In Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10 (S), the Supreme Court of Western Australia handed down its first decision on costs following a stay application under the Commercial Arbitration Act 2012 (WA).

In doing so, the Court issued a stern warning to parties that wish to commence proceedings in a manner that is inconsistent with the dispute resolution procedure set out in their contract. In particular, Martin CJ awarded indemnity costs against Pipeline Services, due to it’s conduct in both bringing proceedings in breach of an arbitration agreement, and then resisting the initial stay application.

As a result, parties should make sure that, if their contract contains an arbitration agreement, they do not attempt to commence or pursue legal proceedings other than in accordance with that agreement.

Facts

Pipeline Services WA Pty Ltd (Pipeline), commenced proceedings against ATCO Gas Australia Pty Ltd (ATCO), alleging breach of an agreement under which Pipeline was to install underground pipelines to be used for the transmission of gas in the area of Yanchep north of Perth. Pipeline claimed damages for breach of contract, and an order for delivery up of bank guarantees which it provided to ATCO pursuant to the terms of the contract.

Clause 25 of the Agreement set out a dispute resolution procedure in the following terms:

  • A party may not commence court proceedings relating to any dispute under the Agreement (other than urgent interlocutory relief) unless it had first complied with the dispute resolution procedure.
  • Any party may, by written notice, notify the other of a dispute.
  • Any disputes are to be put to the Contract Manager for resolution, and if that fails, a special meeting between the parties.
  • If the special meeting fails to resolve the dispute, it is to be escalated to the CEOs.
  • If the dispute is still unresolved after 2 weeks, then either party may refer the dispute to arbitration.

After entering a conditional appearance, ATCO applied for a stay of the proceedings pursuant to s 53 of the Commercial Arbitration Act 1985 (WA), on the ground that the Agreement contained an arbitration agreement. The Commercial Arbitration Act 2012 (WA) came into force immediately prior to the hearing, and as a result ATCO amended its application to be for a referral to arbitration under s8 of that Act, and a stay pursuant to the inherent jurisdiction of the Court.

The stay was granted: Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10. ATCO then applied for an order that Pipeline pay its costs on an indemnity basis.

Decision

Chief Justice Martin granted ATCO’s application for indemnity costs.

In doing so, he held that the principles set out by Colman J in A v B [2007] EWHC 54 apply in Australia. These principles are that:

  • a party commencing proceedings in breach of an arbitration or jurisdiction agreement should generally be ordered to pay the other party’s legal costs; and
  • indemnity costs are available simply as a result of a breach of the arbitration or jurisdiction agreement, and do not require any further special circumstances.

Martin CJ emphasised that there was not an inflexible rule that indemnity costs would always be awarded, but that it depended on the particular circumstances of each case. In this case, the circumstances that tended to support the award of indemnity costs included (amongst others) that:

  • the object and purpose of the Commercial Arbitration Act 2012 (WA) requires the Courts to support and enforce arbitration agreements;
  • the efficient use of judicial and administrative resources meant that parties should be discouraged from bringing unmeritorious actions; and
  • Pipeline was persistent in its resistance to the stay application, even through the Commercial Arbitration Act 2012 (WA) (which it accepted applied, rather than the 1985 iteration) gave the Court no discretion as to whether to award the stay. Rather, once the arbitration agreement had been identified, the stay was mandatory.