SUPREME COURT OF NORFOLK ISLAND Administration of Norfolk Island v SMEC Australia Pty Ltd [2004] NFSC 1 ARBITRATION – application for stay of proceedings. International Arbitration Act 1974 (Cth) Trade Practices Act 1974 (Cth) Commercial Arbitration Act 1984 (NSW) Commercial Arbitration Act 1984 (Vic) Fair Trading Act 1995 (NI) Commercial Arbitration Act 1985 (NT) ABB Power Plants v Electricity Commission of New South Wales (1995) 35 NSWLR 596 discussed Abigroup Contractors Pty Ltd v Transfield Pty Ltd & Obayashi Corporation (unreported, Supreme Court of Victoria, 16 October 1998) followed Aerospatiale Holdings Australia Pty Ltd v Elspan International Ltd (1992) 28 NSWLR 321 followed Fitzgerald v Masters (1956) 95 CLR 420 cited Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd (1979) 2 NSWLR 243 considered GIO v Atkinson-Leighton Joint Venture (1981) 146 CLR 206 cited Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No. 5) (1998) 90 FCR 1 followed IBM Australia Ltd v National Distribution ServicesLtd (1991) 100ALR 361 discussed Incitic Ltd v Alkimos Shipping Corporation (2004) 206 ALR 558 referred to Mulgrave Central Mill Co Ltd v Hagglunds Drives Pty Ltd [2002] 2 Qd R 514 discussed PMT Partners Pty Ltd v Australian National Parks and Wildlife Service (1995) 184 CLR 301 followed Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 cited Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 cited "The Playa Larga" [1983] 2 Lloyd's Rep 171 applied White Industries Ltd v Trammel (1983) 51 ALR 779 considered Halsbury's Laws of Australia Vol 1(2), Butterworths. THE ADMINISTRATION OF NORFOLK ISLAND V SMEC AUSTRALIA PTY LIMITED AND KAIPARA LIMITED (FORMERLY KNOWN AS KAIPARA EXCAVATORS LIMITED) SC 2 OF 2003 CORAM: BEAUMONT CJ. DATED: 21 JULY 2004 IN THE SUPREME COURT OF NORFOLK ISLAND SC 2 OF 2003 IN THE MATTER OF: THE ADMINISTRATION OF NORFOLK ISLAND Plaintiff AND: SMEC AUSTRALIA PTY LIMITED First Defendant KAIPARA LIMITED (formerly known as Kaipara Excavators Limited) Second Defendant CORAM: BEAUMONT CJ. DATED: 21 JULY 2004 THE COURT ORDERS THAT: 1. A stay of the principal proceedings be granted upon the following conditions: (a) liberty be reserved to the Administration to move this Court for the discharge of the stay in the event that Kaipara does not forthwith give a written notice requesting that this dispute be subject to an expert determination process of the kind described in cl 45 of the Special Conditions of the Kaipara Agreement; and (b) liberty be reserved to the Administration to move this Court for the discharge of the stay in the event that Kaipara fails to use its best endeavours to facilitate the expeditious determination of the expert determination process. 2. No order as to costs. IN THE SUPREME COURT OF NORFOLK ISLAND SC 2 OF 2003 IN THE MATTER OF: THE ADMINISTRATION OF NORFOLK ISLAND Plaintiff AND: SMEC AUSTRALIA PTY LIMITED First Defendant KAIPARA LIMITED (formerly known as Kaipara Excavators Limited) Second Defendant REASONS FOR JUDGMENT (ON MOTION BY SECOND DEFENDANT FOR STAY OF PROCEEDINGS) Beaumont CJ: 21 July 2004 Introduction 1 This is a motion to stay proceedings ('the principal proceedings'), which were commenced on 30 May 2003 in which unliquidated damages, based upon several alleged causes of action, are claimed in its statement of claim by the plaintiff, The Administration of Norfolk Island ('the Administration') against both defendants, that is, SMEC Australia Pty Limited, the first defendant ('SMEC'), and Kaipara Limited, the second defendant, a New Zealand corporation ('Kaipara'). SMEC has filed a defence in the matter. Kaipara has not filed any defence. 2 Kaipara's motion, which is brought (principally) under the provisions of s 7(2) of the International Arbitration Act 1974 (Cth) ('the IA Act'), seeks a stay of the proceedings against Kaipara upon the condition that the claims made in the proceedings be referred to arbitration. It is common ground that the general provisions of the IA Act are capable of application here since New Zealand is a 'Convention country'. However, the Administration disputes the application of s 7(2) in the present circumstances. 3 By s 2A of the IA Act, the Act extends to all external Territories; and by s 2B, the IA Act binds the Crown in right of Norfolk Island. 4 Section 7(1)(d) provides that where a party to an 'arbitration agreement' (as defined in the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)) ('the Convention') is a person who was, at the time the agreement was made, domiciled or ordinarily resident in a country (that is, New Zealand) which is a Convention country, s 7 applies to the agreement. 5 Section 7(2) provides: '(2) Subject to this Part, where: (a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and (b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration; on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.' 6 Section 7(3) and s (5) should also be noted: '(3) Where a court makes an order under subsection (2), it may, for the purpose of preserving the rights of the parties, make such interim or supplementary orders as it thinks fit in relation to any property that is the subject of the matter to which the first-mentioned order relates. … (5) A court shall not make an order under subsection (2) if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.' 7 In order to understand the issues arising in the motion, it will be necessary to explain the nature of the principal proceedings, as appears from the Administration's statement of claim. The causes of action pleaded in the Administration's STATEMENT of claim 8 By its statement of claim, the Administration pleads, in essence, the following: The Project 9 The Cascade Cliff ('the Cliff') located on the Island's shores, has been considered unsafe, with rocks falling onto a road. It is comprised of, inter alia, basalt rock. The Administration has a need for basalt rock for, inter alia, public works. 10 The Administration has determined (inter alia): (a) to stabilise the Cliff space by removing overburden and basalt rock; and (b) to stockpile the basalt rock in an existing quarry adjoining the Cliff (hereafter described as 'the Project'). 11 In February 1998, the Administration released a brief for Project Management by way of limited tender. In March 1998, SMEC submitted a proposal which the Administration accepted. In April 1998, the Administration and SMEC agreed that the Project be undertaken in two stages: (1) a Design and Preconstruction Phase; and (2) a Construction Management Phase. The Consulting Engineer Agreement 12 In May 1998, the Administration and SMEC entered into an agreement, whereby the Administration engaged SMEC to provide professional (that is, consulting engineering) services in connection with the Project's Design and Preconstruction Phase. 13 Pursuant to this agreement, SMEC provided a geotechnical assessment of the Cliff, including an assessment that the minimum excavation then proposed would produce a volume of 28,000 cubic metres of rock suitable for aggregate use. 14 In June 1998, SMEC called for expressions of interest for construction of the Project. 15 Between December 1998 and February 1999, SMEC prepared, and submitted, Tender Documents to certain construction contractors, including Kaipara. 16 In February 1999, SMEC assessed the responses to Tenders and reported to the Administration. 17 In consequence, the Administration accepted Kaipara's Tender. The Project Management Agreement 18 In April 1999, the Administration and SMEC entered into an agreement, whereby the Administration engaged SMEC to provide professional (that is, project management) services in connection with the Project's Construction Management Phase. 19 SMEC appointed a Project Manager, 'estimated to be on site' for 48 days of this Phase; whereas the Manager was on site for much less time. 20 A Project Engineer (Resident Geotechnical Engineer) was appointed by SMEC 'estimated to be on site' during the whole of this Phase; whereas he was on site much less time than the duration of the Phase. The Kaipara Agreement 21 In April 1999, the Administration engaged Kaipara to execute the works therein described ('the Works'). 22 (The specification, including a specification for rock stockpile, and for 'Earthworks' and general and special conditions of contract, are then summarised in the statement of claim. It will be necessary later to refer to relevant aspects of these conditions.) 23 A physical start was made on the excavation of the Cliff on 24 May 1999, with due dates for Practical Completion (29 December 1999) and for Final Completion (29 December 2000). 24 (The statement of claim then summarises SMEC's Progress Reports, correspondence during the works, and the progress of the works.) 25 The statement of claim next summarises the progress payments made by the Administration to SMEC and to Kaipara. 26 In making such payments, the Administration relied upon (inter alia): (i) the statements made by SMEC in the Progress Reports and SMEC's certifications; and (ii) the Administration's belief that Kaipara had, in fact, carried out its contractual obligations. Certificate of Practical Completion 27 In June 2000, SMEC purportedly issued Kaipara with a Certificate of Practical Completion, notwithstanding that completion had not, in truth, occurred. Final Construction Report 28 In August 2000, SMEC provided the Administration with the Final Construction Report, stating (inter alia) that Kaipara had carried out the construction of the Project 'to a good standard'. Contract for rock crushing operation at the Quarry Stockpile Site 29 In July 2000, the Administration issued a Tender Specification for the establishment and operation of this facility. 30 The Administration awarded the contract to Island Industries Pty Limited ('Island Industries'). Rock crushing operations commenced in October 2000. 31 In fact, however, a significant quantity of the rock in the stockpile was, contrary to the specification in the Kaipara Agreement, (inter alia) too large for crushing. Consequently, the performance by Island Industries of its contract was impaired (statement of claim, pars 38.5 and 38.6). 32 At a meeting held in December 2000, SMEC and Kaipara informed the Administration (inter alia) that: (i) Kaipara would develop a profile of the rock stockpile; (ii) the 'difficulties' with the crushing were 'because Island Industries did not have equipment which was normal for rock crushing operations'; and (iii) SMEC would provide a second advice as to the quantity of rock in the stockpile for calculating royalties. Reduction of security deposit 33 At this meeting, in reliance upon the statements made by SMEC and Kaipara, the Administration agreed to reduce by 50 per cent the security deposit held under the Kaipara Agreement. SMEC's Advice dated 19 December 2000 34 By this Advice, SMEC, having undertaken a review of the amount of crushable rock that had been stockpiled in the old quarry site, made several statements to the Administration in this connection, although, in truth, substantial quantities of material other than rock (described as 'OTR') were then and continue to lie within the Quarry Stockpile (which were then described in the statement of claim). Consequentially, Island Industries made claims, for which it was remunerated by the Administration, with respect to variations arising out of the existence of 'oversize' rock, and the 'contamination' of the stockpile rock with OTR, resulting in substantial delays in production and completion of the Project. Moreover, the effect of the presence of OTR in the rock stockpile is that 'with rainfall and the passage of time the entire stockpile of hard durable rock is, or with the passage of time will become, contaminated with OTR (statement of claim, pars 40 – 43). SMEC's May 2001 Report 35 In this Report to the Administration, SMEC stated (inter alia) that: (i) the material delivered to the stockpile site met the requirements of the specification; (ii) that, with one minor exception, there were no grounds for a claim against Kaipara 'for any non-conforming material'; and (iii) that the crushing contractor did not have adequate plant to undertake the crushing contract in an efficient manner and that valuable source rock was being wasted in the process, 'which the Administration has accepted'. The Administration's Notice