Freedom Foods Pty Ltd v Blue Diamond Growers (No 2) [2021] FCA 409

FEDERAL COURT OF AUSTRALIA

 

Freedom Foods Pty Ltd v Blue Diamond Growers (No 2) [2021] FCA 409

File number: VID 644 of 2020
Judgment of: MOSHINSKY J
Date of Judgment: 23 April 2021
Date of Order: 23 April 2021
Catchwords: PRACTICE AND PROCEDURE – costs – international arbitration – where respondent sought stay of the proceeding pursuant to s 7(2) of the International Arbitration Act 1974 (Cth) – where stay granted – where respondent substantially successful – whether to depart from ordinary rule that costs follow the event
Legislation: International Arbitration Act 1974 (Cth), s 7
Cases cited: ACN 154 520 199 Pty Ltd (in liq) v Commissioner of Taxation (No 2) [2020] FCAFC 225

Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622

Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
 Orders:  THE COURT ORDERS THAT:

 

1.           The applicants pay the respondent’s costs of and incidental to:

(a)       1. the applicants’ interlocutory application dated 20 November 2020; and

(b)       2. the respondent’s interlocutory application dated 15 December 2020,

3. including the costs reserved by the orders made on 24 December 2020, 5 February 2021 and 10 February 2021.

2.           In relation to the other costs of the proceeding to date (including other reserved costs), there be no order as to costs.

3.           The costs referred to in paragraph 1 be fixed by way of a lump sum.

THE COURT DIRECTS THAT:

 

4.           Within 14 days, the parties file any agreed proposed minutes of orders fixing a lump sum in relation to the respondent’s costs.

5.           In the absence of any agreement:

(a)          within 21 days, the respondent file and serve an affidavit constituting a Costs Summary in accordance with paragraphs 4.10 to 4.12 of the Court’s Costs Practice Note (GPN-COSTS);

(b)          within a further 14 days, the applicants file and serve any Costs Response in accordance with paragraphs 4.13 to 4.14 of the Costs Practice Note (GPN-COSTS); and

(c)          in the absence of any agreement having been reached within a further 14 days, the matter of an appropriate lump sum figure for the respondent’s costs be referred to a Registrar for determination.

 

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Number of paragraphs: 9
Date of last submissions: 7 April 2021
Date of hearing: Determined on the papers
Parties:  BETWEEN:  FREEDOM FOODS PTY LTD (ACN 068 972 181)

First Applicant

 

FREEDOM FOODS GROUP INGLEBURN PTY LTD (ACN 600 569 382)

Second Applicant

 

FREEDOM FOODS GROUP TRADING PTY LTD (ACN 614 863 286) (and another named in the Schedule)

Third Applicant

 

AND:  BLUE DIAMOND GROWERS

Respondent

Counsel for the Applicants: Mr PD Crutchfield QC with Dr AM Dinelli
Solicitor for the Applicants: Arnold Bloch Leibler
Counsel for the Respondent: Dr JP Moore QC, with Ms HA Tiplady and Mr T Farhall
Solicitor for the Respondent: Norton Rose Fulbright Australia

 

 

 

 

 

REASONS FOR JUDGMENT

MOSHINSKY J:

  1. On 5 March 2021, I published reasons for judgment and made orders in relation to two interlocutory applications: Freedom Foods Pty Ltd v Blue Diamond Growers [2021] FCA 172. I now deal with the issues of costs, both of the interlocutory applications and of the proceeding to date. These reasons should be read together with the reasons dated 5 March 2021. I will adopt the abbreviations used in the 5 March 2021 reasons.
  2. The parties have filed the following submissions on costs: BDG filed submissions on 26 March 2021; the applicants filed submissions on 29 March 2021; and BDG filed reply submissions on 7 April 2021.  The respective positions of the parties are as follows:

(a)          BDG seeks orders that the applicants pay, on a party and party basis, BDG’s costs of and incidental to the two interlocutory applications and otherwise of the proceeding.  BDG also seeks an order that these costs be assessed in accordance with the lump sum procedure set out in the Court’s Costs Practice Note (GPN-COSTS).

