Supreme Court New South Wales Medium Neutral Citation: Construcciones y Auxiliar de Ferrocarriles S.A. v CPB Contractors Pty Limited [2022] NSWSC 1264 Hearing dates: 14 September 2022 Decision date: 23 September 2022 Jurisdiction: Equity - Technology and Construction List Before: Ball J Decision: (1) Pursuant to s 7(2) of the International Arbitration Act 1974 (Cth) these proceedings be stayed pending the referral of the subject-matter of these proceedings to arbitration or until further order. (2) It is a condition of order (1) that the defendant not raise as a defence in any such arbitration that the arbitral tribunal does not have jurisdiction to deal with the dispute because a precondition requiring that the dispute be referred first to expert determination has not been satisfied. (3) If the parties can agree on the question of costs of these proceedings and the defendant's notice of motion dated 28 July 2022, the parties provide to my Associate within 14 days of the date of this judgment short minutes of order giving effect to that agreement. (4) If the parties cannot agree on costs: (a) the defendant serve and provide to my Associate within 28 days of the date of this judgment proposed short minutes of order setting out the orders they seek and written submissions not exceeding five pages in support of those orders; (b) the plaintiff serve and provide to my Associate within a further seven days of the date of this judgment proposed short minutes of order setting out the orders they seek in relation to costs and written submissions not exceeding five pages in support of those orders; (c) the question of costs be decided on the papers. Catchwords: COMMERCIAL ARBITRATION — Arbitration agreement — Stay of proceedings — Whether this proceeding is a distinct dispute from a dispute that was the subject of a prior adjudication determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) — Tiered dispute resolution agreement — Whether the arbitration agreement is inoperative or incapable of being performed because the defendant did not comply with a condition precedent requiring it to procure the President of ACICA to appoint an expert to determine the dispute Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW) Civil Procedure Act 2005 (NSW) Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 330 UNTS 3 International Arbitration Act 1974 (Cth) UNCITRAL Model Law on International Commercial Arbitration Cases Cited: C v D [2022] 3 HKLRD 116; HKCA 729 Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192 CPB Contractors Pty Ltd v DEAL SRL [2021] NSWSC 820 Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160; [1996] NSWSC 104 Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170 Inghams Enterprises Pty Ltd v Hannigan (2020) 379 ALR 196; [2020] NSWCA 82 James Adam Pty Ltd v Fobeza Pty Ltd (2020) 103 NSWLR 850; [2020] NSWCA 311 John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; [2019] HCA 13 Rinehart v Welker (2012) 95 NSWLR 221; [2012] NSWCA 95 Siam Steel International plc v Compass Group (Australia) Pty Ltd (2014) 293 FLR 260; [2014] WASC 415 TCL Air Conditioner (Zhongshan) Co Ltd v Judges of Federal Court of Australia (2013) 251 CLR 533; [2013] HCA 5 WCX M4-M5 Link AT Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd (No 2) [2022] NSWSC 505 Category: Procedural rulings Parties: Construcciones y Auxiliar de Ferrocarriles S.A. (Plaintiff | Respondent) CPB Contractors Pty Limited (Defendant | Applicant) Representation: Counsel: JC Giles SC with W Marshall (Plaintiff | Respondent) RA Dick SC with B Yin (Defendant | Applicant) Solicitors: Pinsent Masons (Plaintiff | Respondent) Minter Ellison (Defendant | Applicant) File Number(s): 2022/173145 Publication restriction: None JUDGMENT 1. By a notice of motion dated 28 July 2022, the defendant, CPB Contractors Pty Limited (CPB), seeks a stay of these proceedings under s 7(2) of the International Arbitration Act 1974 (Cth) (IAA) or alternatively s 67 of the Civil Procedure Act 2005 (NSW) (CPA). Background 1. By a contract dated 14 February 2019 titled "Regional Rail – Depot Subcontract" (the Contract) the plaintiff, Construcciones y Auxiliar de Ferrocarriles S.A. (CAF), referred to in the contract as the "Delivery Subcontractor", engaged CPB, referred to in the contract as the "Depot Subcontractor", to design and construct the Dubbo Regional Rail Maintenance Facility in connection with a project undertaken by Transport for NSW (TfNSW) to build and commission a new rail transport asset in Dubbo (the Project). The Project was undertaken pursuant to a project deed entered into between TfNSW and Momentum Trains Pty Ltd. Momentum Trains, in turn, engaged CAF to deliver the maintenance facility and provide the rolling stock. 2. On 23 December 2020, CPB served a Payment Claim numbered 23 on CAF pursuant to s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act) claiming the sum of $16,518,709 (excluding GST) under the Contract. Relevantly, that claim included a claim for an amount of $14,159,058 (excluding GST) made by CPB on 1 August 2019 in the form of what was known as a "Change Notice" issued under the Contract by which CPB asserted that CAF had failed to comply with its contractual obligation to provide CPB with all the design and technical information relating to the equipment to be supplied by CAF in connection with the Project and that that failure had significantly impacted CPB in performing its contractual obligations, with the result that CPB was entitled to an extension of time and costs in accordance with the Contract (the CAF Equipment Claim). The Payment Claim also included an amount of $859,270 claimed by CPB in a Change Notice dated 12 June 2020 in respect of modifications to the wheel lathe (a large machine tool used in the reconditioning of wheels for railway cars) to be supplied by CPB as part of the Project (the Wheel Lathe Modification Claim). 