of Dispute 36 By Notice of Dispute dated 31 May 2001, the Administration notified SMEC and Kaipara that a dispute had occurred in respect of the matters pleaded in pars 38.5, 38.6, 40, 41 and 42 of the statement of claim (see [31], [34] above). Kaipara's response to the Administration's Notice of Dispute 37 By letter to the Administration dated 25 June 2001, Kaipara stated (inter alia) that: (i) Kaipara cannot be bound by this '"dispute resolution" process'; and (ii) Kaipara's only obligations are to remedy minor omissions or defects in the Project's works. Kaipara's final statement 38 By letter to SMEC dated 2 August 2002, Kaipara gave a 'final statement' (inter alia) that SMEC issue a 'Final Certificate' pursuant to the Kaipara Agreement. SMEC's Certificate of Final Completion 39 By letter dated 19 August 2002, SMEC purportedly issued a 'Certificate of Final Completion' under the Kaipara Agreement, stating, inter alia: (i) no monies are owed to the Contractor from the Principal; (ii) this Certificate 'does not cover any unresolved matters as detailed in the Notice of Dispute dated 31 May 2001'; and (iii) this matter should now move to expert determination in accordance with Special Condition S 2.19 Clause 45 – Settlement of Disputes, and as detailed in Clause 45.3. SMEC's Notice for Dispute Resolution 40 By letter dated 21 August 2001, SMEC informed the Administration (copied to Kaipara) (inter alia) that: (i) under cl 6.1 of the Project Management Agreement, SMEC sought resolution, by independent expert determination, of the dispute raised by the Administration's Notice of Dispute; (ii) that (expressed as a request) since the Administration's Notice of Dispute had also been served on Kaipara, 'the matters be resolved in a combined adjudication by the same independent expert with the involvement of all three parties'; and (iii) that (expressed as a request) an independent expert be nominated by the President of the Institution of Engineers Australia. The quantity of hard rock suitable for crushing in the Quarry Stockpile 41 Neither Kaipara nor SMEC has provided the Administration with a profile, as was undertaken at the meeting held in December 2000 (see [32]). 42 It is assessed that the material in the Quarry Stockpile comprises a mixture of hard rock suitable for crushing and OTR in the proportions of approximately 80 per cent rock to 20 per cent OTR. The Middlegate Site 43 Instead of being delivered to the Quarry Stockpile Site in accordance with the 'Earthworks' Specification, 46,600 tonnes of hard crushable rock were placed at the Middlegate Site. The Administration's causes of action pleaded against SMEC 44 The Administration's statement of claim then pleads, in summary, the following causes of action against SMEC. Contract 45 It is alleged, in essence, that, by virtue of the claims summarised above, SMEC was in breach of its contracts, both as a consulting engineer and as a project manager. Fair Trading Act 1995 (NI) 46 The Administration claims, in essence, that the conduct alleged in the statement of claim was conduct by SMEC made in trade or commerce which, within the meaning of s 14 of the Fair Trading Act 1995 (NI) ('the FT Act'), was misleading or deceptive or likely to be so. Fiduciary duty 47 The Administration claims, in essence, that SMEC knew that the Administration was 'entirely reliant' upon SMEC to manage, supervise and monitor the work carried out by Kaipara, but that SMEC preferred SMEC and Kaipara's interests to those of the Administration. Misrepresentation 48 Here, the essential allegation made by the Administration is that the Administration relied upon SMEC to monitor the compliance by Kaipara with the specifications; that SMEC knew that the Administration would rely, to its detriment, upon statements made professionally by SMEC in this connection; and that if the Administration had known that, in contravention of the specifications – (i) OTR had been stockpiled in the Quarry Stockpile Site with hard durable rock; (ii) hard durable rock had been removed to the Middlegate Site; and (iii) the hard durable rock stockpiled in the Quarry Stockpile Site was oversize – the Administration would not have made certain payments to Kaipara. Negligence 49 The Administration claims, on the facts previously alleged, that: (i) SMEC owed the Administration a duty of care; and (ii) SMEC failed to 'exercise skill, care and diligence in the performance of its role as Superintendent under the Kaipara Agreement'. The Administration's causes of action pleaded against Kaipara 50 Again, several causes of action are pleaded, in summary, as follows: Contract 51 In essence, the Administration's claim is that Kaipara failed to execute the Project Works in accordance with the Contract Documents annexed to the Kaipara Agreement, both generally and in the specific instances particularised in the statement of claim. Fair Trading Act 52 The essential claim made by the Administration here is that Kaipara's conduct, as pleaded in the statement of claim, was misleading or deceptive, or likely to be so. Negligence 53 The Administration claims that Kaipara breached its duty to the Administration to avoid, in essence, a foreseeable risk of economic loss. The relief claimed 54 The Administration claims against each defendant unliquidated damages. The grounds for Kaipara's stay application, as based upon the provisions of the IA Act 55 With that background, I turn next to consider the grounds of the stay application. It will be convenient to consider first Kaipara's claim based on the IA Act. 56 Clause 45 of the Special Conditions of the Kaipara Agreement, dealing with 'Dispute Resolution Procedures', is central to the present application. It will be necessary to set out the whole of its material provisions, as follows: '45.1 Continue Performance … 45.2 How are disputes or differences to be decided? All disputes or differences arising out of the Contract or concerning performance or non-performance by either party of the Contract, must be decided as follows: (a) If the dispute or difference: (1) arises out of, relates to or concerns a determination or direction of the Superintendent or the Principal which is given to the Contractor and the Contractor is dissatisfied with the determination or direction and desires to challenge it; or (2) arises out of, relates to or concerns any failure or refusal by the Superintendent or the Principal to give a determination or direction to the Contractor, or any other matter referred to in this clause (other than the matters referred to in (a)(1) above), the Contractor must, within the time specified below, submit the dispute or difference in writing, specifying with detailed particulars the matter at issue including the contractual basis of the claim, to the Superintendent for decision and the Superintendent must, as soon as practicable after receiving a written notice of the dispute or difference, give a decision to the Contractor. In the case of sub-paragraph (a)(1) of this clause, the Contractor must submit the dispute or difference to the Superintendent not later than 14 days after the determination or direction is given to the Contractor. In the case of sub-paragraph (a)(2) of this sub-clause, the Contractor must submit the dispute or difference to the Superintendent not later than 14 days after the dispute or difference arises. The Superintendent may consult with or take advice from consultants, experts or legal advisers (whether or not they are also engaged or employed by the Principal in connection with the work under the Contract) in considering the dispute or difference. (b) If the Contractor is dissatisfied with the decision given by the Superintendent under clause 45.2(a) and desires to challenge the decision, the Contractor shall within 21 days after the decision of the Superintendent is given to it, give written notice (signed personally by a director of the Contractor) to the Principal of its dissatisfaction and request that the dispute or difference be discussed between the Contractor and the Principal in an attempt to resolve the dispute or difference. These discussions shall be a condition precedent to the expert determination process. If the Contractor fails to give notice to the Principal within the 21 days, the decision of the Superintendent shall be final and binding. (c) If the dispute or difference is not resolved by discussion the Contractor may, within 90 days (unless otherwise extended by the Principal) after the date of the notice given in clause 45.2(b), give written notice (signed personally by a director of the Contractor) requesting that the dispute or difference be subject to the expert determination process. Thereupon the dispute or difference shall be determined by an expert in accordance with the expert determination process ("Process") described in clause 45.3 set out in the Contract. If the Contractor fails to give this notice to the Principal within the 90 days (unless otherwise extended), the decision of the Superintendent shall be final and binding. The decision of the expert is made as an expert and not as an arbitrator and is final and binding on the parties, except where the expert's decision relating to a dispute or difference is that the Principal must pay the Contractor an amount in excess of $500,000. In that case, the expert's decision is not final and binding and the Principal or the Contractor may give notice requiring the dispute or difference to be referred to arbitration in accordance with clause 45.5. 45.3 How does the expert determination process work? This clause requires the determination of a dispute or difference by an expert in accordance with the Process: (a) The Process must be effected by an expert in the relevant field agreed upon and appointed jointly by the parties. If no agreement on the appointment is reached, either party may apply to the Chairperson, Sydney Division, Institution of Engineers Australia to nominate an expert. The parties must accept the expert nominated by the Chairperson. (b) The independent expert must be appointed by letter of appointment in the form set out in Schedule SC3. (c) The parties are bound by the Rules for the Expert Determination Process set out in Schedule SC4. [These Rules deal, at some length, with written submissions, with a conference where directions can be given, and with the determination itself.] (d) The parties agree that the expert will be bound by the Code of Conduct for an Expert set out in Schedule SC5. (e) The expert does not act as an arbitrator and the determination of the dispute or difference in accordance with the Process set out in the Rules for the Expert Determination Process is not a process of arbitration within the meaning of the Commercial Arbitration Act 1984 (NSW). (f) Money that is or becomes due and payable by the Principal for work carried out under the Contract and which is not subject to a dispute or difference will not be withheld because of the Process but the Principal may, at the Principal's discretion, and pending the determination by the expert, withhold payment of money in respect of the matter that is the subject of the Process. 45.4 Principal may deduct money from expert's award Without limiting the Principal's rights under the Contract, the Principal may deduct from money payable to the Contractor as a result of a determination of an expert, money payable to the Principal from the Contractor under or in connection with the Contract including, without limitation, liquidated damages. 45.5 Requirements of arbitration notice The Principal or the Contractor is entitled, pursuant to clause 45.2(c), to give notice requiring the dispute or difference to be referred to arbitration, the notice ("Notice") must: (a) be given in writing to the other party not later than 28 days after the expert has given a decision; and (b) if given by the Contractor, be signed personally by a director of the Contractor; and (c) if given by the Principal, be signed personally by the Principal's Director, Road Network Infrastructure; and (d) specify with detailed particulars the matter at issue, including the contractual basis of the claim. 