(b)          The applicants submit that the appropriate costs orders are:

(i)          the applicants pay 50% of BDG’s costs of the interlocutory applications; and

(ii)         there otherwise be no order as to the costs of the proceeding.

  1. The applicable principles relating to costs are well established.  It is sufficient for present purposes to refer to the recent summary of those principles in ACN 154 520 199 Pty Ltd (in liq) v Commissioner of Taxation (No 2) [2020] FCAFC 225 at [9]-[11].
  2. I will deal first with the costs of the two interlocutory applications.  These applications were heard together and there was an overlap in the evidence and submissions as between the two interlocutory applications.  It is appropriate to deal together with the costs of the two interlocutory applications.
  3. BDG was substantially successful in relation to both interlocutory applications. By BDG’s interlocutory application, BDG sought an order that the proceeding be stayed pursuant to s 7(2)of the International Arbitration Act 1974 (Cth). I made such an order. By the applicants’ interlocutory application, the applicants sought injunctions to restrain BDG from pursuing the Californian Arbitration and the US District Court Proceeding: see [12] of the 5 March 2021 reasons. I dismissed the applicants’ interlocutory application. Insofar as the applicants submit that, because BDG proffered, and the Court accepted, an undertaking that BDG would discontinue the US District Court Proceeding (and certain other undertakings), the applicants obtained some of the relief they sought, I do not accept that submission. The undertaking relating to the US District Court Proceeding was offered as part of BDG’s oral submissions in the context of a suggestion by the applicants that BDG was adopting inconsistent positions (see the 5 March 2021 reasons at [68]). It was offered with a view to the relevant claims being brought in the Californian Arbitration, not in the present proceeding. While the undertaking may overlap to some extent with the relief sought by the applicants, BDG was nevertheless substantially successful in relation to both interlocutory applications: the present proceeding was stayed and the Californian Arbitration is to continue.
  4. I note that the applicants were successful in respect of a number of the issues considered in the 5 March 2021 reasons, namely whether paragraph (d) of cl 5(1) of the Franchising Code was satisfied (considered at [115]-[116]); the 20% Issue (considered at [118]-[134]); and the issues considered at [136]-[139] of the 5 March 2021 reasons.  However, none of those issues was determinative.  In the circumstances of this case, I do not consider it appropriate to adopt an “issue by issue” approach to costs, or to depart from the usual rule that costs follow the event on account of the applicants’ success in respect of a number of issues.  The issue of costs arises in the context of interlocutory applications (rather than a final hearing) and there was considerable overlap in the evidence and submissions as between the issues that arose for determination.  In these circumstances, I consider it appropriate to focus on the overall outcomes of the interlocutory applications.  As described above, BDG was substantially successful in the outcomes.
  5. Accordingly, I consider it appropriate to order that the applicants pay BDG’s costs of and incidental to the interlocutory applications.  There were several case management hearings related to the interlocutory applications.  The costs of those hearings were reserved, by orders made on 24 December 2020, 5 February 2021 and 10 February 2021.  These reserved costs should form part of the costs of the interlocutory applications, and I will indicate this in the orders.
  6. I turn now to consider the other costs of the proceeding to date.  These costs are likely to be relatively limited, as the proceeding was at an early stage at the time when it was stayed.  While BDG has been successful in obtaining a stay of the proceeding, there has been no adjudication on the merits of the claims: cf Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin(1997) 186 CLR 622 at 624-625 per McHugh J. I do not consider that the applicants acted unreasonably in commencing the proceeding, notwithstanding the existence of the arbitration clause. As the reasons of 5 March 2021 indicate, there were arguments available to the applicants to support the view that a proceeding could be commenced in this jurisdiction. In the circumstances, I consider it appropriate to order that, in relation to the other costs of the proceeding to date (including other reserved costs), there be no order as to costs.
  7. BDG has sought an order that the costs be fixed by way of a lump sum.  The applicants did not submit otherwise.  I consider it appropriate to order that the costs be fixed by way of a lump sum, and will make directions for the filing of costs affidavits in accordance with the applicable practice note, and for the lump sum to be determined by a Registrar.
I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky.

