Housing Authority v Bulileka Hire Services Ltd [2022] FJSC 12; CBV0016.2019 (29 April 2022)

IN THE SUPREME COURT OF FIJI
[CIVIL APPELLATE JURISDICTION]

CIVIL PETITION No: CBV 0016 of 2019
[On Appeal from Court of Appeal No: ABU 0041 of 2016]

BETWEEN:

HOUSING AUTHORITY
Petitioner

AND:

BULILEKA HIRE SERVICES LTD
Respondent

Coram: Hon. Mr. Justice Kamal Kumar, President of the Supreme Court Hon. Mr. Justice Buwaneka Aluwihare, Judge of the Supreme Court
Hon. Mr. Justice Priyasath Dep, Judge of the Supreme Court

Counsel: Mr. V. Maharaj for the Petitioner
No Appearance for the Respondent

Date of Hearing: 13 April 2022
Date of Judgment:29 April 2022

JUDGMENT

Kumar, P:

1. I agree with the reasoning and judgment of His Lordship Justice Dep.
   

Aluwihare, J:

2. I have had the opportunity of perusing in draft the judgment of Dep J. I agree with his reasoning and conclusions and orders proposed by him.
   

Dep, J:

Petition for Special Leave to Appeal

INTRODUCTION

3. The Housing Authority, a statutory body duly registered under the provisions of Housing Act (Cap.267) hereinafter referred to as Petitioner on 9^th February 2009 entered into a contract with Bulileka Hire Services Ltd. hereinafter referred to as Respondent for the construction of sites and infrastructure services at Wainibuku Residential Subdivision at Nakasi, Nasinu.
   
4. The parties agreed that the Petitioner shall pay to the Contractor the sum of $6,701.193.00 inclusive of Value Added Tax or such greater or lesser sum as shall become payable under the contract document at the time and in the manner provided in the Contract Documents.
   
5. The parties adopted the conditions contained in the New Zealand Conditions of Contract for Building and Civil Engineering Construction NZ 3910:2003 as the contractual document. The parties agreed that commencement date of the contract was 9^th February 2009 and the completion dated was to be 9^th May 2010.
   
6. The Petitioner on 25^th March 2010 after a meeting with the Respondent decided to issue a suspension/stop work order to the Respondent under the provisions of the contract. This is for the purpose of enabling the Petitioner to engage an Engineering Contractor to carry out compaction testing in the subdivision as it became aware that the Respondent had been filling the gully areas with unsuitable fill material.
   
7. The Petitioner engaged the services of ENTEC Limited to carry out compaction testing. The testing was completed on 1^st May 2010 and the Final Report was submitted by ENTEC Limited to the Petitioner on 8^th May 2010.
   
8. The Petitioner submits that the test results revealed that 95% of the test carried out failed as the fill material was not in conformity with requirements in the specification as per the contract.
   
9. The Respondent disputed the test results of ENTEC and declined to carry out remedial works in the areas identified by ENTECT in its report.
   
10. The Petitioner by its letter dated 28^th September 2010 informed the Respondent that since the Respondent did not agree with the test results of the Compact Test Report dated 7^th May 2010 carried out by ENTEC Ltd, the Petitioner had decided to invoke Clause 13.2.3 of the Contract Documents and refer the dispute to an Independent Engineer with a request to make recommendations to resolve the matter.
    
11. The Petitioner nominated Mr. Terrance Erasito of Erasito Consultants Ltd. to review the Compaction Test results of ENTECT Ltd. and Public Works Department and provide recommendations to resolve the matter amicably.
    
12. The Respondent failed to co-operate with the Petitioner’s request for the appointment of an Engineer for the resolution of the dispute and further refused to carry out any remedial works in the gully area causing the development project to stop.
    
13. The Petitioner by its letter dated 14^th of October 2010 informed the Respondent that “Since you have chosen not to respond to our suggestion it is abundantly clear that you are not prepared to co-operate with us in finding an early solution. In the circumstances the principal is left with no option but to exercise its powers as we hereby do, under clause 14.2.3 of the Contract and you are hereby expelled from this Contract as from the date of the letter”. Thereby Petitioner by exercising its powers terminated the Contract.
    

