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Sheetal Investments Ltd v Australia and New Zealand Banking Group Ltd [2011] FJHC 271; HBC227.2010 (13 May 2011)

IN THE HIGH COURT OF FIJI ISLANDS
AT SUVA
CIVIL JURISDICTION

Civil Action No: HBC 227 of 2010

BETWEEN:

SHEETAL INVESTMENTS LIMITED
Plaintiff

AND:

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
Defendant

Counsel: Mr. N. Prasad for the Plaintiff.
Ms. B. Narayan for the Defendant.

Date of Judgment: 13th May, 2011.

INTERLOCUTORY JUDGMENT

1. This is the defendant's summons under O.18 r.18(d) of the High Court Rules read together with section 5 of the Arbitration Act, (Cap 38) seeking an order to strike out plaintiff's writ of summons on the basis that it is an abuse of the court process.
   
2. In support of the plaintiff's summons, an affidavit was filed by the Chief Operational Manager of the defendant bank. Rosemary Anne, one of the directors of the plaintiff company, filed an affidavit opposing the defendant's application.
   
3. The defendant bank assumed responsibilities of the Bank of Hawaii in terms of section 5(1) of the ANZ Banking Group (Bank of Hawaii) Act 2001. The plaintiff and the Bank of Hawaii entered into a lease agreement on 21.11.94.
   
4. Clause 9 of the lease agreement required the parties to settle all disputes or differences arising out of the agreement by arbitration.
   
5. The defendant therefore contends that the institution of the instant action in the High Court without initiating arbitration proceedings is an abuse of process of court and, therefore, the plaintiff's application should be struck out.
   
6. The plaintiff states that the defendant is stopped by taking this objection at this stage of the case as the defendant by its conduct has submitted to the jurisdiction of this court i.e. by filing of an acknowledgement of service of writ of summons, stating its intention to contest the proceedings on 30.07.2010; and filing of the statement of defence on 9.8.2010.
   

LEGAL ISSUE

7. The pivotal issue to be determined here is whether the arbitration agreement between the parties prevents this court's hearing this case in view of Scott v Avery [1843-60] All E. R. 1 principle.
   
8. Order 12 r. 7 of the High Court Rules lays down the procedure to dispute jurisdiction of the court.
   

Order 12 rule 7 reads:

1. A defendant who wishes to dispute the jurisdiction of the court in the proceedings by reason of any such irregularity as is mentioned in Rule 6 or on any other ground shall give notice of intention to defend the proceedings and shall, within the time limited for service of a defence apply to the court for-
   
   1. An order setting aside the writ or service of the writ on him, or
      
   2. An order declaring that the writ has not been duly served on him, or
      
   100. The discharge of any order giving leave to serve the writ on him out of the jurisdiction, or
        
   4. The discharge of any order extending the validity of the writ for the purpose of service, or
      
   5. The protection or release of any property of the defendant seized or threatened with seizure in the proceedings, or
      
   6. The discharge of any order made to prevent any dealing with any property of the defendant, or
      
   7. A declaration that in the circumstances of the case the court has no jurisdiction over the defendant in respect of the subject matter of the claim or the relief or remedy sought in the action, or
      
   8. Such other relief as may be appropriate.
      
2. An application under paragraph (1) must be made by summons or motion, and the notice of motion or summons must state the grounds of the application.
   
3. An application under paragraph (1) must be supported by an affidavit verifying the facts on which the application is based and a copy of the affidavit must be served with the notice of motion or summons by which the application is made.
   
9. In the present case, the defendant has filed summons and affidavit verifying the facts on which the defendant relies. However, the defendant has also filed a statement of defence two days prior to filing the summons to strike out. Therefore, court has to determine, whether the defendant, by filing the statement of defence, has waived its right of arbitration.
   
10. Section 5 of the Arbitration Act reads:
    

If any party to a submission, or any person claiming through under him, commences any legal proceedings in any court against any other party to the submission, or any other person claiming through or under him, in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings, and that court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission and that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings.

11. 'Submission' is defined in the Arbitration Act to mean a written agreement to submit present or future differences to arbitration whether an arbitrator is named or not.
    
12. The above section clearly specifies that a party could seek an order to stay the proceedings 'at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings.' (Emphasis added).
    
13. Let me, therefore, now examine whether the filing of an acknowledgement of service of writ of summons, stating its intention to contest the proceedings on 30.07.2010; and filing of the statement of defence on 9.8.2010 by the defendant would amount to a 'step in the proceedings' and thereby the defendant has waived its right to object to the jurisdiction of the Court.
    