3. On 28 January 2021, CPB filed an adjudication application against CAF pursuant to s 17 of the SOP Act in relation to the Payment Claim. 4. On 8 March 2021, the adjudicator determined an adjudicated amount of $10,783,737.02 (excluding GST), which included $8,593,475.14 (excluding GST) for the CAF Equipment Claim and $689,880.88 (excluding GST) for the Wheel Lathe Modification Claim. 5. On 31 January 2022, CPB referred the CAF Equipment Claim to expert determination pursuant to section 9.3(b)(ii) of Schedule 5 of the Contract. That clause relevantly provides: If the Change Notice Recipient does not accept or rejects a Change Notice or a part of it: (a) … (b) the Depot Subcontractor must as a condition precedent to pursuing its Claim in respect of the Change Compensation Event (or the relevant part of it, as applicable): (i) … (ii) refer any Dispute in relation to all or any part of the Change Response to expert determination in accordance with clause 52 (Expert determination) of this Deed, within [14] Business Days (or such other period as agreed with the relevant Change Notice Recipient) after the Depot Subcontractor's receipt of the Change Response. 1. The parties had previously agreed to extend the 14 day period referred to in section 9.3 to 1 February 2022 in respect of the CAF Equipment Claim. It is common ground that the CAF's Equipment Claim falls within the definition of "Change Compensation Event". 2. The notice given under section 9.3(b) of Schedule 5 under the heading "Dispute" relevantly stated: 6. Clause 18A.2(a) of the Depot Subcontract required the Delivery Subcontractor to provide the Depot Subcontractor with the information regarding the Equipment (CAF) listed in Annexure H to the Depot Subcontract by the dates listed therein. A Dispute has arisen between the parties regarding the Delivery Subcontractor's provision of that information to the Depot Subcontractor. 7. The Depot Subcontractor's position is that, as set out in the Change Notice, the Delivery Subcontractor, in breach of its obligations under clause 18A.2(a), provided the information relating to the Equipment (CAF) late, deficiently and on a piecemeal basis which constituted an Extension Event, Compensable Extension Event and/or Change Compensation Event. 8. The Depot Subcontractor says that, having fulfilled the pre-conditions to an extension of time set out in clause 37.4(a) and 37.4(b) of the Depot Subcontract, it is entitled to be granted: 8.1. an extension of time of 318 days under clause 37.5(b) of the Depot Subcontract; and 8.2. Base Costs (D&C) and Prolongation Costs (D&C) in the amount of $9,258,005 under clause 37.7(a) of the Depot Subcontract, as set out in the Reply to Change Response or such other amount as determined by the expert determiner. 1. Clause 52, together with cls 50, 51 and 53 deal generally with dispute resolution under the Contract. 2. Clause 50.1(a) relevantly provides: (Resolution procedure): Unless a Delivery Project Document (D&C) provides otherwise, any dispute between the Delivery Subcontractor and the Depot Subcontractor arising in connection with: (i) any Delivery Project Document (D&C) or the Delivery Phase Activities (D&C) (including questions concerning this Deed's existence, meaning, validity or termination); or (ii) … (each a Dispute) must be resolved in accordance with this clause 50 and clauses 51 to 53. 1. It is common ground that a dispute has arisen in relation to the CAF Equipment Claim and that that dispute falls within the scope of cl 50.1(a)(i). It is also common ground that the procedure set out in cl 50 and cls 51 to 53 apply to that dispute. 2. Clause 50.1(b) relevantly provides: (Procedure): Subject to clause 50.2, the procedure that is to be followed to resolve a Dispute is as follows: (i) first, the Dispute must be the subject of negotiation as required by clause 51; (ii) secondly, if the Dispute remains unresolved (in whole or in part) after the expiration of the period for negotiation referred to in clause 51(c)(i), within 10 Business Days (or such longer period as the Executive Representatives have agreed in writing) after the expiration of that period: A. the Delivery Subcontractor and the Depot Subcontractor may agree that the Dispute will be referred to an expert for determination under clause 52; B. where the Dispute is expressed in this Deed to be a Dispute which may be referred to an expert under clause 52, either the Delivery Subcontractor or the Depot Subcontractor may refer the Dispute to an expert for determination under clause 52; or C. where clause A does not apply and subject to clause 50.2(b), either the Delivery Subcontractor or the Depot Subcontractor may refer the Dispute to arbitration under clause 53; and (iii) thirdly, if: A. the Dispute has been referred to expert determination in accordance with clause 52 and a determination is not made by the expert within 30 Business Days after the expert's acceptance of appointment (or such longer period as the Delivery Subcontractor and the Depot Subcontractor and the expert may agree in the relevant Expert Determination Agreement); or B. the Dispute is referred to expert determination and a notice of dissatisfaction is given under clause 52.4(a), then the Dispute must be referred to arbitration under clause 53. 