FEDERAL COURT OF AUSTRALIA

Trident Australasia Pty Ltd v Nexus Energy Corporate Pty Ltd [2010] FCA 1135

REASONS FOR JUDGMENT

1                                             The respondent, Nexus, applied to stay this proceeding in which the applicant, Trident, claims that Nexus has failed to pay invoices totalling SGD18,392.58; and AUD2,521,406.30.  Trident also claims that Nexus has contravened s 52 of the Trade Practices Act 1974 (Cth) and claims damages.  The invoices were rendered by Trident to Nexus in respect of services which it rendered in relation to the building of an offshore pipeline in Bass Strait, Victoria, as part of the Longtom Gas Project conducted by Nexus.

2                                             At the hearing of Nexus’s application on 24 September 2010, I dismissed the application and gave short oral reasons.  I said I would give fuller reasons later.  These are the reasons.

3                                             Nexus contended that the matters in dispute ought to be referred to arbitration in accordance with the arbitration agreement entered into between the parties.  Accordingly, contended Nexus, the Court should in the exercise of its discretion stay this proceeding.

did the parties enter into an arbitration agreement?

4                                             The threshold question, therefore, is whether the parties did, in fact, ever make an arbitration agreement as Nexus contends.  The relevant facts can be briefly stated.

5                                             On 25 June 2007, Nexus entered into an agreement with a company, T-D Joint Venture Pty Ltd (TDJV) pursuant to which TDJV undertook to build an offshore pipeline between the Longtom Gas Field and the Patricia Baleen Gas Field in Bass Strait, Victoria for Nexus.

6                                             One of the subcontractors engaged by TDJV to work on the project was Trident.  On 30 July 2007, TDJV and Trident entered into the subcontract referred to as the “Service Agreement”.

7                                             The Service Agreement records that TDJV had been engaged to develop and perform engineering, procurement and installation services of the sub-sea pipeline systems for the Nexus Longtom Gas Project and that the contractor, TDJV, required the services of Trident in support of the project.

8                                             The Service Agreement contained among other clauses, the following clauses.  The reference to the “Supplier” in these clauses is a reference to Trident, and the reference to the “Contractor” is a reference to TDJV.

1)                  SCOPE OF SERVICES

The Scope of Services to be provided under this Service Agreement shall be as defined in Schedule 1 hereto.

2)                  PRICE SCHEDULE

For the provision of the Services as described in the scope of services, supplier shall be compensated by Contractor at rates agreed prior to the commencement of the services.

3)                  MAXIMUM AMOUNT OF THE SERVICE AGREEMENT

The maximum value of this Service Agreement shall be determined to accommodate the scope of services which is yet to be defined.

4)                  PRICES

All prices and rates payable under this Service Agreement shall be on a cost recoverable basis only and be supported by approved documentation.  Costs for labour shall be fully documented for each position utilising the personnel authorisation form (PAF) which shall be approved by the assigned Project Manager.

5)                  SCHEDULE OF SERVICES

The Services shall be performed in accordance with the schedule agreed with Contractor’s Representative for the duration of the Project.  Such schedule shall be varied from time to time to suit the progress of the Project.

The commencement date of the services shall be the 1^st February 2007.

…

7)         PAYMENT TERMS

Payment shall be effected upon submission and acceptance of Supplier’s Invoice.

With the exception of payment for the offshore crews, payment shall be by electronic funds transfer and shall be effected within 14 days from the date of receipt of correct invoice(s).

Funding for the engagement, mobilization and employment of the offshore crews shall be on a neutral funding basis with a cash flow and payment schedule pre-agreed between the Contractor and Supplier.  Contractor shall negotiate and secure a union agreement for the Project which shall form the basis of the rates for the offshore crews.

Expenses Incurred by the Supplier shall only be reimbursed when fully documented and approved by the Project Manager.

…

9)                  INVOICES

Invoice(s) shall be addressed and submitted as indicated below.  Invoice(s) shall be submitted in English and shall be laid out in the same manner and shall include the Service Agreement No and Project Name.

Invoice Address:

TDJV

125A Royal Street

East Perth WA 6004

Australia

Attention:  Accounts Payable

Invoice(s) must be submitted as follows:

•          One Original (marked ‘ORIGINAL’)

•          Two Copies (marked ‘COPY 1’ and ‘COPY 2’).

  …

  14)              FAILURE TO COMPLY

  If the Supplier fails to comply with the requirements of Clauses 11 to 13 the Contractor may, at the Contractor’s sole discretion and at Supplier’s sole cost, impose any one or all of the following measures until such time as the Supplier has achieved full compliance:

  a)                  delay the commencement of the Services;

  b)                  suspend the performance of the Services; and/or

  c)                  refuse payment upon any invoice in respect of the Services.

  9                                             Crucially, the Service Agreement also contains the following clause 20:

  SETTLEMENT OF DISPUTES

  All disputes arising out or related to this Service Agreement, if not amicably settled by the Parties, shall be finally settled under the Rules of the Conciliation and Arbitration of the International Chamber of Commerce by three Arbitrators appointed in accordance with the said rules.

  The arbitration venue shall be Perth Western Australia.

  10                                          Mr Michael Fowler, a director of Nexus, deposed that in June 2009 he was informed that in order to ensure an expedited completion of the project, Nexus had to pay the subcontractors directly.

  11                                          In July 2009, an agreement (the 2009 Agreement) naming TDJV, Trident and Nexus as parties was drawn up.  The 2009 Agreement, which was signed by TDJV and Trident, but not Nexus, provides, in effect, for Nexus to pay moneys due for the performance of services by Trident under the Service Agreement, to Trident directly.  Although Nexus did not sign the 2009 Agreement, it relied upon cl 2(c)(i) of the 2009 Agreement as comprising the arbitration agreement between itself and Trident.

