The parties were in dispute over the operation of an indemnity in a charter contract which provided that the charterer and a related party would indemnify the owner for certain taxation liabilities. The charter contract contained an arbitration clause, with a provision (Article 33.10) stating that:

The contract provided that the taxation returns for the owner were to be prepared by the charterer and lodged by the owner. A dispute arose as to the treatment of certain items for depreciation purposes and the owner refused to sign the returns prepared by the charterer. The ultimate owner of the charterer had guaranteed payment of the contractual indemnity by the charterer. The guarantor commenced Supreme Court proceedings seeking injunctions and declarations against the owner. The owner counterclaimed for declarations and specific performance against the charterer and the guarantor. The charterer and the guarantor then sought a stay of the proceedings to permit the dispute on the counterclaim to proceed to arbitration. The stay was opposed by the owner.

At first instance the Supreme Court of Victoria refused the stay, holding that the arbitration agreement's exception for "urgent interlocutory or declaratory relief" applied (see Legal update, Court says taxation indemnity case arbitrable). The judge accepted that the requirement of urgency applied to both interlocutory and declaratory relief. Further, he considered that urgency had been established: the proceedings initiated by the guarantor included urgent injunctive relief and declarations and, as the counterclaims were responsive to those claims, they therefore took on the same character of urgency. But for that exception, the requirements for a stay of the court proceedings, pursuant to section 7 of the International Arbitration Act, would have been met.

On appeal the Court of Appeal agreed that the need for urgency applied distributively, that is to both the interlocutory and the declaratory relief. However, it also held that the clause contained two requirements:

The Court observed that the relevant contractual provision (Article 33.10) had to be read in the context of the dispute resolution provisions of the charter contract. Those provisions demonstrated the parties' preference that disputes arising under the charter contract be decided by expert determination or arbitration. That preference could be defeated if Article 33.10 were not limited to cases which were, in fact, urgent. Further, as Article 33 disclosed that the parties’ first preference was to determine their dispute by arbitration and provide an exception to enable urgent claims to be determined in court, the Court was of the opinion that, in determining urgency, it was relevant to consider the relative ability of courts and arbitrators to determine disputes swiftly.

In this regard, the Court considered the rules of the Institute of Arbitrators and Mediators Australia (IAMA) on the Conduct of Commercial Arbitrations and the measures that they permitted. The Court appears to have taken the view that an arbitrator could swiftly determine this dispute.

In considering objective urgency, the Court looked at the manner in which the owner (the party seeking the declaration) had conducted itself. The Court found that almost two years had passed between the owner becoming aware of the circumstances forming the basis for the declaratory relief sought and the owner initiating the application for declaratory relief. Even then, the action taken was in response to the principal claim by the charterer and the guarantor.

For these reasons it was held that the declaratory relief was not objectively urgent.

The Court of Appeal also agreed with the court below on the question of waiver, albeit for different reasons. The Court of Appeal considered that the action complained of concerned different obligations to those under the charter contract, and therefore the actions were not inconsistent with the arbitration clause in the charter contract.

The Court indicated that it would grant a stay but that it would hear from the parties further as to the terms of the stay.