1. Clause 50.2 provides: Selection of Resolution Process Where this Deed provides that either the Delivery Subcontractor or the Depot Subcontractor 'may' refer a Dispute to expert determination in accordance with clause 52: (a) (Negotiations): The Delivery Subcontractor and the Depot Subcontractor must first follow the process set out in clause 51 before either of them refers the matter for expert determination in accordance with clause 52; (b) (Expert Determination): the use of the term 'may' means that if the Delivery Subcontractor and the Depot Subcontractor have failed to resolve the Dispute in accordance with clause 51 or determined the way in which the Dispute will be resolved and the Delivery Subcontractor or the Depot Subcontractor elects to further pursue the resolution of the Dispute, it must do so in accordance with clause 52; and (c) (Arbitration): subject to clause 52.4, if the Delivery Subcontractor or the Depot Subcontractor has referred a Dispute for expert determination in accordance with clause 52, neither the Delivery Subcontractor nor the Depot Subcontractor may refer the Dispute to arbitration (other than in accordance with clause 52.4), or take any steps to enjoin or otherwise restrain the referral of the Dispute to an expert. 1. Clause 51 states that if a dispute arises then one party may give notice to the other referring the dispute to resolution by negotiation between the Chief Executive Officers of the parties, who are required to meet and to attempt in good faith to resolve the Dispute within 10 Business Days (as defined in the Contract) from the date on which the notice was received or such later date as is agreed. 2. Clause 52 deals with determination of a Dispute by an expert. Clause 52.1 provides: If: (a) (Dispute unresolved by Executive Representatives): a Dispute which has been referred to the Executive Representatives for negotiation in accordance with clause 51(a) remains unresolved (in whole or in part) after the expiration of the period for negotiation referred to in clause 51(c)(i); and (b) (Referral to expert): within 10 Business Days after the expiration of the period for negotiation referred to in clause 51(c)(i) either: (i) … (ii) where the Dispute is expressed in this Deed to be a Dispute which may be referred to an expert under clause 52, either the Delivery Subcontractor or the Depot Subcontractor refers the Dispute to an expert for determination under clause 52, then those parts of the Dispute which remain unresolved will be referred to an expert for determination under this clause 52. 1. Clause 52.2 sets out a mechanism for choosing an expert. It requires that if the parties cannot agree on an expert, they are to exchange lists setting out their three preferred candidates in order of preference. If a person appears on both lists, that person is appointed and if more than one person appears, then it is the expert given the highest level of priority by the person who referred the matter to expert determination. If no expert appears on both lists, "the party which gave the notice under clause 51(a) must procure the President of the Australian Centre for International Commercial Arbitration [ACICA] to nominate a person to act as the expert, having regard to, but not being bound by, those persons proposed by the Delivery Subcontractor and the Depot Subcontractor under clause 52.2(a) within 10 Business Days of the exchange of lists under clause 52.2(a)". 2. Clause 53 deals with arbitration. Clause 53.1 relevantly provides: (a) (Dispute): If: (i) … (ii) in the case of a Dispute which is or must be referred to an expert for determination in accordance with clause 52: A. a determination is not made within 30 Business Days after the expert's acceptance of the appointment; or B. a notice of dissatisfaction is given in accordance with clause 52.4(a)(ii), then, the Delivery Subcontractor or the Depot Subcontractor may notify the other that it requires the Dispute to be referred to arbitration. (b) (Referral): Upon receipt by the Delivery Subcontractor or the Depot Subcontractor of a notice under clause 53.1(a), the Dispute will be referred to arbitration. 1. The balance of cl 53 sets out how the arbitration is to be conducted. 2. There is a tension between section 9.3(b)(ii) of Schedule 5 and cl 50.1 of the Contract. The former states that disputes covered by that provision are to be referred immediately to expert determination. The latter apparently still requires the dispute to be referred to negotiation between the parties' chief executives. Perhaps conscious of that tension, on 3 February 2022, CPB gave a notice under cl 51 triggering the obligation of the parties' chief executives to meet and to attempt in good faith to resolve the CAF Equipment Dispute. Nothing turns on that notice. It appears to be common ground that any obligation of the chief executives to negotiate to resolve the dispute has been complied with. 3. The parties exchanged lists of experts. No expert appeared on both lists. 4. On 14 March 2022, CPB wrote to CAF in the following terms: 2. By agreement, on 2 March 2022, the Delivery Subcontractor and Depot Subcontractor exchanged a list of each of their three preferred experts. There was no common expert on each party's list. 3. In such circumstances clause 52.2(c) states that the President of ACICA shall nominate an Expert on behalf of the parties. 