Sambhu Lal Constructions (Fiji) Ltd v Warren [2011] FJHC 63; Action 44.2008 (11 February 2011)

IN THE HIGH COURT OF FIJI
AT LABASA
CIVIL JURISDICTION

Action No: 44 of 2008

BETWEEN:

SAMBHU LAL CONSTRUCTIONS (FIJI)Ltd a limited liability company having its registered office at Savusavu.
PLAINTIFF

AND:

MICHAEL HUGH GEOFFREY WARREN and LESLEY WARREN both of Lot 5 Maravu Estate, Savusavu.
DEFENDANTS

Appearances: Mr. Sen of Maqbool & Co, Solicitor for the Plaintiff
Mr P Knight of Cromptons, Solicitors for the Defendants

RULLING

This is an application by the Defendants by Summons dated 21 July, supported by the affidavit of the 1st Defendant for the following orders:-

1. That this action be stayed pursuant to section 5 of the Arbitration Act. Cap. 38;

2. For an Order that the action be referred to arbitration for resolution; and

3. That the Plaintiff to pay the Defendants costs of this application.

The application was opposed by the Plaintiff.

BACKGROUND

The parties entered into an agreement on or about the 24 May 2004 whereby the Plaintiff for a consideration of $412,000:00, was to build for the Defendant a house on the Defendant's block of land at Maravu Estate in Savusavu. This agreement was partly oral and partly written. A dispute later arose regarding the construction and building of the house which resulted in legal proceedings being taken by the Plaintiff. The Defendant now wishes to have this dispute resolved by way of arbitration under a provision of the agreement and sought leave to stay the proceedings in the High Court under section 5 of the Arbitration Act.

THE APPLICATION

The Defendant in its affidavit in support of the motion deposed as fiollows:-

1. That he is the defendant in the action and that the action is brought to recover damages for an alleged breach of a building contract;

2. That the building contract comprises of a number of documents which were annexed to the affidavit and they are:-

(i). a copy of the Plaintiff's letter to the Architects Pacific dated 14 May 2004;

(ii). a copy of the Architects Pacific letter to the Plaintiff dated 24 May 2004; and

(iii). a copy of the Fiji Standard Form Building Contract Private Edition 1978 Without quantities.

3. That Clause 33 of the Conditions forming part of the Fiji Standard Form of Building Contract which is one of the contract documents provides that any dispute arising between the parties shall be referred to arbitration.

4. That all the matters in dispute in this action are within the scope of the said contract to refer to disputes and differences arising there under to arbitration and arose before the commencement of the action and are fit and proper matters to be referred to arbitration and there is no reason why they should not be so referred and decided.

THE OPPOSITION

The Plaintiff opposes the application and in its affidavit in opposition the Director of the Plaintiff Company, Sambhu Lal of Savusavu deposed so far as is relevant the following:-

1. That this action is at the Pre-Trial stage and this had not been completed by reason of the Defendant not attending to the pre-trial conference;

2. That the Defendants had not complied with orders of the Court regarding affidavits verifying list of documents and that they had not appeared in Court on a number of occasions;

3. That the Plaintiff does not wish this matter referred to arbitration; and

4. That this application is only brought to frustrate and delay the proceedings.

THE APPLICANT/DEFENDANT'S SUBMISSION

The Applicant/Defendants in their submission states that the Plaintiff has filed claim for damages for alleged variations to the work done but that the variations were in fact not variations but that the Plaintiff did not construct the building in accordance with the contract. That they have counter-claimed against the Plaintiff's for damages of $278,112:00 arising from costs incurred by them to complete the construction of the residence.

That the contract comprises of those letters and standard building contract as annexed to the affidavit in support. And that clause 33 of the conditions forming part of the Fiji Standard Form Building Contract provides that any dispute arising out of the contract is to be referred to arbitration for resolution. The Defendant further submits that section 5 of the Arbitration Act Cap.38 provides that a party to a contract which provides for disputes to be referred to arbitration may apply to the Court for a stay of any Court proceedings brought by the other party. Lastly the Defendant submits that building contracts are by their very nature complicated and involve technical matters requiring specialists treatment. The dispute in this matter involves the nature of alleged variations to the contract and claims of deficient and uncompleted work which requires the interpretation of plans and specifications. It is therefore submitted that the disputes can be most efficiently and expeditiously handled by a person who is a specialist in building contracts.

