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IN CIVIL
CORAM : LE MIERE J
AND
Catchwords:
Legislation:
Result:
Proceedings stayed
The matters are referred to arbitration
Category: A
Representation:
Counsel:
Plaintiff : Dr A S Bell SC & Mr E M Heenan
Defendant : Mr S K Dharmananda SC & Mr T J Porter
Solicitors:
Plaintiff : Herbert Smith Freehills
Defendant : Jones Day
Ace Capital Ltd v CMS Energy Corp [2008] EWHC 1843 (Comm)
Bakri Navigation Company Ltd v Owners of Ship 'Golden Glory' Glorious
Shipping SA [1991] FCA 179; (1991) 217 ALR 152
Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192;
(2006) 157 FCR 45
Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2015] WASC 484
Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2016] WASC 119
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014)
251 CLR 640
Flint Inc NZ Ltd v Huhtamaki Australia Pty Ltd [2004] VSCA 166; (2014) 289
FLR 30
Golden Ocean Group Ltd v Humpuss Intermoda Transportasi Tpk Ltd [2013]
EWHC 1240
Joint Stock Co 'Aeroflot Russian Airlines' v Berezovsky [2013] EWCA CIV 784; 2
Lloyd's Rep 242
Monde Petroleum SA v Westernzagros Ltd [2015] EWHC 67 (Comm)
Rinehart v Rinehart (No 3) [2016] FCA 539
Rinehart v Welker [2012] NSWCA 95
Robotunits Pty Ltd v Mennel [2015] VSC 268
Sulamerica Sia Macional De Seguros SA v Enesa Engenharia SA [2012] EWHC
42 (Comm)
Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332
Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57
1 LE MIERE J:
Summary
3 Disputes arose under both the Subcontract and the Interim Subcontract.
Samsung issued a notice of arbitration against Duro in respect of various
claims under the Subcontract. In the arbitration Duro has made claims for
the purpose of set-off. As least some those claims (the Duro Claims) arise
under the Interim Subcontract.
Facts
8 The essential facts are not in dispute. The unincorporated joint venture
of Duro and Forge entered into the Subcontract with Samsung to engineer,
procure, construct and commission works in relation to the Roy Hill iron ore
mining, rail and port project (Subcontract Works). The Subcontract contains
a dispute resolution clause, cl 42, which provides that if a dispute is not
resolved after a notice of dispute has been given and the parties have
conferred the dispute shall be referred to arbitration. On 21 February 2014
Samsung terminated the Subcontract, as it was entitled to do, on the ground
that an administrator had been appointed to Forge.
10 Disputes arose under both the Subcontract and the Interim Subcontract.
On 23 December 2015 Duro issued notices of dispute under each of the
Subcontract (the Subcontract Notice of Dispute) and the Interim Subcontract
(Interim Subcontract Notice of Dispute). On 17 February 2016 Duro issued
a notice of dispute which consolidated the Subcontract Notice of Dispute
and the Interim Subcontract Notice of Dispute. On 17 March 2016 Samsung
issued a notice of arbitration against Duro in respect of various claims under
the Subcontract (Notice of Arbitration). By letter of 17 March 2016 to the
Singapore International Arbitration Centre (SIAC) Samsung requested that
SIAC administer the arbitration between Samsung and Duro. On 18 March
2016 Duro issued its response to the Notice of Arbitration (Response). The
Response included various claims for the purpose of set off against
Samsung. Those claims, insofar as they arise under the Interim Subcontract,
concern claims to:
(b) payment for additional works allegedly carried out by Duro under the
Interim Subcontract; and
(Duro Claims).
This proceeding
(a) a declaration that the Duro Claims constitute 'proceedings arising out
of or in connection with this agreement' for the purposes of cl 3.2(b)
of the Term Sheet;
(b) a declaration that the proper forum for the determination of the Duro
Claims is the Supreme Court of Western Australia;
(c) a declaration that the parties have not agreed to resolve the Duro
Claims by arbitration.