4. It has just come to the Depot Subcontractor's attention that the President of ACICA is the partner at Ashurst specialising in dispute resolution and risk management in the areas of energy, construction, property and major projects. The Depot Subcontractor is aware that the President regularly acts for TfNSW (but do not know whether she acts for them on this project) and that she is currently acting adverse to the Depot Subcontractor in relation to a significant dispute on another major project. 5. The Depot Subcontractor considers that it is not appropriate that the President of ACICA be requested to nominate the expert because: 5.1. an actual bias exists; or 5.2. an apprehended bias exists, such that in all the circumstances, a fair-minded lay observer with knowledge of the material objective facts might entertain a reasonable apprehension that President might not bring an impartial and unprejudiced mind to the resolution of the nomination of an expert. 6. The Depot Subcontractor therefore considers it essential that the Delivery Subcontractor agrees to amend clause 52(c) of the Depot Subcontract (in relation to the current CAF Equipment Dispute referred to expert determination only) to insert another nominating body in place of the President of ACICA such that the Depot Subcontractor is required to procure the nomination of an expert from that body. 1. Following that letter, there was extensive correspondence between the parties on the subject. CPB proposed that the parties meet to discuss the issue. CAF's position was that there was nothing to prevent the President of ACICA from nominating an expert. As an alternative, CAF proposed that CPB accept one of the experts nominated by it. 2. On 28 April 2022, CAF sent CPB a letter which relevantly said: The Delivery Subcontractor notes that although the Depot Subcontractor has expressed an intention to refer the Dispute to expert determination in accordance with cl 52 of the Depot Subcontract, it has refused to approach ACICA to nominate an expert as required by cl 52.2(c). As a result, the Depot Subcontractor has rendered the dispute resolution procedure in the Depot Subcontract inoperable. If the dispute resolution procedure in the Depot Subcontract is inoperable, it will be necessary to resolve the dispute by litigation. In that case, the Delivery Subcontractor will be required to commence proceedings in the Supreme Court of New South Wales. The Delivery Subcontractor therefore requests that the Depot Subcontractor confirms by Friday 6 May 2022 whether the Depot Subcontractor: 1. maintains its position that it is not going to approach the President of ACICA to nominate an expert in accordance with cl 52.2(c), thereby rendering the dispute resolution procedure in the Depot Subcontract inoperable; or 2. will move forward expeditiously with the Dispute in accordance with cl 52.2(c) of the Depot Subcontract and will undertake to approach ACICA to nominate an expert within 24 hours of confirming this position. The Delivery Subcontractor otherwise reserves all rights pursuant to the Depot Subcontract and at law. 1. CPB responded to that letter on 4 May 2022 asking CAF to clarify whether the dispute it was referring to was "the substantive dispute concerning the CAF Equipment Dispute or … any dispute between the parties as to the operability of the dispute resolution procedure?". 2. CAF responded on 5 May 2022 repeating its request that CPB respond to its letter dated 28 April 2022. CPB responded to that request the following day relevantly saying: 3. Furthermore, in response to the Delivery Subcontractor's letter at para 1.11 and 1.13 above we state that, 3.1 A decision to commence proceedings in respect of the CAF Equipment Dispute in the Supreme Court of New South Wales is entirely a matter for the Delivery Subcontractor to decide (albeit the Depot Subcontractor's position is that the dispute resolution procedure is not inoperable). The Depot Subcontractor reserves its rights with respect to defending any actions that the Delivery Subcontractor takes in this regard; and 3.2 The Depot Subcontractor would however suggest that, prior to the Delivery Subcontractor commencing litigation, that perhaps a more appropriate approach would be for the Delivery Subcontractor to refer the matter to Arbitration on terms to be agreed between the parties. 1. CAF responded to that letter on 16 May 2022 in the following terms: The Depot Subcontractor suggests that "perhaps a more appropriate approach would be for the Delivery Subcontractor to refer the matter to Arbitration on terms to be agreed between the parties". Is the Depot Subcontractor proposing that the Depot Subcontract includes a pathway that enables the Dispute to be referred to arbitration without the need for an expert determination? 1. CPB responded to that letter on 22 May 2022. Relevantly, it said: 5. The Depot Subcontractor did not, in its letter referenced in para 1.14 above, make any such suggestion that the Depot Subcontract includes a pathway that enables the CAF Equipment Dispute to be referred to arbitration without the need for an expert determination. 6. Put simply, the Depot Subcontractor suggested that it was, and by way of this letter still is, willing to discuss with the Delivery Subcontractor the referral of the CAF Equipment Dispute to arbitration on terms to be agreed. 