FEDERAL COURT OF AUSTRALIA

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

THE COURT ORDERS THAT:

On the prospective respondents’ application dated 5 March 2013, the following orders are made:

1.    The proposed proceeding, as between the prospective applicant and the prospective first respondent is stayed pursuant to s 8 of the Commercial Arbitration Act 2011 (Vic) and s 23 of the Federal Court of Australia Act 1976 (Cth) (“the Federal Court Act”).

2.    The proposed proceeding, as between the prospective applicant and the prospective second, third and fourth respondents is stayed pursuant to s 23 of the Federal Court Act.

3.    The prospective applicant pay the prospective respondents’ costs of the interlocutory application dated 5 March 2013.

On the prospective applicant’s interlocutory application dated 21 February 2013, the following orders are made:

1.    The interlocutory application of the prospective applicant dated 21 February 2013 is stayed.

2.    The prospective applicant pay the prospective respondents’ costs of that application.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

REASONS FOR JUDGMENT

INTRODUCTION

1    There are two issues which arise for consideration by the Court in this matter. The first is whether any proposed litigation in this Court between the prospective parties should be stayed pending the conduct of arbitration. The second concerns whether the prospective applicant should have pre-action or preliminary discovery from the prospective respondents. Given the order in which those issues are considered below, they are interlinked matters.

2    The current controversy stems from a breakdown in the commercial relationship between the major prospective parties – Amcor Packaging (Australia) Pty Ltd (“Amcor”) and Baulderstone Pty Ltd (“Baulderstone”). Amcor is engaged in the paper manufacturing industry and Baulderstone is a large building and construction company.

The factual setting

3    The facts giving rise to the current controversy are not in contest. From September 2007 until July 2010, Amcor and Baulderstone negotiated about the design and construction of a building to house an extremely large paper machine and for the installation of that machine at an Amcor site in Botany, New South Wales. This project became known as the “B9 Project”.

4    In September 2007, Amcor commenced a competitive tender process for the B9 Project. On 6 March 2008, Baulderstone submitted a written proposal under the cover of a letter signed by Mr Luck and Mr Lougher. At all material times, Mr Luck was General Manager of Baulderstone for Victoria and Mr Lougher was General Manager for New South Wales. They are also the prospective third and fourth respondents in the proposed proceeding. In their letter of 6 March 2008, the authors stated their belief that the Guaranteed Maximum Price (“GMP”) form of contract was the “most suitable” one for the B9 Project.

5    On 19 June 2008, Amcor advised Baulderstone that it was successful in its tender to undertake “Stage 1” of the work for the B9 Project. On about 21 November 2008, Amcor and Baulderstone signed a Project Delivery Proposal Agreement (“PDPA”). The PDPA was amended on 3 July 2009 and 26 October 2009. In early October 2009, Baulderstone had been issued with a site works notice to commence the Stage 1 works. Coordination of the timing of the delivery and installation of the paper machine was at all material times a critical factor in Amcor’s desire to avoid a cost blowout in connection with the B9 Project.

6    In December 2009, Mr Rick Woods, the Group General Manager for Amcor, had a conversation with Mr Turchini of Baulderstone (the prospective second respondent) and Mr Lougher regarding the B9 Project. According to Mr Woods, Mr Turchini and Mr Lougher did not say that Baulderstone’s involvement in the GMP contract was subject to the approval of its parent company, Bilfinger Berger AG (“Bilfinger”), a German company.

7    Amcor intended that a design and construction contract would be fully negotiated and executed by March 2010. The Finnish company supplying the paper machine (“Metso”) was contractually obliged to deliver it within a 15 month period commencing 30 December 2009. During the early part of 2010, Amcor and Baulderstone had discussions through their relevant officers concerning adjustments to the GMP in which a figure of approximately $200 million was considered.

8    During March and April 2010, Amcor and Baulderstone exchanged drafts of the design and construction contract which was in the form of a GMP contract. At about this time, Metso and Amcor agreed on a revised delivery schedule for the paper machine with the first components due to arrive in Sydney by 31 August 2010. Baulderstone was aware of these arrangements.

