FEDERAL COURT OF AUSTRALIA Reinsurance Australia Corporation Limited v Members of Lloyd's Syndicate 1027 [2001] FCA 1426 PROCEDURE – whether interlocutory order made ex parte staying foreign arbitration proceedings ought to be discharged – whether there is a serious question to be determined – balance of convenience IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 referred to Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 referred to Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 referred to Timic v Hammock [2001] FCA 74 referred to REINSURANCE AUSTRALIA CORPORATION LIMITED & ANOR v THE MEMBERS OF LLOYDS SYNDICATE 1027 & ORS N 1330 of 2001 STONE J 5 OCTOBER 2001 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1330 OF 2001 BETWEEN: REINSURANCE AUSTRALIA CORPORATION LIMITED ACN 061 215 601 FIRST APPLICANT MONEGASQUE DE REASSURANCES S.A.M. SECOND APPLICANT AND: THE MEMBERS OF LLOYDS SYNDICATE 1027 as listed in Schedule A FIRST RESPONDENT THE MEMBERS OF LLOYD'S SYNDICATE 1208 being COX DEDICATED CORPORATE MEMBER LTD SECOND RESPONDENT THE MEMBERS OF LLOYD'S SYNDICATE 1485 as listed in Schedule B THIRD RESPONDENT CARPENTER BOWRING (UK) LIMITED, GUY CARPENTER & COMPANY LIMITED (between 1 January 1995 and 1 January 1998 known as Carpenter Bowring Limited), J & H MARSH & McLENNAN LIMITED FOURTH RESPONDENT GUY CARPENTER & COMPANY PTY LTD (formerly Carpenter Bowring Australia Pty Ltd) ACN 000 351 299 FIFTH RESPONDENT COX INSURANCE HOLDINGS PLC SIXTH RESPONDENT JUDGE: STONE J DATE OF ORDER: 5 OCTOBER 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: (1) the fourth order made by Emmett J on 21 September 2001 be discharged as from 4.00 pm on 5 October 2001; (2) the applicants serve any notices under s 78B of the Judiciary Act 1903 (Cth) in this proceeding by 4.00 pm on 9 October 2001; (3) all respondents file all evidence in support of their motions by 29 October 2001; (4) the applicants file evidence in reply by 16 November 2001; (5) any subpoenas and/or notices to produce be returnable before the Registrar on 24 October 2001; (6) all motions stand over to 25 October 2001 at 9.30 am; (7) the parties have liberty to apply on forty-eight hours notice. THE COURT NOTES THAT: (1) the applicants by their counsel give the usual undertaking as to damages in respect of orders (3) and (4) made by Emmett J on 21 September 2001, such undertaking being effective from 21 September 2001; (2) the applicants as presently advised and subject to any views of the Attorney-General intends on 25 October 2001 to apply to have the proceedings removed to the Full Court for the purpose of the hearing and determination of their notice of motion in light of the decision of the Federal Court in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1; (3) the first, second, third and sixth respondents, by their counsel, undertake that they will not in the future conduct of the proceedings in this Court seek to rely upon any steps taken or any expenditure of money in the conduct of the arbitral proceedings presently on foot between the first, second and third respondents and the first applicant; (4) the first, second, third and sixth respondents undertake that in the event that the first applicant should desire to file and serve, within a reasonable time, an amended defence or counterclaim in the arbitral proceedings so as to rely on the provisions of the Trade Practices Act 1974 (Cth), the said respondents would not seek to argue that the arbitral tribunal has no power or jurisdiction to give effect to rights resting on the provisions of the Trade Practices Act 1974 (Cth) and will, if so requested, assist the applicants to take such steps and enter into such documents as may be thought necessary in order to confer such power and jurisdiction on the arbitral panel. For the purposes of this undertaking, a reasonable time will be twenty-one days from the date hereof or otherwise such date as may be agreed by the parties. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1330 OF 2001 BETWEEN: REINSURANCE AUSTRALIA CORPORATION LIMITED ACN 061 215 601 FIRST APPLICANT MONEGASQUE DE REASSURANCES S.A.M. SECOND APPLICANT AND: THE MEMBERS OF LLOYDS SYNDICATE 1027 as listed in Schedule A FIRST RESPONDENT THE MEMBERS OF LLOYD'S SYNDICATE 1208 being COX DEDICATED CORPORATE MEMBER LTD SECOND RESPONDENT THE MEMBERS OF LLOYD'S SYNDICATE 1485 as listed in Schedule B THIRD RESPONDENT CARPENTER BOWRING (UK) LIMITED, GUY CARPENTER & COMPANY LIMITED (between 1 January 1995 and 1 January 1998 known as Carpenter Bowring Limited), J & H MARSH & McLENNAN LIMITED FOURTH RESPONDENT GUY CARPENTER & COMPANY PTY LTD (formerly Carpenter Bowring Australia Pty Ltd) ACN 000 351 299 FIFTH RESPONDENT COX INSURANCE HOLDINGS PLC SIXTH RESPONDENT JUDGE: STONE J DATE: 5 OCTOBER 2001 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Between 1997 and 1999, the applicants entered into certain reinsurance treaties with the first, second and third respondents. The fourth respondents are the London brokers for the first, second and third respondents, the fifth respondent is said to be the agent for the fourth respondent and the sixth respondent is said to be the agent for the first, second and third respondents. 