7. It surely goes without saying that if one or more parties are of the view that the dispute resolution procedure in the Depot Subcontract is inoperable, namely that in respect of the Expert Determination process, that the parties may find benefit in reaching agreement to arbitrate the issue in hand as opposed to commencing litigation as per the Delivery Subcontractors letter referenced in para 1.11 above. 8. The Depot Subcontractor is available to discuss the terms of any such arbitration at your earliest convenience. 1. On 15 June 2022, CAF commenced these proceedings. 2. On the day the motion was heard (14 September 2022), CAF filed (with leave) an amended summons and technology and construction list statement. The principal effect of the amendments was to delete a claim to recover the amount awarded by the adjudicator in respect of the Wheel Lathe Modification Claim. 3. The amended summons seeks the following orders: 1 An order that the Defendant pay the Plaintiff the sum of $9,013,472.04 excluding GST and interest, or such other sum as the court may determine is due from the Defendant to the Plaintiff. 2 An order that the Defendant pay the Plaintiff interest on the sum the subject of Order 1, at the rates referred to in r 36.7(1) of Uniform Civil Procedure Rules 2005 (NSW), or at such other rate as determined by the court, for the period on and from the dates that the sum the subject of Order 1 was paid to the Defendant, until the date of judgment. 3 An order for rectification to correct clause 35.15 of the Subcontract to replace the words "Project Co" with the words "Delivery Subcontractor" where they appear in the clause, and to replace the words "Delivery Subcontractor" with the words "Depot Subcontractor'' where they appear in the clause. 1. The order sought in para 3 is designed to correct what appears to be an obvious error in the Contract, which apparently has picked up in cl 35.15 an identical clause in the contract between CAF and Momentum Trains without changing the names of the parties. It is unclear whether there really is a dispute between the parties in relation to that relief. It is also unclear whether the relief is necessary or whether the apparent error could be corrected by construction: see, eg, James Adam Pty Ltd v Fobeza Pty Ltd (2020) 103 NSWLR 850; [2020] NSWCA 311. 2. The amended list statement relevantly pleads the following: 32 CPB has not demonstrated a contractual entitlement to any relief, including damages, arising from the asserted Equipment (CAF) delay. 33 CAF was not in breach of its obligations set out in Clause 18A or Annexure H of the Subcontract, with respect to the Equipment (CAF) information or the CAF Information Dates. 34 CPB accordingly has no right to any remedy under the Subcontract with respect to: a. any delays or costs it may have incurred due to the Equipment (CAF) information, or the CAF Information Dates. 35 Accordingly, CPB had no right to be paid the sum of $8,593,475.14 (plus GST) on account of the alleged Equipment (CAF) delay. It seeks to recover the sum of $8,593,475.14 (plus GST), interest and adjudication fees on a restitutionary basis. The IAA 1. The IAA gives effect to Australia's obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 330 UNTS 3, adopted in 1958 by the United Nations Conference on International Commercial Arbitration and applies in Australia the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985. 2. Section 7 of the IAA relevantly 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. … (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. The issues 1. It is common ground that the arbitration agreement contained in the Contract is an arbitration agreement to which s 7 of the IAA applies. CPB advances two contentions in support of its application for a stay under s 7. Its primary contention is that this proceeding is itself a Dispute within the meaning of the Contract which is capable of settlement by arbitration in pursuance of the Contract. Consequently, s 7(2) requires the Court to stay the proceeding and refer the matter to arbitration. In the alternative, CPB submits that, if the relevant matter is the underlying dispute in relation to the CAF Equipment Claim, then that too is a matter that is capable of settlement by arbitration in accordance with the Contract. 2. In response, CAF contends that there is only one matter that is currently in dispute between the parties — that is, the dispute in relation to the CAF Equipment Claim. The arbitration agreement contained in the Contract is inoperative or incapable of being performed in relation to that dispute because CPB has refused to satisfy a condition precedent to that agreement — that is, the referral of the dispute to expert determination. In doing so it has waived its rights under the agreement or has made an election not to exercise them. 3. Accordingly, two issues need to be addressed. The first is whether this proceeding itself is a Dispute (distinct from the CAF Equipment Claim) that, in pursuance of the Contract, is capable of settlement by arbitration. The second is whether, if it is not a distinct Dispute, the arbitration agreement is inoperative or incapable of being performed in relation to it. Is there a separate dispute? 1. In my opinion, this proceeding and the Dispute that was the subject of the notice given under section 9.3(b) of Schedule 5 of the Contract are the same dispute for the purposes of the Contract. 