 

 

Associate:

 

Dated:       23 April 2021

 

 

SCHEDULE OF PARTIES

 

  VID 644 of 2020
Applicants  
Fourth Applicant: PACTUM AUSTRALIA PTY LTD (ACN 112 913 336)

 

CPB Contractors Pty Ltd v DEAL S.R.L. [2021] NSWSC 820

Supreme Court of NSW

 

 

Case Name: CPB Contractors Pty Ltd v DEAL S.R.L. [2021] NSWSC 820
Medium Neutral Citation: CPB Contractors Pty Ltd v DEAL S.R.L. [2021] NSWSC 820
Hearing Date(s): 3 June 2021
Date of Orders: 6 July 2021
Decision Date: 6 July 2021
Before: Rees J
Decision: THE COURT ORDERS THAT:

Pursuant to section 7(2) of the International Arbitration Act 1974 (Cth) that these proceedings be stayed and the parties be referred to arbitration, with such arbitration to be commenced in accordance with clause 46.9 of the Services Agreement for Design Services between the Rizzani Leighton Joint Venture and Deal S.R.L. entered into or about 27 July 2015.

The plaintiff to pay the defendant’s costs of the motion filed on 14 April 2021.

Catchwords: COMMERCIAL ARBITRATION – claim under the Australian Consumer Law – alleged pre-contractual representations – proceedings commenced on last day of limitation period – application for stay – whether court or arbitrator should determine scope of arbitration clause – kompetenz-kompetenz – principles at [48]-[59] – prima facie approach applied – arbitrator to determine jurisdiction – proceedings stayed.

 

CONDITIONS OF STAY – plaintiff seeks conditions on stay regarding limitation period and applicable law – principles at [92]-[111], [116]-[117] – condition regarding limitation period would substantively alter rights – conditions not imposed.

Legislation Cited: Commercial Arbitration Act 2010 (NSW)
International Arbitration Act 1974 (Cth) ss 7, 16, 39, sch 1, sch 2
Limitation Act 1969 (NSW) ss 70, 72
Trade Practices Act 1974 (Cth)
Cases Cited: A v B [2006] EWHC 2006 (Comm); [2007] 1 Lloyd’s Rep 237
Ansett Australia Ltd v Malaysian Airline System Berhad [2008] VSC 109; (2008) 217 FLR 376
Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; (2013) 298 ALR 666
Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192
Dialogue Consulting Pty Ltd v Instagram, Inc [2020] FCA 1846
Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160
Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1997) 150 ALR 345
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1
IBM Australia Ltd v National Distribution Services Pty Ltd (1991) 22 NSWLR 466
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
Lepcanfin Pty Ltd v Lepfin Pty Ltd (2020) 102 NSWLR 627; [2020] NSWCA 155
O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601
Orient Overseas Container Line Ltd v APL Co Pte Ltd (No 2) [2021] FCA 606
QH Tours Ltd v Ship Design and Management (Aust) Pty Ltd (1991) 33 FCR 227
Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; [2019] HCA 13
Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332
Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57; [2016] 1 SLR 373
Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102
WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd [2008] NSWSC 894; (2008) 219 FLR 461
Texts Cited: Malcolm Holmes and Chester Brown, The International Arbitration Act 1974: A Commentary (3rd ed, 2018, LexisNexis)
DIVISION:  Equity – Commercial List
Parties: CPB Contractors Pty Limited (Plaintiff)
Deal S.R.L. (Defendant)
Representation: Counsel:
Mr B Kremer (Plaintiff)
Mr J Giles SC / Mr M Sheldon (Defendant)Solicitors:
Corrs Chambers Westgarth (Plaintiff)
Vincent Young (Defendant)
File Number(s):  2020/223531
Publication Restriction: NIL
Appeal from: Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116; Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 3) [2020] FCA 1219

