Cheshire Contractors Pty Ltd v Civil Mining & Construction Pty Ltd [2021] QCA 212 (2021) 9 QR 114

SUPREME COURT OF QUEENSLAND CITATION: Cheshire Contractors Pty Ltd v Civil Mining & Construction Pty Ltd [2021] QCA 212 PARTIES: CHESHIRE CONTRACTORS PTY LTD ABN 75 124 700 385 (appellant) v CIVIL MINING & CONSTRUCTION PTY LTD ABN 18 102 557 175 (respondent) FILE NO/S: Appeal No 5031 of 2021 SC No 571 of 2020 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: Supreme Court at Cairns – [2021] QSC 75 (Henry J) DELIVERED ON: 1 October 2021 DELIVERED AT: Brisbane HEARING DATE: 9 September 2021 JUDGES: Morrison and Mullins JJA and Bowskill SJA ORDERS: 1. Appeal dismissed. 2. The appellant pay the respondent’s costs of the appeal. CATCHWORDS: ARBITRATION – ARBITRATION AGREEMENT – DEFINITIONS AND FORM OF ARBITRATION AGREEMENT – GENERALLY – where the respondent (CMC) entered into a subcontract with the appellant (Cheshire) to carry out roadworks – where a dispute arose between CMC and Cheshire, in relation to a claim for payment made by Cheshire in connection with the subcontracted works – where CMC contended that the matter was the subject of an arbitration agreement and applied for an order referring the parties to arbitration – whether, for the requirements of an arbitration agreement, the relevant clause was within the meaning of s 7(1) of the Commercial Arbitration Act 2013 (Qld) – whether, in order to be an arbitration agreement as defined, the agreement must itself define the legal relationship to which it is intended to apply Commercial Arbitration Act 2013 (Qld), s 7 Bidois v Leef [2015] 3 NZLR 474; [2015] NZCA 176, cited Bond v Chief Executive, Department of Environment and Heritage Protection [2018] 2 Qd R 112; [2017] QCA 180, cited -- 1 of 8 -- 2 Hi-Fert Pty Ltd v Kuikiang Maritime Carriers Inc (No 2) (1997) 75 FCR 583; [1997] FCA 575, cited Methanex Motonui Ltd v Spellman [2004] 1 NZLR 95, cited Methanex Motonui Ltd v Spellman [2004] 3 NZLR 454, cited COUNSEL: M Jonsson QC, with C Taylor, for the appellant M H Hindman QC, with A J Schriiffer, for the respondent SOLICITORS: O’Connor Law for the appellant Clayton Utz for the respondent [1] MORRISON JA: I have read the reasons of Bowskill SJA and agree with those reasons and the orders her Honour proposes. [2] MULLINS JA: I agree with Bowskill SJA. [3] BOWSKILL SJA: The respondent, Civil Mining & Construction Pty Ltd (CMC) was contracted by the Queensland Department of Transport and Main Roads to carry out a project for roadworks construction. CMC entered into a subcontract with the appellant, Cheshire Contractors Pty Ltd (Cheshire) to carry out part of the roadworks. A dispute arose between CMC and Cheshire, in relation to a claim for payment made by Cheshire in connection with the subcontracted works. Cheshire filed a claim against CMC in the Cairns Supreme Court seeking to recover the money said to be owing. CMC’s claim was for relief based on estoppel by convention or statutory unconscionable conduct, as well as for the return of a bank guarantee. CMC contends that the matter is the subject of an arbitration agreement and applied for an order referring the parties to arbitration in accordance with s 8(1) of the Commercial Arbitration Act 2013 (Qld). [4] For the reasons given on 9 April 2021,1 Henry J allowed CMC’s application and made orders that: 1. the parties are referred to arbitration pursuant to s 8(1) of the Commercial Arbitration Act; and 2. the proceeding is stayed. [5] Cheshire appeals from those orders, contending that the conclusion reached by the learned primary judge was incorrect, on the basis of an erroneous interpretation of s 7(1) of the Commercial Arbitration Act, in particular, as to the meaning of the words “in respect of a defined legal relationship” in s 7(1). Cheshire contends there was no “arbitration agreement”, within the meaning of s 7(1), because the clause relied upon as the purported arbitration agreement did not itself define the legal relationship to which the clause was intended to apply. [6] Section 7 of the Commercial Arbitration Act provides: “7 Definition and form of arbitration agreement (cf Model Law Art 7) (1) An arbitration agreement is 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. 1 Cheshire Contractors Pty Ltd v Civil Mining & Construction Pty Ltd [2021] QSC 75. -- 2 of 8 -- 3 (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) The arbitration agreement must be in writing. (4) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract was concluded orally, by conduct or by other means. (5) The requirement that an arbitration agreement be in writing is met by an electronic communication if the information contained in it is accessible so as to be useable for subsequent reference. (6) In this section— data message means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy. electronic communication means any communication that the parties make by means of data messages. (7) Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other. (8) The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract.”2 [7] Section 8 provides: “8 Arbitration agreement and substantive claim before court (cf Model Law Art 8) (1) 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. (2) Where an action referred to in subsection (1) has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.” 