Stay On Basis Arbitration Agreement “Incapable Of Being Performed” Fails

Phillip Rompotis reviews the decision in Bulkbuild Pty Ltd v Fortuna Well Pty Ltd & Ors [2019] QSC 173, where the Supreme Court of Queensland considered the circumstances in which an arbitration agreement is “incapable of being performed”. The question arose in the context of a construction dispute where the Contractor (Bulkbuild) commenced proceedings against the Employer (Fortuna) and two other parties (superintendents under the construction contract) seeking damages for breach of contract, alternatively a quantum meruit.

There was no dispute that the construction contract between Bulkbuild and Fortuna contained an arbitration agreement. On this basis the Employer sought an order for the court proceedings to be stayed to arbitration (under s.8 of the Act; Article 8 of the Model Law). The Contractor, on the other hand, argued that the arbitration agreement was incapable of being performed since the superintendents were not parties to the arbitration agreement and that there would be a risk of different factual findings if its claim against Fortuna were determined by arbitration but its claims against the superintendents determined by a court; as such, the court could should not refer the dispute to arbitration.

The court framed the issue as follows [14]:

“The plaintiff does not contend the agreement is null and void, or inoperative, but argues the arbitration agreement is “incapable of being performed” for the purposes of s 8 because the plaintiff’s respective claims against the first defendant, on the one hand, and the second and third defendants, on the other, will require the court to determine a number of similar factual matters, and there is a risk that if the claim against the first defendant is determined at arbitration, and the claim against the second and third defendants is determined by a court, the two different forums may reach different factual conclusions. It is on the basis of that risk of different factual findings that the plaintiff contends the arbitration agreement is “incapable of being performed”.”

The Court disagreed with the Contractor, noting [12] that:

“There is no discretion under s 8(1) of the 2013 Act. If the action brought by the plaintiff is in a matter which is the subject of an arbitration agreement, unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed, the court must refer the parties to arbitration.”

See John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [65], [74], [87] and [132] per Hammerschlag J; Novawest Contracting Pty Ltd v Brimbank City Council [2015] VSC 679 at [19]-[21] per Vickery J; CPB Contractors Pty Ltd v Celsus Pty Ltd [2017] FCA 1620; (2017) 353 ALR 84 at [43] per Lee J; and Broken Hill City Council v Unique Urban Built Pty Ltd [2018] NSWSC 825 at [18] per Hammerschlag J (see here for Allen & Overy’s review of this case).

The Court referred to the Novawest and Broken Hill cases, where the courts referred to the following statement from the decision of the Singapore High Court in Sembawang Engineers and Constructors Pte Ltd v Covec (Singapore) Pte Ltd [2008] SGHC 229 [@42]) in relation to the term “incapable of being performed”:

“[T]his term would relate to the capability or incapability of parties to perform an arbitration agreement. In Mustill & Boyd, Commercial Arbitration, it is stated the expression would suggest ‘something more than mere difficulty or inconvenience or delay in performing the arbitration’ (at p 465). There has to be ‘some obstacle which cannot be overcome even if the parties are ready, able and willing to perform the agreement’ (id at p 465). In Margaret L Moses, The Principles and Practice of International Commercial Arbitration (Cambridge University Press, 2008), some examples of situations where an arbitration agreement has become incapable of being performed are given. It is stated (id at pp 32-33): ‘An arbitration agreement could be incapable of being performed, if, for example, there was contradictory language in the main contract indicating the parties intended to litigate. Moreover, if the parties had chosen a specific arbitrator in the agreement, who was, at the time of the dispute, deceased or unavailable, the arbitration agreement could not be effectuated. In addition, if the place of arbitration was no longer available because of political upheaval, this could render the arbitration agreement incapable of being performed. If the arbitration agreement was itself too vague, confusing or contradictory, it could prevent the arbitration from taking place.’”

Accordingly, the Court found that the phrase “incapable of being performed” relates to the parties’ capability to perform an arbitration agreement; accordingly, there must be some obstacle which cannot be overcome even if the parties are ready, willing and able to perform the agreement, and that the inconvenience of claims against the superintendents being pursued in court at the same time as the arbitration of the claim against Fortuna does not render the arbitration agreement “incapable of being performed”.

The case highlights that the prospect of inconsistent factual findings in different dispute resolution forums is not enough to render an arbitration agreement “incapable of being performed”. While the decision dealt with the phrase in the context of the Commercial Arbitration Act 2013 (Qld), the phrase is not unique to Queensland, and is consistent with the arbitration provisions in the other Australian States and the text of the Model Law.

See also the reviews of this case by:

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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