Judgment

 

  1. HER HONOUR: The defendant, Deal S.R.L., seeks an order under section 7(2) of the International Arbitration Act 1974 (Cth) for these proceedings to be stayed and referred to arbitration in Singapore by reason of an arbitration clause in its contract with the plaintiff, CBP Contractors Pty Ltd (formerly known as Leightons Contractors Pty Ltd). In addition, the defendant says that the issue as to whether the arbitration clause covers this dispute should be referred to arbitration pursuant to the kompetenz-kompetenz principle.
  2. The plaintiff does not accept that the kompetenz-kompetenz principle applies and says the only question is whether these proceedings, which are said to only concern pre-contractual matters, are covered by the arbitration clause. If the Court is minded to stay these proceedings, the plaintiff seeks the imposition of conditions on the stay to prevent the defendant from raising a limitations defence or denying the applicability of the Australian Consumer Law.
  3. For the reasons which follow, I have concluded that the defendant is entitled to the orders it seeks.

FACTS

 

  1. The defendant relied on affidavits by its Operations Director, Stefano Fabbro, and solicitor, Phillip Coady. The plaintiff relied on affidavits by its former Commercial Manager, David Simbaqueba, and solicitor, Carla Mills. There was no cross-examination.
  2. The defendant is an Italian company which designs infrastructure services, in particular, bridges and viaducts, and also supplies specialised equipment for infrastructure construction. According to Mr Fabbro, at all relevant times the defendant was based in Italy, performed its design services there, and had no offices in Australia.
  3. The defendant is a subsidiary of Italian company, Rizzani de Eccher SpA. Rizzani de Eccher Australia Pty Ltd is also part of a group of companies including Rizzani de Eccher SpA.

Tender Teaming Agreement

 

  1. According to the Technology and Construction List Statement, the WestConnex M4 widening project was a major road infrastructure project in Sydney to increase the carrying capacity of the M4 road between Silverwater Road (in the east) and Parramatta (in the west) by increasing the width of the road from three to four through lanes in each direction and improving exit and entry ramps.
  2. On 13 March 2014, the plaintiff and Rizzani de Eccher Australia were selected by the WestConnex Delivery Authority to submit a tender in respect of various works in connection with the M4 project, being construction of a viaduct, two bridges and the widening of an existing bridge. On 17 April 2014, the WestConnex Delivery Authority issued a Request for Tender in respect of the works.
  3. On 11 April 2014, a Tender Teaming Agreement was executed between the plaintiff and Rizzani de Eccher Australia. The plaintiff and Rizzani de Eccher Australia agreed to pursue the opportunity to deliver the M4 project as an unincorporated joint venture (the Rizzani Leighton Joint Venture). The parties agreed to work together to lodge a tender and, if selected to proceed to preferred contractor, to negotiate the final terms of the contractual arrangements necessary to deliver the project. The agreement contained an arbitration clause.
  4. In clause 4, the parties agreed to bear their own internal costs in connection with the tender. In respect of consultants engaged to assist in preparing the tender, clause 4.1(a)(ii)(A) provided:

[Rizzani de Eccher Australia] will bear all costs of engaging DEAL (including any subconsultants to DEAL);

DEAL is not defined in the Tender Teaming Agreement but is, presumably, a reference to the defendant.

  1. The defendant was not a party to the Tender Teaming Agreement. The plaintiff contended that the defendant had a separate contract with Rizzani de Eccher Australia, relying upon a suggested admission made by the defendant in subsequent correspondence. Whilst that is possible, the admission is unclear and I am not prepared to proceed on the basis that there was such a contract: see [37]-[38].
  2. According to the Technology and Construction List Statement, pursuant to the Tender Teaming Agreement, Rizzani de Eccher Australia engaged the defendant to provide designs and advice for bridge and viaduct structures for the M4 project to the plaintiff and Rizanni de Eccher Australia.