12 Duro seeks to stay the proceedings pursuant to s 7 of the Act and article
8 of the UNCITRAL Model Law on International Commercial Arbitration
adopted by the United Nations Commission on International Trade Law
(Model Law), which by s 16 of the Act has the force of law in Australia.
Alternatively, Duro says that the proceeding concerns the jurisdiction of the
duly constituted arbitral tribunal and the court has no jurisdiction to interfere
with arbitral proceedings and should dismiss this proceeding on the grounds
that the court has no jurisdiction. In the further alternative Duro says that if
the court has jurisdiction it should not grant the relief sought by Samsung as
a matter of discretion. Finally, Duro says that if the court does not stay the
proceeding or dismiss it on the ground of lack of jurisdiction or for
discretionary reasons the court should dismiss the proceeding on the basis
that Samsung's grounds for relief are not made out.
13 On 13 June 2016, after I had heard the applications in this matter, the
arbitral tribunal delivered its decision on Samsung's submission that the
arbitral tribunal did not have jurisdiction over counterclaims and claims for
setoff brought by Duro in respect of the Duro Claims. I received from each
party written submissions whether the tribunal's decision should be provided
to the court. I have decided not to give leave to Duro to reopen its case to
adduce evidence of the tribunal's decision for the following reasons.
18 In this case the arbitration agreement in the Subcontract does not apply
to the Duro Claims because they arise out of the Interim Subcontract. The
arbitration agreement in the Subcontract survives the termination of the
Subcontract but it does not apply to claims which arise out of the Interim
Subcontract not the Subcontract. The Interim Subcontract does not render
the arbitration agreement in the Subcontract inoperative sofar as the Duro
Claims are concerned. The question is whether there is an arbitration
agreement in the Interim Subcontract which applies to the Duro Claims.
23 In my view, the tribunal decision might affect the exercise of the court's
discretion whether or not to grant the declarations sought by Samsung if the
court determined that the Interim Subcontract does not contain an arbitration
clause and the proper forum for the determination of the Duro Claims is this
court. However, as I have decided that the Interim Subcontract contains an
arbitration agreement in the terms of cl 42 of the Subcontract no question
arises whether I should exercise the discretion to make the declarations
sought by Samsung.
24 I will deal at the outset with Duro's submission that the court has no
jurisdiction to grant the relief sought by Samsung.
25 Section 25(6) of the Supreme Court Act 1935 (WA) gives the court
power to make declarations of right without granting consequential relief.
Order 18 rule 16 of the Rules of the Supreme Court 1971 (WA) provide that
no action or other proceedings shall be open to objection on the ground that
a merely declaratory judgment or order is sought and the court may make
binding declarations of right whether or not any consequential relief is or
could be claimed. The existence of the right is a matter going to the
discretion rather than to the jurisdiction to grant declaratory relief.
Declaratory relief must be directed to the determination of legal
controversies and not to answering abstract or hypothetical questions. There
is a real controversy whether the Interim Subcontract contains an arbitration
agreement in the terms of cl 42 of the Subcontract and whether the
arbitration agreement covers the Duro Claims.
26 Article 16 of the Model Law provides that the arbitral tribunal may rule
on its own jurisdiction, including any objections with respect to the existence
of the arbitration agreement. This provision gives effect to the principle of
kompetenz-kompetenz or compétence-competénce which is that the arbitral
tribunal may independently rule on the question of whether it has
jurisdiction, including any objections with respect to the existence of the
arbitration agreement, without having resort to a court.
27 Neither the Act nor the Model Law has removed the jurisdiction of the
court to grant declaratory relief in relation to the existence of an arbitration
agreement. The court has jurisdiction to grant the declaratory relief sought
by Samsung. Declaratory relief is discretionary. It is not necessary to
consider the exercise of the court's discretion in this case because for the
reasons which follow I have determined that the court should stay the
proceedings pursuant to s 7(2) of the Act.