PROCEEDINGS IN THE HIGH COURT

14. The Respondents on 2^nd March 2011, about 5 months after the termination of the contract by Writ of Summons instituted action in the High Court Civil Action No. 57/2011 in which, amongst others, it sought an order for the return of its plants and equipments and damages in the sum of $4,145,800.00 for breach of contract and illegal possession of plant and equipments.
    
15. The Petitioner on the 13^th of April 2011 filed its Statement of Defence denying any breach of contract and made a Counter Claim against the Respondent in the sum of $2,048,012.45.The Respondent on 11^th August 2011 filed defence to Counter Claim and reply to Statement of Defence.
    
16. The Respondents on 14^th January 2014 filed a Minutes of Pre-Trial Conference in which it was agreed by both parties that one of the issues for the determination by the Court would be:

“Whether contract stipulated that any dispute between the parties were to be determined through an arbitration process prior to commencement of any legal action in a Court of Law”.

17. The Petitioner on 8^th October 2015 filed a Summons in which it sought determination of preliminary issues, namely:
    
    • (i) Whether the Plaintiff is entitled to proceed with the matter without first referring the dispute between the parties for Arbitration.
    • (ii) Whether Court should stay the proceedings and direct the parties to refer the matter for arbitration.
      
18. 18. The trial was fixed for 2^nd November 2015. The parties on 6^th July2015 informed Court that they had agreed to nominate an engineer to go through the reports filed of record and to give his opinion but the parties had not been able to agree on an engineer to obtain an independent opinion on the reports.
    
19. 19. On an application made by the parties on 22^nd November 2015, the Plaintiff (Respondent) and the Defendant (Petitioner) were given time to file amended Statement of Claim and amended Statement of Defence. On the same day, the Defendant (Petitioner) had taken up a preliminary objection to the effect that the Plaintiff (Respondent) could not maintain the action without referring the dispute to arbitration.

His Lordship Justice Lyon Seneviratne having heard the submissions of both parties, by his Ruling delivered on 19^th January 2016 overruled the objection to the maintainability of the action without first referring the dispute to arbitration and refused the application to stay proceedings. The Defendant (Petitioner) was ordered to pay a cost of $1000.00 summarily assessed.

20. The Petitioner on 2nd February 2016 filed a Summons for Leave to Appeal to the Fiji Court of Appeal and for a Stay pending Appeal.
    
21. In the High Court a Preliminary objection was taken by Counsel for the Respondent challenging the authority of Josefa Serulagilagi to swear an Affidavit on behalf of Housing Authority. (Petitioner). On 25^th April 2016 the High Court delivered a ruling whereby the Court struck out the Affidavit of Josefa Serulagilagi. The Petitioner states that the High Court did not decide on the Petitioner’s Summons for Leave to Appeal to Fiji Court of Appeal on its merit.
    
22. The Petitioner filed another Summons in the High Court in which it sought an Order that the Petitioner’s application for Leave to Appeal to the Fiji Court of Appeal be heard and determined on its merits.
    
23. His Lordship Justice Seneviratne on 23^rd January 2017 delivered his ruling whereby he dismissed the application for Leave to Appeal and Stay of proceedings.
    

Fiji Court of Appeal

24. The Petitioner on 4^th May 2016 filed a Leave to Appeal and Stay pending appeal application in the Fiji Court of Appeal pursuant to section 12 (2) (f) of the Court of Appeal Act 1949 and Rule 34 (1) of the Court of Appeal Rules 1949. This application was for Leave to Appeal and Stay pending Appeal against the decision of the High Court dated 19^th January 2016 refusing to stay the proceedings and direct the parties to refer the dispute to Arbitration.
    
25. The Leave to Appeal application to Fiji Court of Appeal was heard by Justice Chandra RJA on 30^th January 2019 and the Ruling was delivered on 27^th June 2019 whereby his Lordship refused leave.
    
26. The Petitioner submits that Fiji Court of Appeal in refusing leave to appeal adopted the reasoning of the High Court that the reference to arbitration was not a compulsory requirement. Aggrieved by the Rulings of both the High Court and Court of Appeal the Petitioner on 26^th July filed this Petition for special leave to appeal.
    

