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Costs implications of ultimately agreed stays

Joban Kosan Co Ltd v Flame SA [2018] NSWSC 1754 (15 November 2018)

The Supreme Court of New South Wales recently considered a dispute regarding the payment of costs of a motion where the parties ultimately agreed to stay proceedings. The Court found that a party will be liable for costs of a motion to stay proceedings where a party opposes that motion whilst being bound by a valid arbitration clause in an agreement - even where that arbitration clause is incorporated into the contract other than by express wording, such as by a course of dealing or by reference.

Background
Joban Kosan Co Ltd (Joban Kosan) was a company relevantly engaged in in the trade of coal in Japan and internationally. Flame SA (Flame) was an international shipping company engaged in the sourcing of coal for delivery to customers around the world. From 2009, Joban Kosan and Flame entered into a number of commercial contracts for the supply of coal using Joban Kosan's standard form contract. That contract contained a clause which required that any dispute that could not be settled on an "amicable basis" was to be "finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce" (Arbitration Clause).

A dispute arose regarding the shipment of coal under an agreement formed by email exchange in January of 2015 and subsequently varied by an email exchange in 2016. The relevant events to the formation of that particular agreement were as follows:

  • On 7 January 2015, the parties entered into a contract to supply two cargos of coal. That contract contained the Arbitration Clause. The first cargo was delivered as per the agreement, however a dispute arose in respect of the second cargo in February 2016. The parties then exchanged correspondence regarding a proposal for two further shipments of coal.
  • On 13 April 2016, Flame made an offer by email for two shipments of coal to be made between April 2017 and March 2018. Under a section of the email titled "Other Terms", it was stated "as per previous contract with logical amendments required".
  • By an email exchange on 14 April 2016 the parties reached agreement on the proposal. The terms of that exchange did not vary the terms of the 7 January 2015 contract save as to the 13 April 2016 email and the amended price.
  • In February 2017, Joban Kosan sent to Flame a draft contract for execution. The draft contract contained the Arbitration Clause. It was never executed by either of the parties.

The Proceedings
On 14 May 2018 Joban Kosan commenced proceedings in the Supreme Court claiming liquidated damages for a breach of contract. Soon after, Flame filed a notice of motion seeking an order that the proceedings be permanently stayed. Flame sought those orders on the basis that the agreement between the parties contained that the Arbitration Clause; requiring the dispute to be settled by arbitration, if it had not been previously settled by amicable resolution. Flame also sought an order that Joban Kosan pay Flame's costs in bringing the motion to stay proceedings.

Flame submitted that the dispute was only ever fit to be settled by arbitration because the Arbitration Clause formed part of the agreement. Flame also submitted that its course of action in filing the motion and the costs incurred as a result were unavoidable in complying with the relevant UCPR rules.

In responding to the motion, Joban Kosan contended that, for the Court to incorporate the Arbitration Clause into the agreement, would require complex interpretation of 18 months' worth of emails. Josan Kosan contended that the fact that the agreement was unexecuted meant that there was no basis for considering that the Arbitration Clause was a part of the agreement with Flame.

Decision
His Honour considered that the application for costs of the motion should succeed on the basis that "there is a high degree of certainty that the motion would have succeeded, if fully tried". Ordinarily, without a full hearing of the substance of a matter, courts will not have sufficient information to make a costs order. However, in this instance, His Honour held that where such an Arbitration Clause was plainly a part of the agreement (which Joban Kosan ultimately conceded), Joban Kosan should not have persisted with its claim from the time that the motion to stay proceedings was filed. As a result, Joban Kosan was required to pay the costs of Flame in the motion.

Conclusion
This decision highlights the importance of parties being aware of key clauses in their standard form contracts, particularly dispute resolution clauses. Where parties have a history of engaging in commercial contracts, and those contracts have arbitration clauses as in this case, parties should take care to consider the extent to which clauses from prior contracts may be incorporated to a new agreement by a course of dealing or by reference.

Note: The above material provides a summary only of the subject matter covered, without an assumption of a duty of care by Resolution Institute or Clayton Utz. The material is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Copyright in the material is owned by Clayton Utz.

Thanks

We thank the authors of this legal update Karen Ingram (Partner) and Justin Kardi for their contribution to Pulse.

Tags: Arbitration, Legal practice, Dispute handling administration