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Australia – Commencing Proceedings In Breach Of An Arbitration Agreement Attracts Indemnity Costs: Recent Decision Of The Courts.

22 July, 2014

 

Legal News & Analysis – Asia Pacific – Australia – Dispute Resolution

 

Pipeline Services WA Pty Ltd -v- ATCO Gas Australia [2014] WASC 10

 

A recent decision of the Western Australian Supreme Court highlights the fact that the courts will hold parties to their agreement to arbitrate, and may penalise a party in costs for commencing proceedings in breach of that agreement. It is a reminder of the reluctance of the courts to entertain arguments that attack the validity of arbitration agreements; such arguments are likely to be given short shrift. It also illustrates the supportive approach of the Australian courts towards arbitration.


The Facts


Pipeline Services (Pipeline) entered into an agreement with ATCO Gas Australia (ATCO) to excavate and install underground pipelines for gas transmission. The dispute resolution clause required the contract manager or, if unsuccessful, the Chief Executive Officers, to endeavour to resolve the dispute. Failing resolution, either party could refer the dispute to arbitration governed by the Commercial Arbitration Act 1985 (WA) (1985 CAA).


The agreement was subsequently terminated. A dispute arose regarding the circumstances of the termination and entitlement to settlement of sums for work completed by Pipeline.

Representatives of ATCO and Pipeline failed to resolve the dispute. Pipeline subsequently commenced proceedings in the Supreme Court. ATCO applied for a stay of the proceedings, relying on the arbitration agreement.


The Decision


The court considered a number of arguments put forward by Pipeline but dismissed them all. The key findings were as follows.

 

  • to allow the argument that ATCO’s application was incorrectly brought under the Commercial Arbitration Act 2012 (2012 CAA) rather than the 1985 CAA would be a triumph of substance over form, and contrary to the object of the 2012 CAA and the overarching objectives of the rules of Court.
  • The arbitration agreement survived the termination of the agreement. It was independent of the agreement and a broad approach is to be favoured which provides for a single forum for the adjudication of disputes as agreed between the parties.
  • The arbitration agreement was not void for uncertainty. A construction which renders a commercial agreement certain, rather than uncertain, is to be preferred and effect should be given to arbitration clauses despite some ambiguity or vagueness in their terms.
  • ATCO had not waived its entitlement to enforce the arbitration agreement by not invoking the arbitration agreement in the face of Pipeline’s threatened court proceedings. ATCO was not the claimant in the dispute, and had no intention of commencing proceedings.
  • That entitlement had not been lost by virtue of ATCO taking part in the court proceedings. ATCO had only submitted an affidavit in support of its stay application which was entirely consistent with its argument that the proper forum was arbitration.
  • The dispute was capable of being resolved by arbitration. Pipeline had attempted to argue that it was not arbitrable as it may involve questions of compliance with statutory standards rather than concerning straightforward private contractual rights. The court dismissed this. The doctrine of non-arbitrability was an exceptional doctrine and Pipeline’s claim for damages for breach of contract and the return of bank guarantees could not, by any stretch of the imagination, fall within the ambit of that.

 

Indemnity Costs


On the question of costs, the court recognised that the granting of indemnity costs (where a party recovers a greater percentage of its legal costs from the losing party) should only be made if there was some special or unusual feature to depart from the usual party-party costs. However, in this case an indemnity costs order was justified. In making his decision, the judge described the position taken by Pipeline as “unreasonable and pedantic” and some of its arguments were “redolent of desperation”.

 
Comment


Parties whose agreements contain arbitration agreements should ensure that the terms of those agreements are adhered to, and should not be hasty to apply to the courts for relief. The position is now stricter under the 2012 CAA than it was under the 1985 CAA. The court no longer has a discretion as to whether to stay its proceedings in favour of arbitration. Unless the arbitration agreement is null and void, inoperative or incapable of performance, the dispute must be referred to arbitration and any court proceedings stayed. This is in line with the Model Law, and the approach taken in other arbitration friendly jurisdictions.

 

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For further information, please contact:

 
Peter Ward, Partner, Ashurst
peter.ward@ashurst.com

 
Edwina Jones, Ashurst
edwina.jones@ashurst.com

 

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