The Plaintiff did not provide the Court with any submissions although an order for submission in reply was given on the 13 October 2010.

HEARING

At the hearing of the matter the Defendant refers to the submission made and relied on the English decision in W. Bruce LD. v.J. Strong (1951) 2 K.B. 447 as authority to the proposition that, where parties to a contract agree to have any dispute arising from the contract to be resolved by arbitration, the Court will grant a stay under the Arbitration Act unless in the Court's discretion, it seems convenient to have the issues tried directly in the action. The Defendant concedes that under Section 5 of our Arbitration Act an application to have the matter arbitrated may be made "at any time after appearance and before delivering any pleadings" and that this application was made after appearance and after delivering pleadings.

The Plaintiff through its Counsel in opposition submits that the claim is in two parts, the first part relates to the building contract and the second part to a dishonoured cheaque and the application does not refer to which part to be arbitrated. That there was no indication from the Defendant that they preferred to take another course, i.e. arbitration. That after the claim was filed other pleadings including counter-claim without any reference to arbitration. That the matter is at a pre-trial conference stage and an order was made for the pre-trial conference before the application was made. That the application is not a bona fide application, and that if it were then they should have applied at the early stage of the proceedings. That no discretion should be exercised by the Court because of the delay in bringing the application hence section 5 of the Arbitration Act does not apply. That there are no complications in the action which requires arbitration. Finally in its submission the Defendant says that taking into account the background of the proceedings no discretion should be exercised.

In reply the Defendant's Counsel submits that it is acknowledged that there are two parts of the claim but that the issues are intimately involved as it arose out of the work done. The Defendant acknowledges that section 5 of the Arbitration Act says "after appearance and before delivering any pleadings" but that it is established law that where parties agree to refer matter to arbitration the Courts have upheld that.

DETERMINATION

This application in my view can be determined only on one issue and that is whether the Defendant's application can be stayed under the provision of section 5 of the Arbitration Act, Cap. 38 and thereafter the matter be referred to arbitration. There is no dispute that the contract between the parties included those documents and correspondence annexed to the affidavit of Michael Hugh Geoffrey Warren and marked as "Annexure MGHW 1,2,3 respectively. At least nothing was raised by the Plaintiff at the hearing and nothing in his affidavit in opposition to depose otherwise. It is also not in dispute that the contract between the parties included a clause (Clause 33) which provides that any dispute arising between the parties shall be referred to arbitration.

The only relevant issue raised in opposition was that the application to resolve the dispute was made after the pleadings was entered into and delivered and that this is contrary to the requirements of section 5 of the Arbitration Act.

Section 5 of the Arbitration Act states:-

If any party to a submission, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the submission, or any other person claiming through or under him, in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings, and that court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission and that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings.

The phrase "at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings" seems to be the determining phrase in respect as to when an application for arbitration can be made. However, in FAI Insurance (Fiji) Ltd –v- Consort Shipping Line Ltd (1999) FJCA 10; Abu 0075u.98s the Court of Appeal ruled that a party's readiness and willingness to go to arbitration was the more relevant consideration. The particulars of the above case were that Consort Shipping Line Ltd and FAI Insurance entered into a contract of insurance in which FAI insured Consort Shipping against loss of its vessels. Consort Shipping lost two vessels at sea and a dispute arose regarding FAI's liability to compensate Consort Shipping for the loss of the vessels. The insurance policy referred to as the "standard marine hulk policy" included a clause which provides that all differences between the parties be referred to the decision of an arbitrator.

In the initial action in the High Court, Consort Shipping issued a generally indorsed Writ claiming damages arising from an accident to two of its vessels covered by the contract of insurance. After the issue of the writ, Consort Shipping as the Plaintiff then proceeded by Summons, filed some seven months later, seeking a declaration to have the matter referred to arbitration pursuant to the relevant clause of the insurance policy. Justice Scott treated the Summons as an application for stay under section 5 of the Arbitration Act and having granted the stay said:-

Having closely examined section 5 of the Act I concluded that an appearance having been entered and no pleadings having been delivered the Court had jurisdiction to stay the legal proceedings commenced by the Plaintiff and to refer the matter to arbitration providing it was satisfied that:

(a) there was no sufficient reason not to refer the matter to arbitration; and

(b) the Plaintiff was first, when the writ was issued and secondly, now ready and willing to "do all things necessary to the proper conduct on the arbitration".

