Tupou v Energy Commission [2024] TOSC 64; CV 35 of 2023 (21 August 2024)

IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU’ALOFA REGISTRY

CV 35 of 2023

BETWEEN :

PAULA TU’IKOLONGAHAU TUPOU
- Plaintiff

AND :

1. ENERGY COMMISSION
2. MINISTER OF FINANCE
- Defendants

RULING ON FORUM

BEFORE: ACTING LORD CHIEF JUSTICE TUPOU KC
Appearances: Mr M. Latu for the Plaintiff
Mr T. ‘Aho for the First Defendant
The Solicitor General for the Second Defendant

Date: 21 August, 2024

1. At the outset, I must make note that despite carrying the same surname as the Plaintiff, I am not aware of any blood relation between our families nor do I have any affiliations with him.

The Facts

2. On 17 October, 2017, the First Defendant appointed the Plaintiff as its interim CEO. The parties endorsed the terms of the former CEO’s contract as the legally binding terms of employment between them. Relevantly, clause 11 of the contract stated:

“That in the event of any dispute arising, between the Employers and the Employee as to the meaning and effect of this Contract, or otherwise arising out of the arrangements hereby made between them, same shall be referred exclusively to Arbitration in the Kingdom of Tonga (and not any Court of Law) and the parties hereto bind and oblige themselves to refer any such dispute to the amicable and final settlement of an Arbitrator mutually agreed to by them (and failing such agreement, to an arbitrator nominated and appointed by the Judicial Committee of H.M privy Council) and to accept the decision of the Arbitrator as a final and binding upon them and not subject to appeal or review in any Court of Law.”

3. In August, 2018, the First Defendant terminated the Plaintiff’s contract. The Plaintiff in turn has filed this action seeking $707,712.12 in damages for wrongful dismissal against the First Defendant and $50,000 for distress and humiliation against the Second Defendant.
4. This is an application by the First Defendant to stay the proceedings to allow the parties to refer their dispute to arbitration under clause 11 of the contract cited above.
5. The application is opposed by the Plaintiff who says that clause 11 seeks to oust the jurisdiction of the court, is against public policy and therefore void.

The Issue

6. Simply put, the question is; whether the proceedings should be stayed and refer the parties to arbitration or allow the matter to proceed without referring the parties to arbitration.
7. Crucial to that decision is the question of whether or not clause 11 amount to ousting the jurisdiction of the court and therefore void.

The First Defendant’s submissions

8. The main submissions for the First Defendant were that, clause 11 did not seek to oust the court’s jurisdiction. It identified a “circumscribed set of areas” to which the parties agreed to refer to ADR namely, “any dispute arising, between the parties as to the meaning and effect of the contract, or otherwise arising out of the arrangements between them.”
9. Secondly, that the minutes of the meeting whereby the parties agreed to the terms of employment, there is no record of any objections from the Plaintiff to clause 11 and he is bound by it and any submission that the Plaintiff did not agree to the said clause should be rejected.
10. Thirdly, that clause 11 invoked a power of private arbitration and not an exercise of judicial power and therefore it ‘neither expressly nor impliedly ousts the court’s supervisory function in this instant.’
11. Therefore, arbitration should be carried out as a first step and for the Plaintiff to seek redress and discuss the issues with the employer, presumably prior to instigating this proceeding.
12. Counsel for the First Defendant referred me to Vunipola v Tonga Rugby Union [2021] TOSC 121 as to the powers of the court to stay proceedings under relevant circumstances. In summary, that;
    1. the courts’ power to stay proceedings derive from its inherent power to prevent abuse of its process;
    2. the court can achieve enforcement of an ADR clause by staying the proceedings until ADR takes place;
    100. the court may stay proceedings brought in breach of an agreement to decide disputes by some other way;
    4. the court should give effect to the intention of the parties as expressed and to comply with the procedures specified and only in accordance with those procedures unless there is good reason to depart from them;
    5. substantial grounds must exist that should be more than mere convenience for the discretion not to grant a stay is exercised;
    6. relevant consideration for the exercise of the court’s discretion included:
       1. the dispute subject of the proceedings to be stayed is within the scope of the contractual provision;
       2. the ADR clause is enforceable; and
       3. any conditions precedent to the dispute resolution mechanism have been met.