45.6 Appointment of an Arbitrator Upon issue of the Notice, the dispute or difference will be determined by arbitration. If however, a party does not, within the period of 28 days, give the Notice to the other party, the decision given by the expert is not subject to arbitration. Arbitration will be effected: (a) by an arbitrator agreed upon in writing by the parties within 28 days after the Notice is received by the party to whom it is directed; or (b) if the parties cannot agree on an arbitrator, by one of at least 3 persons, none of whom is an employee of the Principal or of the Contractor or has had any association with the work under the Contract or with the Process, whose names are submitted in writing by the party who received the Notice for selection by the other party within a further period of 28 days after expiry of the last mentioned period, being the person whose selection as arbitrator is, within 28 days after the names are so submitted, notified in writing to the other party by the party who gave the Notice. 45.7 Arbitration Process The parties are entitled to be represented in any arbitration by a duly qualified legal practitioner. The party who received the Notice may raise any matter by way of claim or counter claim in any arbitration where the matter arises out of the Contract or concerns the performance or the non-performance by the other party of its obligations under the Contract. A reference to arbitration under this clause is a reference to arbitration within the meaning of the Commercial Arbitration Act (19[8]4) NSW. The arbitration proceedings must be conducted in New South Wales. The arbitrator has all the powers conferred by law. The arbitrator may enter upon the reference without any further or more formal submission than is contained in this clause. The Arbitrator may award whatever interest the Arbitrator considers reasonable. Money that is or becomes due and payable by the Principal for work carried out under the Contract and which is not subject to a dispute or difference will not be withheld because of arbitration proceedings but the Principal may, at its discretion, and pending the award of the arbitrator, withhold payment of money in respect of any matter that is the subject of arbitration proceedings. If one party has overpaid the other, whether pursuant to a Superintendent's Certificate or not, and whether under a mistake of law or fact, the Arbitrator may order repayment together with interest.' 57 In seeking to identify the present dispute, Kaipara refers, first, to the Administration's letter to SMEC and Kaipara dated 31 May 2001, stating (as has been pleaded) that a dispute or difference had occurred pursuant to cl 45.2; and, secondly, to Kaipara's reply to the Administration and SMEC, dated 25 June 2001, stating (as has been pleaded) that Kaipara was not a party to the dispute; and that no proper notice with the necessary degree of specificity had been given. (The text of this correspondence will be provided below.) Kaipara submits that no further notice of dispute has been received by Kaipara. 58 It will be recalled that central to Kaipara's motion is s 7(2) of the IA Act, providing in relation to foreign arbitration agreements that, subject to Part II of the Act (dealing with the enforcement of 'foreign awards') – '… where: (a) proceedings constituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and (b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration; on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings … as involves the determination of that matter, as the case may be, and refer the parties to arbitration … .' 59 Citing (inter alia) Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd (1979) 2 NSWLR 243 and White Industries Ltd v Trammel (1983) 51 ALR 779 (both cases are considered below), Kaipara submits that a stay is mandatory once the requirements of s 7(2) have been satisfied. Kaipara contends that those s 7(2) requirements have been satisfied here since: · An appropriate nexus with a Convention country exists; that is, s 7(2) applies (inter alia) where (s 7(1)(d)) 'a party to an arbitration agreement is a person who was, at the time when the agreement was made … ordinarily resident in a country that is a Convention country'. Kaipara, as noted, is a company incorporated under New Zealand law. New Zealand acceded to the Convention on 6 January 1983 and continues to be a Convention country for the purpose of the IA Act. (This appears to be common ground.) · The principal proceedings have been instituted by a party to an 'arbitration agreement' as defined by the IA Act. By s 3(1) of the Act, such an agreement is defined to mean an agreement in writing of the kind referred to in Article II (1) of the Convention. This Article speaks of 'an agreement in writing under which the parties undertake to submit to arbitration … differences … between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration'. Citing (inter alia) PMT Partners Pty Ltd v Australian National Parks and Wildlife Service (1995) 184 CLR 301 and ABB Power Plants v Electricity Commission of New South Wales (1995) 35 NSWLR 596 (both cases are considered below), Kaipara submits that there is no requirement that parties to an arbitration agreement must have agreed upon arbitration to the exclusion of all other methods of dispute resolution, in order for cl 45 to constitute an 'arbitration agreement' within s 7(2). · The principal proceedings are 'pending' within s 7(2)(a) in that this motion was filed before the pleadings were closed (no defence having been filed), citing Flakt, above. · All of the matters in dispute are 'capable of settlement by arbitration' since: (i) a 'matter' is simply any claim for relief of a kind able to be determined by a court, citing Elders CEO Ltd v Dravo Corp (1984) 59 ALR 206 in which Flakt Australia, above, was relied upon. (ii) the matters capable of settlement by arbitration are co-extensive with the subject matter in controversy in the court proceedings (as between the Administration and Kaipara) or, in the alternative, at least susceptible of settlement as a discrete controversy, citing Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 per Deane and Gaudron JJ (see [85] – [87] below). Kaipara submits that the Court's power in s 7(2) of the IA Act is broad enough to stay the entire proceedings as against Kaipara. Kaipara further submits that it is unnecessary for the Court to consider staying only part of the proceeding as against Kaipara in light of the ambit of the arbitration agreement, which clearly encompasses the matters pleaded by the Administration against Kaipara in these proceedings. (iii) the arbitration agreement is sufficiently broad for the Court to stay the proceedings in relation to all matters before it, including statutory claims brought against it, citing GIO v Atkinson-Leighton Joint Venture (1981) 146 CLR 206 (see [88] below). The arbitration agreement contained in clause 45.2 of the Kaipara Agreement extends to 'All disputes or differences arising out of the Contract or concerning performance or non-performance by either party of the Contract'. Kaipara cites the statement of Gleeson CJ in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165 – 'Whenthe parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues … .' (iv) this principle was, Kaipara contends, also ecognized in ACD Tridon v Tridon Australia Pty Ltd (unreported, Supreme Court of New South Wales, 4 October 2002) where Austin J stated (at par 181): 'There is now firm authority in Australia supporting the proposition that if the arbitration clause is draftedin appropriately wide language, it is legally effective to refer to arbitration statutory claims such as claims under the Trade Practices Act.' (v) this, Kaipara argues, is consistent with the judgment of the New South Wales Court of Appeal in IBM Australia Ltd v National Distribution ServicesLimited (1991) 100ALR 361 (considered below); and of similar effect is the reasoning of Stephen J in GIO, above, where his Honour stated that, subject to certain exceptions (which exceptions are not relevant here), a claimant should be able to obtain from arbitrators such rights and remedies as would have been available to him were he to sue in a court of appropriate jurisdiction. (vi) the task of the court, Kaipara says, is to ascertain the intention of the parties to the arbitration agreement. Kaipara submits that the broad statement 'all disputes or differences arising out of the contract', is indicative of an intention on the part of the parties to clothe the arbitrator with authority to determine statutory claims arising out of the contract, in accordance with the approach taken in GIO. · Kaipara next submits that whilst cl 45.7 provides that 'A reference to arbitration under this clause is a reference to arbitration within the meaning of the Commercial Arbitration Act (1994) NSW', and that 'the arbitration proceedings must be conducted in New South Wales', this does not amount to an attempt by the parties to 'contract out' of the application of s 7(2). The operation of s 7 is unaffected by the opting out mechanism contained in s 21 of the IA Act. (Section 21 provides that if parties to an arbitration agreement have agreed that any dispute between them is to be settled otherwise than in accordance with the United Nations Commission on International Trade Law's ('UNCITRAL') Model Law, the Model Law does not apply.) Kaipara refers to Abigroup Contractors Pty Ltd v Transfield Pty Ltd & Obayashi Corporation (unreported, Supreme Court of Victoria, 16 October 1998) where it was considered whether it was open to the parties to an arbitration agreement to contract out of s 7. Gillard J found that the parties had not excluded the operation of s 7, despite the circumstance that the arbitration agreement contained a clause that the Commercial Arbitration Act 1984 (Vic) was to apply to the arbitration. In Kaipara's submission, the provisions of cl 45.7 are analogous, and, thus, are not an effective contracting out of the IA Act. Kaipara also refers to Aerospatiale Holdings Australia Pty Ltd v Elspan International Ltd (1992) 28 NSWLR 321 where Cole J considered two arbitration agreements in which the parties agreed to arbitrate any disputes under the Commercial Arbitration Act 1984 (NSW). One of the parties, Elspan, was incorporated under the laws of Hong Kong. The parties were agreed that the arbitration agreement in question fell within the meaning of the IA Act. Cole J held that 'pursuant to s 7(2) … it is obligatory upon this Court to stay such portion of the proceedings … as are the subject of the arbitration agreement, and to refer that portion to arbitration'. · Having fulfilled each of the requirements in s 7(2), Kaipara submits that it is entitled to a stay. The only basis on which a court can refuse to refer a matter to arbitration is if it found that the agreement was null and void, inoperative or incapable of being performed, citing the IA Act s 7(5). Kaipara submits that the Administration bears the onus of satisfying the Court of these matters. Kaipara submits that none of these grounds have been identified or made out by the Administration. KAIPARA'S OTHER STATUTORY SOURCES 60 As mentioned, the provisions of the IA Act are at least the main source of Kaipara's motion. A number of other statutory sources are stated in the notice of motion and in Kaipara's initial written submission. But I need not deal with those other sources (which were not developed in oral argument) since they do not appear to advance the position of Kaipara, at least procedurally, beyond the scope of Kaipara's claims made under the IA Act. The grounds of the Administration's opposition to the stay application 61 In essence, the Administration contends that cl 45 did not constitute an agreement to arbitrate the disputes the subject of the statement of claim; that this Court does not have jurisdiction to grant the stay sought; and that, in any event, in the exercise of its discretion, the Court should refuse to grant a stay. (These grounds of opposition deal not only with the IA Act, but, (for the record only) also with the several other sources of 'stay' jurisdiction initially invoked by Kaipara.) 