Australia: Streamlined dispute resolution: crucial in complex contractual arrangements

Last Updated: 7 April 2018
Article by Rebecca Niumeitolu and Geoff Farnsworth

Most Read Contributor in Australia, September 2018

Case Note: CBP Contractors Pty Limited v Celsus Pty Limited (formerly known as SA Health Partnerships Nominees Pty Ltd) [2017] FCA 1620

In June 2007 the South Australian Government (SA Government) launched plans to build a new Royal Adelaide Hospital. To realise its plans a series of contracts were executed in May 2011 variously between the SA Government, a corporation created specifically for the project named Project Co, CBP Contracts and Hansen Yuncken (the Builders), an Independent Certifier, a syndicate of financiers and a management services provider. The overall effect of this contractual scheme was that the SA Government contracted with Project Co, which in turn arranged the finance, design and construction, and the provision of services for the works.

By early 2016 disputes had arisen over delays and defects, and what followed was the commencement of a number of arbitral proceedings by the State against Project Co concerning defects, and parallel arbitral proceedings by Project Co against the Builders.

A significant practical and procedural concern for the parties was the avoidance of multiple arbitral proceedings, which was largely the result of an absence of any direct contractual mechanism between the State and the Builder to resolve disputes by way of arbitration. To consolidate the arbitration process between them, the State and Project Co entered into a Mediated Agreement and a subsequent Completion Deed with the financiers. Importantly these agreements referred to steps that would be taken by the SA Government and Project Co where the Builders consented to the streamlined arbitration process provided by the Mediated Agreement and Deed, and where they did not consent.

In circumstances of existing arbitral disputes, on 1 August 2017 the Builders filed a concise statement in the Federal Court against the Project Co, the SA Government, the relevant Minister, and the Independent Certifier. Seeking to reserve their position and to have their disputes heard by an arbitrator under their respective agreements, Project Co and the SA Government, amongst other things, made applications to the Court for a mandatory stay of the proceedings pursuant to section 8 of the Commercial Arbitration Act 2010 (NSW) (CA Act), and failing that, relief by way of a discretionary stay.

At the hearing in December 2017, the determination of whether to grant such relief turned on the following three issues.

  1. Section 8 of the CA Act: the proviso

On the application for a mandatory stay by Project Co, the Court directed its attention to the proviso of section 8 of the CA Act; namely, whether the arbitration agreement underlying the Construction Agreement between Project Co and the Builders was "inoperative". If it were inoperative, the Court would be precluded from granting the stay.

The Builders submitted that its Construction Arbitration Agreement with Project Co was inoperative because it ceased to have contractual effect when Project Co and the SA Government executed inconsistent subsequent agreements between themselves (i.e. the Mediated Agreement and Completion Deed).

The presiding judge, Justice Lee, rejected those submissions. His Honour affirmed the remarks of Vinodh Coomaraswamy J at [163]–[166] in Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltdi, which identified that "inoperative" agreements refers to agreements that were valid at one time but which cease to have effect. This could be as a result of "wavier, revocation, repudiation, or termination ... or failure to comply with jurisdictional time limits ..." At [69] Justice Lee added that the concept of operability "necessarily involves the relevant arbitration agreement ceasing to have effect – although how the cessation of effect occurs in individual cases will vary".

On a close construction of the terms of each of the Mediation Agreement and Completion Deed, his Honour held that neither agreement interfered with the Builder's legal rights under the Construction Arbitration Agreement with Project Co. Therefore, the arbitration agreement did not cease to operate and the granting of a mandatory stay was warranted.

  1. Section 8 of the CA Act: a first statement on the substance of the dispute

To obtain a mandatory stay pursuant to section 8 of the CA Act, an application must be brought "not later than when submitting party's first statement on the substance of the dispute".

The position of the SA Government in advancing its application was complicated by the fact that it had submitted a response to the Builders' Amended Statement of Claim before filing its stay application. It had also made statements in letters and during oral submissions in the first case management hearing complaining about the deficiencies of the concise statement filed by the Builders, which commenced Court proceedings. To successfully advance its application for a mandatory stay, the SA Government needed to establish that these actions did not constitute statements on the substance of the dispute.

However, the statutory precondition proved insurmountable for the SA Government. At [95] Justice Lee stated, "it is beyond doubt that the State provided a statement on the substance of the dispute (being its response to the ASOC...)". His Honour further observed that, notwithstanding statements made by the SA Government referring to the overlapping subject matter of the arbitration and the proceedings, the SA Government also made submissions concerning the precise claims made by the Builder and identified that the Builder should either plead out all or part of the claim made against it. In these circumstances the Court denied the application for the mandatory stay.

  1. Discretionary stay

Justice Lee reasons indicate a practical approach to resolving the issue of whether a discretionary stay should be granted. At [124] his Honour stated "whatever the contractual background and the procedural history, the arbitrations ... exist and I have granted a mandatory stay in favour of Project Co."

His Honour further referred to the following matters which he found were relevant to the exercise of the Court's discretion in favour of a temporary stay:

  • the claims by the Builder against the SA Government were ancillary to the matters the subject of Project Co's stay;
  • the arbitrator's award would be determinative of factual assertions made in the proceeding against the State;
  • it would save time and costs, and remove duplication;
  • a temporary stay of a monetary stay was not likely to result in significant prejudice to the Builders.

Lessons learned

The case emphasises the importance of streamlining dispute resolution mechanisms in complex contractual arrangements, particularly in complex building projects where, as Justice Lee commented there is often "labyrinthine disputation between participants."

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Geoff Farnsworth
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