2 The applicants allege that they were induced to enter into the treaties by certain misleading and deceptive representations made by the fourth, fifth and sixth respondents on their own behalf and on behalf of the first, second and third respondents. They seek to set aside the treaties relying, inter alia, on the provisions of the Trade Practices Act 1974 (Cth) ("the Trade Practices Act"). 3 Before the commencement of this proceeding, however, the first, second and third respondents had initiated arbitration proceedings in London with the first applicant in accordance with the terms of the relevant treaties. Although the first applicant initially did not resist this course, both applicants now seek to have the matter resolved in this Court. At the risk of oversimplification, the submission was that the arbitrators in London do not have jurisdiction to deal with the claims made under the Trade Practices Act. It was submitted, first, that the arbitration clauses do not, on their true interpretation, purport to give that power and second, that any attempt to do so would be void as an attempt to contract out of the Trade Practices Act. In the alternative it was submitted that if the effect of s 7 of the International Arbitration Act 1974 (Cth) is to require a stay of these proceedings then the section does not fall within ss 76 and 77 of the Constitution and for that reason is invalid. 4 On 21 September 2001, on the ex parte application of the applicants, Emmett J made certain interlocutory orders and listed the matter for further consideration today. The third and fourth orders made by his Honour are as follows: "(3) Until further order, the Respondents be restrained from taking any step whether in Australia or overseas, and whether before a Court or arbitral tribunal or otherwise, to restrain or seek to restrain the continuation of these proceedings (including interlocutory relief sought in these proceedings), whether directly or indirectly, on their own behalf or on behalf of the other Respondents. (4) Until further order, the First, Second and Third Respondents take no further steps, directly or indirectly, in prosecuting (or in any other way seeking relief in or in relation to) arbitration proceedings in London between those Respondents, as Claimants, and the First Applicant, as Respondent or to commence any arbitration proceedings between themselves as Claimants and the Second Applicant, as Respondent." Today the first, second and third respondents seek to have the fourth order made by his Honour set aside. 5 Although there has been a great deal of argument before me today, the issue boils down to the usual two questions that need to be addressed in relation to any interlocutory order: first, whether there is a serious question to be determined and secondly, the balance of convenience. In relation to the issue of a serious question, both parties have referred me to a number of authorities that they say support their respective positions. These authorities include IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466, Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 and Timic v Hammock [2001] FCA 74. In the short time available I have not had the opportunity to review these cases in depth, however, with the benefit of such review as has been possible and based on the argument before me, I am satisfied that there is a serious question to be determined. 6 This brings me to the second question, namely where the balance of convenience lies. Before Emmett J, the applicants were unable to point precisely to any prejudice other than in relation to possible orders that might be made by the arbitration panel. The third order made by Emmett J addresses one aspect of that concern and the respondents are not seeking to set aside that order. Another cause for concern was that the respondents might rely on progress in the arbitration proceedings and the effort invested in that progress between now and the determination of this proceeding as a source of prejudice warranting the exercise of discretion in their favour. The respondents' undertaking not to do so, given today through their counsel, should alleviate that concern. The applicants also claim that they will incur expense in dealing with multiple proceedings, most specifically in complying with interlocutory orders of the panel, particularly in relation to discovery. They express concern that those costs may not be recoverable because the arbitration panel may cease to exist if the applicants are successful and so would be unable to make the appropriate costs order. The applicants also referred to the difficulty, from a time and resources perspective, that they would experience in preparing two parallel cases for hearing in separate jurisdictions. 