim reflects the substance of the dispute being the wrongfulness or otherwise of Decmil withholding and refusing to pay part of the price L&M claims is due. No draft amended statement of claim was provided to show how the claim would be pleaded to ‘fit’ within the carve out.

46          Given the proper construction of the Subcontract, and the issues raised by Decmil in support of its application, I find that the proceeding is not captured by the carve out in cl 33.4.

47          As set out above, there is no issue that the set-off dispute is a dispute between the parties arising out of or related to the Subcontract and is captured by the arbitration agreement. The material before the Court establishes that the action is brought in a matter which ‘is the subject of an arbitration agreement’ for the purposes of s 8 of the Arbitration Act.[48]

 

[48]        In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547, Merkel J referred (at [18])

to authorities, regarding Tanning Research as “authority for the view that, for the purposes of s 7(2), the ‘matter’ to be determined in a proceeding 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.”

Conclusion

48          I find for the applicant.

49          The proceeding is transferred to the Arbitration List of the Commercial Division.

50          Pursuant to s 8(1) of the Commercial Arbitration Act 2011 (Vic), the parties are referred to arbitration and the proceeding in this Court is stayed on the basis that the matter is the subject of a valid and binding arbitration agreement.

51          Subject to any matters the parties seek to draw to my attention, I propose to order the respondent pay the applicant’s costs of and incidental to the application under s 8(1) of the Commercial Arbitration Act 2011 (Vic) on a standard basis, to be taxed in default of agreement.

52          Costs of the proceeding be reserved for determination by the arbitrator or if no such arbitration is commenced within a reasonable period, upon application to the County Court.

53          In the event that the arbitrator is unable to, or refuses to, determine the costs of the proceeding in the County Court, the County Court will determine those costs on application.

54          I invite the parties to prepare draft orders to give effect to these reasons.

55          If the parties are unable to agree upon the form of order, those minutes of order should be accompanied by short submissions directed to the matters remaining in issue.

 

 

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Certificate

I certify that these 55 paragraphs are a true copy of the judgment of Her Honour Judge Brimer delivered on 6 August 2021.

Dated: 6 August 2021

Taylah Stretton
Associate to Her Honour Judge Brimer