62 In developing these grounds of opposition, the Administration advanced the following construction of cl 45: · Clause 45 relates to 'Settlement of disputes' and identifies 'Dispute Resolution Procedures'. It specifies how disputes or differences are to be decided. The natural meaning of the words 'All disputes or differences … must be decided as follows:' is that '… the means appearing thereafter are the only means' as to which the parties are agreed; citing PMT Partners, above, per Toohey and Gummow JJ at 321. · Clause 45.2(a), (b) and (c) provide for the following steps: - a written submission from the Contractor to the Superintendent within a particular timeframe; (ii) consideration by the Superintendent; (iii) discussion between the Contractor and the Principal, which is a condition precedent to an expert determination process; (iv) submission to the expert determination process. · The decision of the expert is made as an expert, and not as an arbitrator, and is final and binding on the parties except (i) where the expert's decision relates to a dispute or difference involving the Principal paying the Contractor an amount in excess of $500,000; or (ii) a notice in writing is given by the Principal or the Contractor requiring the dispute or difference to be referred to arbitration, within 28 days of the expert's decision, and otherwise in accordance with cl 45.5. · If such notice is not given, the decision given by the expert is not subject to arbitration. In this case there was no expert's decision and no notice was given. · Clause 45.3, in identifying how the expert determination process works, expressly states (in 45.3(e)) that the process is not a process of arbitration within the meaning of the Commercial Arbitration Act 1984 (NSW). · Clause 45 left open the option to litigate. The right to arbitrate was narrowly confined. Clause 45 was not an arbitration agreement, unless and until the circumstances giving rise to the arbitration option had occurred, and the notice required by cl 45.5 had been given, citing ABB Power Plants, above, per Handley JA at 599; Sheller JA at 600 – 601. 63 The Administration further contends that: · Kaipara's submission that the Notice given by the Administration dated 31 May 2001 was a notice by which the Administration evinced the intention to arbitrate is not supported by the terms of the Notice. It was, by its terms, a 'Notice of Dispute' pursuant to cl 45.2, calling for the referral of the dispute for expert determination. · Furthermore, in response to the Administration's Notice of Dispute dated 31 May 2001 which was directed to SMEC and Kaipara, Kaipara, by letters dated 25 June 2001 and 25 October 2002 (from its counsel), asserted, inter alia, that it was 'not a party to the Notice, nor was there any ability for the Administration to impose such a 'dispute resolution' process on it under the terms of its contract'. Further, Kaipara asserted: (i) the inability of such an arbitration process to bind a third party; (ii) that no dispute had arisen or was outstanding; (iii) that, at that date, there were no contractual obligations between the parties and that any obligation on Kaipara to obey directions or instructions from SMEC had ceased at the conclusion of the contract; and (iv) that the Notice of Dispute had no legal status. · If, contrary to the Administration's contention, there was an operative arbitration agreement, Kaipara thereby repudiated it. The Administration accepted such repudiation by letter dated 29 July 2003, or, alternatively, by the commencement of these proceedings. · There is nothing here for any arbitration clause to act upon. By cl 45.2(c) the decision of the expert is final, except where, by virtue of that decision, the Principal must pay the Contractor for an amount in excess of $500,000. However, the claims in the proceedings sought to be stayed are claims by the Principal against the Contractor, not the other way around. Further, pursuant to the contract, a certificate of final completion has been given, noting that no moneys are owed to the Contractor from the Principal. It must follow that, for the purposes of s 7(2)(b), there is no matter which is operative, or capable of settlement by arbitration. Correspondence between the parties 64 As has been seen, the parties have relied upon some of their correspondence. It will be necessary to pick their text, as follows: The Administration's Notice of Dispute, addressed to both SMEC and Kaipara, dated 31 May 2001 65 This refers, in the first instance, to cl 6.1 of the Project Management Agreement and states that a dispute has occurred, details of which are then stated in Schedule 1. 66 The Notice later refers to the Project Contract also, and states that pursuant to cl 45.2 of the Special Conditions, a dispute or difference has occurred, details of which are also stated in Schedule 1. 67 Schedule 1 contains (inter alia) the following: '6. Works undertaken by Kaipara pursuant to the Contract were subject to quality assurance. - One of the items of work in the Project was the stockpiling of rock for later use by the Administration at portion 5a and on Crown land to the seaward side ("the Principal Stockpile"). 8. The relevant specifications are: All hard durable rock, excavated from Units 1, 11 and 111, shall be separated from the OTR and stockpiled at the site nominated on the drawings. The rock pieces placed in this stockpile shall be no greater than the following dimensions: Length - 900mm Width - 600mm Height - 375mm Where the length, is the greatest dimension of a single rock and the width is the largest dimension measured transversally to the length. Any oversize rock pieces shall be reduced in size before placing in the stockpile. The rock extracted from Units 1 and 11 shall be generally larger than 50mm in dimensions (p402). 9. During the defects liability period, the Administration has identified the following items which do not comply with the relevant specifications: · There is a significant quantity of oversized rock which has resulted in additional costs to the Administration, presently calculated at $7,000, however additional costs are likely to be incurred within the next three months.­ · There was a significant quantity of secondary rock and material at the top of the Principal Stockpile that was removed by the Administration in order to work the Principal Stockpile. Cost $6,500. · There is a significant quantity of material other than hard durable rock ("OTHDR") in the Principal Stockpile which is not in accordance. with the specifications that require only hard durable rock to be stockpiled at …the Principal Stockpile. Some of this OTHDR has had to be removed to another location to enable works to continue, under the present crushing contract. That removal has resulted in additional expense (to date, approximately $100,000). The extent of this problem remains unclear and is increasing as operations continue. 10. It was originally estimated by SMEC that there was 163,075 tonnes of rock stockpiled. It was recommended that an allowance of 3% for wastage be calculated, and on that basis it was recommended that royalties be calculated on a weight of 158,000 tonnes. (ref: pg l2 – Final Construction Report). By December 2000, SMEC advised that the amount on which royalties should be calculated should be further varied down to 155,000 tonnes. At that time, Kaipara advised the Administration that 100% of the material within the Principal Stockpile was useable. 11. As a consequence of concerns expressed by the Administration an Engineering Geologist was engaged to undertake an assessment of the Principal Stockpile and the stockpiles of OTHDR. 12. According to that Engineering Geologist, the estimated total amount of rock was assessed to be 152,000 tonnes (without allowance for wastage). The variations to the quantity of hard durable rock in the Principal Stockpile appear to be ongoing, and the amount of OTHDR is higher than should be reasonably anticipated in a contract of this nature. The variations affect the question of the payment to Kaipara for the rock in the Principal Stockpile. 13. According to the assessment by the Engineering Geologist the stockpiles of OTHDR contain approximately 50% of material that is less than 50mm based on one dimension. If that percentage carries through to the whole contract, then there is an argument that the rock extracted is not generally larger than 50mm in all dimensions. While hard durable rock under 50mm remains of value, the variation from specifications has caused the Administration to incur substantial additional expense. 14. The Administration should have been informed of these matters during the course of the Project so that alternative arrangements could have been made in relation to the stockpiling of smaller particles and so that variations to the Contract, if any, could have been made. 15. In addition to the above matters, the Administration is concerned that the drainage outlet to the sea to the east of the Cascade Jetty is not providing suitable or adequate drainage despite two changes to design.' Kaipara's letter to SMEC and the Administration dated 25 June 2001 68 This letter refers to the Administration's Notice dated 31 May 2001 and states: '…. Kaipara is not a party to the Notice, nor is there any ability for the Administration to impose such a "dispute resolution" process on it under the terms of its contract. Kaipara's only obligations in that regard are to remedy any minor omissions or defects in the project works notified to it within the Defects Liability Period, or, if it takes issue with any such direction, to invoke the Dispute Resolution Procedures in clause 45.2 of the Special Conditions of its contract. At this stage, no proper notice with the necessary degree of specificity has been given. Likewise, any process pursued by the Administration with SMEC under the terms of the Project Management Agreement with that company cannot bind Kaipara; there is no concept of a third party binding ruling in the contract documentation. If the Administration takes any steps during that process that prejudice Kaipara's rights, or purports to bind it to a prescribed course of action, then it will look to it for suitable compensation at the appropriate time. Kaipara reserves its rights in this regard. Having said that, without prejudice to its rights as reserved above, Kaipara considers that any resolution of the issue surrounding the quality of the stock piled rock should involve it for obvious reasons of pragmatism and common sense.' 69 The letter added: 'If the Administration's object[ion] with this "dispute resolution" process is to secure further funds to obtain a new contractor to complete the rock crushing contract, then that will be strongly resisted. Any dispute is between the Administration and the current contractor and has nothing to do with either SMEC or Kaipara. However, and without prejudice to the above, please also treat this letter as notice by Kaipara, to the extent necessary, under clause 45.2(b) of the Special Conditions of Contract. Kaipara requests that these issues be discussed between SMEC, the Administration and Kaipara with a view to reaching a resolution.' Kaipara's letter to SMEC dated 2August 2002 70 In this letter Kaipara stated: 'This letter forms our final Statement for the Cascade Cliff Safety Project Construction Contract. We request that the superintendent now issues a Final Certificate in accordance with Clause 42.7 of the general conditions of contract and Clause S2.17 of the special conditions. Kaipara Limited releases all claims against the Administration of Norfolk Island and confirm that we have no outstanding issues or claims relating to this contract. We agree to settle the claim for damages from Mr John Forrester for $5500.00 on confirmation that the Administration of Norfolk Island will release the security undertakings. Also, in accordance with the contract, we decline to undertake the extra work at Middlegate and suggest that the Administration directly contract our former subcontractor, Norfolk Island Block Factory, to undertake that work.' The letter to the Administration from Kaipara's counsel dated 25 October 2002 71 Kaipara's counsel here said: 'An issue remains outstanding with the contract dated 20 April 1999 ("Agreement") between Kaipara and the Administration, namely the return of the balance of my client's security retention. That issue does not involve SMEC. Except for obligations (now past) of Kaipara to obey certain directions/instructions from SMEC during the contact works, there is no contractual relationship between those parties. In my view the continuing