NSW Racing v TAB [2002] NSWSC 742

New South Wales Supreme Court

CITATION : NSW Racing v TAB [2002] NSWSC 742 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 2910/2002 HEARING DATE(S) : 01/07/02 JUDGMENT DATE : 26 August 2002

PARTIES : NSW Racing Pty Ltd v TAB Limited JUDGMENT OF : Acting Justice Macready at 1

COUNSEL : MJ Leeming for plaintiff NC Hutley SC & PJ Brereton for defendant SOLICITORS : Clayton Utz for plaintiff Freehills for defendant CATCHWORDS : Arbitration. Power of arbitrator to grant an injunction. Proper construction of the submission. Application for stay under s 53 of the Commercial Arbitration Act. Stay granted. DECISION : Paragraph 41

- 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

Acting Justice Macready

Monday 26 August 2002

2910/2002 NSW Racing Pty Ltd v TAB Limited JUDGMENT 1 His Honour: This is an application brought by the defendant pursuant to a notice of motion filed on 14 June 2002. The motion seeks a stay of the proceedings pursuant to Section 53 (1) of the Commercial Arbitration Act 1984 or alternatively pursuant to Part 13 Rule 5 of the Supreme Court Rules. 2 The matter arises because of an agreement between the parties known as the Racing Distribution Agreement. The agreement is one, which regulates the commercial affairs between the parties for a period of some 99 years. Clause 24 of the agreement is a provision for dispute resolution that includes a mechanism for expedited arbitration. It is because of the existence of that clause that it is suggested that the proceedings should be stayed. 3 The summons in this matter, which was filed on 28 May 2002, seeks mandatory injunctions with respect to a number of matters that have arisen between the parties as to the construction of the agreement. There are also claims for declarations that reflect those disputes. The disputes reflect a difference over clause 14 of the agreement that gives the plaintiff rights to have its own auditors investigate various matters, which are required under the agreement. It is clear on the correspondence that there is a dispute between the parties about these matters such that it would attract the provisions for dispute resolution under the agreement. The plaintiff has not given a notice of dispute but instead has brought these proceedings to resolve the matters. 4 The agreement is moderately lengthy and covers a wide range of matters concerning the business relationship between the plaintiff and the defendant. The plaintiff is a representative body for three main racing organisations that conduct different aspects of racing within New South Wales. The agreement governs in general terms the staging of the New South Wales racing program, the wagering and gaining activities of the defendant and payments between the parties as a result of these matters. 5 In order to understand the difference between the parties I will briefly refer to some of the terms of the agreement and then move to the matters in dispute. A resolution of those matters will require further reference to other terms of the agreement. In clause 1.2 it is provided that in the agreement headings are for convenience only and do not affect interpretation. The clause then goes on to set out a large number of other rules in relation to interpretation, which are not presently relevant. Clause 20 of the agreement provides for remedy for breach. Relevant clauses within clause 20, leaving out the headings, are as follows: -- 20.1 Each party acknowledges and agrees that: (a) it is aware that any breach by it of a term of this Agreement may result in another party suffering damage, for which damages may not be an adequate remedy; and (b) in the event of a suspected or an actual breach of this Agreement, each other party is entitled to seek and obtain injunctive relief or an order for specific performance. 20.2 TAB acknowledges and agrees that except as provided in clause 20.1 , its remedy against another party for breach of any term of this Agreement shall be limited to recovery of damages only and the parties agree that: (a) the liability for and quantum of damages will be determined in accordance with clause 24 of this Agreement; (b) for the avoidance of doubt, if the matter is referred for determination under clause 24 , the arbitrator's determination will be binding on the parties and TAB may not commence court proceedings in that regard except in accordance with clause 24.5 ; (c) TAB may only recover such damages by off-setting such damages against moneys which would otherwise be or become payable by TAB to NSWR under this Agreement and then only to the extent and subject to the limitations permissible under clause 13 and any other specific limitations set out in this Agreement; (d) for the avoidance of doubt, TAB shall have no right to and agrees that it shall not take any action to wind-up any party or sell or foreclose upon any assets or undertaking of any party or appoint an administrator, liquidator, receiver, controller, mortgagee in possession or like officer to any party or its assets or undertakings for any reason whatsoever; and (e) the provisions of this clause 20.2 and clause 13 and the limitations on recourse set out therein are paramount and take effect notwithstanding any other right, remedy or enforcement action which may otherwise have been available to TAB but for those provisions. 6 Clause 24 deals with disputes. Clause 24.1 provides a mechanism for the parties to attempt in the first instance to resolve the dispute by meetings between the chief executive officer of each of the parties. If that mechanism does not resolve the dispute within 15-business days the matter is referred to resolution in accordance with clause 24.2. The remaining provisions within clause 24 then deal with that method of dispute resolution. The relevant provisions are as follows: -- 24.2 If a Dispute is not resolved pursuant to clause 24.1 the Dispute will be referred for expedited arbitration under clause 24.3 . 