FEDERAL COURT OF AUSTRALIA

Thomas v Star Maid International Pty Ltd [1999] FCA 911

ARBITRATION – submission to arbitration as ground for stay of proceedings – whether “matter agreed to be referred to arbitration” – whether court satisfied “no sufficient reason why the matter should not be referred to arbitration” – risk of multiplicity of proceedings – increased cost – possibility of inconsistent findings.

Commercial Arbitration Act 1982 (Vic) s 53

Trade Practices Act 1974 (Cth) ss 52, 53B, 51AA and 75B

Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 193 at 203-7 referred to

Eaton v Eaton [1950] VLR 233 at 238 referred to

WC Thomas & Sons Pty Ltd v Bunge (Australia) Pty Ltd [1975] VR 801 at 805 referred to

Abigroup Contractors Pty Ltd v Transfield Pty Ltd and Another [1998] VSC 103 at pars 148, 158-9, 167-172 referred to

Huddart Parker Ltd v The Ship “Mill Hill” (1950) 81 CLR 502 referred to

Marks v Bochsler & Partners Pty Ltd (unreported, Murphy and Gobbo JJ, Full Court of the Supreme Court of Victoria, 13 March 1992) referred to

Halifax Overseas Freighters Ltd v Rasno Export [1958] 2 Lloyds Rep 146 at 151 referred to

Taunton-Collins v Cromie [1964] 1 WLR 633 at 635 referred to

Tasmanian Pulp & Forest Holdings Ltd v Woodhall Ltd [1971] Tas SR 330 at 345-6 referred to

Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 159 ALR 142 at 161 referred to

DESMOND FREDERICK THOMAS v STAR MAID INTERNATIONAL PTY LTD (ACN 004 889 258)

V 251 of 1999

WEINBERG J

25 JUNE 1999

MELBOURNE

THE COURT ORDERS THAT:

1.                  The application for a stay be refused.

2.                  The motion be dismissed with costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     There is before the court a motion, notice of which was given on 9 June 1999, in which the respondents to this proceeding seek an order that it be stayed.  That order is sought pursuant to s 53 of the Commercial Arbitration Act 1984 (Vic), (“the Act”), which relevantly provides as follows:

“(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 sub-section (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.

(2)       An application under sub-section (1) shall not, except with the leave of the court in which the proceedings have been commenced, be made after the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance.

(3)       Notwithstanding any rule of law to the contrary, a party to an arbitration agreement shall not be entitled to recover damages in any court from another party to the agreement by reason that that other party takes proceedings in a court in respect of the matter agreed to be referred to arbitration by the arbitration agreement.”

2                     It is common ground before me that this court has power pursuant to s 79 of the Judiciary Act 1903 (Cth) to grant the stay which is sought: Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 193 at 203-7 per French J.

3                     The background to the principal proceeding need not be set out in any detail.  It is sufficient to observe that the applicant in his statement of claim raises a number of causes of action against the respondents including various claims under ss 52, 53B, 51AA and 75B of the Trade Practices Act 1974 (Cth), what is said to be a claim for conversion, and claims for the tort of inducing breach of contract.  The respondents have foreshadowed a cross-claim against the applicant alleging various breaches of the Corporations Law and an alleged breach of confidence.

4                     Central to the principal proceeding is a series of agreements said to have been entered into between the applicant and the first respondent.  These agreements include an employment agreement of 30 December 1996, a hire-purchase agreement of 1 March 1998, and a consultancy agreement of 15 April 1998.  Each of these agreements contained an arbitration clause.  In the hire-purchase agreement that clause was in the following terms:

“Any dispute arising between the parties during the currency of this agreement shall be determined by arbitration.” 

5                     In the consultancy agreement the wording of the arbitration clause is significantly different.  That clause reads as follows:

“Any dispute arising between the parties either during the currency of this agreement or after its termination as to its interpretation or the performance, breach or termination thereof, or in respect of any liability or alleged liability or any entitlement or alleged entitlement arising therefrom.”