2 Underlining added. -- 3 of 8 -- 4 [8] Cheshire contends that, upon the proper construction of s 7(1) of the Commercial Arbitration Act, it was essential that, to be an “arbitration agreement” within the meaning and for the purposes of that Act (in particular, s 8(1)), a clause in a contract which otherwise satisfies s 7 must itself define the legal relationship to which the clause is intended to apply. [9] In the present case, the purported arbitration agreement was contained in clause 12.3.3 of the subcontract. Clause 12 of the subcontract deals with disputes between the Parties, as follows: “12. Disputes 12.1 Early resolution It is mandatory that the Parties comply with this clause before a dispute or difference is referred to mediation. Disputes or differences arising between the Parties shall be negotiated between the Parties with the bona fide intention of resolution without unreasonable delay. 12.2 Continuation of the Subcontract Works In the event of any unresolved disputes or differences between the Parties, the Subcontractor shall ensure that the progress of the Subcontract Works is continued without any effect on the Subcontractor’s Program. 12.3 Settlement of Unresolved Disputes or Differences 12.3.1 If disputes or differences arising between the Parties cannot be resolved pursuant to clause 12.1 then either Party shall refer such disputes or differences to a CMC Director and in the case of the Subcontractor means a company director or partner of the Subcontractor of the respective Parties in writing. Within 7 days of receipt of the written referral of such disputes or differences to Company Directors, Directors shall meet or otherwise confer to hold good faith discussions in an effort to resolve the disputes or differences by amicable agreement. 12.3.2 Should the Parties fail to reach agreement in accordance with clause 12.3.1 the Parties agree that the disputes or differences shall within 14 days from the receipt of the written referral pursuant to clause 12.3.1 be referred to mediation. Either Party may refer the dispute or difference to ACDC in writing requesting the appointment of a mediator. The mediation shall be conducted in accordance with the Australian Commercial Disputes Centre (“ACDC”) mediation Rules and Procedures, and the Chairperson of the ACDC or the Chairperson’s nominee will select the mediator and determine the mediator’s remuneration. The Parties agree that he costs of any mediator appointed shall be borne equally between the Parties. 12.3.3 If the disputes or differences have not been settled within six (6) weeks (or such other period as may be agreed to in writing between the Parties) after the appointment of the mediator, the -- 4 of 8 -- 5 disputes or differences shall be referred to arbitration by either Party in accordance with and subject to The Institute of Arbitrators and Mediators Australia (Queensland Chapter), Rules for the Conduct of Commercial Arbitrations. In any arbitration both Parties shall be entitled to be legally represented. The Parties shall appoint an arbitrator within 7 days of referral to arbitration. If the Parties fail to agree on the identity of the arbitrator, the Parties agree that the President, for the time being of the Institute of Arbitrators and Mediators Australia, is on written request from a Party to appoint an arbitrator to hear and determine the disputes or differences. The Parties agree that they will not be able to proceed to arbitration unless clause 12.3.2 has first been complied with.”3 [10] At the beginning of the “formal instrument of subcontract”, the following appears: “THIS SUBCONTRACT is made on the 3 day of September 2015 (“Subcontract”) BETWEEN: CIVIL MINING & CONSTRUCTION PTY LTD … (“CMC”); and Cheshire Contractors Pty Ltd trading as Cape JV … (“Subcontractor”), jointly referred to as the ‘Parties’”. [11] Cheshire submits that one of the requirements appearing in s 7(1) of the Act is that the arbitration agreement must “define” the legal relationship with respect to which it is intended to operate. It further submits that the word “defined” where it appears in s 7(1) “requires – literally – a level of precision and specificity within the language of an otherwise compliant arbitration agreement that cannot be satisfied by mere implication or ‘vague allusion’.” Cheshire contends that clause 12.3.3 did not itself define the legal relationship to which that clause was intended to apply and therefore cannot be an “arbitration agreement” within the meaning of s 7(1) and