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First judgment applying new Australian domestic arbitration act
Practical Law Legal Update 1-504-2754 (Approx. 3 pages)
First judgment applying new Australian domestic arbitration act
| Published on 16 Dec 2010 • Australia |
Andrew Robertson (Partner), Piper Alderman
The first judgment applying the new Australian domestic Commercial Arbitration Act (2010 Act) has been handed down by the New South Wales Supreme Court. The 2010 Act, which is heavily based on the UNCITRAL Model Law, commenced in New South Wales on 1 October 2010. New South Wales is the first and, so far, only State to pass the new Act (although a Bill is pending in the Tasmanian legislature). In this case, the court refused to grant a stay of court proceedings under section 8 of the 2010 Act (which is in identical terms to Article 8 of the Model law), in favour of arbitration.
Background
Section 8 of the Commercial Arbitration Act 2010 provides:
"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."
Facts
In February and March 2010, the claimant (Gilgandra) and respondent (Australian Commodities) entered into a number of contracts for the sale of wheat. The contracts were evidenced by a sale note which included an arbitration agreement.
Australian Commodities breached the payment terms under the contracts and acknowledged an indebtedness of approximately $AUS2.5 million. Gilgandra claimed a larger sum and commenced proceedings in the New South Wales Supreme Court on 15 July 2010, seeking damages.
On 20 July 2010, Gilgandra sought undertakings from Australian Commodities that it would not seek delivery of the bills of lading which had not yet been delivered and would remit all amounts received by it from the sale of wheat. The undertakings were not provided.
On 22 July 2010, Gilgandra applied for an injunction, its application being heard the same day on short notice to the defendant. Australian Commodities resisted the injunction arguing that:
- There was no serious question to be tried.
- The balance of convenience did not favour the granting of the injunction.
The injunction was ordered on 23 July 2010. Subsequently, there was one (unsuccessful) application to amend the injunction and an appeal against the orders of 23 July 2010.
On 10 September 2010, the proceedings were expedited and listed for hearing for three days on 1 November 2010. On 23 September 2010, Australian Commodities filed its defence and made an application for a stay of the proceedings by reason of the arbitration agreement. It was accepted that this was the first occasion on which notice was given of an intention to seek a stay pursuant to the arbitration agreement.
On 1 October 2010, the 2010 Act came into force in New South Wales. The application was heard on 15 October 2010.
Decision
The New South Wales Supreme Court refused to grant the stay. After reviewing the transitional provisions, the court held that the 2010 Act (which came into operation after the application was made) applied.
In terms of the application of section 8, the judge reviewed New Zealand jurisprudence relating to section 8 of the New Zealand Arbitration Act 1996 (which is in very similar terms to section 8 of the 2010 Act). In a number of New Zealand decisions, it has been held that when a party fails to seek a stay or challenge jurisdiction in respect of the substantive dispute at the same time as, or immediately after, an application for interim relief, then the right to a stay will be lost.
The judge reasoned that:
- The ability to seek a stay was lost once a substantive position was adopted in resisting the injunction – Australian Commodities made its first statement on the substance of the dispute at that stage.
- Even if section 9 (which provides that involvement in an application for interim measures before a court is not incompatible with arbitration) applied, the matter would still not be referred to arbitration. There had been two months between the injunction hearing and the making of the stay application. Australian Commodities' failure to seek a stay immediately after the hearing, coupled with its conduct over that two-month period, amounted to an adoption of the original first statement on the substance of the dispute.
The court did not consider, presumably because it was not raised, whether the court had any residual discretion to refer matters to arbitration even if section 8 did not apply. It is likely that, in the circumstances of this case, the court would not have exercised any residual discretion there may have been.
Comment
This case demonstrates that the 2010 Act will apply to most new arbitrations in New South Wales. It is also interesting to note that in the interpretation of the Model Law provisions, the court did consider the jurisprudence and decisions from other Model Law countries in reaching its conclusion. While section 8 is far stronger than its predecessor, section 53 of the Commercial Arbitration Act (which still applies in all other States and Territories), if rights are not diligently pursued they will be lost under that provision as well.