The Plaintiff’s submissions

13. The Plaintiff set out the issues for the court to decide as:
    1. whether clause 11 of subject contract ousts the jurisdiction of the court;
    2. whether it is contrary to public policy; and
    100. therefore void.
14. Also Relying on Vunipola, the Plaintiff highlighted a list of exclusion clauses that had been considered voidable by the courts and a list of clauses considered voidable.
15. Some of the voidable clauses mentioned were those that:
    1. dictate that any dispute must be finally settled by a referee;
    2. relinquish the right to sue in a court of law;
    100. confer the exclusive power to settle disputes among members of a voluntary association on their own Tribunal;
    4. prevent a party from having the court determine a question of law or examine procedural inadequacies in a determination made by a body named in the contract;
    5. impose detriment on a party seeking litigation;
    6. a term of a contract can amount to an illegal ouster, although not expressed as such if it operates as a strong disincentive to recourse to the Courts; and
    7. a partial exclusion of the jurisdiction of the Court is as unenforceable as a complete exclusion.
16. Examples of clauses that did not constitute an exclusion of the court’s jurisdiction were those that:
    1. make arbitration a conditional precedent for legal action;
    2. provide for mediation and conciliation; and
    100. are ordinary arbitration clauses where the parties agree to submit disputes to arbitration.
17. Accordingly, the Plaintiff argued that clause 11 was void in that:
    1. it did not make arbitration a conditional precedent, rather, it excluded the court’s jurisdiction placing any dispute solely in the hands of the arbitrator; and
    2. determined that any outcome of the arbitration was final and not subject to review in any court of law.
18. It was therefore submitted that clause 11 should be considered void and against public policy and should be removed from the contract.

Discussion

19. Both parties have helpfully referred to Vunipola in their submissions. In summary, LCJ Whitten QC stated that clauses attempting to remove the court’s power to resolve disputes are generally void and against public policy. They violate the fundamental right of the parties to have recourse to the courts for resolving justiciable issues arising from their contracts. He provided examples of such clauses which I have earlier referred to.
20. He said that an ordinary arbitration clause which provides for disputes to be resolved through arbitration is not considered an ouster of jurisdiction. Such clauses are generally enforceable, as they do not preclude access to courts but rather provide an alternative dispute resolution avenue. The arbitration process is often preferred for its efficiency and speed compared to court litigation, while still allowing for judicial enforcement of awards.
21. Significant to the present case, was his view that if a contract includes an arbitration clause, parties are generally required to attempt arbitration before resorting to court. It ensures that the arbitration process is followed as agreed upon, which is a condition precedent to legal action. And, that courts usually uphold the arbitration agreement unless it is inherently uncertain or unenforceable.
22. Finally and relevantly, he said that parties can still approach the courts to enforce their rights, but failing to adhere to an arbitration clause may be deemed a breach of contract. While he acknowledged that arbitration clauses do not wholly oust the court’s jurisdiction, it emphasizes that such clauses must be followed as part of the contractual agreement.
23. It is axiomatic that parties cannot agree to oust the jurisdiction of the Courts. I have formed the view that clause 11 does not do that. But, that the parties agreed to be bound by a process for resolving disputes and a form of arbitration.
24. Therefore, any reading of clause 11 that attempt to oust the powers of the court to review and supervise cannot stand. Here, unlike Vunipola, the process and form of dispute resolution is clear save for the last two lines which in plain reading removes the court’s power to review or hear an appeal from the arbitrator’s decision. Those words as the offending part of the clause are a nullity and should be severed in line with Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 adopted by Vunipola.
25. What is left is an enforceable arbitration clause. I further find the present proceeding within the scope of clause 11 and in order to enforce the intention of the parties to be bound by the said agreed process and form of dispute resolution, the application is granted.
26. As a result, clause 11 does not oust the jurisdiction of the court and therefore not contrary to public policy or void. Accordingly, I am unable to conclude that substantial grounds exist that is more than mere convenience to refuse the application.

Result

27. The application for stay is granted and the matter is to be referred to arbitration in accordance with clause 11 of the employment contract.
28. Costs in favour of the First Defendant to be taxed if not agreed.
    

P. Tupou KC
Acting Lord Chief Justice

Nuku’alofa: 21 August, 2024