Special Leave to Appeal Petition in the Supreme Court

27. The Petitioner in order to obtain leave has to satisfy the requirement in section 7 (3) of the Supreme Court Act 1998 which states:

In relation to civil matters (including a matter involving a constitutional question) the Supreme Court must not grant special leave to appeal unless the case raises-

(i) a far-reaching question of law;
(ii) a matter of general or public importance; or
(iii) a matter that is otherwise of substantial general interest to the administration of civil justice.

28. The Petitioner submits that for the reasons set out in the Petition and in the written submissions, leave to appeal be granted from the judgment of the Court of Appeal dated 27 June 2019 as it raises the questions set out in section 7(3) of the Supreme Court Act 1998.
    

29. The Petitioner has set out the following grounds of appeal.

The learned Judge of Appeal Court erred in law and in fact in:

(i) Failing to properly consider section 3 of the Arbitration Act 1965 which provides that a submission is irrevocable without leave of the court or by consent.
(ii) Failing to properly consider the interaction of sections 3 and 5 of the Arbitration Act 1965.
(iii) Failing to find that “may” where used in clause 13.4.1 of the contract was permissive rather than exclusive as held by the Privy Council in Anzen Limited and others v Hermes One Limited [2016 UKPC1]).
(iv) Failing to find that it follows therefore that Anzen is authority for the proposition that a party wishing for a dispute to be arbitrated may do so before or after litigation is commenced.
(v) Failing to apply or misapplying the principles expressed in Bruce Ltd v Strong (1951) 2 KB 447; FAI Insurance Fiji Ltd v Consort Shipping Line Ltd (1999) FJCA 10.
(vi) Erred in holding that your Petitioner did not make any submissions before the High Court that the dispute was “eminently suited to be resolved by way of arbitration”.

1. Clarity is required as to the interaction of sections 3 and 5 of the Arbitration Act 1965.
2. Judicial consideration in Fiji is required of the decision of the Privy Council in Ansen as to the proper construction of “may” in arbitration clauses.
   

30. The reliefs sought by the Petitioner are:
    
    1. That the Ruling of the Court of Appeal be set aside
    2. That High Court proceedings HBC 57 of 2011 be stayed pending arbitration of the dispute between parties.
    100. That the dispute between the parties be referred to arbitration in accordance with the terms of the contract dated 9^th February 2009.
    4. That the Respondent pay the Appellant’s costs of the proceedings in this Court, the Court of Appeal and the High Court.
       
31. In this case the main issue is whether submission of a dispute to arbitration before instituting action in a court of law is mandatory or not. Therefore this Court is now required to interpret arbitration clause in clause 13.4.1 of the contract entered into between the parties and also to consider the implication of Section 2,3 and 5 of the Arbitration Act of 1965.
    
32. Clause 13.4.1 states: If either:
    
    • (a) The Principal or the Contractor is dissatisfied with the Engineer’s decision

under 13.2.4; or

(b) No decision is given by the Engineer within the time prescribed by 13.2.4;

Then either the ‘Principal or the Contractor may by notice require that the matter in dispute be referred to arbitration.

33. It is significant that the word ‘may’ was used instead of ‘shall’. In interpreting the arbitration clause both the High Court and the Court of Appeal held that to refer to arbitration is not mandatory and it is an option available to parties.
    
34. The Petitioner both in the High Court and in the Court of Appeal strenuously argued that in terms of the Agreement entered into between the parties and under the provisions of the Arbitration Act it is mandatory to refer disputes to arbitration before instituting proceedings in a Court of Law. Therefore action filed by the Plaintiff Respondent cannot be maintained and for that reason moved to stay proceedings. The Petitioner cited several English and local authorities in support of its proposition.
    
35. Therefore this Court has to consider whether clause 13.4.1 of the Contract is a binding Agreement to refer disputes to arbitration and whether it is mandatory or not. I will now proceed to consider the Grounds of Appeal.
    

Ground 1

36. The Petitioner’s first ground of appeal is that the High Court and the Court of Appeal erred in law and in fact when they failed to properly consider sections 3 of the Arbitration Act 1965.
    