7 Finally, the applicants raised a concern about an ultimatum laid down in a letter from the London solicitors for the first, second and third respondents to the London solicitors for the applicants. This letter stated that any amendment to the pleadings in the arbitration to include the claims under the Trade Practices Act made after a specified date would be opposed by the respondents. I agree with the respondents that this is not relevant to the question of whether the fourth order made by Emmett J ought to continue in effect. In any event the first, second and third respondents have, through their counsel, indicated that they are prepared to give an undertaking not to oppose such amendments if made within a reasonable time. 8 The respondents have alleged that they will be prejudiced if the fourth order made by Emmett J is not set aside. Mr Rogers QC, appearing with Mr Potts for the relevant respondents, submitted that the costs of the arbitration proceedings are minor compared to the amount of the claim, said to be in the order of $20,000,000. The respondents are concerned about recovering this amount in the event of significant delay given that the applicants are "in run-off" and thus may no longer have the funds available. 9 Both parties made submissions about the progress of the arbitration proceedings, the respondents suggesting that little is likely to happen prior to the determination of this proceeding. These submissions add little to the assessment of the balance of convenience as there is no basis on which I can assess the competing predictions of the parties. 10 Nevertheless, in my view the balance of convenience in relation to the continuance or otherwise of Emmett J's fourth order is with the respondents. The difficulties arising by virtue of the existence of multiple proceedings are currently being anticipated rather than experienced. Should the arbitration panel impose on the first applicant onerous requirements in relation to the timing of discovery, that is a matter that can be addressed by the arbitration panel or, in default of that, the issue can be raised before this Court if and when the problem arises. [SUBMISSIONS WERE MADE IN RELATION TO PROPOSED ORDERS] 11 I make the following orders: (1) the fourth order made by Emmett J on 21 September 2001 is discharged as from 4.00 pm on 5 October 2001; (2) the applicants are to serve any notices under s 78B of the Judiciary Act 1903 (Cth) in this proceeding by 4.00 pm on 9 October 2001; (3) all respondents are to file all evidence in support of their motions by 29 October 2001; (4) the applicants are to file evidence in reply by 16 November 2001; (5) any subpoenas and/or notices to produce are to be returnable before the Registrar on 24 October 2001; (6) all motions are stood over to 25 October 2001 at 9.30 am; (7) the parties have liberty to apply on forty-eight hours notice. 12 In addition, the Court notes that (1) the applicants by their counsel give the usual undertaking as to damages in respect of orders (3) and (4) made by Emmett J on 21 September 2001, such undertaking being effective from 21 September 2001; (2) the applicants as presently advised and subject to any views of the Attorney-General intends on 25 October 2001 to apply to have the proceedings removed to the Full Court for the purpose of the hearing and determination of their notice of motion in light of the decision of the Federal Court in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1; (3) the first, second, third and sixth respondents, by their counsel, undertake that they will not in the future conduct of the proceedings in this Court seek to rely upon any steps taken or any expenditure of money in the conduct of the arbitral proceedings presently on foot between the first, second and third respondents and the first applicant; (4) the first, second, third and sixth respondents undertake that in the event that the first applicant should desire to file and serve, within a reasonable time, an amended defence or counterclaim in the arbitral proceedings so as to rely on the provisions of the Trade Practices Act 1974 (Cth), the said respondents would not seek to argue that the arbitral tribunal has no power or jurisdiction to give effect to rights resting on the provisions of the Trade Practices Act 1974 (Cth) and will, if so requested, assist the applicants to take such steps and enter into such documents as may be thought necessary in order to confer such power and jurisdiction on the arbitral panel. For the purposes of this undertaking, a reasonable time will be twenty-one days from the date hereof or otherwise such date as may be agreed by the parties. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone. Associate: Dated: 12 October 2001 Counsel for the Applicants: Mr J T Gleeson SC with Mr R A Dick Solicitor for the Applicants: Phillips Fox Counsel for the First, Second, Third and Sixth Respondents: Mr A Rogers QC with Mr Potts Solicitor for the First, Second, Third and Sixth Respondents: Clayton Utz Date of Hearing: 5 October 2001 Date of Judgment: 5 October 2001