2. "Dispute" is defined in the Contract to mean relevantly any dispute between the parties arising in connection with the Contract, including its existence, meaning, validity or termination. What distinguishes one Dispute from another is its subject-matter. That is how the included examples referred to in the Contract ("questions concerning this Deed's existence, meaning, validity or termination") are described. Clauses 50 to 53 of the Contract set out a tiered approach for resolving a Dispute. A dispute is the same Dispute irrespective of the stage reached in the dispute resolution process. Similarly, if one party or the other commences court proceedings in relation to the same subject-matter, those proceedings form part of the same Dispute. 3. In the present case, the Dispute is the dispute concerning whether CPB is entitled to be paid the amount the subject of the CAF Equipment Claim. That was the Dispute that was (in part) the subject of the adjudication determination and was the Dispute that CPB referred to expert determination pursuant to section 9.3(b)(ii) of Schedule 5 of the Contract. The subject-matter of the dispute, and therefore the Dispute for the purposes of cl 50.1(a), does not change simply because CAF seeks in court proceedings repayment of an amount it was required to pay in respect of the CAF Equipment Claim as a result of the operation of the SOP Act. The outcome of the proceedings still turns on the resolution of the CAF Equipment Claim. That is made plain by the paragraphs of the list statement quoted earlier, which assert in effect that CPB has not demonstrated a contractual entitlement to make the CAF Equipment Claim. 4. The conclusion of the previous paragraph is not altered by the fact that the claim is a restitutionary one by CAF and that CAF only seeks to recover the amount that it has paid. The underlying contractual dispute remains the same. The fact that it is now CAF that seeks relief and the fact that the relief it seeks does not relate to the whole of the amount the subject of the CAF Equipment Claim is an incidence of the exercise of rights conferred by the SOP Act. Section 32 of the SOP Act makes it clear that those rights do not affect the underlying rights conferred by the relevant construction contract; and it is those underlying rights that were referred to expert determination and which CAF now seeks the Court to resolve. 5. Had the parties agreed on expert determination and then subsequently referred the Dispute to arbitration, the same issues would have arisen as those that CAF seeks to raise in these proceedings. But it could not be suggested that that arbitration would have related to a different Dispute. Such a suggestion would lead to the absurd conclusion that that different Dispute would itself have to be resolved in accordance with the dispute resolution mechanism set out in the Contract, leading to an infinite regress of Disputes which could never be arbitrated. The Dispute is not turned into a different Dispute simply because CAF seeks to have it resolved by court proceedings rather than arbitration. 6. Nor is the Dispute a different Dispute because CAF claims interest and costs. Those claims are ancillary rights to those that are the subject of the Dispute and to the court proceedings. An assertion of an entitlement to those rights does not alter the nature of the Dispute. Again, that point is illustrated by the fact that interest and costs could be sought in an arbitration, but for the reasons given, that would not result in there being a different Dispute. 7. In the circumstances of this case, I do not think that the claim for rectification alters the position. At most, it would introduce a second Dispute into the proceedings. However, it remains unclear whether there really is a dispute about whether the error identified by CAF is an error. Is the arbitration agreement inoperable or incapable of being performed? 1. The Court was taken to a number of authorities dealing with the question whether an arbitral tribunal had power to determine whether parties who have agreed to a tiered dispute resolution process ending in arbitration (such as cls 50 to 53 of the Contract) have complied with that process and, if so, whether the Court should leave that question to the arbitrator or decide it itself: see, eg, WCX M4-M5 Link AT Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd (No 2) [2022] NSWSC 505; Siam Steel International plc v Compass Group (Australia) Pty Ltd (2014) 293 FLR 260; [2014] WASC 415; John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451; CPB Contractors Pty Ltd v DEAL SRL [2021] NSWSC 820; C v D [2022] 3 HKLRD 116; HKCA 729. 2. It is not necessary in this case to examine those authorities in any detail. The authorities establish, and it is accepted by the parties, that the question whether an arbitral tribunal has jurisdiction to determine issues concerning the proper interpretation of, and compliance by the parties with, a dispute resolution procedure contained in the contract between them turns on the proper construction of the contract in accordance with the usual principles of construction that are applied by Australian courts: see Rinehart v Welker (2012) 95 NSWLR 221; [2012] NSWCA 95 at [120] per Bathurst CJ; Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170 at [156]–[157] per curiam; Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; [2019] HCA 13 at [18] per Kiefel CJ, Gageler, Nettle and Gordon JJ. However, a court will normally require clear words in the contract before concluding that the parties did not intend to have all their disputes resolved by one tribunal: see TCL Air Conditioner (Zhongshan) Co