Court now, arbitrate later? Preserving your rights after litigation commences

Nu-Fortune Gold Ltd v Roxbury Trading Pty Ltd [No 3] [2019] WASC 469

Contracts often require disputes between parties be referred to arbitration for resolution, avoiding the time and costs associated with litigation. What happens though when litigation has already commenced? Can a party still refer the dispute to arbitration? When will a court uphold the contractual requirement to arbitrate as enforceable?

A recent decision of the Western Australia Supreme Court in Nu-Fortune Gold Ltd v Roxbury Trading Pty Ltd [No 3] [2019] WASC 469 has provided insight into the extent to which courts will uphold a party's right to seek a stay of proceedings for the purposes of arbitration, after proceedings have commenced.

Background facts

Nu-Fortune Gold Ltd (Nu-Fortune) and Roxbury Trading Pty Ltd (Roxbury) entered into a Heads of Agreement for Nu-Fortune to acquire various mineral tenements. Both Nu-Fortune and Roxbury commenced proceedings against the other for breach of contract, by way of claim and counterclaim respectively. Of relevance is the counterclaim brought by Roxbury seeking payment of a $150,000 salary to its director Mr Kennedy (Roxbury Counterclaim).

Nu-Fortune sought to stay the Roxbury Counterclaim on the basis the parties were required to refer all disputes to arbitration as required under clause 15 of the Heads of Agreement. Under clause 15(c) if the parties could not achieve resolution, an independent arbitrator would determine "a fair and reasonable outcome in the matter."

Whether the court would grant Nu-Fortune's request for the Roxbury Counterclaim to be stayed for the purposes of arbitration turned upon section 8(1) of the Commercial Arbitration Act (WA). Under this section, an action before a court which is the subject of an arbitration agreement can only be referred to arbitration so long as the requesting party, being Nu-Fortune, had not submitted their "first statement on the substance of the dispute".

What did the Court decide?

The Court held the Roxbury Counterclaim was sufficiently connected to the Heads of Agreement to be capable of referral to arbitration. Nu-Fortune's application for a stay turned upon the timing of their application. Had Nu-Fortune's stay application come before or after they submitted their "statement on the substance of the dispute"?

The court held that the various submissions and affidavits filed by Nu-Fortune had set out in detail their statement on the substance of the dispute and that this material had been provided to the Court before Nu-Fortune sought a stay of the Roxbury Counterclaim for arbitration.

Nu-Fortune's application for stay of the Roxbury Counterclaim for the purposes of arbitration was dismissed.

Lessons learnt

This decision acts as a timely reminder for parties looking to preserve their rights to arbitrate. A party seeking arbitration (or any means of alternative dispute resolution contemplated by the contract) must ensure they seek a stay of proceedings (or other form of interlocutory relief) in a timely manner.

A party that fails to act quickly risks being statute barred from exercising these contractual rights at a later point in time. [i]

[i] [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.]