6                     It is clear that the respondents bear the onus of establishing that their application falls within the scope of s 53(1) of the Act.  The onus which they carry must include demonstrating that the relevant arbitration clauses encompass the subject matter of the principal proceeding: Eaton v Eaton [1950] VLR 233 at 238 per Sholl J, and WC Thomas & Sons Pty Ltd v Bunge (Australia) Pty Ltd [1975] VR 801 at 805.  Moreover, s 53(1) of the Act applies only where:

“…a party to an arbitration agreement commences proceedings in a court against another party to the arbitration agreement …”

7                     Neither the second nor the third respondent, each of whom was at all material times an employee, and for some time a director, of the first respondent, was a party to any of the agreements relied upon in this proceeding, and therefore a party to the arbitration clauses.  They cannot be compelled to participate in an arbitration and would not be bound by any directions or award made by the arbitrator.  Accordingly, there is no basis for the Court to order that the proceeding brought against the second and third respondents be stayed pursuant to s 53(1) of the Act.  The respondents submit, however, that the proceeding against the first respondent should nonetheless be stayed. 

8                     The general rule is that a court will stay a proceeding where there is an agreement to arbitrate.  In Abigroup Contractors Pty Ltd v Transfield Pty Ltd and Another [1998] VSC 103 (16 October 1998) Gillard J observed at paragraph 148:

“The reason is obvious.  The parties have made an agreement to that effect and the court should enforce it.  The general rule should only be departed from if there is good cause.  See Huddart Parker Ltd v The Ship “Mill Hill” (1950) 81 CLR 502 at 508.”

9                     In Huddart Parker Ltd v The Ship “Mill Hill” (1950) 81 CLR 502, Dixon J spoke of there being a strong bias in favour of maintaining the special bargain.  Where, however, some of the respondents are not party to any of the relevant arbitration agreements, the court will not invariably stay the proceedings against those respondents who are party to those agreements.  This principle is discussed in a note concerning a decision of the Full Court of the Supreme Court of Victoria Marks v Bochsler & Partners Pty Ltd (unreported, Murphy and Gobbo JJ, Full Court of the Supreme Court of Victoria, 13 March 1992) which is published in (1992) 66 ALJ 384.

10                  Were this Court to stay the proceeding as against the first respondent, but not against the second and third respondents, it is clear that there would be a risk that there would be a multiplicity of proceedings which would increase the cost to the parties of resolving the dispute between them, and which might lead to findings being made which were inconsistent.  It is considerations of this type to which courts have alluded when refusing to grant stays in circumstances not dissimilar from those present in this case.  (See for example Halifax Overseas Freighters Ltd v Rasno Export [1958] 2 Lloyds Rep 146 at 151 per McNair J; Taunton-Collins v Cromie [1964] 1 WLR 633 at 635, per Lord Denning MR; Tasmanian Pulp & Forest Holdings Ltd v Woodhall Ltd [1971] Tas SR 330 at 345-6, and WC Thomas & Sons Pty Ltd v Bunge (Australia) Pty Ltd (supra) at 805-6).

11                  In Tasmanian Pulp (supra), Neasey J, with whom Burbury CJ and Crawford J agreed, stated at 345-6:

“To my mind, these are matters tending strongly to support the view that, on the evidence in this case, separate arbitrations are likely to result in injustice to the appellant.  The expenditure of time, energy and cost in deciding these issues once will be heavy enough, let alone twice, or thrice, in separate arbitrations.  The additional burden on the witnesses, many of whom presumably would be essential witnesses in the arbitrations, is a significant factor in itself.  If the case goes to trial, all factual issues could be tried and determined in one action.  That different conclusions could be reached on a multiplicity of factual issues, and different apportionments of blame and thoroughly inconsistent assessments of damages could be made in separate arbitrations, adds much weight to the considerations which in my opinion tell against a stay.”

12                  Likewise, in Abigroup Contractors Pty Ltd (supra), Gillard J stated at pars 158 to 159:

“In my view the real issue comes down to whether the causes of action involving the plaintiff and eight defendants are so intertwined that there is a real prospect of multiplicity of proceedings, with increase in legal costs and the prospect of inconsistent findings and maybe results. 

