In the recent decision of Pipelines Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10 (S), his Honour Chief Justice Martin of the Supreme Court of Western Australia ordered Pipeline Services WA Pty Ltd (Pipeline) to pay, on an indemnity basis, the costs incurred by ATCO Gas Australia Pty Ltd (ATCO) in applying for a stay of proceedings under section 8 of the Commercial Arbitration Act 2012 (WA) (2012 Act).

In making this order, His Honour confirmed the application in Western Australia of the principle in the English case of A v B [2007] EWHC 54 that indemnity costs will generally be awarded where a party commences legal proceedings in breach of a contractual obligation to refer a dispute to arbitration.

Background

Pipeline, commenced proceedings in the Supreme Court of Western Australia against ATCO, alleging breach by ATCO of an agreement for the installation of underground gas transmission pipelines.

ATCO entered a conditional appearance and promptly made an application for a stay of the proceedings pursuant to section 53 of the Commercial Arbitration Act 1985 (WA) (the 1985 Act) and the court’s inherent jurisdiction, on the basis that there was a dispute resolution clause in the parties’ agreement which required the dispute to be submitted to arbitration.

The week before ATCO’s application for a stay was heard, the 2012 Act came into force. Pursuant to section 8(1) of the 2012 Act, a court must refer parties to arbitration where their dispute relates to matters the subject of an arbitration agreement unless that agreement is null and void, inoperative or incapable of being performed.

Pipeline contended that the proceedings should not be stayed pursuant to section 8(1) of the 2012 Act for various reasons including:[1]

  • uncertainty in the wording of the arbitration agreement; and
  • an alleged waiver by ATCO of its right to insist on compliance with the arbitration agreement by failing to invoke the agreement in response to Pipeline’s threat to commence court proceedings.

Pipeline’s arguments were rejected by Martin CJ who ordered that the dispute be referred to arbitration and the proceedings commenced by Pipeline in the Supreme Court be stayed.[2]

ATCO subsequently applied for an order that Pipeline pay its costs of the application for a stay of proceedings on an indemnity basis. ATCO relied on the decision of Colman J in A v B [2007] EWHC 54 in support of the proposition that indemnity costs will generally be ordered in circumstances where a party commences legal proceedings in breach of a contractual obligation to refer a dispute to arbitration.[3]

Decision of the Supreme Court of Western Australia

Martin CJ concluded that the principles enunciated by Colman J in A v B should guide the exercise of the court’s discretion to award costs to ATCO.[4]

The decision in A v B

In A v B, Colman J stated, relevantly:

In my judgment, provided that it can be established by a successful application for a stay or an anti-suit injunction as a remedy for breach of an arbitration or jurisdiction clause that the breach has caused the innocent party reasonably to incur legal costs, those costs should normally be recoverable on an indemnity basis.[5]

Colman J in A v B made it clear that this general principle was not to be a mandatory or inflexible rule applicable to all cases and acknowledged that an order for indemnity costs would not be appropriate in circumstances where:[6]

  • the successful party has led the party acting in breach of the arbitration agreement to believe that the chosen forum can be ignored; or
  • the general conduct of the successful party would otherwise justify it being deprived of an order for indemnity costs.

Application to the 2012 Act

Martin CJ found that the principles enunciated in A v B are “entirely consistent with, and… operate[s] to reinforce the object and purpose of the 2012 Act”.[7]

His Honour also found that, as the 2012 Act has “at [its] heart” the UNICITRAL Model Law on International Commercial Arbitration, a document which has achieved a significant degree of international acceptance and recognition:

principles enunciated by courts supervising the enforcement of arbitration agreements in other comparable jurisdictions have a particular significance, and merit particular attention.[8]

The particular circumstances of the case

His Honour found that there was nothing in the circumstances of the case which would sustain the conclusion that Pipeline should not be ordered to pay ATCO’s costs on an indemnity basis.[9]

There was nothing in ATCO’s conduct which suggested it had waived its rights under the dispute resolution clause or would acquiesce in the dispute being resolved other than in accordance with the arbitration agreement.[10] In addition, ATCO had promptly applied for a stay of the court proceedings and did so before taking any substantive step in those proceedings.[11]

In contrast, Pipeline had:[12]

  • persisted in its opposition to ATCO’s application even where there was a real likelihood that a stay of proceedings would be ordered; and
  • adopted a strategy of running every conceivable argument in opposition to the application for a stay, irrespective of its strength or prospects of success.

His Honour ordered that Pipeline pay ATCO’s actual costs of the application for a stay provided that those costs were not unreasonably incurred and were not unreasonable in amount.[13]

Implications

Section 8(1) of the 2012 Act requires Western Australian courts to refer, upon request by a party, a dispute concerning a matter the subject of an arbitration agreement to arbitration. Aside from instances where the arbitration agreement is null and void, inoperative or incapable of being performed, the courts have no discretion on whether or not to refer such disputes to arbitration.

Before commencing court proceedings to resolve their disputes, contracting parties should take care to ensure that their dispute is not one that is required by the terms of their agreement to be referred to arbitration.

In the absence of compelling arguments as to why an arbitration agreement is ineffective or inapplicable to the dispute in question, a party opposing an application for a stay of proceedings under section 8(1) of the 2012 Act is likely to find itself on the receiving end of an order for indemnity costs.