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Australia – Construction Update: “Finnish” The Contract.

20 May, 2013

 

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

 

Amcor Packaging (Australia) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253


WHAT YOU NEED TO KNOW

 

  • The recent Federal Court decision in Amcor Packaging (Australia) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253 held that a clause which referred all disputes to arbitration which arose “in connection with” an agreement to develop a proposal for a significant project should exclude only those claims entirely unrelated to the commercial transaction contemplated by the agreement.


WHAT YOU NEED TO DO

 

  • The decision provides a timely reminder of the dangers of permitting negotiations to drift while works proceed in the absence of a concluded contract.


Facts of the dispute


From September 2007 until July 2010, Amcor and Baulderstone were in negotiations in relation to the design and construction of a building to house a very large paper machine and for the installation of that machine at an Amcor site in Botany, New South Wales known as the “B9 Project”.


In November 2008, Amcor and Baulderstone entered into what was called a Project Delivery Proposal Agreement (PDPA). The purpose of the PDPA was to set out the terms and conditions on which Baulderstone would provide its skill, knowledge and expertise to develop and complete a proposal for the delivery of the B9 Project. The BDPA contemplated that Baulderstone would negotiate and agree a guaranteed maximum price contract (GMP) with Amcor under which it would undertake the B9 Project.


In October 2009, Baulderstone commenced Stage 1 of the B9 Project which entailed certain preparatory work. Meanwhile, the negotiations for Stage 2 (the construction works to be undertaken on the basis of the GMP) between Amcor and Baulderstone continued.


By December 2009, Amcor had negotiated and concluded its contract for the supply of the paper machine with a company in Finland. Under the terms of the supply contract, the supplier was contractually obliged to deliver the paper machine within a 15 month timeframe. In order to avoid any co-ordination issues between the supply of the paper machine and the completion of the building in which to house it, Amcor’s intended that the GMP would be fully negotiated and executed by March 2010. Baulderstone was aware of the timing issues concerning the delivery of the paper machine.


By March 2010, the parties had exchanged drafts of the GMP in which a purchase price in the order of $200 million was being finalised. By later April 2010, an executive director of Baulderstone informed Amcor that he considered that agreement had been reached on the major commercial issues and that he was confident that an agreement could be signed in early May 2010.


Negotiations continued until mid-July 2010, when Baulderstone informed Amcor that its parent, Bilfinger Berger, had withdrawn approval for Baulderstone to be involved in the B9 Project if governed by a GMP. Amcor asserted that this development came as a complete surprise and that, at no time, had Baulderstone informed it that the entry into a binding contract was subject to the approval of Bilfinger Berger or that there was a risk that such approval would not be provided. In the ensuing weeks, Amcor and Baulderstone held discussions regarding options for the B9 Project. There was no satisfactory resolution from Amcor’s point of view which subsequently terminated discussions with Baulderstone and ultimately entered into revised contractual arrangements with the Leighton Group for the construction of the B9 Project.

 

Amcor claimed that it had suffered losses in the tens of millions of dollars arising out of Baulderstone’s decision not to enter into a GMP, Those losses included the extra expenses incurred in storing and managing the paper machine and interest on borrowed funds incurred by the delay. Amcor believed that it had various causes of action against Baulderstone, three executives of Baulderstone who represented that company in the negotiations and possibly against Bilfinger Berger on the following bases:


a) pursuant to ss 51A and 52 of the Trade Practices Act 1974 (Cth) (which applied at the relevant time) for making representations as to future matters when it did not have reasonable grounds to do so;


b) against the executives for their knowing involvement in the above contravention; and


c) against Baulderstone for breaching contractual terms of the PDPA that it negotiate in good faith and act honestly and fairly.


Application before the Court


Amcor made application to the Court for pre-action or preliminary discovery of relevant documents from Baulderstone and the executives who were involved in the negotiations. Baulderstone sought to stay the proposed proceeding including the application for preliminary discovery under s8 of the Commercial Arbitration Act 2011 (Vic) on the basis that the PDPA contained a contractual submission to arbitration in accordance with the rules of arbitration of the International Chamber of Commerce (ICC Rules).

 

Baulderstone argued that the PDPA’s arbitration clause which required that “a dispute arising out of or in connection with this Agreement” be referred to arbitration evidenced a relevant arbitration agreement. Amcor countered on three bases. First, that the conduct about which it complained did not arise out of or in connection with the PDPA but rather, in connection with a proposed GMP which never came into existence. Secondly, on the basis that the PDPA expressly permitted either party to obtain declaratory or other relief urgently required from the Court. Thirdly, on the basis that the Baulderstone executives who were parties to the proposed proceeding were not parties to the PDPA and would not be parties to any arbitration under that document.


Court’s findings


Justice Marshall expressed the view that the words “in connection with” demonstrated that the ambit of the dispute resolution clause was intended to be wide, so that any matter which related to the subject matter of the PDPA could be the subject of the arbitration. His Honour noted that there was authority to support the proposition that the words “in connection with” in the context of a dispute should exclude only those claims entirely unrelated to the commercial transaction covered by the contract and that the Court should give liberal width and flexibility to elastic and general words chosen by the parties in a contractual submission to arbitration.


Justice Marshall relevantly held that the proposed GMP was related to, arose out of and was in connection with the matters covered by the PDPA, being the delivery of the B9 Project. His Honour accepted Baulderstone’s submission that the arbitration clause in the PDPA extended to reach each of the proposed causes of action foreshadowed by Amcor which arose out of or were in connection with the alleged failure of Baulderstone to inform Amcor before July 2010 that Bilfinger Berger was required to approve, or might not approve, or had not approved Baulderstone participating in a GMP.


As to the argument that the PDPA expressly permitted either party from obtaining declaratory or other relief urgently required from the Court, his Honour was of the view that the relief referred to in the clause did not extend to a non-urgent application for preliminary discovery which did not require urgent intervention from a court.


As to the argument that the arbitration clause in the PDPA could not extend to the Baulderstone executives, Justice Marshall accepted Baulderstone’s submission that the only foreshadowed claim against those  persons concerned their knowing involvement in alleged breaches of the TPA and that relief against the executives depended on a prior finding that Baulderstone contravened the legislation. Accordingly, his Honour exercised the discretion conferred by s23 of the Federal Court Act to stay the proceeding against the executives on the basis that to permit two separate proceedings – one curial and one arbitral – to take place in different places with the risk of inconsistent findings on largely overlapping facts is undesirable.


Comment


The PDPA provided for arbitration to be conducted in accordance with the ICC Rules. According to the ICC Rules, in order to commence an arbitration, the claimant must request the arbitration by stating his or her case and by a describing the nature and circumstances of the dispute giving rise to the claims and the basis upon which the claims are made. The claimant may submit such other documents or information with the request as it considers appropriate or as may contribute to the efficient resolution of the dispute. One can only speculate whether Amcor’s decision to commence a proceeding in the Federal Court rather than initiating arbitration as required by the PDPA was motivated by the absence of relevant documents necessary or desirable to enable Amcor to state its case in accordance with the ICC Rules.


The case does, however, highlight the willingness of the courts to stay proceedings where there is a broadly worded arbitration agreement and even where the issues in the proceeding might extend beyond the matters to be referred to arbitration where the determination of those issues are dependent on the outcome of the arbitration. The case also provides an insight into the Court’s use of its discretion under s23 to control proceedings where curial and arbitral proceedings overlap.

 

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For further information, please contact:

 

Joseph Mulcahy, Partner, Ashurst
joseph.mulcahy@ashurst.com

 

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