24.3 The Dispute will be referred to expedited arbitration at the request of either party in accordance with the Expedited Rules as amended below: (a) the arbitration will take place in Sydney; (b) evidence is to be in the form of written affidavits; (c) the arbitrator is bound by the rules of evidence; (d) all questions that arise for determination in the course of the arbitration are to be determined according to law; (e) each of the parties must, within 10 Business Days after the appointment of the arbitrator: (f) make a written submission as to how the Dispute should be resolved, including suggested terms of reference, to the arbitrator; and (g) give a copy of the said submission to the other party; (h) the parties must procure that the arbitrator shall, within 40 Business Days after his or her appointment, make a determination in relation to the Dispute and in doing so, must adopt the submission made by the party (to the Dispute) that most closely accords with the arbitrator's opinion in the matter; (i) the submission that is adopted by the arbitrator under paragraph (f) of this clause 24.3 shall be deemed to be the decision of the arbitrator; (j) the costs of the arbitration shall be borne by the party against whom the arbitrator makes his or her determination; (k) the arbitrator shall include in his or her determination, detailed reasons to enable the parties to understand the basis for the determination; and (l) each party is entitled to be represented in the arbitration by a duly qualified legal practitioner. The arbitration is to be conducted before an arbitrator agreed on by the parties, or if they are unable to agree within 5 Business Days of a written request by one of the parties to the other party requiring them to attempt to agree upon an arbitrator, a person to be appointed by the President for the time being of the Institute of Arbitrators, Australia. If the President appoints the person to act as arbitrator, the parties require that the arbitrator to be appointed must be a senior lawyer or retired judge experienced in the conduct of the racing and gaming industry. 24.4 The resolution of a Dispute occurs: (a)if and when the parties execute a written agreement recording the basis of the resolution of the Dispute; or (b)upon the determination of the arbitrator, at the expiration of the time for appeal against any part of the arbitrator's determination. 24.5 No party may commence court proceedings in relation to a Dispute until the procedure specified in this clause 24 has been followed and in any event, may only do so on the grounds of an error of law by the arbitrator. However, any party may seek urgent interlocutory relief, subject to the limitations and restrictions set out elsewhere in this Agreement. 7 Immediately apparent is the tension between the mechanism of dispute resolution in clause 24.5 and the provisions of clause 20. Clause 24.5 only allows a party to seek urgent interlocutory relief outside the dispute resolution procedure and it is clear that the present proceedings do not fall within that exception. 8 In order to understand the interplay between clauses 20 and 24.5, the agreement must be read as a whole. Clause 24.5 provides that no party may commence court proceedings in relation to a dispute until the arbitration procedure set out in clause 24 has been followed and even then may only bring such proceedings on the grounds of error of law by the arbitrator. The only express exception is the case where either party is seeking urgent interlocutory relief. 9 The plaintiff's submission is that clause 20.1 effectively operates as an exception to clause 24.5, and that clause 24.5 should be read down accordingly. On the plaintiff's construction, parties can commence court proceedings for urgent interlocutory relief, an injunction or an order for specific performance, but for any other relief must enter into arbitration pursuant to clause 24. If one could have regard to the heading to 20.1, namely, "Court Action for Injunction or Specific Performance" the plaintiff's argument would have much attraction. However, one cannot have regard to the heading. That this should be so is not surprising as no doubt more effort has gone into drafting the substance of the clauses with their carefully worded exceptions rather than the headings. 10 The defendant's submit that clause 20.1 must be understood in the context of the agreement as a whole. In the context of an agreement that expressly provides a mechanism of arbitration for dispute resolution, clause 20.1 merely represents agreement between the parties as to certain remedies that may be sought. The statement that parties may seek an injunction or specific performance follows the statement that damages may not be an adequate remedy. The purpose of clause 20.1 is to prevent opposition to an injunction or order of specific performance on the grounds that damages are sufficient. It does not expressly qualify the operation of clause 24.5. 11 Further, there is no reason to assume that clause 20.1 applies solely to court proceedings. The plaintiff relies on the clause to say that it grants a right to bring court proceedings for an injunction or order of specific performance. However, the defendant submits that the remedies to which clause 20.1 refers may also be granted by the arbitrator under the agreement and the clause therefore cannot be understood to be referring only to court proceedings. 12 Section 24 of the Commercial Arbitration Act provides that: "Unless a contrary intention is expressed in the arbitration agreement, the arbitrator or umpire shall have power to make an award ordering specific performance of any contract if the Supreme Court would have the power to order specific performance of that contract."