failure by the Administration to release Kaipara's security retention is a breach of the Agreement, actionable by Kaipara. While I am well aware of the Administration's allegations over Kaipara's failure to comply with Clause 5.9 of Specification 402 of the Agreement, those untested claims are not a sufficient basis under the Agreement to retain the security retention. Any allegation of breach should be pursued in the usual manner. Under clause 37.2 of the Agreement Kaipara was only required to rectify any defects or omissions in the Works, that became apparent during the period 1 June 2000 to 31 May 2001, being the Defects Liability Period under the Agreement, and then, only if directed to do so by SMEC. Any such direction must have specified the timeframe within which the direction should have been complied with. SMEC gave no direction to Kaipara under clause 37.2 of the Agreement to rectify the Works so as to comply with the rock specification: (a) The items were recorded as "Items Notified by the Principal". Kaipara received no notice from the Administration to rectify damage. That is because there is no provision for the Administration to do that under the Agreement. (b) Similarly, SMEC's covering letter to Kaipara of 2 June 2001 contained no direction to rectify any aspects of the Works as an omission or defect. Even if the letter were construed as a direction, no required timeframe to comply was specified. (c) No other complying directions were received by Kaipara before 15 June 2001. In my opinion there is no longer any ability under the contract to require Kaipara to "rectify" these alleged omissions and defects. There being no matter remaining outstanding under the Agreement, there is therefore no contractual right for the Administration to retain the security retention. The Administration's "notice of dispute" of 31 May 2001 has no legal status under the Agreement. There is no provision in the agreement for a notice of this kind to be given to Kaipara. The proper course would have been to direct SMEC to rectify the omissions in accordance with any process that might exist under its contract with the Administration. SMEC would then have had the ability to make a similar direction to Kaipara. That would have enabled both SMEC and Kaipara to invoke the dispute resolution provisions in their agreements and force the dispute to expert determination with due diligence. In essence the Administration's faulty interpretation of its rights under the Agreement has sidetracked this dispute for two years. No proper direction to rectify any defects having been made, no dispute has arisen, and none is outstanding. From Kaipara's perspective its contractual obligations are at an end. The continuing retention of its security is a direct breach of the Administration's legal obligations signed, sealed and delivered in April 1999. Unless the Administration confirms release of the security retention and indicates that it intends to pursue Kaipara for breach of contract forthwith, then Kaipara will commence summary judgment procedures to compel the return of the retention. All of its legal costs in doing so will be claimed in any such action, together with its costs in retaining the security bond from the date that it was required to be released under the Agreement.' The authorities relied upon by Kaipara 72 As has been seen, Kaipara seeks to rely upon the reasoning in several decided cases which have considered s 7(2) of the IA Act, or its counterpart in earlier legislation, as follows: 73 In Flakt Australia, above, an application for a stay of proceedings was made by the defendant under s 7 of the Arbitration (Foreign Awards & Agreements) Act 1974 (Cth) ('the Arbitration Act'), now called the IA Act. In the principal proceedings, the plaintiff alleged facts from which a purchase order might be inferred and sought certain declaratory relief. The plaintiff contended: (i) that the word 'matter' in s 7(2)(b) (that is, 'the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration') denotes the ultimate subject matter at issue, which was said to be how much is the defendant entitled to be paid for the work it has done; (ii) that there could be no 'settlement' without a complete resolution of that issue, which, it was said, was not possible under the arbitration agreement, because of the claims foreshadowed by the defendant as alternatives to its primary contentions, for rectification and for breach of an alleged duty by the plaintiff to draw attention to material changes in the scope of the work; and (iii) that the stay application was premature, and that it was not until after the pleadings had closed, that one can properly determine whether proceedings fall within s 7(2)(b). 74 McLelland J held (at 250) that 'matter' denoted any claim for relief of a kind proper for determination in a court, but did not include every issue which would, or might, arise for decision in the course of the determination of such a claim. 'Settlement' is an apt term to be used in relation to a claim for relief, but less apt in relation to a mere issue. 75 His Honour further held (at 250 – 251) that the claims made in the principal proceedings were capable of settlement by arbitration; but that it was not necessary to decide whether a claim for rectification, or a claim for breach of duty, would be capable of settlement by arbitration, because the principal proceedings were independent of any such claim. In his Honour's opinion, the plaintiff's statement of claim did not include, or involve, any claim for what might be called a pre-emptive declaration that the defendant was not entitled to have the accepted purchase order rectified, or to make a claim for some breach of duty by the plaintiff. In ordering a stay (at 251), his Honour proceeded to impose a condition that the stay may be terminated, upon application by the plaintiff, in the event that the defendant were to unduly delay the arbitration. 76 In White Industries, above, proceedings were brought under the secondly boycott provisions (s 45D) of the Trade Practices Act 1974 (Cth) in respect of certain contract work. The applicant also alleged, in par 35 of its statement of claim, a matter enlivening this Court's accrued jurisdiction, claiming that the third respondent as Superintendent (for the purposes of the contract) 'failed and neglected to act in a reasonable and equitable manner in determining and valuing [certain claims] and granting an extension of time thereon and was accordingly in breach of the … contract'. The contract contained an arbitration clause. The respondents moved under the Arbitration Act for a stay. Lockhart J held (at 786) that s 7(2)(b) applied in respect of the claim made in par 35, there being no warrant for reading down the plain language of the arbitration clause. His Honour's order included the condition imposed in Flakt Australia, above. 77 In IBM Australia, above, an agreement for the supply of 'systems integration services' submitted to arbitration 'any controversy or claim arising out of or related to this agreement or the breach thereof'. It was held by the Court of Appeal of the Supreme Court of New South Wales that the words 'related to this agreement or breach thereof' were of the widest import and should not be read down; and that claims made by the plaintiff under the Trade Practices Act were 'related to' the agreement or the breach thereof, and that the arbitrator was authorised to exercise the powers conferred by that Act upon the Supreme Court. 78 In ABB Power Plants, above, the Court of Appeal of the Supreme Court of New South Wales held that a provision of a contract contained an 'arbitration agreement' within s 4(1) and s 53(1) of the Commercial Arbitration Act 1984 (NSW). Section 4(1) defined an 'arbitration agreement' to mean 'an agreement … to refer present or future disputes to arbitration … .' Section 53(1) provided that if a party to an arbitration agreement commences proceedings in a court in respect of a matter agreed to be referred to arbitration, another party may apply for a stay. Clause 46.1 of that contract provided that if a dispute arises out of or in connection with the contract (including a rectification or frustration dispute) each party shall furnish to the Superintendent details of that party's claim or the reasons for rejecting a claim, and shall request the Superintendent to make a decision. Clause 46.2 provided that if any party was dissatisfied with the Superintendent's decision, 'the dispute may be referred to arbitration. …' 79 It was held by Handley JA and by Sheller JA that, in the context of the obligatory first step prescribed in cl 46.1, the choice in the phrase 'may be referred to arbitration' was between arbitration and taking the matter no further. However, an option or election to arbitrate or litigate, is not an arbitration agreement within s 53 prior to the exercise of the arbitration option. 80 ABB Power Plants was considered by the High Court in PMT Partners, above, in considering similar commercial arbitration legislation. Sections 48(1) of the Commercial Arbitration Act 1985 (NT) empowered the Supreme Court, on application, 'to extend the time … fixed by the [arbitration] agreement … for doing an act … in or in relation to an arbitration'. Section 4 defined an arbitration agreement to mean 'an agreement to refer present or future disputes to arbitration …'. Under the contract, cl 45 provided that all disputes should be decided by the contractor submitting a notice in writing to the superintendent not later than 14 days after the dispute arose. If the contractor was dissatisfied with the superintendent's decision, he was entitled to submit the matter at issue to the principal for decision. If the contractor was dissatisfied with that decision, he was entitled to require the matter to be referred to arbitration. 81 It was held that the words 'agreement … to refer present or future disputes to arbitration' in s 4 encompassed an agreement by which the parties were bound to have their dispute arbitrated, if an election was made, or some event occurred, or some condition was satisfied, even if only one party had the right to elect or was in a position to control the event or satisfy the condition; that the words 'in or in relation to an arbitration' in s 48(1) encompassed the doing of an act such as the giving of notice of the dispute by the contractor, even if arbitration was not the inevitable consequence of the act; and that cl 45 governed the procedures to be followed by the parties in the event of a dispute and, in the circumstances, precluded the contractor from electing to take court proceedings instead. 82 It was further held (by a majority) that cl 45 precluded a contractor from electing between court proceedings and arbitration prior to the giving of the notice requiring arbitration. 83 PMT Partners was applied by the Court of Appeal of the Supreme Court of Queensland in Mulgrave Central Mill Co Ltd v Hagglunds Drives Pty Ltd [2002] 2 Qd R 514. The terms of cl 47 of the contract in question required that the dispute resolution follow a compulsory process of giving a notice of dispute followed by a conference between the parties; and that, if there is no resolution at that point, a party may, by notice, elect either to refer the dispute to arbitration or to litigate. 84 It was held that the fact that various conditions or contingencies are to be fulfilled or procedures gone through before the option (of referring a dispute to arbitration) becomes exercisable, or the election made, was no reason for denying to cl 47 the character of a binding agreement to arbitrate; that whether those conditions are in fact fulfilled, or procedures carried out, may determine whether or not there will in due course be an arbitration, but it does not deprive it of the status of a binding, if executory, agreement to refer disputes to arbitration; and that it is enough that the parties have agreed that, if certain things happen, even if only at the option of the parties or one of them, their dispute will be referred to arbitration. 