29 Section 7(2) of the Act prescribes when the court will stay an
arbitration agreement to which the section applies. It is in these terms:
Subject to this Part, where:
(a) proceedings instituted by a party to an arbitration agreement to which this
section applies against another party to the agreement are pending in the
court; and
on the application of a party to the agreement, the court shall, by order, upon such
conditions (if any) as it thinks fit, stay the proceedings or so much of the
proceedings as involves the determination of that and refer the parties to arbitration
in respect of that matter.
Whether the court should refer the parties to arbitration under Article 8
depends on whether the dispute or claim in the proceeding is a matter that is
subject to an arbitration agreement.
34 The authors of Dicey, Morris & Collins, The Conflict of Laws (15th ed)
say at [16.075] that there is a general principle of the law of international
arbitration that the arbitral tribunal has the power to determine its own
jurisdiction. This is known as the principle of kompetenz-kompetenz or
compétence-compétence. The principle does not require that a tribunal has
the exclusive power to determine its jurisdiction, nor that the court may not
determine whether the tribunal has jurisdiction before the tribunal has ruled
on its jurisdiction.
37 The second approach is that the court should determine on the balance
of probabilities the existence and scope of the arbitration agreement when it
hears a stay application. On this view, the court grants a stay if, and only if,
it is satisfied that the requirements for a grant of a stay have in fact been met.
The Singapore Court of Appeal referred to this as the full merits approach.
This approach has the advantage of expedience in that it allows the court to
pronounce with finality on an arbitral tribunal's jurisdiction in the first
instance, instead of deferring the question to the arbitral tribunal, only to
face the prospect of the same question coming back to the court in the event
of an appeal against the arbitral tribunal's jurisdictional ruling, or if the
unsuccessful party in the arbitration resists enforcement of the arbitral award
or applies to set it aside on the basis of the arbitral tribunal's lack of
jurisdiction: Tomolugen Holdings at [30].
38 This case is unusual in that if the court follows the full merits approach
in determining Duro's application for a stay, it will at the same time, leaving
aside questions of discretion, determine the merits of Samsung's claims in
the court proceeding.
...
(5) It is for D to satisfy the court that he comes within s 9(1) before the court
can grant relief under that section. It is not enough for him to show merely
an arguable case that he is party to a concluded arbitration agreement which
has agreed to refer to arbitration the matters in respect of which C has
brought the proceedings. Unless the court is satisfied that that is so, there is
no jurisdiction under the section to stay proceedings. The court must
therefore determine the dispute if it affects the question whether D comes
within s 9(1). If it cannot do so on the written evidence at the hearing of the
application, it must direct a trial of that issue before granting a stay under s
9. It may however decline to direct a trial of the issue and grant a stay under
its inherent jurisdiction without resolving the issue.
41 The English position was also summarised by Aikens LJ, with whom
Mann J and Laws LJ agreed, in Joint Stock Co 'Aeroflot Russian Airlines' v
Berezovsky [2013] EWCA CIV 784; 2 Lloyd's Rep 242 (Berezovsky):
[T]here is a burden on the party asserting that there is: (a) a concluded arbitration
agreement as defined in the 1996 Act; and (b) that it covers the disputes that are the
subject of the court proceedings, to prove that this is the case. This is borne out by
the authorities. If the party seeking a stay cannot prove both (a) and (b), then there
is no jurisdiction to grant a stay under section 9(1) and (4) of the AA 1996.
However, if the court considers that it cannot decide those issues for itself in a
summary fashion on the written evidence, it has two other options, as this court
made clear in Ahmed Al-Naimi (T/A Buildmaster Construction Services) v
Islamic Press Agency Inc. It can direct an issue to be tried, pursuant to CPR Pt
62.8(3), or it can stay the proceedings (under its inherent jurisdiction) so that the
putative arbitral panel can decide the issue of the existence of the arbitration
agreement, pursuant to section 30 of the AA 1996. If the court decides that it will
and can determine whether or not there was a concluded arbitration agreement on
the written evidence before it then, in my view, the authorities establish that it is for
the party asserting the existence of the concluded arbitration clause to prove it on a
balance of probabilities. As I point out below, the position appears to be different if
the court decides, on an application for a stay, that it cannot, on the materials before
it, determine whether there was a concluded arbitration agreement.