37. It was submitted by the Petitioner that the Agreement between the Petitioner and the Respondent to resolve their disputes by arbitration is a ‘Submission’ to arbitration within the meaning of section 3 of the Arbitration Act of 1965 and it is irrevocable except by leave of the Court or by mutual consent.
    
38. It is necessary to consider section 3 with section 2 of the Arbitration Act. Section 2 gives an interpretation to the word ‘submission’. It states “unless the context otherwise requires-

‘Submission means a written Agreement to submit present or future differences to arbitration whether an arbitrator is named therein or not’.

The legal effect of a submission is given in section 3 of the Arbitration Act which states:

“A submission, unless a contrary intention is expressed therein, shall be irrevocable, except by leave of the Court or by mutual consent and shall have the same effect in all respects as if it had been an Order of the Court”.

39. The Petitioner submits that neither party had sought leave of the Court nor mutually consented to revoke the ‘Submission’ at any stage of the proceedings. Therefore, submission remains legally binding on both parties.
    
40. Therefore, Petitioner submits that the High Court in its Ruling on 19^th January 2016 and the Court of Appeal in its Ruling on 27 June 2019 erred in law in failing to consider the applicability of the provisions of section 3 of the Arbitration Act.
    

Ground 2

41. The Petitioner second ground of appeal is the failure to properly consider the interaction of sections 3 and 5 of the Arbitration Act 1965
    
42. The Petitioners in the written submissions referring to section 5 stated that ‘that both the High Court and the Court of Appeal took a very restrictive approach in relation to when the application for stay should be made and failed to appreciate the interaction between section 3 of the Act which is irrevocable and section 5 which confers discretion to the Court to stay the proceedings at any stage if the Court is satisfied that there is no sufficient reason why the matter should not be referred to Arbitration in accordance with the Submission if the Court is also satisfied 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.’
    
43. It is the contention of the Petitioner that clause 13 of the Contract which stipulates that a dispute ‘may’ refer to arbitration is a ‘submission’ within the meaning of section 3 of the Arbitration Act which is irrevocable without the leave of the Court or by consent. There is no time limit for referring a dispute to arbitration under clause 13 of the Agreement. Therefore section 5 of the Arbitration Act permit the parties even at a later stage of the proceedings to apply to the Court to refer the dispute to arbitration.
    
44. The High Court in its ruling dated 19^th January 2016 acted on the basis that the reference to arbitration is not mandatory and thereby refused to stay proceedings. According to the High Court Ruling, the application to stay should be made ‘before delivering pleadings or taking any other steps in the proceedings’. The Court of Appeal in its ruling approved the decision of the High Court. In this case application to stay was made four years after the commencement of litigation which was not in compliance with section 5 of the Arbitration Act. I hold that where a party to the contract institutes court proceedings in defiance of a valid arbitration clause then the other party is to move the Court to stay proceedings prior to taking any steps in the proceedings.
    

Ground 3 and Ground 4

45. These grounds are based on the judgment of the Privy Council in Anzen Limited and others v Hermes One Limited [2016 UKPC1]) delivered on 18^th January 2016.These grounds are:

Ground 3

47. Failing to find that “may” where used in clause 13.4.1 of the contract was permissive rather than exclusive (as held by the Privy Council in Anzen Limited and others v Hermes One Limited [2016 UKPC1]
    

Ground 4

48. Failing to find that it follows therefore that Anzen is authority for the proposition that a party wishing for a dispute to be arbitrated may do so before or after litigation is commenced
    
49. It is to be observed that the case of Anzen Ltd was not cited before the High Court or the Court of Appeal. High Court Judgment was delivered on 19^th January 2016, a day after the date of the Anzen Judgment. This judgment was not cited before the Court of Appeal which delivered the Ruling on 27^th June 2019. This Court is now invited for the first time to consider this judgment. Before considering this Judgment, I will refer to the Ground 5 which refers to several cases cited before the High Court and Court of Appeal where according to the Petitioner the Court failed to apply or misapplied the principles expressed in those judgments. It will be advisable to consider these cases before considering the case of Anzen Ltd. and others referred to in Ground 3 and 4.
    

