SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL (ARBITRATION LIST)
TULIP BAY PTY LTD
STRUCTURAL MONITORING SYSTEMS LTD
CORAM: Kenneth Martin J
HEARD: 13 June 2019
FILE NO: ARB 1 of 2019
CATCHWORDS: Arbitration – Failure by party to nominate their choice of arbitrator to panel of three – Court asked to appoint – Discretionary considerations – Urgency and expertise
Costs – Whether to lift scale limits – Considerations of urgency, importance and assistance of the court required – Scale lifted as to rate and amount
KENNETH MARTIN J:
(This judgment was delivered extemporaneously on 13 June 2019 and has been edited from the transcript.)
- I have reached a decision in relation to the relief sought by the plaintiff applicant, Tulip Bay Pty Ltd (‘Tulip Bay’), in respect of its originating application or originating summons, filed on 23 May 2019. Tulip Bay seeks that the court appoint an arbitrator in circumstances of – I use a loose term – the dysfunctionality of a clause in its Technology Agreement with the defendant, Structural Monitoring Systems Ltd (SMS) as regards the opposed appointment of an arbitrator to a panel of three.
- I am asked to act pursuant to s 11(4)(a) of the Commercial Arbitration Act 2012 (WA), which provides for the appointment of arbitrators by a court in certain circumstances. Specifically, it says:
Where, under an appointment procedure agreed on by the parties –
(a) a party fails to act as required under the procedure; or
(b) the parties, or 2 or more arbitrators, are unable to reach an agreement expected of them under the procedure; or
(c) a third party, including an institution, fails to perform any function entrusted to it under the procedure,
any party may request the Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
- But I should first observe, while I am in that legislative neighbourhood, that s 11(6) of the Commercial Arbitration Act says:
The Court, in appointing an arbitrator, is to have due regard to any qualifications required of the arbitrator by the agreement of the parties and to such considerations as are likely to secure the appointment of an independent and impartial arbitrator.
- The parties have put a considerable amount of material before me including, on behalf of Tulip Bay, Mr Shane Michael Gray’s affidavit sworn 23 May 2019 and then a further affidavit of Mr Matthew James Keating sworn 7 June 2019. Tulip Bay filed written submissions in support of its application on 23 May 2019.
- In response, and by way of contending that, in fact, I ought not to make any orders today other than programming orders to a special appointment some time off so that the matters in ostensible dispute over the nomination of an arbitrator can be argued even further (on the basis of future receipt of even further evidence), SMS filed the affidavit of Mr Alan Phillip Rumsley sworn 12 June 2019. Also received were the written submissions of the defendant which were only just filed this morning.
The arbitration agreement and the parties’ positions
- The relevant arbitration clause within the parties’ written agreement (being the Technology Agreement see Mr Rumsley’s affidavit APR1) of 29 November 1999 says this:
17.1 Except as otherwise expressly provided in this Deed, any dispute, controversy or claim arising out of, in relation to or in connection with this Deed or anything done or omitted to be done under this Deed, including (without limitation) any dispute as to the construction, interpretation, enforceability or breach of this Deed, shall be exclusively and finally settled by arbitration and any party may submit such a dispute, controversy or claim to arbitration.
17.2 A single arbitrator shall be appointed by unanimous consent of the parties. If, within fourteen (14) days of the submission of a notice of arbitration (“Submission Date”) the parties cannot reach agreement on an arbitrator, the arbitration shall be heard and determined by three (3) arbitrators. The parties on each side of the dispute, controversy or claim shall appoint an arbitrator of its or their choice within thirty (30) days of the Submission Date. Within sixty (60) days of the Submission Date, the arbitrators appointed by the Parties shall in turn appoint a presiding arbitrator. If a party refuses to appoint an arbitrator within thirty (30) days of the Submission Date, or if the arbitrators appointed by the parties cannot reach agreement on a presiding arbitrator within sixty (60) of the Submission Date, the President of the Australian Institute of Arbitration may be requested by any party to make such appointment.
17.3 Unless otherwise agreed in writing by the parties to the arbitration proceedings:
17.3.1 the arbitration proceedings shall be held in Perth;
17.3.2 each arbitrator shall be and remain at all times wholly independent and impartial and shall not have any financial interest in the outcome of the dispute, controversy or claim;
17.3.3 where there is more than one arbitrator, all decisions and awards shall be made by majority vote of the arbitrators;
17.3.4 the arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Act 1985 (WA); and
17.3.5 the party initiating the arbitration shall give a copy of the request for arbitration to each other party to this Deed.
