Sydney Jacobs, Barrister at 13 Wentworth Chambers and Vikram Misra, Barrister at Clarence Chambers continue their series into arbitration and mediation. In Part 9, Sydney and Vikram examine the approach to stay applications in international arbitrations, where one issue in controversy is within the arbitration clause, and another issue in controversy, is not. Follow their series here.
Say one issue between parties to an international arbitration agreement is comfortably within the arbitration agreement and hence within the arbitrator’s jurisdiction; but another issue between them, is wholly outside the arbitrator’s jurisdiction. What then? What principles guide the court where one party seeks a stay of the court proceedings and a referral to arbitration, and the riposte of the other party is that the issues ought not be split, and as such ought remain with the court.
The questions devolves to whether the issue is a “matter…capable of settlement by arbitration” within the meaning of section of 7 of the International Arbitration Act (1974) (Cth) (“the IAA”).
The High Court of Australia had the opportunity to consider what constituted a “matter”, in Tanning Research Laboratories v O’Brien (1990) 169 CLR 332, 351 where Deane & Gaudron JJ held as follows:
“In any context ‘matter’ is a word of wide import….the expression ‘matter … capable of settlement by arbitration’ may, but does not necessarily, mean the whole matter in controversy in the court proceedings. ‘Matter’ may, but does not necessarily encompass all the claims within the scope of the controversy in the court proceedings. ‘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. It requires that there be some subject matter, some right or liability in controversy which, if not coextensive 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.”
In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc  FCA 547; (2000) 100 FCR 420, Merkel J considered that the judgment of Deane and Gaudron JJ in Tanning Research Laboratories was authority for the view that ‘matter’ is to be ascertained by reference to the subject matter of the dispute in the proceeding and the substantive (although not necessarily the ultimate) questions for determination in the proceeding. The scope of the matter is to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including the defence, are based. Merkel J analysed how the court’s discretion to control its own processes ought be exercised, as follows:
“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 nonarbitrable claims where the arbitrable claims are seen to be subsidiary to or significantly less substantial than, but overlapping with, the nonarbitrable claims: see HiFert at 1678: cf Dodwell & Co (Aust) Pty Ltd v Moss Security Ltd (Fed C of A, Wilcox J, 11 April 1990, unreported) at  and . The discretion may also be exercised to stay the proceeding where the nonarbitrable claims are the ancillary claims.
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 ….”
The opportunity to apply these authorities was recently afforded in Duro Felguero Australia Pty Ltd v Samsung C & T Corporation  WASC 90, where one issue between parties to an international arbitration agreement was whether a call on a performance bond was properly made by the grantee, Samsung (an issue within jurisdiction of the arbitrator); and another issue that arose between the parties, which was not within the arbitrator’s jurisdiction, was whether Samsung had given an undertaking to the court, regarding the proceeds of that call. That is because:
- the power to accept and enforce an undertaking is an ‘invariable attribute’ of a superior court whose proceedings are protected by rules relating to contempt of court: Thomson Australian Holdings Pty Ltd v Trade Practices Commission(1981) 148 CLR 150, 164; and
- a matter that relates to ‘rights which are … required to be determined exclusively by the exercise of judicial power’ is not arbitral: Tanning Research Laboratories Inc v O’Brien(1990) 169 CLR 332,
Applying these authorities, it was held that the claims were really a single controversy, viz whether Samsung was entitled to the further $8.5m security; that claim was within the definition of “Dispute” in the arbitration agreement, it was a matter capable of settlement by arbitration; and thus must be referred; and significantly, that the non-arbitrable claims were “ancillary”.
This case gives a further example of the way in which courts uphold international arbitration agreements, consistent with the objects and purposes of the IAA.
With over 20 years’ experience as a barrister, Sydney Jacobs practices in the areas of commercial law and equity, real property and building and construction law. He has acquired experience in the area of easements: he has obtained easements for applicants and otherwise appeared in the cases listed below, has a number of current matters in the NSW Equity Division Real Property List being case -managed to final hearing 2018 and is briefed in certain easement matters being worked up for filing in Court. Prior to being called to the Bar, Sydney was a solicitor in the well -known firms listed below, as a commercial litigator with a construction law focus. Sydney has experience in acting for clients seeking or opposing easements and clients whose rights of way have been impeded by neighbours. You may connect with Sydney via email [email protected] or LinkedIn
Vikram Misra was admitted as a solicitor in 2012 and called to the NSW Bar in 2015. He maintains a broad commercial practice and is regularly briefed in matters relating to taxation law, property law, construction law and equity. Vikram has completed a Graduate Diploma in Taxation Law at the University of Sydney in 2015 and a Master of Laws majoring in construction law and contract law at the University of Melbourne in 2016. You may connect with Vikram via email [email protected] or LinkedIn
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