85 In Tanning Research, above, the High Court considered the operation of s 7(2) of the Arbitration Act. 86 In a separate judgment to the majority judgment, Deane and Gaudron JJ noted (at 350) that s 7(2) was mandatory in its terms and said: 'To ascertain whether s. 7(2) operates in respect of proceedings pending in a court it is necessary to first identify the subject matter of the controversy which falls for determination in those proceedings. Only when that has been done is it possible to identify whether the proceedings "involve the determination of a matter … capable of settlement by arbitration": s. 7(2)(b).' 87 Their Honours continued (at 351 – 352): 'In the context of s. 7(2), the expression "matter … capable of settlement by arbitration" may, but does not necessarily, mean the whole matter in controversy in the court proceedings. So too, it may, but does not necessarily encompass all the claims within the scope of the controversy in the court proceedings. Even so, the expression "matter … capable of settlement by arbitration" indicates something more than a mere issue which might fall for decision in the court proceedings or might fall for decision in arbitral proceedings if they were instituted. See Flakt. It requires that there be some subject matter, some right or liability in controversy which, if not co-extensive with the subject matter in controversy in the court proceedings, is at least susceptible of settlement as a discrete controversy. The words "capable of settlement by arbitration" indicate that the controversy must be one falling within the scope of the arbitration agreement and, perhaps, one relating to rights which are not required to be determined exclusively by the exercise of judicial power. See Mustill and Boyd, Law and Practice of Commercial Arbitration in England, 2nd ed. (1989), pp. 149 – 150, where it is noted that "English law has never arrived at a general theory for distinguishing those disputes which may be settled by arbitration from those which may not" but that the powers of an arbitrator "are limited by considerations of public policy and by the fact that he is appointed by the parties and not by the state".' 88 In GIO, above, Stephen J said (at 235): '… [A]rbitrators must determine disputes according to the law of the land. Subject to certain exceptions, principally related to forms of equitable relief which are of no present relevance and which reflect the private and necessarily evanescent status of arbitrators, a claimant should be able to obtain from arbitrators just such rights and remedies as would have been available to him were he to sue in a court of law of appropriate jurisdiction.' 89 In Abigroup, above, Gillard J considered whether a provision in a contract that the Commercial Arbitration Act 1984 (Vic) ('the Victorian Arbitration Act') applied to an arbitration, could exclude the operation of the IA Act. 90 The contract provided (cl 13(d)) for a dispute procedure to be followed involving in the first instance negotiation, followed by mediation. If the dispute was not resolved, it 'must be resolved by arbitration [essentially in accordance with] … the [Victorian] Arbitration Act …'. 91 Gillard J noted that cl 13 was concerned with the conduct of arbitration and did not exclude s 7 of the IA Act. His Honour held that there was nothing in cl 13 which was inconsistent with that conclusion; s 7 did apply, but this was not to say that the procedures set out in the Victorian Arbitration Act could not apply to the arbitration. 92 The contract further provided (by cl 17(2)(a)) that its proper law was that of Victoria. But Gillard J concluded that cl 17(2)(a) did not exclude the operation of the IA Act. As a Commonwealth Act, the IA Act is part of the law of Victoria. Moreover, cl 17(2)(a) did not address the question whether a court can stay a court proceeding pursuant to s 7. That is to say, the law of Victoria applies, but this does not exclude the right of a party to apply for a stay. Conclusions on the motion for stay under the IA Act 93 It will first be necessary to construe the relevant parts of the Kaipara Agreement. The construction of cl 45 of the Kaipara Agreement 94 It will be recalled that cl 45.2 opens with the description – 'All disputes or differences arising out of the Contract or concerning performance or non-performance by either party … must be decided as follows … .' (Emphasis added) 95 Prima facie, this description would, if it stood alone, apply to the claims made against Kaipara by the Administration in its statement of claim. However, as noted, the description ends with the words 'as follows', and the following scenario then appears: · If the dispute or difference (hereafter collectively 'the dispute') arises out of, relates to or concerns a determination or direction (hereafter collectively 'a determination') of the Superintendent or the Principal which is given to the Contractor, and the Contractor is dissatisfied with the determination and desires to challenge it, the Contractor must, not later than 14 days after the determination, submit the dispute in writing (specifying detailed particulars) to the Superintendent who must, as soon as practicable, give a decision to the Contractor. However, none of the claims made against Kaipara in the Administration's statement of claim touch on any of these questions. · If the dispute arises out of, relates to or concerns any failure or refusal by the Superintendent or the Principal to give a determination to the Contractor, or any other matter referred to in cl 45.2 (other than the matters referred to in the previous paragraph), the Contractor must, not later than 14 days after the dispute arises, submit it in writing (specifying particulars) to the Superintendent for decision, and the Superintendent must, as soon as practicable, give a decision to the Contractor (emphasis added). It appears that only the words emphasised could apply to the Administration's present claim against Kaipara. · If the Contractor is dissatisfied with the Superintendent's decision, the Contractor shall, within 21 days, give written notice to the Principal requesting that the dispute be discussed between them in an attempt to resolve the dispute, as a condition precedent to the 'expert determination process'. · If the Contractor fails to give notice to the Principal within this 21-day period, the decision of the Superintendent shall be final and binding. · If the dispute is not resolved by discussion, the Contractor may, within 90 days after the Contractor's notice of dissatisfaction, give written notice requesting that the dispute be subject to the expert determination process described below. · If the Contractor fails to give this notice to the Principal within the 90 days, the Superintendent's decision shall be final and binding. · The expert's decision 'is made as an expert and not as an arbitrator and is final and binding on the parties, except where the expert's decision … is that the Principal must pay the Contractor an amount in excess of $500,000. In that case, the … decision is not final … and the Principal or the Contractor may give notice requiring the dispute … to be referred to arbitration [as described below]'. · The expert determination process includes either the joint appointment of an expert in the relevant field, or if no agreement on appointment is reached, either party may apply to the Chair of Australian Institute of Engineers, Sydney Division. · Where the Principal or the Contractor is entitled, pursuant to the above provisions, to give notice requiring the dispute to be referred to arbitration, the notice must (a) be given not later than 28 days after the expert's decision; and (b) specify with detailed particulars the matter at issue, including the contractual basis of the claim. · Upon issue of this notice within the 28-day period, the dispute will be determined by arbitration; otherwise the expert's decision is not subject to arbitration. · Arbitration will be effected by an agreed arbitrator, or by one of at least three persons nominated, as a reference to arbitration within the meaning of the Commercial Arbitration Act 1984 (NSW). · The party who received the notice may raise any matter by way of claim or counter-claim in any arbitration where the matter arises out of the Contract or concerns the performance or the non-performance by the other party of its obligations under the Contract. 96 As mentioned, if they stood alone, whilst the opening words of cl 45.2 are, prima facie, wide enough to pick up the claims made by the Administration in the principal proceedings, it may be open to argument that the scenario which follows reads down the scope of those opening words. That is to say, with one exception, cl 45.2(a)(1) and cl (2) appear to contemplate no more than a dispute in respect of a (formal) determination (or lack thereof) by the Superintendent or the Principal; and it may be said, the claims made by the Administration in the principal proceedings do not possess that character. The exception, however, is critical; that is, the reference to 'any other matter' in cl 45.2(a)(2) emphasised above. In my opinion, this provision widens the scope of the application of the scenario so as to pick up the opening words of cl 45.2 that 'All disputes or differences arising out of the Contract, must be decided as follows …'. 97 What follows is a set of procedures, with time limits imposed, which could in certain events, lead to a determination by an expert; and in certain other events, by an arbitrator. 98 As has been seen, the nature of the preliminary mechanics of the expert/arbitration process provided by cl 45 are not easily squared up with the nature of the claims now made by the Administration in the principal proceedings. But cl 45 needs to be construed as a whole, as McTiernan, Webb and Taylor JJ said in Fitzgerald v Masters (1956) 95 CLR 420 (at 437): 'It is trite law that an instrument must be construed as a whole. Indeed it is the only method by which inconsistencies of expression may be reconciled and it is in this natural and common sense approach to problems of construction that justification is to be found for the rejection of repugnant words, the transposition of words and the supplying of omitted words (cf. Norton on Deeds, 2nd. ed. (1928), p. 91). Many illustrations may be given of the circumstances in which these processes have been followed but to do so would add nothing to the rule that the intention of the parties is to be ascertained from the instrument as a whole and that this intention when ascertained will govern its construction.' 99 In my opinion, the intention of the parties, as ascertained from cl 45 read as a whole, is that the present dispute between the Administration and Kaipara should, in the first instance, be dealt with under the expert determination process; and that, no later than 28 days after the expert's decision, either party may give a notice requiring the dispute to be referred to arbitration. Is cl 45 of the Kaipara Agreement, as the Administration submits, 'inoperative' or 'incapable of being performed' within the meaning of s 7(5) of the IA Act? 100 The principles in this area are summarised in Halsbury's Laws of Australia Vol 1(2) at [25-235] as follows: 'The onus lies on the party resisting the stay of proceedings application on the ground that the arbitration agreement is null and void, inoperative or incapable of being performed, to show that there is some flaw in the agreement, for example: (2) want of offer and acceptance; (3) want of consideration; (4) the arbitration agreement is illegal or otherwise void ab initio; or (5) the arbitration agreement has become void ab initio by operation of law or court order. An arbitration may be described as "inoperative", at least in so far as the arbitration of a given dispute is involved, where the arbitral tribunal declines to proceed with the reference, where the right to arbitrate has been waived or where the court has ordered that it cease to have effect. The requirement that the arbitration be "incapable of being performed" involves proof of more than delay or inconvenience and more than some procedural bar or the effect of a time bar. The fact that a party was unwilling or unable to satisfy an award which might be made is also insufficient. What is required is that there exists some obstacle which cannot be overcome by parties who are ready and willing to perform the agreement.' 101 As has been mentioned, the Administration propounds several grounds to support this contention, as follows. 