- The essential position is that Tulip Bay is pressing to receive what it claims as due to it as minimum royalties payments from SMS, pursuant to the Technology Agreement, of $617,844.57. This amount is sought as the minimum amount of royalties said to be due pursuant to cl 2.4 of the Technology Agreement across six successive financial years, ie, from 30 June 2013 through to 30 June 2018.
- Tulip Bay, as applicant in seeking its disputed moneys from SMS, gave a notice of arbitration to SMS on 12 April 2019 – by reference to the terms of cl 17 of the Technology Agreement. As seen, the way the clause works allows SMS 30 days after receiving that notice to nominate its own arbitrator. In other words, absent agreement upon the parties using only one arbitrator (which needs to be unanimous), then by cl 17.2, each party to a relevant dispute must nominate their own arbitrator. Those two arbitrators then, in turn, get together to appoint a third arbitrator, who would be the presiding arbitrator in the panel.
- Back on 12 April 2019, Tulip Bay nominated the Hon John Chaney SC, a former justice of this court, as its arbitrator. But SMS did not nominate anyone within that 30day time frame, or at all. Prima facie, it had 30 days to do so concluding 12 May 2019 – a date now long gone.
- There has followed a series of correspondence passing back and forth between the parties through their legal representatives. Many submissions have been put by SMS objecting, in effect, against various aspects of Tulip Bay’s attempt to ultimately engage a panel of three arbitrators, so as to proceed with what would be a further arbitration between these same parties.
History of the parties’ arbitration
- I have been taken, as background to the current application, to the reasons for decision in this court by former Chief Justice W Martin under Structural Monitoring Systems Ltd v Tulip Bay Pty Ltd  WASC 379, dealing with ramifications or challenges arising in a previous arbitration between the parties conducted by their arbitrators Hannan, Clifford and Lord. See also the Court of Appeal’s reasons provided to me affirming that first instance decision: Structural Monitoring Systems Ltd v Tulip Bay Pty Ltd  WASCA 16.
- In very short summary, the opposing arguments which have been put by Mr Rumsley for SMS, by his written submissions, which I have considered closely, would seek to raise matters about a potential abuse of process or Anshun estoppel arguments: see Port of Melbourne Authority v Anshun Pty Ltd  HCA 45;(1981) 147 CLR 589. These claims arise by reference to what is contended to have been a prior opportunity (not taken up) for Tulip Bay to have pursued some of the present unpaid royalty claims for payments – by way of an amendment to the Tulip Bay counterclaim in the earlier arbitral proceedings.
- To that end, I was taken to provisions within – and schedules to – the reasons for decision in the earlier arbitration reasons, by reference to Mr Keating’s affidavit at pages 46, 55, 73,74 and 105.
- However, the basal difficulty that I hold over SMS’s objection submission is that the foreshadowed Anshun estoppel arguments or, indeed, even a higher level abuse of (arbitral) process argument, would still seem to me to fall within the province of a freshly appointed arbitral panel to consider and to resolve as a matter of jurisdiction. The merit or otherwise of such arguments would need then to be holistically evaluated by that panel by reference to all relevant underlying circumstances said to arise.
Disposition Section 11(4) considerations
- From a jurisdictional perspective, an arbitral panel of three once appointed, as is now sought by Tulip Bay, is, on my assessment, perfectly capable of ultimately determining the merits or demerits of all SMS’s foreshadowed arguments over royalty payment claims being not pressed for by counterclaim in the earlier arbitration and whether that should constitute either a basis for Tulip Bay being barred from presently proceeding with such a claim again in a further arbitration. These foreshadowed SMS arguments at present seem broadly to present as Anshun estoppel arguments. The full parameters of that doctrine, particularly as regards its intersections as between litigation and arbitration, on my assessment, are yet to be fully worked out. It is clear, however, that every situation is unique and requires its own bespoke evaluation.
- What is also presently crystal clear is that an Anshun estoppel argument, in terms of its merits or demerits, is perfectly capable of being determined by a fresh arbitral panel. Such assertions do not, therefore, constitute any jurisdictional obstacle to impede this court from assisting today on the request made on behalf of Tulip Bay via s 11(4)(a) of the Commercial Arbitration Act.
- First, I am satisfied as regards the request for arbitrator appointment assistance that the contractual machinery the parties set down under cl 17 of the Technology Agreement to resolve a deadlock regarding a party’s failure to appoint an arbitrator in circumstances where three arbitrators are required has broken down.