Under section 9(4) the court 'shall grant a stay' unless 'satisfied' that the arbitration
agreement is 'null and void, [or] inoperative … '. This means, in my view, that
once the first party has established the existence of an apparently concluded
relevant arbitration agreement and that it covers the matters in dispute in the
proceedings, it is for the party resisting a stay to 'satisfy' the court that the
apparently existing arbitration agreement is 'null and void'. That was the position
under the old law, ie section 1 of the Arbitration Act 1975, which provision first
gave statutory effect in English law to the New York Convention. This court has
said that this remains the position under the AA 1996, albeit without elaborating on
its reasoning [73] - [74].
(b) does it require the parties seeking the stay to prove, on the balance of
probabilities, that matter(s) in the court proceedings are the subject of
an arbitration agreement?
46 In this case, the question comes down to whether the terms of the
Interim Subcontract include an arbitration agreement in the terms of cl 42 of
the Subcontract. I will now turn to that question.
47 Samsung says that the terms of the Term Sheet, including cl 3.2(b), are
terms of the Interim Subcontract. Clause 3.2 is:
Governing Law
(a) This Term Sheet is governed by the law in force in Western Australia.
(c) In any court proceedings arising out of or related to this Term Sheet or the
Interim Subcontract, the court shall award to the prevailing party, if any, the
costs and legal fees reasonably incurred by the prevailing party in
connection with the court proceedings.
(b) a Claim
Then either party shall, by hand or by registered post, give the other and the
Contractor's Representative a written notice of Dispute adequately identifying and
providing details of the Dispute.
42.2 Conference
Within 14 days after receiving a notice of Dispute, the parties shall confer at least
once to resolve the Dispute or to agree on methods of doing so. At every such
conference each party shall be represented by a person having authority to agree to
such resolution or methods. All aspects of every such conference except the fact of
occurrence shall be privileged.
If the Dispute has not been resolved within 28 days of service of the notice of
Dispute or such longer period as the parties may agree in writing, that Dispute shall,
subject to the Dispute being a Pass Through Claim and the operation of the Pass
Through Provisions, be and is hereby referred to arbitration.
42.3 Arbitration
...
50 Duro says that the terms of the Interim Sub-contract include a dispute
resolution clause in the terms of cl 42 of the Subcontract, which includes the
arbitration agreement. Duro advances two separate grounds in support of
that contention. First, Duro says that the Term Sheet is an instrument
separate from the Interim Subcontract and the jurisdiction clause in the Term
Sheet is not a term of the Interim Subcontract. Secondly, Duro says that if
the jurisdiction clause in the Term Sheet is a term of the Interim Subcontract,
it is not inconsistent with and does not modify the dispute resolution clause
of the Subcontract, including the arbitration agreement, by excluding it and
therefore the arbitration agreement is a term of the Interim Subcontract.
51 Duro says that the Term Sheet contains transitional provisions that
cause the Interim Subcontract to come into effect, terms that address the
negotiation and execution of the Substitute Subcontract and terms that
address matters arising from the termination of the Subcontract. Duro says
that the governing law and jurisdiction clauses, cl 3.2(a) and (b), of the Term
Sheet are not terms of the Interim Subcontract. I do not agree for the
following reasons.
54 Clause 3.2(b) is a term of, or applies to, the Interim Subcontract which
is an agreement in the Term Sheet. The next question is whether cl 3.2(b) of
the Term Sheet is inconsistent with and modifies the terms of the
Subcontract so as to result in the arbitration agreement in cl 42 of the
Subcontract not being a term of the Interim Subcontract.