9    Amcor required a parent company guarantee as part of the design and construction contract. Legal counsel employed by Baulderstone, Ms Brown, suggested that Baulderstone Holdings Pty Ltd should be the parent company for the purposes of the design and construction contract. Baulderstone advised Amcor that a parent company guarantee from Bilfinger would not be forthcoming due to the pending float of Bilfinger’s Australian business.

10    During the first half of 2010, Baulderstone performed Stage 1 works on the B9 Project. On 21 April 2010, Mr Lougher told Mr Woods that he considered there was agreement on the major commercial issues and was confident a final agreement would be signed in late April or early May.

11    On 6 May 2010, Amcor and Baulderstone agreed on a GMP of about $202 million and clarified some other differences after a further amended proposed GMP of $215.07 million was submitted by Baulderstone to Amcor on 28 April 2010. At this stage, detailed drafts of the GMP contract were being discussed between respective legal advisers. However, a letter of intent signed on 6 May 2010 clarified all major issues including price. The letter of intent committed the parties to it to “conduct further negotiations to agree and finalise a design and construct contract for the provision of certain design and construction services”. The letter of intent also required the parties to cooperate in good faith and use reasonable endeavours to negotiate and execute the design and construction contract.

12    On 14 May 2010, Amcor and Baulderstone signed an amendment to the PDPA. The amendment confirmed that the Stage 2 works would be delivered under a GMP contract. Throughout the rest of May 2010, discussions continued regarding proposed further amendments to the draft design and construction contract.

13    On 8 June 2010, Bilfinger announced that the initial public float of Bilfinger Berger Australia (now Valemus Australia) (“Valemus”) would proceed that day. Later in June, discussions continued between Amcor and Baulderstone about “commercial changes” to the PDPA. On 5 July 2010 Bilfinger announced that it had postponed the float of Valemus. On 6 July 2010, Balderstone raised further proposed amendments which canvassed the possibility of a higher GMP than that which had previously been agreed.

14    On 16 July 2010, Amcor wrote to Baulderstone offering to reach a compromise on remaining issues. However, on 20 July 2010, Mr Turchini telephoned Mr Woods and informed him that Bilfinger had withdrawn approval for Baulderstone to be involved in the B9 Project if governed by a GMP contract. This news came as a shock to Mr Woods. The paper machine was en route to Sydney at the time. Amcor had entered into contracts with other interests to ensure the machine could be housed.

15    In the ensuing weeks, representatives of Amcor and Baulderstone held discussions regarding options for the B9 Project. There was no satisfactory resolution from Amcor’s point of view. It subsequently terminated discussions with Baulderstone and ultimately entered into revised contractual arrangements with Metso and Leighton Group.

16    Mr Woods said that at no time during discussions with Baulderstone concerning the B9 Project prior to 20 July 2010, was he told that Baulderstone had not received approval from Bilfinger to proceed with the GMP contract, or that such approval was required or that there was a risk that such approval would not be provided.

17    Amcor claims that it has suffered loss and damage from Baulderstone’s decision not to enter into the GMP contract. It estimates its losses within the tens of millions of dollars. These costs include the extra expense incurred in storing and managing the paper machine and interest on borrowed funds incurred by the delay.

18    Mr Woods believes that Amcor may have rights to recover loss and damage from Baulderstone and the other three proposed respondents who represented Baulderstone in the negotiations regarding the B9 Project. Amcor acknowledges that it may seek to bring proceedings against Bilfinger in the event that discovered documents show a potential action against it.

19    Amcor has sought copies of relevant documents from Baulderstone, without success. It is in that context that it brings its application for preliminary discovery.

The arbitration issue

20    Baulderstone submits that the Court is required to stay the proposed proceeding, including the application for preliminary discovery, because of the operation of s 8 of the Commercial Arbitration Act 2011 (Vic) (“the Arbitration Act (Vic)”).

21    Section 8(1) of the Arbitration Act (Vic) provides:

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.