for the purposes of s 8 of the Act. [12] At first instance, in dealing with Cheshire’s argument that the defined relationship must be ascertainable from the arbitration clause itself, effectively considered in isolation, Henry J said (at [29]): “Such a requirement would be contrary to orthodox principles of construction, particularly that the whole of the relevant instrument is to be considered in construing its meaning. Clause 12.3.3 falls for interpretation in the broader context of the document as a whole, which is that it is a clause within a contract. Clause 12.3.3’s references to the ‘The Parties’ is to the parties to the contract, that is, CMC and Cheshire. They have a defined legal relationship in that they are parties to a contract.”4 3 Underlining added. 4 References omitted. -- 5 of 8 -- 6 [13] CMC submits that Cheshire’s construction is too narrow and artificial. CMC submits that Cheshire’s construction changes the word “defined”, where it appears in s 7(1), from an adjective – a word used to describe the type of legal relationship that is required – into a verb, requiring a definition of the relevant legal relationship to be included in the arbitration agreement itself. CMC submits that all s 7(1) requires is that there be a defined legal relationship between the parties in respect of which certain disputes are to be referred to arbitration. That exists here. It is the relationship of contractor and subcontractor, as Parties to the subcontract. Further, CMC submits that the proper construction of s 7(1) of the Act is that the words “in respect of a defined legal relationship” perform the work of identifying that to be an arbitration agreement for the purpose of the Act there must be an identifiable legal relationship between the parties that gives rise to legal remedies. That is, that the work the words do is to exclude disputes where no legal remedy can be granted. [14] That construction is supported by authority. In Hi-Fert Pty Ltd v Kuikiang Maritime Carriers Inc (No 2) (1997) 75 FCR 583 at 594 Tamberlin J considered whether a claim under s 51A and s 52 of the Trade Practices Act 1974 (Cth) could be said to be a matter arising “in respect of a defined legal relationship”, within the meaning of the definition of “arbitration agreement” in the International Arbitration Act 1974 (Cth). The argument against this was that the claim arises from conduct in trade and commerce which describes “an activity not a legal relationship”. Tamberlin J held that: “This line of reasoning in my view should not be accepted. It assigns too narrow a meaning to the expression ‘defined legal relationship’. The expression ‘defined legal relationship’ is followed by the words ‘whether contractual or not’. These words indicate that the expression reaches beyond a relationship established by an agreement. The extensive expression ‘in respect of’ also indicates that a broad approach should be taken to the nature and extent of the relationship The ‘legal relationship’ can, on this approach, be defined by statute.” [15] That decision was referred to with approval in Methanex Motonui Ltd v Spellman [2004] 1 NZLR 95. In that case, Fisher J, in construing the meaning of the phrase “a defined legal relationship” in the almost identical provision in the New Zealand Arbitration Act 19965, held that “defined legal relationship” is to be given a broad meaning, and is neither confined to relationships recorded in documents nor to formal relationships such as contracts, trusts or partnership agreements (at [83] and [84]). Observing that there must be some limitation imposed by the expression “defined legal relationship” if complete redundancy is to be avoided, Fisher J said that, as a bare minimum, “the expression would seem to indicate that the dispute must be of a legal nature as distinct from a merely religious, cultural, academic, or social one” (at [85]). That reasoning was affirmed on appeal.6 [16] Fisher J’s reasoning was also endorsed by a later Court of Appeal, in Bidois v Leef [2015] 3 NZLR 474. In that case, the question was whether a dispute between two Maori groups as to who held the rights to manage a particular area of land was one legally capable of being the subject of an arbitration. The Court of Appeal at [48] held that a broad purposive approach is required to the interpretation of the phrase and at [49] observed that: 5 Methanex Motonui Ltd v Spellman [2004] 1 NZLR 95 at [64]. 