Design Management Plan

 

  1. On 29 April 2014, Rizzani de Eccher Australia issued a document entitled “Design Management Plan (Tender Phase) – WestConnex – M4 Widening”. According to clause 1 of the Design Management Plan, the document was prepared to define the planning and management of the concept design and its interface with the wider Bid Team. The Bid Team was the Rizzani Leighton Joint Venture team led by Bid Manager, Giammaria Gentile of Rizzani de Eccher Australia.
  2. Clause 3.1 of the Design Management Plan set out the Bid Team organisation structure, which included Rizzani Leighton Joint Venture personnel comprising:
  1. a support team;
  2. the Bid Manager from Rizzani de Eccher Australia; and
  3. a Construction Manager, Estimating Manager and Engineering Manager from the plaintiff.

According to the organisation structure, the Engineering Manager was supported by five designers, including the defendant as viaduct and structural designer.

  1. Clause 5 of the Design Management Plan described the Design Process, with the design to be developed in four phases: initial concept design and pre-tender deliverables; preliminary concept design and value engineering; finalised concept design; and submission documentation.

Defendant provides drawings for tender

 

  1. From 30 May 2014 on, the defendant prepared and circulated engineering drawings in respect of the tender. Mr Fabbro says these drawings were prepared by the defendant as part of its function under the Design Management Plan. The documents were preliminary drawings, being concept drawings which did not provide individual details in respect of each single structure within the drawing. According to Mr Fabbro, if the tender was successful, then the drawings were the starting point to be developed through further design stages before being issued for construction.
  2. According to the Technology and Construction List Statement, between May and July 2014, the defendant provided Rizzani de Eccher Australia and the plaintiff with designs and advice for bridge and viaduct structures to be used for the tender including: engineering drawings; advice about methods of construction; advice about quantities required for construction; and the cost of construction. In providing these designs and advice, it is said that the defendant represented to the plaintiff that the structures in the designs were compliant with the requirements of the tender “and were suitable to use in a tender for a fixed price contract”; the quantities derived from the designs or advised by the defendant would be sufficient; the method of construction would be suitable and adequate to construct the designs in accordance with the M4 project delivery time requirements, being by 22 December 2016.
  3. These representations are said to have been made by the defendant in trade and commerce and to have been false, including because the designs could not be developed into a final design without significant alterations and the use of significant additional resources; the designs significantly understated the quantities of resource needed to construct the structures; and it was not possible to construct the structures in the required time frame.

The tender

 

  1. On 30 July 2014, the plaintiff and Rizzani de Eccher Australia submitted its tender: the joint venture proposed to undertake the work for $261 million, with the works to be completed on 22 December 2016.
  2. According to the Technology and Construction List Statement, the plaintiff relied on the defendant’s representations when calculating its price and preparing a program for the works. The plaintiff further says that, from July to December 2014, the defendant failed to take any steps to correct the errors and deficiencies in its design or address the suggested falsity of its representations.
  3. The tender was successful. On 28 November 2014, the WestConnex Delivery Authority selected the Rizzani Leighton Joint Venture as the preferred contractor to enter into a contract for delivery of the project. On 4 December 2014, a Design and Construct Deed was executed between WCX M4 Pty Ltd (the Principal) and the Rizzani Leighton Joint Venture. After negotiating some additions to the scope of works, the lump sum contract price was $287.5 million.

Work begins

 

  1. According to Mr Simbaqueba, the construction program for the M4 project was ‘tight’ and the defendant began producing and supplying designs as soon as the Design and Construct Deed was executed, even though it did not itself have a signed contract. This led to some unhappiness. By February 2015, the defendant was seeking a first payment but the plaintiff was not prepared to pay until a contract had been signed, albeit Mr Simbaqueba and other representatives of Rizzani de Eccher Australia and the plaintiff looked at ways of doing so. The defendant continued to produce work nonetheless.
  2. On 24 April 2015, the defendant entered into a Supply Agreement with the Rizzani Leighton Joint Venture to supply equipment needed for construction. It contained an arbitration clause.
  3. On about 29 April 2015, the defendant issued an invoice to the Rizzani Leighton Joint Venture, making a payment claim under the contract then in negotiations. Some comments were made on the invoice on 19 June 2015, which was promptly re-issued, but Mr Simbaqueba says the invoice was not paid as the contract had yet to be signed.