Ground 5

50. Failing to apply or misapplying the principles expressed in Bruce Ltd v Strong (1951) 2 KB 447; FAI Insurance Fiji Ltd v Consort Shipping Line Ltd (1999) FJCA 10.
    
51. The Petitioner in the submissions made in both in the High Court and Court of Appeal relied on the King’s Bench Division decision in W. Bruce Ltd. vs J. Strong. It is necessary for this Court to examine the reasoning in this case to ascertain whether lower courts failed to understand or misapplied the principles laid down in this case as stated by the Petitioner and also to ascertain how far it supports the Petitioner’s case.
    
52. This case deals with a Sale of Goods Agreement between Dry Fruit Trade Association and its members.The contract of sale incorporated the rules of the Association. Referring to Rule 21 and 21 A, at page 448 of the Judgment it states “r. 21 made it a condition precedent that neither buyer nor seller nor any person claiming under either of them should bring any action against the other of them in respect of any dispute until it had been settled by arbitration. Rule 21A provided that, should a demand for arbitration not have been made in writing within two months after the arrival of the goods or the latest date on which in the ordinary course they should have arrived, the right to arbitration was to be considered to be waived and absolutely barred. Rule 50 states “Any dispute arising out of a contract, shall be “determined by arbitration in London, in accordance with the rules of the association”.
    
53. The Judgment refers to an arbitration clause often called as ‘Scott and Avery clause’ making an award a condition precedent. This clause was based on a House of Lords decision in Scott vs. Avery, reported in [1856] EngR 810; (1855) 5 HL CAS 811.
    
54. In Russell on Arbitration, Scott v Avery clause was explained as: “While parties cannot by contract oust the jurisdiction of the courts, they can agree that no right of action shall accrue in respect of any differences which may arise between them until such differences have been adjudicated upon by an arbitrator”.
    
55. As regards to the issue of referring to arbitration the Court held-

“Where the parties to a contract have agreed that any dispute arising out of that contract shall be submitted to arbitration and that an award shall be a condition precedent to any legal proceedings in respect of that dispute, the court will grant a stay under s.4 of the Arbitration Act 1950, unless in its discretion it deems in a more convenient mode of trial to have the matter tried directly in the action”. [p 447]

56. In Bruce vs Strong, the Court considered the words in rules of the Association especially in rules 21, 21A and 50 such as ‘shall and ‘should’ and held that settlement of dispute by arbitration is a condition precedent to filing action in a court of law.
    
57. Therefore both the High Court and the Court of Appeal did not follow the Judgment in Bruce vs. Strong as in the present case word ‘may’ was used in relation to arbitration unlike in the Bruce where words ‘shall’ and ‘should’ were used..
    
58. This Court will now reverts to grounds 3 and 4.
    
59. In Anzen case, Privy Council has to interpret an arbitration clause in a shareholder Agreement providing that “any party may submit the dispute to binding arbitration”.
    
60. The Privy Council stated that the key to this appeal lies in the construction of the arbitration clause (clause 19.5) and took into consideration the following three possible analyses.
    
    1. The words “any party may submit the dispute to binding arbitration” are not

only permissive, but exclusive, if a party wishes to pursue the dispute by any form of legal proceedings (Analysis I).

2. The words are purely permissive, leaving it open to one party to commence

litigation, but giving the other party the option of submitting the dispute to binding arbitration, such option being exercisable either by:

Commencing an ICC arbitration, as the respondent submits and Barrister J and the Court of Appeal held (analysis II); or

100. Requiring the party which has commenced the litigation to submit the dispute to arbitration, by making an unequivocal request to that effect and/or by applying for a corresponding stay, as the appellants have done (analysis III).
     

61. In this Judgment. the Privy Council expressed its opinion regarding the use of words ‘may’ or ‘shall’ thus:
    

“Arbitration clauses commonly provide that unresolved disputes “should” or “shall” be submitted to arbitration. The silent concomitant of such clauses is that neither party will seek any relief in respect of such disputes in any other forum:

However, even the words “should” or “shall” cannot be taken entirely literally. There is no obligation to commence arbitration, if a party decides to do nothing. But the words “should” and “shall” do make clear that it is a breach of contract to litigate.”