- Factually, it was wholly unchallenged before me that the issue with the roadblock clearing appointment mechanism the parties specified by their cl 17, namely, to delegate to the President of the Australian Institute of Arbitrators, is dysfunctional because is that no such institute exists presently. Moreover, it is questionable whether such an institute ever existed even when the parties’ Technology Agreement was consummated as at 29 November 1999.
- That being the case, the chosen cl 17 arbitral appointment deadlock breaking mechanism, in circumstances where SMS has to date declined to nominate anyone as its second arbitrator to a panel, has thereby thwarted the event of two respectively nominated arbitrators getting together to themselves appoint a third presiding arbitrator, under cl 17.2. The resultant arbitral appointment stalemate situation engages against the power of this court to assist the parties in that dysfunctional stalemate situation when requested by the appointment of an arbitrator, by s 11 of the Commercial Arbitration Act.
- I am satisfied then that Tulip Bay may in these circumstances viably request the court to take the necessary measures in order to assist the parties to proceed with their arbitration. I render that observation in circumstances where it is plain that their arbitration bargain, the subject of cl 17 of their Technology Agreement, gives primacy to the medium of arbitration as their chosen mechanism of dispute resolution.
- Moreover, the parties’ choice and submission to the process of arbitration under cl 17 (and, indeed, by the same parties under a very similar cl 19 in a predecessor agreement) was made in the widest possible terms concerning what genre of dispute between them could be referred. To that end, I refer within cl 17(1), its textual reference to
… any dispute, controversy or claim arising out of, in relation to or in connection with this Deed or anything done or omitted to be done under this Deed including (without limitation)…
and the clause continues, as earlier seen.
- It is apparent that, objectively assessed, the breadth of that language shows the parties’ bargain for submission of disputes, controversies and claims was in the broadest terms.
- Mr Keating, by his oral submissions on behalf of Tulip Bay, helpfully took me to various provisions of the Commercial Arbitration Act, which all point to or encapsulate the underlying policy importance of holding parties to their arbitration bargain. Many prior judgments of this court have addressed that topic. The underlying international convention is given effect to by Western Australia and, as well, the various other States and, indeed, the Commonwealth of Australia all seeking, in effect, to together enshrine through that counterpart legislation across this nation a regime that holds parties to that international convention that gives primacy to arbitral bargains. That is a significant policy consideration.
- A further significant underlying policy consideration is that arbitral bargains when sought to be engaged need to be implemented speedily. The pathway to an arbitral resolution must not be allowed to be obstructed by delays or technical roadblocks as one too frequently encounters within litigation. The local legislation carries a clear policy objective within the Commercial Arbitration Act that where courts are called upon for assistance to engage the arbitral process, there is a need for courts to do everything reasonably feasible to assist the parties to uphold and pursue their arbitral bargains and to make sure that an arbitration can proceed not only fairly, but efficiently.
- Consequently then, notwithstanding that my consideration of the materials that have just been put before me by SMS (through Mr Rumsley via his affidavit), none of that can inhibit the assistance relief presently sought. I do emphasise, of course, that I am not expressing any views about the merits of SMS’s Anshun estoppel or abuse of process concerns. Those arguments if pursued by SMS will be for the arbitral panel once engaged to rule upon and resolve. That panel might even resolve (theoretically) to make a reference back to a court over a particular issue or issues if seen as problematic, assuming there is consent to that end and the court agrees to take it up. I say nothing more about that. But the relevant provision in the Commercial Arbitration Act I was taken to by Mr Keating in argument (s 27J) indicates that is a possibility.
- The remaining question then, in circumstances where I assess this to be a matter of some urgency, is to consider s 11(6) of the Commercial Arbitration Act in terms of the actual appointment by this court of a second arbitrator – in circumstances where two arbitrators, once engaged, will then appoint a third presiding arbitrator under this bargain.
- Tulip Bay, has suggested that Mr Scott Ellis, a well-qualified local barrister who has conducted many arbitrations, be appointed, effectively as the second arbitrator to join the Hon John Chaney SC in the panel. They together then would appoint the third arbitrator, as envisaged.
- Correspondingly, SMS, as a default option submission has said through Mr Rumsley’s affidavit that if the court is minded to assist the parties by nominating another arbitrator today (as it is) then SMS points to a need, in the present dispute, for a patent attorney or someone holding scientific experience to be engaged within the panel. To that end, SMS identified through an appendage to Mr Rumsley’s affidavit a patent attorney with Wrays, a Mr Todd Shand, as a more appropriate appointee to the panel. Appended APR7 to Mr Rumsley’s affidavit are Mr Shand’s qualifications, industry practice areas, educational background and professional affiliations.