Services Contract

 

  1. Finally, on 27 July 2015, a Services Contract was signed between the Rizzani Leighton Joint Venture and the defendant to provide design services for a fixed lump sum of $2.5 million. The Services Contract comprised a Contract Preamble, Contract Instrument, Contract Conditions, Annexures to the Contract Conditions and Special Conditions: clause 2.2, Contract Instrument.
  2. The Services Contract contained an arbitration clause, which is reproduced and considered at [70]-[77].
  3. By clause 2.1(1) of the Contract Instrument, the defendant agreed to perform the Services in accordance with the Contract. (The meaning of Services is considered further at [78].) In return, the Rizzani Leighton Joint Venture agreed to pay the defendant the Consultant’s Fee: clause 2.1(2), Contract Instrument.

Prior Services

 

  1. Clause 2 of the Contract Conditions provided: (emphasis added)

PRIOR SERVICES

If at [the Rizzani Leighton Joint Venture]’s request, the [defendant] performs, before the date of the Contract, any services that are part of the Services, then:

(a)   the terms of the Contract apply to any such services;

(b)   the terms on which any such services were performed are superseded by the terms of the Contract;

(c)   any payments made to the [defendant] by [the Rizzani Leighton Joint Venture] in connection with any such services before the Contract became operative, will be treated as payments under the Contract in part discharge of [the Rizzani Leighton Joint Venture’s] obligation to pay the [defendant’s] Fee.

  1. The defendant submitted that the drawings provided during the tender phase fall within the definition of “Prior Services”, whilst the plaintiff submitted otherwise, pointing to Mr Simbaqueba’s evidence as supporting a construction of the clause as limited to work done after the tender was successful, rather than work for the tender. This will be considered further at [63].

Limitation of liability

 

  1. Annexure A to the Services Contract contained Special Conditions, including clause 1.2, “Limitation of Liability”. By this clause, the defendant limited its maximum liability under the Contract, whether in contract, tort, equity or otherwise, to $2.5 million, such limitation not to apply to the defendant’s liability inter alia for gross negligence or wilful misconduct. In addition, the defendant excluded liability under the Contract for consequential loss suffered by the Rizzani Leighton Joint Venture. The defendant observed that, if these proceedings are not stayed, then these limitations will be pleaded in any defence filed in these proceedings.

Choice of law

 

  1. Clause 4(1) of the Contract Conditions provided that the Services Contract is governed by and must be construed according to the law of New South Wales. Clause 4(2) provided:

The parties irrevocably submit to the non-exclusive jurisdiction of the courts of New South Wales, and the courts competent to determine appeals from those courts, with respect to any proceedings that may be brought at any time relating to the Contract. Nothing in this clause 4(2) affects the operation of clause 46.9 or the enforcement in any place of an award made in an arbitration held under clause 46.9.

 

Finishing the job

 

  1. On 3 August 2015, the Rizzani Leighton Joint Venture issued subcontract progress certificate No 1 to the defendant, approving some $1 million in work on a $2.5 million contract. That is, whilst negotiation of the Services Contract were underway, the defendant had completed almost half of the contracted works.
  2. On 27 August 2015, a Joint Venture Deed was executed between the plaintiff and Rizzani de Eccher Australia, replacing the Tender Team Agreement. It contained an arbitration clause.
  3. According to the Technology and Construction List Statement, it is said that the Rizzani Leighton Joint Venture was unable to complete the Works in time, or at the cost estimated when submitting the tender. Construction took a year longer than planned. The joint venture lost some $122 million on the project, of which half (some $61.3 million) was borne by the plaintiff.