  12                                          Paragraph 2 of the 2009 Agreement provides as follows:

  2.         Payment Obligations

  (a)               Nexus undertakes to pay directly to the Subcontractor all amounts lawfully due to the Subcontractor under the Subcontract for works and services provided by the Subcontractor to TDJV on and after the Effective Date, but TDJV must certify any payments as being due and owing before payment is made.

  (b)               Nexus must make such payments on the terms provided for in the Subcontract but subject to the presentation of tax invoices and any other documentation required to be provided by the Subcontractor under the Subcontract as a condition of payment.

  (c)               Nexus is entitled to:

  (i)                 the same rights to dispute liability for and to withhold payments under the Subcontract as TDJV would otherwise have been entitled to; and

  (ii)                the same grace periods, notices of default and cure periods for default in payment under the Subcontract as TDJV would otherwise have been entitled to.

  (d)               Payments by Nexus under clause 2(a) of this letter are to be applied by the Subcontractor strictly in respect of the invoices in respect of which those payments are made.

  (e)               Nothing in this letter or elsewhere is to be taken as an implied obligation on the part of Nexus to make any payments to the Subcontractor in respect of works and services provided by the Subcontractor to TDJV before the Effective Date.  However, Nexus may in its absolute discretion make such payments to the Subcontractor and, where it elects to make any such payment, it must specify to which invoices rendered by the Subcontractor to TDJV those payments are to be applied, and the Subcontractor must apply those payments accordingly.  To the extent of those payments, the liability of TDJV to the Subcontractor for them is discharged.

  13                                          Nexus contended that cl 2(c)(i) comprised an agreement between it and Trident to settle their disputes under the 2009 Agreement, in accordance with the provisions in cl 20 of the Service Agreement.

  14                                          For the following reasons, I am unable to accept that contention.

  15                                          In the case of Heyman v Darwins, Limited [1942] AC 356 at 373-374, Lord Macmillan observed:

  I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract.  It is quite distinct from the other clauses.  The other clauses set out the obligations which the parties undertake towards each other hinc inde, but the arbitration clause does not impose on one of the parties an obligation in favour of the other.  It embodies the agreement of both parties that, if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution.

  16                                          In my view, cl 2(c)(i) of the 2009 Agreement is a clause dealing with the principal obligation on Nexus arising under the 2009 Agreement, namely to make payment, and falls into that category of clauses which Lord Macmillan described as setting out “the obligations which the parties undertake towards each other”.  That subclause is intended to confer on Nexus the right to rely upon the same grounds to resist payment of Trident’s claims, as the principal contractor, TDJV, is entitled to rely upon under the Service Agreement.  Thus, for example, there are provisions in the Service Agreement which prescribe the nature and timing of services which are to be provided by Trident.  There are also provisions which prescribe the form that invoices must take when submitted for payment.  Further, cl 14 gives TDJV the right to withhold payments from Trident if it is in breach of its obligations to comply with its obligations to maintain insurance.  The intention of cl 2(c)(i) of the 2009 Agreement is, in my view, to permit Nexus to have the power to invoke these provisions, as well, of course, any common law defences, in response to claims contained in the invoices submitted for payment by Trident.

  17                                          I have come to this view for the following reasons.

  18                                          First, there is a difference between the language of “disputing liability” used in cl 2(c)(i) of the 2009 Agreement and the language “settling disputes” used in cl 20 of the Service Agreement.  It is one thing for parties to agree as to the basis on which a party will be able to dispute a liability to perform a primary obligation, but it is quite a different thing for the parties to agree as to the means by which disputes will be settled, once they have arisen.  The fact that the parties used the language in cl 2(c)(i) of “disputing liability” rather than “settling disputes” militates against the construction contended for by Nexus.  This is particularly so when meaningful effect can be given to a construction of cl 2(c)(i) which falls short of cl 2(c)(i) being construed as comprising an agreement between the parties as to the means whereby disputes will be settled.

  19                                          Secondly, cl 2(c)(i) is the first of two subclauses which comprise clause 2(c).  In my view, the construction of cl 2(c)(i) is informed by the content of cl 2(c)(ii) which uses the language of “grace periods”, “notices of default” and “cure periods” - concepts which relate to performance of primary contractual obligations.  This subclause seeks to give Nexus the benefit of these concepts as a means of qualifying Nexus’s duty to perform its primary obligation under the 2009 Agreement, namely, to make payment on the presentation of a valid invoice.  This also militates against Nexus’s contention that cl 2(c)(i) comprises an arbitration agreement.  The clause does not, in my view, comprise a separate agreement in relation to a discrete matter, namely settling disputes, which is distinguishable from the definition of primary contractual rights and obligations binding each of the parties.  This distinction is also manifest by the fact that cl 2(c)(i) is part of cl 2 of the 2009 Agreement which is headed “Payment Obligations” – a primary obligation on Nexus; whereas cl 20 of the Service Agreement is a separate clause addressing the discrete topic of the settlement of disputes.

  20                                          Thirdly, cl 2(c)(i) only addresses the position of Nexus.  The absence of mutuality in cl 2(c)(i), in my view, further militates in favour of a construction that the clause is intended to address and qualify the performance of Nexus’s primary obligation, namely, to make a payment, rather than comprising a separate arbitration agreement.

  21                                          The respondent is to pay the applicant’s costs of the motion.

   

  I certify that the preceding twenty‑one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.

  
  
  

  Associate:

  
  

  Dated:         19 October 2010