Ltd v Judges of Federal Court of Australia (2013) 251 CLR 533; [2013] HCA 5 at [16] per French CJ and Gageler J; Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192 at [165] per Allsop J; Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160; [1996] NSWSC 104 at 165 per Gleeson CJ. 3. There is a question whether this second principle is to be seen simply as the outcome of the normal constructional process, or whether it represents a presumption that operates in respect of arbitration clauses. That question has received extensive attention in the cases and academic literature: for a recent discussion see Inghams Enterprises Pty Ltd v Hannigan (2020) 379 ALR 196; [2020] NSWCA 82 at [56]ff per Bell P. But again, it is unnecessary to consider that issue. In the present case, the wording of the Contract is clear. Clause 50.1(a) of the Contract relevantly states that "any dispute … arising in connection with … [the Contract] (including questions concerning this Deed's existence, meaning, validity or termination) … must be resolved in accordance with this clause 50 and clauses 51 to 53". Those words are plainly sufficiently broad to cover a dispute concerning the meaning and validity of those clauses themselves. 4. Section 7(2) of the IAA requires the Court to stay the proceedings if they are capable of settlement by arbitration in pursuance of the agreement. Section 7(5) of the IAA states that the Court shall not make an order under subsection (2) if relevantly the Court finds that the arbitration agreement is inoperative or incapable of being performed. Despite those provisions the Court has a discretion under s 67 of the CPA to stay the proceedings. Relevant to the exercise of that discretion is the reason the arbitration agreement is inoperative or incapable of being performed. 5. It does not appear to be seriously contested that the current proceedings are, in principle, capable of settlement by arbitration in pursuance of the Contract. The Contract contemplates that all disputes between the parties concerning the Contract will be settled in accordance with the dispute resolution clauses, which have as their final step arbitration. The CAF Equipment Claim clearly falls into that category. 6. CAF submits that the arbitration agreement is inoperative or incapable of being performed because CPB has made an unequivocal choice not to comply with the dispute resolution mechanism set out in the Contract in respect of the CAF Equipment Claim by refusing to procure the President of ACICA to appoint an expert. 7. In my opinion, that submission must be rejected. The dispute resolution clauses do not confer a right on CPB that CPB has waived or made an unequivocal election not to enforce. Rather, the dispute resolution clauses set out a mechanism for resolving disputes that must be followed by both parties. 8. CPB has taken the view that the dispute resolution mechanism cannot operate because the President of ACICA, due to a conflict, cannot appoint an independent expert, with the result that a precondition to arbitration cannot occur. Faced with CPB's position, it was open to CAF to invoke the dispute resolution mechanism and, for example, to seek an order from an arbitral tribunal that CPB procure the appointment of an expert (on the basis that any "conflict" the President had did not affect the power of appointment) or to seek a declaration that, in the circumstances, expert determination was not a precondition to arbitration of the Dispute in relation to the CAF Equipment Claim. 9. CAF's submission appears to rest on the false premise that disputes concerning the operation of the dispute resolution clauses are not themselves capable of arbitration in accordance with the Contract or somehow or another are to be treated differently from other disputes under the Contract. That is not so. As I have said, clause 50.1(a) makes it clear that all disputes must be resolved in accordance with that clause and cls 51 to 53. The general structure of those clauses is that the parties must attempt to resolve all disputes by negotiation. Some disputes may and some disputes must be referred to expert determination. If a dispute is not referred to expert determination, it must be referred to arbitration. Consequently, the dispute in relation to the operation of the dispute resolution mechanism was required to be referred to negotiation and if that failed was to be referred to arbitration unless either party sought to refer it to expert determination. The fact that that did not occur, does not mean that it was incapable of occurring. And if it can occur, it is difficult to see how it could be said that the arbitration agreement is inoperative or incapable of being performed. The fact that the parties to date have not acted in accordance with the agreement does not mean that it satisfies that requirement. 10. It is true that, as a consequence of the dispute between the parties, the agreement to submit the CAF Equipment Claim to arbitration was not capable of being performed immediately because it was first necessary to determine whether and how that dispute was to be referred to expert determination. But the fact that there are or were preconditions to an arbitration of the CAF Equipment Claim that needed to be resolved does not mean that the arbitration agreement was inoperative or incapable of being performed. It simply meant that its performance has been delayed pending the outcome of a dispute concerning the operation of the dispute resolution clauses themselves. 