14. An issue similar to that of the present case was examined in the case of Eagle Star Insurance Company v. Yuval Insurance Company [1978] 1 Lloyd's Report 357 where the plaintiff issued a writ on which they indorsed a statement of claim. That endorsement was defective and the defendant applied to strike it out. As Lord Denning observed at page 360 and 361
    

"It seems to me that if a defendant who is being sued in the Courts asks that a matter should go to arbitration in accordance with their agreement, prima facie that agreement ought to be honoured: the action should be stayed and the matter should be allowed to go to arbitration. Subject to this statutory qualification: if the defendant has taken a "step in the proceedings" then he is too late. He can no longer apply for the Court proceedings to be stayed."

15. Having referred to Ford's Hotel v.Bartlett [1895] UKLawRpAC 48; [1896] A.C 1 and Parker, Gains & Co Ltd v. Turpin [1918] 1 K.B 58 Lord Denning further stated:
    

'On those authorities, it seems to me that in order to deprive a defendant of his recourse to arbitration a "step in the proceedings" must be one which impliedly affirms the correctness of the proceedings and the willingness of the defendant to go along with a determination by the courts of law instead of arbitration.'

16. The term 'step in the proceedings' is explained by Lord Denning in Eagle Star Insurance (supra) as follows:
    

'On principle it is a step by which the defendant evinces an election to abide by the Court proceedings and waives his right to ask for an arbitration. Like any election, it must be an unequivocal act done with knowledge of the material circumstances.'

17. The following authorities would throw light on this issue.
    
18. In Ives & Barker v. Wilans (1894) 2 Ch.478 at 484 Lord Justice Lindley said:
    

'The authorities show that a step in the proceedings means something in the nature of an application to the Court, and not mere talk between solicitors or solicitors' clerks, nor the writing of letters, but the taking of some step, such as taking out a summons or something of that kind, which is, in the technical sense, a step in the proceedings.'

19. Where a defendant takes out a summons and obtains an order for further time for delivering his defence, he takes a step in the proceedings within the meaning of the Arbitration Act, and is not afterwards entitled to apply under that section for a stay on the ground that the proceedings were brought in respect of matters agreed to be referred.
    
20. In Fordes Hotel Co. Ltd. v. Bartleet [1895] UKLawRpAC 48; [1896] AC 1 where the defendants thrice obtained the plaintiff's consent for further time for delivering their defence, and their fourth request being refused, took out a summons and got an order for a further 14 days. It was held to be a 'step in the proceeding.' In that case Lord Watson stated:
    

'I am also of the opinion that the application by the appellants for an extension of time to deliver their defence, upon which an order giving fourteen days was obtained, was a step in the proceedings.....

21. In the above case Lord Shand expressed the same opinion (at page 6) as follows:

'I see no reason to doubt that an order obtained upon a summons for extension of time for delivery of defence is a "step in the Proceedings" by the defendant within the meaning of section 4 of the Arbitration Act.

22. It could be noted that even an application for the discovery of documents was held to be a step in the proceedings. In Parker, Gaines & Company Ltd. v.Turpin [1918] 1 K.B. 358, the defendant applied for discovery of documents, obtained an order, and was given discovery in the action. That was held to be a step in the proceedings.
    
23. In Chappell v. North [1891] UKLawRpKQB 108; [1891] 2 QB 252, it was held that the plaintiff's application for leave to administer interrogatories was a step by him in the proceedings, and there was consequently no jurisdiction to make the order.
    
24. This applies even if the applicant did not know of the agreement to arbitrate at the time the relevant step was taken. Parker Gains & Co. Ltd v. Turpin [1981] 1 K.B 358
    
25. The defendant cited In Re Hinterland (Fiji) Ltd [2005] FJHC 655 . Having considered the case, I am of the view that it is clearly distinguishable from the present case as the defendant in the present case has already filed its statement of defence despite the provisions of Order 12 r.7 of the High Court Rules.
    
26. Several correspondences between the defendant and the plaintiff are clearly indicative of the plaintiff's position regarding the dispute and the letter marked and annexed as RAL 19 specifically informed the plaintiff's intention to file court proceedings.
    
27. The defendant's argument is that mere filing of the statement of defence could not be interpreted to means that the defendant has submitted itself to the jurisdiction of the court. Further, the defendant submits that the statement of defence was filed to inform the existence of the arbitration clause and the defendant's opposition to the plaintiff's writ of summons.
    