102 First, repudiation, by virtue of Kaipara's letters dated 25 June 2001 and 25 October 2002, is relied on by the Administration. But, in my opinion, the letter of 25 June 2001 did not repudiate the Kaipara Agreement, indeed, as has been seen, it sought to invoke cl 45. Nor, in my view, was the letter dated 25 October 2002 an attempt to repudiate Kaipara's Agreement. As has been seen, the letter invokes the Agreement in several respects. Whilst the letter propounds several arguments as to the construction of the Agreement which may, or may not, be open to debate, this should not be construed as a repudiation. As Mason J said in Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 (at 33): 'What needs to be established in order to constitute a repudiation is that the party evinces an intention no longer to be bound by the contract or that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way … .' 103 In my view, these elements were not evidenced in either of the letters relied on by the Administration. 104 As has been noted, the Administration also relies upon the circumstance that a certificate of final completion was provided. But, in my view, it does not follow that, for the purposes of s 7(5), cl 45 is no longer operative. Plainly, there are ongoing disputes between the parties; and the provision of a collateral instrument such as certificate of completion cannot detract from the operation of cl 45, as properly construed. 105 In my view, the Administration has not demonstrated that cl 45 was 'inoperative' or 'incapable of being performed'. Do the principal proceedings 'involve the determination of a matter that, in pursuance of the Kaipara Agreement, is capable of settlement by arbitration' within s 7(2)(b)? 106 Again, the general principles are summarised by Halsbury's at [25-230] as follows: 'The applicant for a stay of court proceedings must establish that the court proceedings involve the determination of a matter which is capable of arbitration. The word "matter" means the substance of the claim before the court and not an issue which would or might arise in the course of the determination of the matter or which might not be capable of so arising. The scope of the matter is to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including the defence, are based. The matter must fall within the scope of the arbitration agreement. This may involve an examination not only of the claim of the plaintiff in the court proceedings, but also the issues joined by the defendant.' 107 There may, of course, be more than one 'matter', and some only of these may be capable of settlement by arbitration. 108 As has been seen, the Court is empowered to impose conditions upon granting a stay. For instance, in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No. 5) (1998) 90 FCR 1, a stay of proceedings was made conditional upon final determination of court proceedings for those matters not the subject of arbitration. In Hi-Fert, the Full Federal Court held that the clause reading '[a]ny dispute arising from this charter or any Bill of Lading issued hereunder …' was not wide enough to cover claims based upon conduct allegedly in breach of the Trade Practices Act where that conduct was antecedent to the charter contract. 109 I agree with the observation in Aerospatiale, and in Abigroup Contractors that the reference to the Commercial Arbitration Act 1984 (NSW) does not deprive the Court of jurisdiction under the IA Act. 110 In order to ascertain whether there is any relevant 'matter' for s 7(2) purposes, it will be necessary to analyse in further detail the claims made by the Administration against Kaipara in its statement of claim as follows. (i) The claims against Kaipara for breach of contract 111 In [66.1] of the claim, the Administration refers to [21] to [31] thereof, where the terms of the Kaipara Agreement relied on by the Administration are described. The 'contract documents' there specified include the Drawings, the Specifications, the Schedule of Rates and the General and Special Conditions of Contract. Extracts from these documents are then cited. The claim then alleges [66.2] that in breach of the Kaipara Agreement, Kaipara: '66.2.1Failed to execute the Cascade Cliff Safety Project Works in conformity in all respects with the documents described as the Contract Documents, copies of which were annexed to the Agreement; 66.2.2 Failed to separate hard durable rock excavated from Units I, II and III from the OTR and stockpile it at the Quarry Stockpile Site; 66.2.3 Failed to ensure that rock pieces placed in the stockpile were no greater than the dimensions referred to in the provisions of the Specification referred to in paragraph 29.2 hereof; 66.2.4 Failed to reduce oversize rock pieces before placing them in the stockpile; 66.2.5 Placed OTR material in the Quarry Stockpile rather than removing it to the Middlegate Site; 66.2.6 Removed hard durable rock to the Middlegate Site and buried it in the fill; 66.2.7 Carried out drilling and blasting operations so as to render difficult and/or impossible the separation of hard durable rock from OTR; 66.2.8 Failed to provide personnel with any or any adequate expertise in the drilling and blasting of high strength basalt rock so as to ensure that: - such rock could be separated from OTR; - such rock would be excavated in the dimensions referred to in the provisions of the Specification pleaded in paragraph 29.2 hereof; 66.2.9 Failed to provide or make appropriate provision for personnel, plant and equipment suitable: - to carry out the works in accordance with the Drawings and Specifications; - to carry out the works within 40 weeks in accordance with the general conditions of Contract pleaded in paragraph 31.5 hereof; 66.2.10Failed to execute the Works to Practical Completion within 40 weeks or within any extended time granted or allowed by SMEC; 66.2.11Delivered up the works to the Plaintiff when they were not reasonably capable of being used for their intended purpose; Particulars See paragraph 36.2.2 hereof, and the paragraphs referred to in the Particulars thereto. …' 112 In [36.2] (being a claim then made against (SMEC)) it was claimed that, notwithstanding that pursuant to cl 42.2 of the General Conditions of Contract forming part of the Kaipara Agreement, SMEC issued to Kaipara a Certificate of Practical Completion dated 5 June 2000 specifying the date of Practical Completion to be at the end of shift on 1 June 2000, – '36.2 In fact Practical Completion had not occurred in that: 36.2.1 The Works were not complete except for minor omissions and minor defects. 36.2.2 The Works were not reasonably capable of being used for their intended purpose in that all hard durable rock excavated from Units I, II and III: - had not been separated from OTR; - had not been stockpiled at the Quarry Stockpile Site; - was greater than the dimensions specified referred to in paragraph 29.2 hereof; - had not been reduced in size before being placed in the stockpile; - had been carried away in substantial quantities and buried in the fill at the Middlegate Site; Particulars See paragraph 38.5, 38.6, 41, 43, 50 and 51 hereof.' 113 In [38.5], it was claimed, as Island Industries alleged, that the rock in the Quarry Stockpile did not, in the respects there claimed, conform to the Specification. Accordingly, Island Industries claimed [38.6] that it was impaired in its performance of its contract for rock crushing. In [41], it is claimed that substantial quantities of OTR lie within the Quarry Stockpile and that ([43]) the presence of OTR in the stockpile will contaminate it. 114 I will return later to [50] and [51] since, as will appear, they pick up discussions between the parties which occurred after the making of the Kaipara Agreement. 115 Confining (for the moment) the position under s 7(2) to the foregoing claims (that is [66] including [36.2] but excluding [50] and [51] at this point), and putting to one side, at this instant, the procedural bars raised by the Administration, for instance, the necessity of intervention by an expert, in my opinion, this is, within the description in the observations of Deane and Gaudron JJ in Tanning Research, a matter (in which unliquidated damages are claimed) that is within the terms of cl 45.2, namely, a 'dispute[ ] or difference[ ] arising out of the Contract or concerning performance or non-performance by either party …'. It will be recalled that Deane and Gaudron JJ there observed that, in any context, 'matter' is 'a word of wide import'; and that, in the context of s 7(2) of the IA Act, the expression 'matter … capable of settlement by arbitration' requires that there be some subject matter, some right or liability in controversy 'is at least susceptible of settlement (by the terms of the arbitration provision) as a discrete controversy'. 116 As mentioned, in this connection, the Administration has raised a procedural bar in the form of the requirement made by cl 45 that no arbitration can take place before the expert determination process has been undertaken. However, it will be remembered that in PMT Partners, it was held that there is no requirement that the parties to an arbitration agreement must have agreed upon arbitration to the exclusion of all other methods of dispute resolution; and that there is no requirement that both parties must have the right to refer disputes to arbitration. 117 In my opinion, these observations are in point here, so that cl 45 should, in my view, be characterised as an 'arbitration agreement' for the purposes of s 7(2). Accordingly, so far as these claims (i.e. [66] including [36.2] but excluding [50] and [51]) are concerned, s 7(2) mandates the grant of a stay. However, the question of imposition of conditions in staying the principal proceedings remains. 118 In my opinion, it is appropriate to impose upon this stay two conditions: (i) a condition that liberty be reserved to the Administration to move this Court for the discharge of the stay in the event that Kaipara does not forthwith give a written notice requesting that this dispute be subject to an expert determination process of the kind described in cl 45; and (ii) a condition that liberty be reserved to the Administration to move this Court for the discharge of the stay in the event that Kaipara fails to use its best endeavours to facilitate the expeditious determination of the expert determination process. 119 Reverting then to [50] of the claim, [50.1] claims: '50.1 Neither Kaipara nor SMEC has provided to the Plaintiff a profile of the rock stockpile in accordance with the statement referred to in paragraph 38.7.4; …' 120 In [38.7] it is claimed (inter alia): '38.7 On or about 11 December 2000 at a meeting held between representatives of the Plaintiff and representatives of SMEC and Kaipara, the following statements were made by SMEC and Kaipara each in the presence of the other: … 38.7.4 That Kaipara would develop a profile of the rock stockpile; …' 121 In [50.2] to [50.12] details of the Quarry Stockpile in 2001 and 2002 are alleged. 122 In [50.13] it is claimed: '50.13 Instead of separating OTR from all hard durable rock stockpiled in the Quarry site Kaipara stockpiled, and SMEC permitted Kaipara to stockpile material comprising of the order of 80% hard rock intermingled with, of the order of 20% OTR.' 123 In [51], claims are made concerning test pit sites dug at the Middlegate Site. 124 In [51.5] the following claim is made: '51.5 In fact a quantity of not less than 46,600 tonnes of hard crushable rock was delivered to and buried in the fill at Middlegate site instead of being delivered to the Quarry Stockpile site in accordance with The Earthworks Specification referred to in paragraph 29 hereof.' 125 In my opinion, [50] and [51], via [36.2.2], are claims made within [66.2]; that is to say, claims made '[i]n breach of the Kaipara Agreement' and, as is claimed in [66.2.11], Kaipara '[d]elivered up … works to the [Administration] when they were not reasonably capable of being used for their intended purpose'. It must follow, in my view, that these are claims, now disputed, which within the opening words of cl 45.2 'aris[e] out of the Contract or concern[ ] performance or non-performance …'. Accordingly, as in the case of the provisions of [66.2.1] to [66.2.10], a stay ought to be granted, but subject to conditions (i) and (ii) above. 