The Defendant FAI then sought leave to appeal against that decision. The application was heard by Justice Scott who refused leave and on this refusal the Defendant appealed for leave to the Court of Appeal. The grounds of appeal there were:-

(i). That Scott J had erred in not finding that the Respondent (Consort Shipping) had agreed to vary the insurance contract to allow disputes to be adjudicated by the High Court or had waived its right to have the dispute referred to arbitration and by estoppel was prevented from exercising it; and

(ii). That Scott J had erred in not holding that section 5 of the Arbitration Act. (Cap. 38) precluded the respondent (Consort Shipping) requiring arbitration after it had commenced the action in the High Court.

This leave to appeal was also refused. The Court of Appeal found that the applicant had not waived its right to have the dispute to arbitration notwithstanding that it had initiated proceedings in the High Court. The submission by the appellant in this instance was that, in the proper reading of Section 5 of the Arbitration Act, the Court could not be satisfied that the respondent was at all material times prepared to go to arbitration in that it had initiated the proceedings in the High Court. That is, that the act of initiating the proceedings in the High Court, should be seen as a waiver of its right to arbitration. The Court said otherwise.

On the question of section 5 of the Arbitration Act precluding the respondent (Consort Shipping) from requiring arbitration after it had commenced the action in the High Court, Honourable Justice Ian Thompson said:-

"In my view the applicant's attempt to rely on Section 5 of the Arbitration Act is misconceived. That section requires a party seeking to have an action stayed to show that "he was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration." It is difficult to see why the commencement of the action by the respondent's solicitors before they became aware of the requirement of arbitration in the applicant's standard policy should be regarded as preventing the respondent from showing that it was not in breach of the requirement of section 5, that is to say that at all relevant times it was "ready and willing to do all things necessary for the conduct of the arbitration". The commencement of an action in a court of law will often indicate a lack of such readiness and willingness but I agree with Scott J. that it will not necessarily do so and, more particularly, that in the circumstances of the present case it did not do so".

The Court after having arrived at the above conclusions next turned its attention to the complexity of the matters in dispute which requires arbitration. The Court said:-

"The matter in dispute between the parties is pre-eminently suited to determination by arbitration by an arbitrator with experience of ships, their navigation, marine accidents and marine insurance. Doubtless that is why the applicant made it a term of its standard policy that referral of disputes to arbitration was to be mandatory. In those circumstances I can find no good reason why the instant dispute should not have been referred to arbitration. I cannot accept that the applicant will suffer detriment from the referral ordered by Scott J. Nor can I accept that any important questions of law are raised that require determination by this Court".

And further the Court was satisfied:-

"... that Scott J.'s order of stay and referral to arbitration serves well the interests of justice and the sound administration of the judicial system..."

It appears then that even if proceedings has commenced in the High Court an application for stay can be granted if the party making the application is willing and ready to do all things necessary for the conduct of arbitration. Therefore the readiness and willingness of the party to conduct arbitration was the necessary ingredient and not whether the proceeding has commenced. This Court is therefore bound to follow the above decision of the Court of Appeal.

I am also of the view that the matter in dispute between the parties are better suited to be arbitrated by an arbitrator with experience in the technicalities of building structures and architecture and good workmanship. These matters do not raise any important questions of law and do not require the determination of the Court. The plaintiff has not showed that he would suffer any detriment if the matter were to be arbitrated only that the application was made at a late stage of the proceedings.

However before I make any orders I wish to address the issue of costs. It is clear, in my view that both parties were aware of the availability to them of the arbitration clause and that relief of any dispute between them could be achieved in this manner. Hence it is in the interest of both parties to pursue this option before the issuance of a claim for damages arising from any dispute. I agree with the applicant's view that the dispute could not be separated but arose from the same transaction and can be dealt with at arbitration. However I hold the applicant more responsible in having this matter proceed to the stage of litigation where it's at notwithstanding the plaintiff taking the option to issue the writ in the High Court. As a consequence I hold that the applicant/defendant should pay the plaintiff's cost of this application. I therefore make the following orders:-

1. That this action be stayed pursuant to section 5 of the Arbitration Act. Cap. 38;

2. That the action be referred to arbitration for resolution forthwith; and

3. That the Defendant/Applicant to pay the Plaintiff's costs which I summarily assess at $500:00.

4. That the other costs be costs in the cause.

11 FEBRUARY 2011

MASTER

HIGH COURT LABASA