11. It is theoretically possible that, on the correct construction of the dispute resolution clauses and in the events that have happened, those clauses cannot operate because the precondition to arbitration cannot be satisfied, with the consequence that the clauses themselves are void and must be severed from the Contract. If that were the case, the arbitration agreement would clearly be inoperable. However, neither party advanced a contention to that effect in these proceedings, and such a contention would be a difficult one to make out. The dispute resolution mechanism set out in the Contract has obviously been the product of careful thought and drafting. It is apparent that the parties intended to adopt a tiered approach to the resolution of all disputes relating to the Contract ending in arbitration. In the circumstances any court or arbitral tribunal would strain to give the clauses an interpretation which meant that they could operate in this case. One way that could be achieved is to accept the contention originally advanced by CAF that, on the correct construction of the Contract, any supposed conflict on the part of the President of ACICA did not prevent her from exercising the power to appoint an independent expert. However, since the issue has not been raised, it is unnecessary to pursue it further. Conclusion and orders 1. The result is that it cannot be said that the arbitration agreement between the parties is inoperative or incapable of being performed in relation to the CAF Equipment Claim. A dispute has arisen between the parties concerning the operation of the dispute resolution clauses in the current circumstances. On one view, the result has been to broaden the CAF Equipment Claim so that it now concerns a dispute about precisely how that claim should be resolved in accordance with the Contract. But even if they are treated as separate disputes, the latter dispute is itself capable of being resolved in accordance with the dispute resolution clauses, with the result that it cannot be said that the arbitration agreement is currently inoperative or incapable of being performed in relation to the former dispute. 2. The question remains whether the proceedings should be stayed pending arbitration of the dispute concerning the operation of the dispute resolution clauses or whether the Court should facilitate referral of the substance of the dispute concerning the CAF Equipment Claim to arbitration now. One way to achieve that latter result is for the Court to impose a condition on the stay that CPB not raise as a defence in any arbitration of the subject-matter of these proceedings the argument that the arbitral tribunal does not have jurisdiction to deal with the dispute because the precondition requiring the dispute be referred first to expert determination has not been satisfied. Both parties accepted that it was open to the Court to impose such a condition consistently with s 7(2) of the IAA. Indeed, both parties saw merit in such a condition. 3. In my opinion, it is appropriate that a condition in those terms be imposed in this case. It is apparent that neither party wants to have the CAF Equipment Claim referred to expert determination. If it were, neither party would be bound by the determination, with the result that it is likely that the dispute will be referred to arbitration in any event. The parties should not be put to the expense and delay of engaging in a step in the dispute resolution process that neither wants to take. Moreover, having regard to the position it has taken, CPB should not be permitted to seek to have the operation of the dispute resolution clauses arbitrated as a means of delaying arbitration of the CAF Equipment Claim. Its position up until now has been that the dispute in relation to the CAF Equipment Claim should be referred to arbitration in accordance with the Contract. 4. The parties should be given an opportunity to make submissions in relation to costs, with the question of costs being decided on the papers. 5. Accordingly, the orders of the Court are: 1. Pursuant to s 7(2) of the International Arbitration Act 1974 (Cth) these proceedings be stayed pending the referral of the subject-matter of these proceedings to arbitration or until further order. 2. It is a condition of order (1) that the defendant not raise as a defence in any such arbitration that the arbitral tribunal does not have jurisdiction to deal with the dispute because a precondition requiring that the dispute be referred first to expert determination has not been satisfied; 3. If the parties can agree on the question of costs of these proceedings and the defendant's notice of motion dated 28 July 2022, the parties provide to my Associate within 14 days of the date of this judgment short minutes of order giving effect to that agreement. 4. If the parties cannot agree on costs: 1. the defendant serve and provide to my Associate within 28 days of the date of this judgment proposed short minutes of order setting out the orders they seek and written submissions not exceeding five pages in support of those orders; 2. the plaintiff serve and provide to my Associate within a further seven days of the date of this judgment proposed short minutes of order setting out the orders they seek in relation to costs and written submissions not exceeding five pages in support of those orders; 3. the question of costs be decided on the papers. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 September 2022