22    In the alternative, Baulderstone relies on s 8 of the Commercial Arbitration Act 2010 (NSW), which is in the same terms as s 8 of the Arbitration Act (Vic). There is no issue between the proposed parties about the application of the Arbitration Act (Vic) or the fact that it is picked up and applied for current purposes by s 79 of the Judiciary Act 1903 (Cth). Section 79(1) of that Act provides:

The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.

23    Section 7(1) of the Arbitration Act (Vic) defines “arbitration agreement” as:

…an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

24    The first question to be determined on this aspect of the matters before the Court is whether there is an “arbitration agreement” to which two or more of the prospective participants in the proposed proceeding in the Court are parties. Baulderstone says that cl 31 of the PDPA evidences a relevant arbitration agreement. Amcor counters by saying that the conduct about which it complains does not arise out of or in connection with the PDPA, but in connection with the proposed GMP contract. It also says that the proposed personal respondents could not be parties to an arbitration.

25    The PDPA is a written agreement signed by Amcor and Baulderstone to which they are the only parties. Its purpose 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.

26    Clause 31 of the PDPA is headed “Dispute Resolution”. It provides in cl 31.1 that:

A Party must not start court proceedings (except proceedings seeking interlocutory relief) or any other available form of dispute resolution in respect of a Dispute unless it has complied with this Clause 31.

27    The remainder of the clause deals, amongst other things, with the process of referring such a dispute to a Resolution Management Group and ultimately to arbitration by three arbitrators in Sydney in accordance with the rules of arbitration of the International Chamber of Commerce.

28    “Dispute” is defined in cl 1.1 of the PDPA to mean (so far as is material):

a dispute arising out of or in connection with this Agreement...

29    The words “in connection with” show that the ambit of the dispute resolution clause is intended to be wide, so that any matter which relates to the subject matter of the PDPA can be the subject of arbitration under cl 31.

30    In Incitec Ltd v Alkimos Shipping Corporation and Anor (2004) 138 FCR 496, Allsop J (as the Chief Justice then was) dealt with an issue at [29] ff concerning what cross-claims fell within a dispute resolution clause. As with cl 31 of the PDPA, the relevant words were:

any dispute arising out of or in connection with this Contract.

31    At [32] in Incitec, Allsop J said the words in question should be given a “wide or generous construction” and that the parties intended that there be “a reach of some width of liberality”. By analogy, a similar approach may be observed in the judgment of the High Court in the context of the construction of eligibility rules of registered organisations under industrial relations laws. In that regard, see R v Isaac & Ors; Ex parte Transport Workers Union of Australia (1985) 159 CLR 323 at p 335 where Gibbs CJ said that the use of the expression “in connection with”, “very considerably widens the scope of the rule”.

32    Further, there is authority to support the proposition that the words “in connection with” in the context of a “dispute” should “exclude only claims entirely unrelated to the commercial transaction covered by the contract”; see Dowell Australia Ltd v Trident Contractors Pty Ltd [1982] 1 NSWLR 508 at 515 (per Yeldham J) as applied by Refshauge J in Lightsource Technologies Australia Pty Ltd v Pointsec Mobile Technologies AB [2011] ACTSC 59 at [132].

33    Moreover, in Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45, Allsop J (with whom Finn and Finkelstein JJ agreed) said at [164] that the Court should construe an arbitration clause “giving meaning to the words chosen by the parties and giving liberal width and flexibility to elastic and general words of the contractual submission to arbitration”.

34    At [165] in Comandate, Allsop J said:

This liberal approach is underpinned by the sensible commercial presumption that the parties did not intend the inconvenience of having possible disputes from their transaction being heard in two places. This may be seen to be especially so in circumstances where disputes can be given different labels, or placed into different juridical categories, possibly by reference to the approaches of different legal systems. The benevolent and encouraging approach to consensual alternative non-curial dispute resolution assists in the conclusion that words capable of broad and flexible meaning will be given liberal construction and content. This approach conforms with a common-sense approach to commercial agreements, in particular when the parties are operating in a truly international market and come from different countries and legal systems and it provides appropriate respect for party autonomy.

