NEW SOUTH WALES CA IMPORTS ARBITRATION CLAUSE FROM ONE ENTITY TO ANOTHER, STAYS PROCEEDINGS
Brenda Horrigan & Mitchell Dearness
In Warner Bros Feature Productions Pty Ltd v Kennedy Miller Mitchell Films Pty Ltd [2018] NSWCA 81, the New South Wales Court of Appeal overturned the decision of the New South Wales Supreme Court by referring a dispute to arbitration in California pursuant to the parties’ agreement and by ordering a stay on court proceedings pursuant to section 7(2) of Australia’s International Arbitration Act 1974 (Cth). The Court of Appeal applied a pragmatic approach to determine whether an arbitration clause found in standard term contracts used by other members of a company’s corporate group should be incorporated into the parties’ agreement.
Background Warner Bros Feature Productions Pty Ltd (WB Productions) entered into an agreement with Kennedy Miller Mitchell Films Pty Ltd (KMMF) and Kennedy Miller Mitchell Services Pty Ltd (KMMS). The agreement was in the form of a ‘Letter Agreement’ (Letter Agreement). A dispute arose regarding, among other things, KMMS and KMMF’s entitlement to a bonus payment under the Letter Agreement for services provided in connection with the production of a film. KMMF and KMMS brought proceedings against WB Productions in the Supreme Court of New South Wales. WB Productions sought a stay on those proceedings on the basis that, pursuant to the Letter Agreement, the dispute should be submitted to arbitration in California. WB Productions’ position was that an arbitration clause had been incorporated into the Letter Agreement as the Letter Agreement contained the following clause: “The balance of terms will be WB and WB standard for ‘A’ list directors and producers, subject to good faith negotiations within WB’s and WB’s customary parameters” (Incorporation Clause). Relevantly, WB Productions sought to incorporate an arbitration clause which was found in standard form contracts used by other members of the Warner Bros Group. Hammerschlag J, the primary judge, dismissed the application for a stay on the proceedings and determined that the New South Wales Supreme Court had jurisdiction to decide the matter. It was held that none of the contracts which were exhibited as evidence by KMMF and KMMS were agreements to which WB Productions was a party, and that there was “no evidence of any regularity of contracting on the standard terms by [WB Productions] itself”. His Honour also refused to read the clause as including WB Pictures given that the Letter Agreement unambiguously defined ‘WB’ as WB Productions. As such, WB Productions, as distinct from other members of the corporate Warner Bros Group, did not have any terms which were ‘standard’ and which could be incorporated into the Letter Agreement. The applicants WB Productions and Warner Bros Entertainment Inc subsequently appealed the decision to the New South Wales Court of Appeal. Court of Appeal Decision Chief Justice Bathurst delivered the leading judgment and drew upon the constructional