As with any issue of construction, the language and context of the particular Agreement must ultimately be decisive. But clauses depriving a party of the right to litigate should be expected to be clearly worded – even though the commercial community’s evident preference for arbitration in many spheres makes any such presumption a less persuasive factor nowadays than it was once. The consequence of the appellant’s case would, at least in theory, be that the respondent’s commencement of litigation was a breach of contract, for which the appellants proving loss could without more claim damages – though the prevalence of clauses providing that arbitration “shall” take place and the infrequency of claims for their breach may again reduce the weight of this factor. The fact remains that there is an obvious linguistic difference between a promise that disputes shall be submitted to arbitration and a provision, agreed by both parties, that “any party may submit the dispute to binding arbitration”. This clear contrast and the evident risk that the word “may” may be understood by parties to mean that litigation is open, unless and until arbitration is elected, are, in the Board’s view, important pointers away from analysis I”.

62. According to the Judgment of the Privy Council, in a situation where ‘may’ is used in an arbitration clause, a party could commence litigation but the other party could appear and insist on arbitration and could ask for a stay.
    
63. However Privy Council stated that “As with any issue of construction, the language and context of the particular Agreement must ultimately be decisive.” Anzen case blurred the difference in the use of ‘may’ and ‘shall’ in arbitration Agreement and the analyses given in the judgment could be used as a guideline to determine whether reference to arbitration is mandatory or not specially in a situation where word “may’ is used.
    
64. Therefore we have to examine the language and context of the Agreement to ascertain whether arbitration is mandatory or not and whether there are condition precedents to be satisfied before referring a dispute to arbitration.
    

64. It is necessary to examine clause 13.4 of the Agreement which refer to arbitration.
13.4.1 If either:

(a) The Principal or the Contractor is dissatisfied with the Engineer’s decision

under 13.2.4; or

(b) No decision is given by the Engineer within the time prescribed by 13.2.4;

then either the ‘Principal or the Contractor may by notice require that the matter in dispute be referred to arbitration.

65. In this case the Petitioner requested the Respondent by invoking clause 13.2.3 to agree to refer the dispute to an independent engineer to make recommendations to resolve the matter. The Respondent failed to co-operate with the Petitioner. Thereafter the Petitioner terminated the contract. In this contract reference to arbitration could be made under clause 13.4.1 only if the Principal or the Contractor is dissatisfied with the Engineer’s decision under 13.2.4; or no decision is given by the Engineer within the time prescribed by 13.2.4. Therefore an appointment of an Engineer and his decision is a condition precedent to refer a dispute to arbitration. The High Court Judge in his Ruling considered this fact when refusing the Petitioner’s Application. Further Petitioner before terminating the Contract or thereafter could have filed action which it did not do against the Respondent for specific performance to compel the Respondent to agree to the appointment of an independent Engineer.

Conclusion

66. I hold that a decision of the Engineer is a prerequisite or a condition precedent to refer a matter to arbitration. Only a party who is dissatisfied with the decision of the Engineer can resort to arbitration. An existing of an unresolved dispute is in itself is not a ground to resort to arbitration. In answer to the question raised in grounds 1 and 2 regarding the arbitration clause there is a ‘submission’ to arbitration coming within the meaning of Section 3 of the Arbitration Act and also there is an interaction between Section 3 and 5 of the Arbitration Act. This interpretation is possible according to the analyses given in Anzen Ltd and others vs. Hermes One Ltd referred to in this judgment. However in order to trigger or set in motion arbitration proceedings, appointment of an Engineer and a decision of the Engineer is a prerequisite. Therefore, High Court Judge is correct in overruling the objection taken up by the Petitioner regarding the maintainability of the action and refusing to stay proceedings. Court of Appeal by its ruling approved the decision of the High Court.
    
67. Therefore for the reasons set out in the judgment, this Court refuse the Application for Special Leave to Appeal.
    

The Orders of the Court:

1. Special leave to Appeal is refused.
2. As there was no Appearance for the Respondent in this Court, I make no order for costs.
   

Hon. Mr. Justice Kamal Kumar

President of the Supreme Court

Hon. Mr. Justice Buwaneka Aluwihare

Judge of the Supreme Court

Hon. Mr. Justice Priyasath Dep

Judge of the Supreme Court