35    Further, after reviewing relevant authorities, his Honour said, at [175]:

These words encompass more than merely arising as a contractually classified complaint from one party’s rights or another party’s obligations under, or in, a bilateral juridical relationship. The width of the phrase “arising out of” in this context and its synonymity with the expression “in connection with” reflect the practical, rather than theoretical, meaning to be given to the word “contract” out of which the disputes may arise. The notion of a contract can involve practical commercial considerations of formation, extent and scope, and performance of the juridical bonds between the parties, out of which disputes may arise. In my view, there is no bright line to be drawn at the point of contract formation with all causes of action reliant on events prior to that point not being disputes arising out of the contract. It will be necessary in each case to assess the connection of the dispute with the contract – its formation, terms or performance – to see whether disputes fall within the clause, as well, of course, as the terms of the arbitration clause in the context in which they appear.

36    Mr Woods gave evidence that Amcor believes it might have the right to obtain relief against Baulderstone as follows:

    pursuant to s 52 of the Trade Practices Act (1974) (Cth) (“TPA”), which applied at the relevant time, by making representations as to future matters when it did not have reasonable grounds to do so;

    against the proposed personal respondents for their knowing involvement in the above alleged contravention;

    against Baulderstone for breaching contractual terms that it negotiate in good faith and act honestly and fairly;

    against Baulderstone for equitable compensation by reason of Amcor’s reliance on the matters, assumptions and representations held out by Baulderstone in respect of the delay of the B9 Project.

37    Amcor contends that the conduct about which it complains does not arise “out of or in connection with” the PDPA. It says that the dispute concerned a proposed GMP contract which never came into existence. However, the proposed GMP contract was related to, arose out of and was in connection with the matters covered by the PDPA, being the delivery of the B9 Project with Baulderstone as the contractor referred to in the PDPA.

38    I accept the submission of Baulderstone that cl 31.1 of the PDPA extends its reach to each of the proposed causes of action foreshadowed by Amcor. Those claims “arise out of” and/or “in connection with” the alleged failure of Baulderstone to inform Amcor before 20 July 2010 that Bilfinger was required to approve, or might not approve, or had not approved Baulderstone participating in a GMP Contract with Amcor. In this regard, it is significant that the PDPA contemplated the entering into a GMP contract by the parties. In particular, subcl 10(e) of the PDPA provides:

The Contractor agrees that the initial contract sum under any Project Delivery Agreement with the Contractor will be the Guaranteed Maximum Price accepted by Amcor under this agreement less [the subclause then sets out two currently immaterial payments to be deducted].

39    Each of the proposed causes of action identified by Amcor to be relied upon in the foreshadowed proceeding arises “out of or in connection with” the PDPA and is subject to the arbitration clause contained in cl 31.1 of the PDPA. Those claims concern the alleged failure of Baulderstone to keep Amcor informed about any complications for the B9 Project relating to the role of Bilfinger in failing to approve Baulderstone’s involvement. It follows that Amcor’s application for preliminary discovery concerning those claims falls within the scope of a dispute arising out of or in connection with the PDPA.

40    Amcor relies on the reference in cl 31.1 to the exclusion of Court proceedings seeking “interlocutory relief” from the matters which are subject to arbitration. It submits that as the application for preliminary discovery under r 7.23 of the Federal Court Rules 2011 (Cth) is an interlocutory application, cl 31 cannot operate to prevent that application being raised before the Court for its determination. Baulderstone contends that cl 31.11 informs the type of interlocutory applications contemplated by the exception in cl 31.1. Clause 31.11 is headed “interlocutory relief” and provides:

This Clause 31 does not prevent either Party from obtaining any injunctive, declaratory or other relief that may be urgently required, from a court in New South Wales [emphasis added].