- Mr Shand, on paper, holds impressive qualifications in science, including an honours degree in chemistry. He holds a Diploma of Intellectual Property Practice and also holds a Bachelor of Laws from the University of Western Australia. The material before me also indicates his extensive engagement with patent litigation and his collaborations in his fields over the years in respect of complicated scientific issues.
- The question for me then, now that I have reached the position that I have, is to weigh the choice, by reference to s 11(6), as between Mr Ellis as a well-known and well-respected barrister over many years, to join the Hon John Chaney SC – or whether it is more appropriate under present circumstances to appoint Mr Shand, who I am told from the bar table by Mr Rumsley (without objection from Tulip Bay) is available to take such an appointment if the court is so minded to order to that end.
- I re-emphasise again that s 11(6) speaks of the court having due regard to any qualifications required of an arbitrator by the agreement of the parties and to such considerations as are likely to secure the appointment of an independent and impartial arbitrator.
- Here then, I am strongly influenced by the fact that it seems that an ultimate panel of three arbitrators that needs to be eventually engaged would undoubtedly benefit from holding a combination of expertise, not just legal expertise towards interpreting the provisions of a commercial contract, but also some specialist patent familiarity expertise and as well a level of specialist scientific knowledge – in order to potentially engage across all dimensions of the foreshadowed arguments in the forthcoming dispute. The disputes to be resolved here may be over whether there is a sufficient nexus as between a patent or patents (including to patents now expired), or a nexus to one or more products said to have been derived by reference to work done, in reference to patents or to expired patents – evaluated by the panel for the purposes of a triggering (or not) of the underlying legal obligation to render a royalty payment to Tulip Bay under cl 2.4 of the Technology Agreement.
- It seems to me, in the end, that a combination of diverse expertise is desirable in this arbitral panel. There is already the significant legal expertise delivered through the existing appointment of the Hon John Chaney SC, as regards contractual construction and interpretation issues. Bearing in mind the foreshadowed patent lapse arguments and product nexus considerations which may arise in the overall consideration concerning products and the other scientific considerations which could arise in the overall evaluation, I am, with no disrespect to Mr Ellis, presently more persuaded, particularly by reference to s 11(6), to accept SMS’s fall-back request and so, to appoint Mr Todd Shand as the second arbitrator. He then, in conjunction with the Hon John Chaney SC, will decide upon who that panel’s third arbitrator should be. Those circumstances should assist to break the presently existing deadlock between the parties – as regards them getting on with the resolution of their disputes under arbitration, which to date has unnecessarily been held up since April this year on a basis of the parties’ inability to date to yet constitute a panel of three arbitrators.
- As regards to costs, the ordinary order, in terms of the successful party receiving their costs of a contested application, should be made and, indeed, that orthodox costs outcome was not really opposed in principle by Mr Rumsley for SMS.
- The only costs related question in dispute was whether the scale limits made otherwise applicable in the circumstances towards a taxation conducted by the plaintiff, if necessary, ought be lifted or not. In my view, they should.
- I reach that position by reference to the urgency of the matter, the importance of the matter to the parties – which was demonstrable – the need for appointment assistance of the court that has been called upon to render via s 11, to effectively resolve an obstacle to the enforcement of the parties’ arbitral bargain and a very significant amount of documentary material that I needed to urgently consider over previous days and, indeed, this morning – in terms of evaluating what in more usual circumstances would have been a fairly straightforward situation where parties ask the count to appoint their arbitrator.
- I am also satisfied that it is not appropriate under present circumstances for there to be an indemnity cost award as Tulip Bay sought. But I do assess that the voluminous nature of the submitted materials and the urgent circumstances in which they needed to be considered, together persuade me that s 280(2) of the Legal Profession Act 2008 (WA) is met here, in terms of special circumstances being established justifying the scale limits (the otherwise applicable scale limits) being lifted both as to rate and total amount.
- Of course, in saying all that, any ensuing costs exercise is completely one for the taxing officer to evaluate, assuming the parties cannot agree on their costs as, indeed, they sensibly should. But if they cannot, and if a taxation has to be conducted, then I am only preserving a potential for Tulip Bay, if appropriate, to not be constrained by the scale – under circumstances where a taxing officer might come to a view that those limits are not sufficient in order for justice to be done in the circumstances as regards a taxed costs award.
- I have been satisfied then that there is material before me of voluminous content that persuades me that the scale limits may not be sufficient in order to provide appropriately just costs compensation. I say no more about it than that, other than the fact that the potentiality persuades me a special order should be made.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
Research Associate/Orderly to the Honourable Justice Martin
27 JUNE 2019