58 I have set out earlier in these reasons the circumstances in which the
Interim Subcontract was made. Samsung terminated the Subcontract on 21
February 2014. Samsung and Duro then entered into a replacement
subcontract for Duro to continue to perform the Duro Works, which was a
subset of the Subcontract Works which Duro had been performing under the
Subcontract. The Interim Subcontract was to be a temporary contract until
they negotiated and executed a replacement contract which was referred to
in the Term Sheet as the Substitute Subcontract. The parties agreed that the
Interim Subcontract and subsequently the Substitute Subcontract are to be on
the same terms as the Subcontract with some modifications. Obviously, the
scope of works and subcontract sum had to be modified or altered. Those
things and some other key terms and conditions as set out in Schedule 1 to
the Term Sheet were modified or altered. The purpose of the Interim
Subcontract was to make a temporary contract by which Duro continued to
perform part of the original Subcontract Works on the same terms as the
Subcontract with modifications until the parties negotiated and executed a
replacement contract - the Substitute Subcontract - on the terms and
conditions of the Subcontract as modified by the Schedules of the Term
Sheet, that is the key terms and conditions set out in Schedule 1, the scope of
works set out in Schedule 2 and the new procurement milestones and
liquidated damages set out in Schedule 3 and any other terms and conditions
the parties consider are reasonable or necessary that directly relate to the
terms and conditions as set out in those Schedules. In those circumstances cl
2.1(a) means that the Interim Subcontract is on the same terms as the
Subcontract except as modified by the terms and conditions set out in the
Schedules to the Term Sheet and any other modifications or alternations
made expressly or by necessary implication by the terms of the Term Sheet.
To put that another way, the meaning of cl 2.1(a) is that the terms of the
Subcontract are modified by the terms of the Term Sheet only to the extent
that they are inconsistent with a term or terms of the Term Sheet or a term or
terms of the Term Sheet show a clear intention that the term or terms of the
Subcontract are not to be terms of the Interim Subcontract or are altered or
supplemented by a term or terms of the Term Sheet.
Samsung says the Arbitration Agreement is excluded from the Interim Sub-
contract
72 A 'matter' is something more than a mere issue that falls for decision:
cf Tanning Research per Deane and Gaudron JJ. In Comandate Marine
Corp v Pan Australia Shipping Pty Ltd Allsop J said in construing s 7(2)(b)
of the International Arbitration Act:
… the word 'matter' in s 7(2)(b) can be seen to be a reference to the differences
between the parties or the controversy that are or is covered by the terms of the
arbitration agreement. That is, such part (or all) of the differences that fall within
the scope of the arbitration agreement. It is that body of differences which is to be
capable of settlement by arbitration.
73 A 'matter' for the purposes of s 8(1) may or may not comprise the whole
dispute in any given court proceeding: Tanning Research per Deane and
Gaudron JJ; Fink Ink at 53 [87(c)] per Nettle JA.
74 The dispute between the parties in this court proceeding is whether the
Duro Claims constitute 'proceedings arising out of or in connection with this
agreement' for the purposes of cl 3.2(b) of the Term Sheet and are therefore
to be determined in this court or whether they are a dispute between the
parties arising in connection with the subject matter of the Interim
Subcontract and by reason of an arbitration agreement in the Interim
Subcontract in the terms of cl 42 of the Subcontract are to be referred to
arbitration. I have found that there is in the Interim Subcontract an
arbitration agreement in the terms of cl 42 of the Subcontract. The Duro
Claims are a dispute between the parties which arises in connection with the
subject matter of the Interim Subcontract and therefore disputes which are
to be referred to arbitration. It follows that this proceeding involves the
determination of a matter that, in pursuance of the agreement, is capable of
settlement by arbitration unless the matter is excluded from the scope of the
arbitration agreement by cl 42.5 of the Subcontract as incorporated into the
Interim Subcontract.
Conclusion