KEY TAKEAWAYS

Parties who commence litigation and then resist a stay application in circumstances where there is a valid and binding arbitration agreement should proceed with extreme caution.  

In the first decision on costs following a stay application under the Commercial Arbitration Act 2012 (WA) (2012 Act), Chief Justice Martin has sent a strong signal that resistance to a stay application can sound in an indemnity costs order if the circumstances so permit.

The facts

  1. Pipeline Services WA Pty Ltd (Pipeline) commenced proceedings in the Supreme Court of Western Australia ([2014] WASCA 10) relating to a dispute the subject of an arbitration agreement.
  2. ATCO Gas Australia Pty Ltd (ATCO) promptly applied for a stay of those proceedings. At the time ATCO applied for a stay, the Commercial Arbitration Act 1985 (WA) (1985 Act) was in force. ATCO’s application was, however, decided under the 2012 Act, which came into force prior to the hearing of the application. Unlike section 53 of the 1985 Act, section 8(1) of the 2012 Act does not confer any discretion upon the court with respect to the stay of legal proceedings relating to a dispute the subject of an arbitration agreement.
  3. Chief Justice Martin granted ATCO’s application for a stay,[1] ordering that the issues raised in the proceedings be referred to arbitration pursuant to section 8 of the 2012 Act.
  4. ATCO applied for an order that Pipeline pay its costs of the application on an indemnity basis, relying on Justice Colman’s decision in A v B.[2]

The decision on the availability of indemnity costs for proceedings brought in breach of an arbitration agreement

  1. Chief Justice Martin granted ATCO’s application for indemnity costs, concluding that ‘the principles enunciated by Colman J in A v B should be applied in Western Australia.’[3]
  2. According to Justice Colman’s reasons in A v B:
  1. a party commencing proceedings in breach of an arbitration or jurisdiction agreement should generally be ordered to pay legal costs reasonably incurred by the innocent party;[4] and
  2. the availability of indemnity costs does not require any special circumstances beyond breach of the arbitration or jurisdiction agreement.[5]
  1. Both Chief Justice Martin and Justice Colman also emphasised that the general principle should not be regarded as a mandatory or inflexible rule, but rather depends on the ‘particular circumstances of the case’ and, in particular, whether the successful party’s conduct justifies it being deprived of an order for indemnity basis costs.[6]
  2. Chief Justice Martin provided four reasons supporting his conclusion that the principles in A v B should guide the exercise of his discretion as to costs; namely, that:
  1. the rule in Berry v British Transport Commission[7] would arguably preclude the innocent party from claiming damages in respect of any unrecovered costs in subsequent proceedings (despite that such costs would otherwise be recoverable as damages for breach of contract) and that, in any event, requiring the innocent party to commence subsequent proceedings ‘would be productive of unnecessary litigation, inefficient and unjust’;[8]
  2. the object and purpose of the 2012 Act ‘requires the courts to support and enforce arbitration agreements;[9]
  3. the principles enunciated and adopted in England and Wales merit particular attention, given the clear the legislative purpose of aligning the legal regime governing domestic commercial arbitration with the UNCITRAL Model Law;[10] and
  4. adopting the principles enunciated in A v B accords with the objectives of O 1 r 4B of the Rules of the Supreme Court 1971 (WA), including the efficient and timely disposal of the court’s business, and maximisation of the efficient use of available judicial and administrative resources.[11]
  1. Chief Justice Martin considered the circumstances of the case[12] of his decision, pointing to Pipeline’s ‘apparent strategy of running every conceivable argument in opposition to the application for a stay, irrespective of its strength or prospects of success’.[13] His Honour was particularly critical of Pipeline’s persistent resistance to the stay application following the enactment of the 2012 Act, which removed any discretion upon the court with respect to the stay of legal proceedings relating to a dispute the subject of an arbitration agreement.
  2. His Honour did not, however, confine the award of indemnity costs to period of time after the 2012 Act came into force, observing that an order for indemnity costs does not – according to the principles in A v B – require any special circumstances beyond breach of the arbitration or jurisdiction agreement.[14]