by Mark Van Brakel and Simon Bourke, Allen & Overy
Case note on NORTH WEST PILOTS PTY LTD as trustee for the PORT HEDLAND PILOTS UNIT TRUST trading as PORT HEDLAND PILOTS -v- DANIEL [2023] WASCA 122
Australian Court allows parties to an arbitration agreement to engage in curial proceedings provided the issues in dispute do not arise out of same contract
The Western Australian Court of Appeal has ruled that the existence of an arbitration agreement does not prevent one of the contracting parties from applying to be joined to curial proceedings involving the counter-party and a third party (who is a stranger to the arbitration agreement). The joinder of the contracting party to the curial proceedings in and of itself was not contradictory to, and would not impact the counter-party’s rights under s 8 of the Commercial Arbitration Act 2012 (WA) (CAA), which requires a court to refer relevant disputes to arbitration. The important issue is the substantive involvement of the party joining the curial proceedings, and whether there is overlap between the contentions raised in the curial proceedings (as between the parties to the arbitration agreement) and the scope of the arbitration clause, which may enliven the operation of s 8 of the CAA.
Dispute impacts contractual rights and obligations of a company not party to the suit
The plaintiff, Port Hedland Pilots (PHP), commenced an action in the Western Australian Supreme Court against Captain Heath Daniel, a former employee and director of PHP. In December 2022, two days after completing his employment with PHP, Captain Daniel commenced employment with the second respondent, the Pilbara Ports Authority (PPA). PHP had a contract with PPA (Pilot Services Contract) to be the sole provider of marine pilotage services to PPA in the Port of Port Hedland (Port). Clause 19 of the Pilot Services Contract required that PHP and PPA refer disputes to arbitration in accordance with the CAA.
During Captain Daniel’s employment with PHP, there were various disputes between PHP and PPA regarding the Pilot Services Contract. As an employee and director of PHP, Captain Daniel was privy to confidential information regarding PHP’s strategies with respect to their disputes with PPA. PHP claimed that Captain Daniel had, after becoming employed by PPA, assisted PPA in their disputes with PHP and violated his post-employment restraint clause with PHP, thereby breaching his contractual, fiduciary and statutory duties to PHP.
PHP claimed that it suffered loss and damages as a result of Captain Daniel’s conduct and sought, as relief, interlocutory and permanent prohibitory injunctions. In particular, PHP sought to restrain Captain Daniel from providing pilotage services at the Port, assisting PPA in the development of pilotage services, and assisting PPA with service contracts with PHP or other providers.
PPA was granted leave to appear as an interested person on PHP’s application for an interlocutory injunction against Captain Daniel and then applied to be joined as a defendant to the proceedings. PHP objected to the joinder on several grounds, including that it may be found to have waived its rights under s 8 of the CAA in respect of any subsequent dispute involving similar subject matter as between PHP and PPA.
Contractual agreement for arbitration does not necessarily hinder joinder to curial proceedings
The primary judge observed that it was appropriate to consider the impact of relief sought, rather than the statement of claim, in determining whether PPA would be directly affected by the proceedings to warrant them joining. Given that a restraint on Captain Daniel would impact his capacity to act as an employee of PPA, these proceedings had the potential to affect the contract between Captain Daniel and PPA. Given PHP’s claim of entitlement to be the sole provider of services, the Court noted that it would be necessary to consider the terms of the Pilot Services Contract between PHP and PPA in ruling on what services Captain Daniel could or could not perform at the Port, which would in turn directly affect the rights and obligations of PPA.
PHP argued that as clause 19 of the Pilot Services Contract required the parties to resolve all disputes by arbitration, PPA was not entitled to seek resolution of any such disputes in Court proceedings. The primary judge noted that PPA had not yet raised any issues in the proceedings, in particular no counterclaim had been filed as yet (and may never be filed), and accordingly it was not appropriate to refuse the order for joinder.
Curial proceedings did not involve issues arising out of the contract requiring arbitration
PHP sought leave to appeal the decision to allow PPA to join the proceedings. PHP argued that by permitting joinder an implication arose that PPA was a necessary party to the suit and that PHP may be taken to have waived its rights under s 8 of the CAA to have disputes between it and PPA referred to arbitration.
In upholding the decision to join PPA, the Court was satisfied that PHP’s rights under s 8 of the CAA would not be infringed by the joinder decision. The Court was of the view that s 8 only applies when an action is initiated in relation to a matter that is the subject of an arbitration agreement. There must be an overlap between the matter which is the subject of the action, and the matter which is the subject of an arbitration agreement. In identifying the relevant matter, a court will have regard to both the controversy and the parties to it. The Court emphasised that the subject matter of the curial proceedings need not be coextensive with the matter the subject of the arbitration agreement.
In this instance, the Court determined that the matters subject to the arbitration agreement were limited to any dispute between PHP and PPA “arising out of” the Pilot Services Contract or related to either party’s non-performance of contractual obligations. However, the curial proceedings involved a dispute between PHP and Captain Daniel with consideration of the obligations that Captain Daniel did or did not owe to PHP under that contract, and what, if any, restrictions should be imposed on Captain Daniel.
Accordingly, the subject matter of the curial proceedings was not altered by the decision to allow PPA to join the proceedings: rather the joinder provided PPA with the opportunity to be heard on the claims by PHP against Captain Daniel. Therefore, s 8 was not engaged, and PHP could not be said to have waived its rights under s 8. The Court did observe that this position may need to be revisited if, in new pleadings, either PPA or PHP make claims against the other which would engage s 8.
Comment
This decision does not diminish what is often referred to as the ‘sanctity of the arbitration agreement’, namely that the courts will respect contracting parties’ choice of arbitration as the forum for resolution of all disputes. In this case, the Court clarified an important distinction which is that the existence of an arbitration agreement does not necessarily impede one of the parties from joining and participating in curial proceedings involving the counter-party and a third party, who is a stranger to the arbitration agreement. However, if one of the contracting parties subsequently raises issues in the curial proceedings that falls within the ambit of the arbitration clause, s 8 would be engaged at that point and a court is likely to order referral to arbitration.