The recent decision of Corboy J in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd  WASC 228 highlights the need for parties to be precise when drafting dispute resolution clauses to ensure certainty, as well as safeguarding the parties’ ability to enforce the dispute resolution clause in the event of a dispute.
The case is also instructive as it confirms the Courts’ preference to construe a dispute resolution clause containing a right to arbitrate as an enforceable arbitration agreement in the event of ambiguity.
The plaintiff, Cape Lambert Resources Ltd (Cape Lambert) agreed to sell to MCC Mining (Western Australia) Pty Ltd (MCC WA) (the second defendant) certain mining tenements and related assets (the Assets). This sale was governed by an Asset Sale Agreement (ASA) which provided that the purchase price was to be paid by a deposit and three instalments. The ASA was subsequently novated so as to substitute the first defendant, MCC Australia Sanjin Mining Pty Ltd (MCC Sanjin) for MCC WA. The third defendant, Metallurgical Corporation of China Ltd (MCC) agreed to guarantee the obligations of MCC Sanjin and MCC WA to pay for the Assets (the Guarantee).
The final instalment of $80 million was due to be paid by MCC Sanjin to Cape Lambert two years after entry into the agreement. However, relevant mining approvals required to be obtained by Cape Lambert pursuant to the ASA were not obtained within the specified time frame. Due to Cape Lambert’s failure to obtain all relevant mining approvals, MCC Sanjin did not pay the final instalment. Cape Lambert then issued a demand to MCC to pay the money owed under the Guarantee.
The plaintiff commenced proceedings in the Supreme Court of Western Australia by writ, seeking payment of $80 million (the Disputed Amount). The plaintiff also sought a declaration that the Disputed Amount was due and payable under the Guarantee, as well as orders enforcing payment.
The defendants applied for a stay of the plaintiff’s action on the basis that both the ASA and the Guarantee contained arbitration agreements for the purposes of the Commercial Arbitration Act 1985 (WA) (CAA) and the International Arbitration Act 1974 (Cth) (IAA). The defendants argued that the existence of the arbitration agreements required the court to stay the plaintiff’s action pursuant to section 53 of the CAA or section 7 of the IAA or, alternatively, the matter could be stayed by the inherent jurisdiction of the court.
The plaintiff contended that the dispute resolution clauses contained within the ASA and the Guarantee (DR clauses) were optional, and accordingly, it was entitled to elect to commence Supreme Court proceedings. This contention was premised on the fact that the DR clauses provided that the parties:
- ‘may’ by notice to the other party refer the dispute for resolution by mediation;
- failing settlement by mediation, either party ‘may’ by notice to the other party refer the dispute for final and binding resolution by arbitration. [emphasis added]
Further, the plaintiff applied for an interlocutory injunction requiring MCC to pay the Disputed Amount into an escrow account pursuant to the terms of the Guarantee, or in the alternative, as a condition of the stay of the plaintiff’s action.
Corboy J found that the dispute resolution clauses contained in the ASA and the Guarantee were binding arbitration agreements. Corboy J relied on the decision of PMT Partners Pty Ltd v Australian National Parks and Wildlife Service (1995) 184 CLR 301 which held that a term which conferred an election to arbitrate was an arbitration agreement for the purposes of the CAA. His Honour also held that there was no reason to read down the broad definition of an arbitration agreement found in section 4 of the CAA and limit the type of dispute resolution clauses which can be characterised as arbitration agreements.
Accordingly, Corboy J held that the existence of the arbitration agreements enlivened section 53 of the CAA and section 7 of the IAA and ordered a stay pursuant to section 53 of the CAA. Further, Corboy J found that he was bound to grant a stay of proceedings against MCC under section 7 of the IAA as all the requirements set out in section 7(2) were satisfied.
However, Corboy J made an interim order under section 7(3) of the IAA requiring MCC to pay the Disputed Amount into an escrow account, pending the outcome of the arbitration.
It is important that parties take care when drafting dispute resolution clauses to ensure that the clause accurately reflects the intention of the parties. As illustrated above, ambiguity may result in costly Court proceedings in order to determine the effect of a dispute resolution clause, and the procedures that must be followed by the parties in the event of a dispute.