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New South Wales Supreme Court refuses stay of court proceedings
Practical Law UK Legal Update 8-503-4618 (Approx. 3 pages)
New South Wales Supreme Court refuses stay of court proceedings
by Practical Law
| Published on 29 Sep 2010 • Australia |
Andrew Robertson (Partner), Piper Alderman
The New South Wales Supreme Court has refused to stay court proceedings in favour of arbitration where one of the parties to the dispute was not a party to the arbitration agreement. The court found that there was a risk of inconsistent findings and increased costs.
Background
Section 53 of the Commercial Arbitration Act 1984 (1984 Act) provides:
"(1) If a party to an arbitration agreement commences proceedings in a court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement, that other party may, subject to subsection (2), apply to that court to stay the proceedings and that court, if satisfied:
(a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement, and
(b) that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration,
may make an order staying the proceedings and may further give such directions with respect to the future conduct of the arbitration as it thinks fit."
Facts
The claimant (MI) entered into a contractual agreement with the respondent (Goodwood) for the manufacture and supply, by Goodwood to MI, of all steelwork and associated items for five new gates to control the flow of the Murrumbidgee River. The agreement between MI and Goodwood contained an arbitration clause which was governed by Australia's domestic arbitration legislation - the 1984 Act (not the new Commercial Arbitration Act 2010).
It was common ground that the five gates were supplied by Goodwood. One gate was welded by Hydro-Clean (Griffith) Pty Limited t/as Applied Packing and Machinery (APM) pursuant to a subcontract between Goodwood and APM. The other four gates were welded by APM pursuant to a separate contract between MI and APM.
MI alleged the gates were defective and commenced court proceedings against Goodwood and APM. Goodwood applied to stay or dismiss the proceedings in favour of arbitration pursuant to section 53 of the 1984 Act.
Goodwood sought to have the arbitration agreement enforced. MI resisted on that basis that, among other things, there was no arbitration agreement with APM, that there would be additional costs and expenses if separate proceedings took place and that there was a possibility of conflicting findings of fact as a result of similar issues being resolved in the separate proceedings. In response, Goodwood noted that MI had chosen to conduct itself on a different contractual basis with APM. APM declined to be involved in the arbitration.
Decision
The court stated that the starting point was that the parties should abide by their agreement unless MI could show sufficient reason for not adhering to it. However, the risk of inconsistent findings of fact from separate proceedings taking place as a consequence of the arbitration was an important consideration. His Honour said that it was evident from the arguments before him that the issues between MI, Goodwood and APM were interwoven. His Honour believed there was a risk of inconsistent findings and increased costs and therefore declined to stay the proceedings. Therefore, all disputes would be litigated.
Comment
It should be noted that the new Commercial Arbitration Act 2010, which has passed in New South Wales but has not yet come into force, deals with this issue differently. Section 8 of the new Act, which is modelled on Article 8 of the Model Law, provides:
"(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 wording of the new Act is expressed with the mandatory "must", so a timely application made pursuant to the new Act for an order referring the dispute to arbitration must be made by the court.
The new Act will commence on 1 October 2010. No other State or Territory has introduced the Bill yet, therefore for a time there will be no common form domestic arbitration legislation in Australia.