6 Methanex Motonui Ltd v Spellman [2004] 3 NZLR 454 (CA) at [60]. -- 6 of 8 -- 7 “Despite the fact that this requirement of a ‘defined legal relationship’ appears in many international arbitration provisions, it has been noted that there are virtually no reported cases in which an arbitration agreement has been held to be invalid for failure to meet this requirement. That does not of course mean the element is of no effect, but it is indicative of a broad interpretation being required, given the Act’s stated purpose of allowing parties to refer disputes to arbitration.”7 [17] The construction of s 7(1) contended for by Cheshire is not supported on a textual analysis of s 7 of the Act, nor by reference to the context and purpose of the provision.8 [18] The Commercial Arbitration Act is adopted from, and intended to give effect to, the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (as adopted in June 1985, and amended in July 2006) with some adaptations for application to domestic arbitrations in Queensland.9 The paramount object of the Act is “to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense” (s 1AC(1)). The Act aims to achieve that paramount object by, inter alia, “enabling parties to agree about how their commercial disputes are to be resolved” (s 1AC(2)). As explained in the “Model Law note” to s 1 of the Act, “[t]he term ‘commercial’ should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not”. [19] Section 2A(1) of the Act provides that, in the interpretation of the Act, “regard is to be had to the need to promote, so far as practicable, uniformity between the application of this Act to domestic commercial arbitrations and the application of provisions of the Model Law …”. Accordingly, decisions from other jurisdictions in relation to the interpretation of equivalent provisions are both relevant and persuasive. [20] The interpretation of s 7(1) which is pressed by Cheshire does not find support in the words of the provision itself. Contrary to Cheshire’s submission, it is not a requirement of s 7(1) that the arbitration agreement must “define” the legal relationship with respect to which it is intended to operate. That is not what s 7(1) says. The subject of the arbitration agreement is the 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. As CMC submits, there must be a defined legal relationship – in the sense of an identifiable legal relationship giving rise to legal remedies – but it strains the language of s 7(1) to construe the words as requiring that the agreement itself must define that legal relationship. On Cheshire’s argument, s 7(1) would need to be read as though it said “[a]n arbitration agreement is 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, which is expressly defined in the arbitration agreement itself, whether contractual or not”. Questions that arise immediately include how the requisite “legal relationship” could be defined in the arbitration agreement, if it is not contractual? What if the arbitration agreement is constituted by the exchange of pleadings, as contemplated in s 7(7)? But even apart from those questions, the interpretation contended for by Cheshire is simply not supported by the words which are used in the provision. 7 References omitted. 8 R v A2 (2019) 373 ALR 214 at [32]-[33], [35]-[37]. 9 As part of an integrated statutory framework for international and domestic arbitration in each State and Territory in Australia: Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; (2019) 267 CLR 514 at [13]. -- 7 of 8 -- 8 [21] I am unable to discern anything from the purpose or broader context of s 7(1) which would support a strained interpretation of the words used, such as contended for by Cheshire. [22] The authorities referred to above, which are persuasive given the international context in which the Act operates, support a broad interpretation of the phrase “defined legal relationship” in s 7(1) and, likewise, support the construction contended for by CMC and adopted and applied at first instance by Henry J, namely, that the requisite “defined legal relationship” does not need to be recorded in the arbitration agreement itself. That construction reflects the natural and ordinary meaning of the words used in the section. [23] Here, the existence of a defined legal relationship could not be clearer. The arbitration agreement is contained in clause 12.3.3, which falls within clause 12 (dealing with disputes) of a subcontract between CMC (as contractor) and Cheshire (as subcontractor) entered into on a particular date. The disputes dealt with by clause 12 are “disputes or differences arising between the Parties”. Reading the definition of Parties into that phrase, where it appears in clause 12,10 makes it clear the relevant disputes are disputes or differences arising between CMC and Cheshire, as parties to the subcontract. The reference in clause 12.3.3 to “the disputes or differences” is plainly, on orthodox contractual construction principles, a reference to the disputes or differences arising between the Parties referred to elsewhere in clause 12. That is a “defined legal relationship” in the relevant sense. [24] The conclusion reached by Henry J was, in my respectful view, plainly correct. I would dismiss the appeal, with costs. 10 Bond v Chief Executive, Department of Environment and Heritage Protection [2018] 2 Qd R 112 at [10]-[11] and the authorities there referred to. -- 8 of 8 --