41    Clause 31 must be read as a whole. Reading cll 31.1 and 31.11 together, the better view is that where interlocutory relief is mentioned in cl 31.1, it does not contemplate any type of interlocutory relief, but only the sort identified in cl 31.11. This interpretation is consistent with the notion that, notwithstanding the existence of an arbitration agreement, there may be circumstances where urgent relief is required from a court. For example, the preservation of the subject matter of a dispute which requires arbitration may be sought. In the ordinary course of events, non-urgent interlocutory applications such as the present one for preliminary discovery do not, from any policy perspective, require urgent intervention from a court and may be more appropriately addressed during the course of arbitration.

42    Amcor further submits that the Court should not, as a matter of discretion, order that the proposed proceeding, including the application for preliminary discovery, be stayed. In that regard, Amcor points to the position of the proposed personal respondents, being the executive directors of Baulderstone at the relevant time. Those proposed respondents are not parties to the PDPA. Clause 31 does not apply to them. Any proposed proceeding directed against them would not be affected by cl 31 of the PDPA. Amcor urges the Court to avoid a multiplicity of proceedings and points to provisions such as ss 22 and 37M of the Federal Court of Australia Act 1976 (Cth) (“the Federal Court Act”) to reinforce its point. Further, Amcor submits that s 8 of the Arbitration Act (Vic) only applies to the parties to an arbitration agreement and cannot reach the proposed personal respondents.

43    Baulderstone submits that the position of the proposed personal respondents as non-parties to the PDPA does not affect the Court’s ability to stay the proposed proceeding even insofar as it affects those respondents. Baulderstone notes that the only claim foreshadowed against those persons is for their alleged knowing involvement in alleged breaches of the TPA by Baulderstone. Relief against the executive directors depends on a prior finding that Baulderstone acted in breach of s 52 of the TPA. Baulderstone submits that there is no reason why a stay cannot be ordered in respect of those respondents under s 23 of the Federal Court Act.

44    The existence of additional issues falling outside the scope of arbitration does not necessarily mean that those matters cannot be the subject of a stay. Such an approach finds support in the judgment of Deane and Gaudron JJ in Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at p 351. There, their Honours said:

By requiring that the proceedings or so much of the proceedings as involves the determination of a matter capable of settlement by arbitration be stayed, s 7(2) clearly contemplates that the proceedings may encompass issues additional to those constituting “a matter…capable of settlement by arbitration”. See Flakt Australia Ltd. v Wilkins & Davies Co Construction Ltd. [1979] 2 NSWLR 243; Allergan Pharmaceuticals Inc. v Bausch & Lomb Inc. (1985) 7 ATPR 40-636.

The word “matter” is not defined in the Act. In the quite different context of Ch. III of the Constitution, it has been held that the word “matter” means “the whole matter” and encompasses “all claims made within the scope of the controversy”. Fencott v Muller (1983) 152 CLR 570 at p 603. See also Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457, at p 475. However, in any context, “matter” is a word of wide import. In the context of s 7(2), the expression “matter…capable of settlement by arbitration” may, but does not necessarily, mean the whole matter in controversy in the court proceedings. So too, it may, but does not necessarily encompass all the claims within the scope of the controversy in the court proceedings. Even so, the expression “matter…capable of settlement by arbitration” indicates something more than a mere issue which might fall for decision in the court proceedings or might fall for decision in arbitral proceedings if they were instituted. See Flakt, at p 250. It requires that there be some subject matter, some right or liability in controversy which, if not co-extensive with the subject matter in controversy in the court proceedings, is at least susceptible of settlement as a discrete controversy. The words “capable of settlement by arbitration” indicate that the controversy must be one falling within the scope of the arbitration agreement and, perhaps, one relating to rights which are not required to be determined exclusively by the exercise of judicial power.

See also Brennan and Dawson JJ at p 345 where their Honours said:

Although the issues in the “proceedings” extend beyond the matter which can be referred to arbitration under cl 10, so that the proceedings are not wholly congruent with the “matter” which is to be referred to arbitration, the whole of the proceedings must be stayed until an award is made on the matter referred: Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd. [1979] 2 NSWLR 243, at p 250. Had the liquidator asserted a right to go behind the award, that question could not have been referred to arbitration, yet its determination would have had to await the determination of the matter falling within the arbitration clause.