Any stay that is granted is only in relation to the causes of action against the first and second defendants, TOJV.  The proceeding will continue against the other defendants.” 

13                  His Honour continued at paragraphs 167 to 172:

“I have considered the statement of claim.  In my opinion the issues concerning the four parties are inextricably bound up.  The result would be that there would be two pieces of litigation being conducted involving much the same issues with parties present before the particular forum seeking to blame parties who may not be present.

There is the ever present risk of inconsistent findings and/or results.  This would reflect upon the administration of justice.  Further, there will be a substantial increase in the overall legal costs involved.

It is clear that the one tribunal should hear causes of action based on the pre-contract events.

In addition, if the court stayed the court proceeding against the first and second defendant and the plaintiff exercised its right to continue against the other defendants, the other defendants would seek contribution from TOJV.  This would involve TOJV in the court proceeding at a time when the claims brought against it by the plaintiff are stayed.

All these factors lead to the conclusion that the one forum should hear all the plaintiff’s claims against the defendants named in the proceeding.

I am not satisfied that there is no sufficient reason why the matter should not be referred to arbitration and accordingly, if the application had to be decided under section 53 of the Commercial Arbitration Act 1984, I would not stay the court proceeding.” 

14                  In my opinion the risk that there would be a multiplicity of proceedings, increased costs and the possibility of inconsistent findings weighs heavily against the application to stay the proceeding as against the first respondent.  I am satisfied that this case calls for a departure from the general rule that the applicant should be held to his agreement to arbitrate all matters relevantly in dispute with the first respondent, and justifies the continuation of the principal proceeding in this Court against all three respondents.  I am fortified in my view that this is the appropriate outcome by the fact that the trial of the principal proceeding has been set down to commence on 12 October 1999, having previously been granted an expedited hearing.  I doubt that a commercial arbitration could be held as quickly as this.

15                  Moreover, even if this were not a case which raised the dangers of multiplicity of proceedings by reason of the presence of the second and third respondents as parties to the action, there would still be difficulties with the respondents' application for a stay.  It is by no means clear that the wording of the arbitration clauses to which I have previously referred encompasses all of the claims made by the applicant against the respondents.  For example, one of those claims involves misrepresentations allegedly made to the applicant prior to his having entered into an employment contract with the first respondent.

16                  That claim is brought pursuant to s 53B of the Trade Practices Act 1974.  It is difficult to see how a cause of action which relates to pre-contractual representations is relevantly encompassed within an arbitration clause or clauses of the type agreed upon in this case.  Such a cause of action can hardly be said to arise "from" the contract later entered into.  (Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 159 ALR 142 at 161 per Emmett J).  Claims in tort such as the claim for conversion which, though infelicitously expressed, is in my view plainly intended to be understood as separate from any claim arising out of the agreements in which are contained the arbitration clauses, do not readily seem to fall within the scope of those arbitration clauses, and therefore within the scope of s 53 of the Act.

17                  Even giving the language used in the arbitration clauses a broad and general interpretation, it is difficult to see how it can properly be said to encompass all of the claims made by the applicant against the respondents.  The expression "arising therefrom" in the arbitration clause in the consultancy agreement does not suggest a range of claims outside of, and separate from, the agreement containing that arbitration clause.  The claims which are outside the scope of the arbitration clauses cannot be the subject of arbitration even though other claims fall within one or other of the clauses.  The proceedings should not in my opinion be stayed as regards those claims which are encompassed within the arbitration clause.

18                  Finally, I should indicate that the respondents have not in any event satisfied me "that there is no sufficient reason why the matter should not be referred to arbitration".  In my opinion, the financial position of the applicant is such that were this matter to be so referred there would be a real risk that the applicant would be unable to continue to maintain his claims against the respondents, given that he might have to engage in litigation on two fronts.

19                  It is unnecessary to deal with the other submissions advanced on behalf of the applicant in opposition to the stay which is sought.

20                  The order of the Court is that the application for a stay is refused.  The motion is dismissed with costs.

Associate:

Dated:              25 June 1999