126 In [66.2.12] it is provided that in breach of the Kaipara Agreement, Kaipara – '66.2.12 Submitted to SMEC statements showing the purported contract value of work carried out in purported performance of the Kaipara Contract for the purpose of causing SMEC to issue Progress Certificates when: - work claimed for in such statements had not been carried out; and/or - had not been carried out in accordance with the Specification; and/or - did not have the value ascribed to it. Particulars Claims were made pursuant to the Schedule of Rates referred to in paragraph 29.5: - for OTR material removed to the Quarry Stockpile Site; - for rock removed to Middlegate Site; The Plaintiff repeats paragraph 50 and 51.' 127 Again, in my opinion, these claims fall into the same category as the earlier provisions of [66.2] and a stay must follow, but subject to conditions (i) and (ii) above. (ii) The claims against Kaipara under the FT Act 128 In its claims against Kaipara under the FT Act, the Administration alleges several kinds of conduct which, it says [68.2], was misleading or deceptive or likely to mislead or deceive, in contravention of s 14 of the FT Act. 129 The first conduct alleged is: '68.1.1In claiming by reason of the provisions of the Kaipara agreement referred to in paragraph 31.5 hereof that it would practically complete the works within 40 weeks … .' 130 In this connection, the Administration provides the following particulars: 'Particulars Practical Completion: 68.2.1 Kaipara did not nor was there any reasonable prospect of it completing the works within 40 weeks; 68.2.2 Whereas the works should have been practically completed by 29 December 1999, in fact Kaipara continued the works for a further 5 months until 2 June 2000, at which time the works were not practically completed and such works as had been completed were not in accordance with the Specification; 68.2.3 Kaipara did not have and/or did not procure and provide the experience or expertise in drilling, shot firing and blasting high strength basalt rock; 68.2.4 The Plaintiff repeats paragraph 54 hereof; [In [54], the Administration pleads loss and damage as specified in [73]. In [73], the Administration claims from Kaipara loss and damage, including payment of progress payments in sums to which Kaipara was not entitled; the incurring of expense in breaking oversized rock (etc.); and payment of sums to Island Industries (etc.).] 68.2.5 Kaipara did not have and/or did not procure and provide the experience or expertise to carry out excavation of Cascade Cliff so that hard durable rock of the dimensions referred to in paragraph 29.2 hereof could be separated from OTR and stockpiled in the Quarry Stockpile Site; 68.2.6 Kaipara did not provide appropriate plant and equipment to use in the earthworks so as to comply with the Specification and carry out the earthworks in a timely manner and within a construction period of 40 weeks; 68.2.7 The Plaintiff repeats paragraphs 55.1.1 - 55.1.3; [In these pars, complaint is made about Kaipara's 'lack of progress of earthwork activities' (etc.).] 68.2.8 By reason of­: - The delays, and the losses Kaipara was incurring in consequence; - The blocking of Cascade Road caused by incorrect blasting and excavation procedures; Kaipara was unable to, or alternatively did not: - Attempt to separate rock from OTR, and instead delivered both to the Quarry Stockpile Site and the Middlegate Site; - Did not attempt to reduce oversize rock to a size which conformed with Specification;' 131 These claims (i.e. those made in [68.2]) are not, in terms, framed as breaches of contract, but as misleading or deceptive conduct, or likely to be so. Do these claims fall within cl 45.2 which speaks of disputes 'arising out of the contract or concerning its performance or non-performance'? 132 The authorities analysing the proper construction of arbitration clauses were fully considered by Allsop J in Incitic Ltd v Alkimos Shipping Corporation (2004) 206 ALR 558 at [32] to [37]. In "The Playa Larga" [1983] 2 Lloyd's Rep 171, Ackner LJ held that the words 'arising out of' were wide enough to cover claims in tort in a case where it was commercially realistic to treat the contract as central to the whole dispute in tort. In my opinion, a similar comment could be made here. The claims under s 14 of the FT Act are (relevantly) analogous to a claim in tort and the allegations made in [68.2] should, in my view, be characterised on the footing that it is 'commercially realistic' to treat the Kaipara Agreement as central to these claims. 133 Ackner LJ said (at 183): 'The dispute thus related to the contract and in particular to something done or not done under that contract. As the pleadings on both sides stood, the contract was not an item of past history leading up to the claim. It was central to the whole dispute. The common sense of the situation was that a trader who had bargained and paid for a quantity of sugar, in the contemplation that he would receive physical possession of it, had had that sugar snatched away by the vendor just as it was about to be delivered to him. Having regard to the nature of the defence, to suggest that the resultant dispute as to whether the trader had a remedy and if so for how much, was not a dispute arising out of the contract, seems to us to be commercially quite unrealistic. Unless constrained by authority we would not so find. While we are grateful to Counsel for their industry in drawing to our attention the many authorities cited to the learned Judge, we find that there are few of much assistance on this point. Like Mr. Justice Mustill, we do not think that there is much to be gained from a close comparison of the words "arising under" with those used in this case, namely "arising out of" – see the controversy which appears to exist between Heyman v. Darwins Ltd., (1942) 72 Ll.L.Rep. 65; [1942] A.C. 356 and the Government of Gibraltar v. Kenny, [1956] 2 Q.B. 410 with Union of India v. E. B. Aaby's Rederi A/S, [1974] 2 Lloyd's Rep. 57; [1975] A.C. 797.' 134 In my opinion, these claims (i.e. [68.1.1]) fall within cl 45.2, either as 'arising out' of that Agreement, or as 'concerning … non-performance by … [Kaipara] …'. 135 It must also follow that I would grant a stay in this regard, but upon the same conditions as in the case of the breach of contract claim previously considered. 136 The Administration's remaining claims under the FT Act are as follows: '68.1.2In submitting the Progress Claims referred to in paragraph 35.2 hereof;' [In [35.2] it is claimed that Kaipara made these claims under the Agreement, certified by SMEC, which the Administration paid in the total sum of $2,180,137.53.] In my opinion, the claim made in [68.1.2] is, for present purposes, in the same position as in the case of [68.1.1]. Accordingly, a stay, but upon the same conditions, should be granted.] 68.1.3 In removing rock excavated from the Cascade Cliff to the Middlegate Site and OTR to the Quarry Stockpile Site; 68.1.4 In failing to inform the Plaintiff that it had and/or was, during the course of the works continuing to remove rock and OTR so excavated in contravention of the provisions of the Specification referred to in paragraph 29.2; [In my opinion [68.1.3] and [68.1.4] fall into the same category as [68.1.1] and [68.1.2].] 68.1.5 In making the statements and/or adopting statements made by SMEC at the meeting held on 11 December 2000 referred to in paragraph 38.7 hereof; [Although these statements occurred after the Kaipara Agreement was made, it is still, in my view, 'commercially realistic' to treat the Agreement as 'central' to these claims. Accordingly, there should be a stay, but upon conditions.] 68.1.6 In seeking a reduction of the security deposit in the circumstances referred to in paragraph 39 hereof;' [In [39], it is claimed that at the meeting mentioned in [38.7], Kaipara applied for, and the Administration agreed to reduce Kaipara's security deposit by 50 per cent. For the reasons given in respect of [68.1.5], a stay, but upon conditions, should be granted.] 68.1.7 In making the statements in the letter dated 25 June 2001 referred to in paragraph 46.6 and 46.7 hereof; [In [46.6] and [46.7], it is claimed that: "46.6 That Kaipara's position in relation to the quality of the stockpiled rock is that although some of the rock stockpiled may be oversized, it is all HDR as per the Contract Specifications; 46.7 That the rock stockpiled from Cascade Cliff conforms with acceptable expectations of HDR and if processed by an experienced operator with suitable equipment would yield a variety of grades of metal for civil engineering works on the Island;" [In my view, the position here is the same (i.e. for a conditional stay) as in respect of [68.1.5.].] 68.1.8 In forward the letter dated 2 August 2002 to SMEC requesting the issue of a Final Certificate referred to in paragraph 47 hereof; [Here also the position is the same, for present purposes, as in the case of [68.1.5.].]' (iii) The claims against Kaipara in negligence 137 The Administration's final claim is in negligence, as follows: '71.1 At all material times Kaipara owed the Plaintiff a duty of care: 71.1.1 To exercise skill, care and diligence in the performance of the works referred to in the Kaipara Agreement; 71.1.2 To take those steps which a reasonable Contractor would have taken in the circumstances to avoid a foreseeable risk of economic loss to the Plaintiff arising from the carrying out of the Cascade Cliff Safety Project; …' 138 The Administration then claims that Kaipara breached these duties picking up the particulars given in the claims against SMEC in [62.2] as follows: '62.2.1The Plaintiff conducted its affairs in relation to the Project on the basis that it was entitled to assume that SMEC would accurately report to the Plaintiff concerning the conduct of Kaipara and keep the Plaintiff informed of the progress of the works on a weekly basis; 62.2.2 The Plaintiff repeats paragraphs 35.2 and 35.3 hereof in relation to certification and payment of progress claims made by Kaipara; 62.2.3 If the Plaintiff had known that, in contravention of the specification pleaded in paragraph 29.2 hereof: - OTR had been stockpiled in the Quarry Stockpile Site with hard durable rock; - that hard durable rock had been removed to the Middlegate Site; - that hard durable rock stockpiled in the Quarry Stockpile Site was oversize; - the facts pleaded and particularised in paragraph 36.2.2 hereof; it would not have made payments to Kaipara as set out in the Table referred to in paragraph 35.2.1 hereof;' 139 In my opinion, these claims are, for present purposes, of the same character as those made in [68.1.5] in that it is 'commercially realistic' to treat the Agreement as 'central' to these claims. Accordingly, a conditional stay ought to be granted. Orders 140 Accordingly, I will make orders on the motion in accordance with these reasons. Since each of the Administration and Kaipara has had some degree of success in the proceedings, each should pay its own costs of the motion. Since SMEC was excused from the hearing of the motion, it should not receive costs. 141 I make these orders: 1. A stay of the principal proceedings be granted upon the following conditions: (a) liberty be reserved to the Administration to move this Court for the discharge of the stay in the event that Kaipara does not forthwith give a written notice requesting that this dispute be subject to an expert determination process of the kind described in cl 45 of the Special Conditions of the Kaipara Agreement; and (b) liberty be reserved to the Administration to move this Court for the discharge of the stay in the event that Kaipara fails to use its best endeavours to facilitate the expeditious determination of the expert determination process. 2. No order as to costs. I certify that the preceding one hundred and forty-one (141) numbered paragraphs are a true copy of the reasons for Judgment of the Honourable Chief Justice Beaumont. Associate: Date: 21 July 2004 Appearing for the plaintiff: Mr P White Solicitor for the plaintiff: Legal Services Unit, Administration of Norfolk Island Solicitor for the first defendant: No appearance required Appearing for the second defendant: Mr M Dempsey Solicitor for the second defendant: Allens Arthur Robinson Date of Hearing: 9 June 2004 Date of Judgment: 21 July 2004