28. It is clear from the above authorities that a party intends to object to the jurisdiction must not have delivered any pleadings or taken any other steps in the proceedings. By serving pleadings or taking other steps in the proceedings a party submits to the jurisdiction of the court in respect of the claim and will not thereafter be able to obtain a stay. In other words, by accepting the court's jurisdiction to hear the case he is treated as electing to have the matter dealt with by the court rather than insisting on his contractual right to arbitrate.
    
29. Section 5 of the Arbitration Act requires an application to stay the proceedings to be filed before delivering any pleadings or taking any steps in the proceedings. A coherent interpretation of this section in my mind would be for the defendant to have filed a summons or motion seeking a stay order in terms of O.12 r. 7 of the High Court Rules objecting to the jurisdiction of the court, after filing of the acknowledgement of service of writ of summons, stating its intention to contest the proceedings on 30.07.2010. The defendant simply filed a statement of defence objecting to the plaintiff's action and in the process made a mere assertion of the existence of the arbitration agreement. In my view, the defendant has failed to comply with section 5 of the Arbitration Act. Had the defendant intended to object to the jurisdiction, the defendant should have taken steps under Order 12 of the High Court Rules, instead of filing statement of defence, and doing so, the defendant has clearly submitted itself to the jurisdiction of the court.
    
30. When the procedure as to the manner in disputing the jurisdiction of the court, is expressly provided in High Court Rules, in my view, the defendant has to obey the rules and cannot resort to any other procedure. Therefore, it is evident that the defendant in the present case has clearly failed to follow the procedure stipulated by law when challenging the jurisdiction of the court.
    
31. The defendant's main objection is that institution of proceedings by the plaintiff without invoking the arbitration clause of the lease agreement is an abuse of the court process.
    
32. In Halsbury's Laws of England Vol. 37 page 322 the abuse of process is described as follows:
    

An abuse of process of the court arises where its process is used, not in good faith and for proper purposes, but as a means of vexation or oppression or for ulterior purposes, or, more simply, where the process is misused. In such a case, even if the pleading or endorsement does not offend any of the other specified grounds for striking out, the facts may show it constitutes an abuse of the process of the court, and on this ground the court may be justified in striking out the whole pleading or endorsement or any offending part of it. Even where a party strictly complies with the literal terms of the rules of court, yet if he acts with an ulterior motive to the prejudice of the opposite party, he may be guilty of an abuse of process, and where subsequent events render what was originally a maintainable action one which becomes inevitably doomed to failure, the action may be dismissed as an abuse of the process of the court.

33. The term 'abuse of process' is encapsulated in the following extract from Walton v. Gardiner (1993) 177 CLR 378 as follows:
    

'Abuse of process includes instituting or maintaining proceedings that will clearly fail, proceedings unjustifiably oppressive or vexatious in relation to the defendant, and generally any process that gives rise to unfairness.'

34. Parties are free to waive the arbitration agreement and initiate action in a court of law. If a defendant desires to object to an action filed in court, such defendant should seek an order to stay the court proceedings as stipulated in section 5 of the Arbitration Act. Such an application must be in terms of O 12 r 7 of the High Court Rules, before any other 'step in the proceeding'. A defendant, who files a Statement of Defence challenging the plaintiff's action or moving to filing a statement of defence, submits to the jurisdiction of the court. A defendant would therefore be required to object to the jurisdiction of the court at the very first instance. If not, the aforesaid conduct of the defendant would amount to a waiver of an arbitration agreement.
    
35. In the present case the plaintiff's action cannot be considered as groundless or unfounded merely because the plaintiff failed to invoke a provision in the arbitration agreement. Unless it appears clearly, that the proceeding is frivolous and vexatious or unjustifiably oppressive in relation to the defendant, it shall not be considered as an abuse of process.
    
36. Having regard to the above, I conclude that the plaintiff's writ of summons cannot be struck out on the basis of abuse of process. Further, the arguments advanced by the defendant to get this action referred back to the arbitration are far from satisfactory and would fail.
    
37. In the present case the defendant has filed the statement of defence on 9th of August 2010, and the summons to strike out the statement of claim has been filed on 11th of August, two days after the filing of the statement of defence.
    
38. Therefore, it is abundantly clear that the defendant had already submitted itself to the jurisdiction of the court by filing the statement of defence before filing summons to strike out the action.
    
39. Therefore, I conclude that the defendant having filed the statement of defence has submitted itself to the jurisdiction of this court and thereby waived its right to refer the dispute to the arbitration.
    

[40] On the above premise, I make following orders:

1. The defendant's summons for strike out the action is dismissed.
   
2. The plaintiff is awarded a cost in the sum of $ 400.00
   

Pradeep Hettiarachchi
JUDGE

13.5.2011