45    In Casaceli v Natuzzi SpA [2012] FCA 691; (2012) 292 ALR 143, Jagot J applied Tanning Research. At [48] her Honour said:

In Tanning Research it was accepted that the issues in the proceeding extended beyond the matter (as they do here) yet the matter was referred to arbitration and the balance of the proceeding stayed to await the outcome of the arbitration: see, for example, at CLR 245 and 351; ALR 189 and 193; ACSR 518 and 523. In Recyclers of Australia at [65]-[66] Merkel J said:

[65] In the event that a proceeding includes matters that are not capable of being referred to arbitration, but the determination of which is dependent upon the determination of the matters required to be submitted to arbitration, a court may, in the exercise of its discretion, stay the whole proceeding: see Tanning Research at 216 per Brennan and Dawson JJ. A court may also exercise a discretion to impose terms that the arbitration of the arbitrable claims not proceed prior to the determination of the non-arbitrable claims where the arbitrable claims are seen to be subsidiary to or significantly less substantial than, but overlapping with, the non-arbitrable claims: see Hi-Fert [Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 90 FCR 1; 159 ALR 142] at FCR 27-8; ALR 167-168 cf Dodwell & Co (Aust) Pty Ltd v Moss Security Ltd (unreported, Federal Court of Australia, Wilcox J, 11 April 1990) at [5] and [7]. The discretion may also be exercised to stay the proceeding where the non-arbitrable claims are the ancillary claims.

[66] The broad discretion arises as part of the exercise of a court’s general power to control its own proceedings. The basis for the discretion is that the spectre of two separate proceedings – one curial, one arbitral- proceeding in different places with the risk of inconsistent findings on largely overlapping facts, is undesirable: see Dodwell & Co per Wilcox J at [5] and [7], Hi-Fert at FCR 27-8; ALR 167-168 and McDonnell Dowell Smith East Asia Pty Ltd v State Electricity Commission of Victoria (unreported, Supreme Court of Victoria, Beach J, 24 November 1998) at [22] to [24].

46    Further at [54] in Casaceli, her Honour said:

In conclusion, the requirements of s 7(2) of the International Arbitration Act are satisfied. The matter, being the whole of the dispute between Nataceli and Natuzzi SpA reflected in the claims of the proceeding, must be stayed and the matter referred to arbitration. The balance of the proceeding should also be stayed as a matter of discretion to await the outcome of the arbitration. I make orders accordingly, including orders for costs of the interlocutory application.

47    In the exercise of the Court’s discretion, the approach taken by Jagot J commends itself as a practical and appropriate one. Consequently, the Court will order that the part of the proposed proceeding as between Amcor and Baulderstone be stayed pursuant to s 8 of the Arbitration Act (Vic). That part of the proposed proceeding as between Amcor and the remaining prospective respondents will be stayed pursuant to s 23 of the Federal Court Act. The availability of s 23 of the Federal Court Act to the Court for the purposes of making a stay order overcomes the difficulty that s 8 of the Arbitration Act (Vic) does not reach the proposed personal respondents. There is no reason why costs should not follow the event.

The interlocutory application for preliminary discovery

48    Having regard to the orders to be made in respect of the prospective respondents’ stay application, it is not appropriate for the Court to determine this application. It would be counterintuitive to determine it in circumstances where the Court has found that the matters raised by it are subject to a commercial arbitration agreement. Once the stay orders are made in the prospective respondents’ application, the preliminary discovery application is itself stayed as one aspect of the proposed wider application. The most appropriate order to reflect that result is to stay that application without an adjudication of its merits.

Costs

49    The prospective respondents should have the costs of their interlocutory application. Although the Court has not determined the prospective applicant’s interlocutory application, for the reasons discussed above, the success of the prospective respondents’ application carries with it the result that the application for preliminary discovery must itself be stayed. Consequently, it is appropriate to order the prospective applicant pay the costs of that application.

Associate:

Dated:    27 March 2013