Correspondence

 

  1. Correspondence has ensued between the parties in which the plaintiff and defendant have articulated positions which are now at odds with their submissions advanced before the Court. Each seeks to rely on the other’s prior inconsistent statements as admissions as to the proper construction of the arbitration clause. What each party said they understood the clause to mean – at an early stage of commercial negotiations when it appears that neither were assisted by legal advice – is, of course, no substitute for construing the clause in accordance with established principles for interpretation of commercial contracts and arbitration clauses, which I will consider further at [67].
  2. For completeness, on 3 July 2019, the plaintiff sent a “claim document” to the defendant, in which the plaintiff primarily asserted that the defendant was contractually liable for suggested defects in the tender drawings under the Services Contract and, in the alternative, contended that the defendant was liable under the Australian Consumer Law. The defendant points to the plaintiff’s assertion in the claims document that its claim for loss for work both before and after the Services Contract arose out of, was related to and was in connection with the Services Contract:

1.1.2   [The defendant] was engaged on behalf of [the plaintiff] and [Rizzani de Eccher Australia] to prepare the structural design for the bridge and viaduct structures (and temporary works) of the M4 project. It did so in and prior to July 2014. …

1.1.18   After entry into of the Design and Construct Deed on 4 December 2014, the JV entered into a Services Contract with [the defendant] on 27 July 2015 for the provision of further design and related services in relation to the M4 Project. …

1.1.19   [The plaintiff] is entitled to recover loss from [the defendant] pursuant to the Services Contract in relation to services performed by [the defendant] for the JV both before and after the date of the Services Contract.

1.1.20   Clause 2 of the Services Contract is titled “Prior Services”. It provides that any services performed by [the defendant] prior to the date of the Services Contract (i.e. 27 July 2015) are effectively “picked up” by the Services Contract and the terms of the Services Contract apply to such services.

2.2.4   [The defendant] was firstly engaged and paid for by [Rizzani de Eccher Australia] during the tender phase, as detailed within the Teaming Agreement at Item 4.1 …

3.4.1   [The defendant] was required by the parties to what became the [Rizzani Leighton Joint Venture] to develop the Tender Design in compliance with specifications and all other design requirements of the project … including the provision of the construction methodology.

  1. On 7 August 2019, the defendant replied, noting that it had completed a preliminary review of the claim document and a detailed review was ongoing. As to the suggestion that Clause 2 of the Services Contract applied to conduct before entry into the Services Contract: (emphasis added)

The development of a concept design for use by the [Rizzani Leighton Joint Venture] for its tender does not constitute prior services that form part of the “Services” as defined by reference to Annexure C of the Services Contract. Instead, as noted by [the plaintiff] in paragraph 2.2.4 of the Claim Document, [the defendant] developed the concept design under an earlier Tender Teaming Agreement with [Rizzani de Eccher Australia]. [The plaintiff] was not a party to the Tender Teaming Agreement, and [the plaintiff] (or the [Rizzani Leighton Joint Venture]) did not pay [the defendant] for its work performed under the Tender Teaming Agreement. …

  1. The plaintiff relied on the italicised text as an admission by the defendant that it had a prior contract with Rizzani de Eccher Australia to supply the tender drawings. The admission is tenuous. By this letter, Mr Fabbro, presumably writing in a language other than his first language and with admirable but imperfect English, appears to have “picked up” the plaintiff’s reference to the Tender Teaming Agreement in the claim document. The result is confusing. It may be that the defendant and Rizzani de Eccher Australia had a contract alongside the Tender Teaming Agreement between the plaintiff and Rizzani de Eccher Australia, but the state of the evidence is presently unsatisfactory.

These proceedings

 

  1. On 30 July 2020 – being precisely six years after submission of the tender – these proceedings were commenced. By Summons, the plaintiff seeks damages under the Australian Consumer Law or, alternatively, damages for negligence. The Technology and Construction List Statement describes the designs and advice said to have been provided by the defendant, said to be false representations on which the plaintiff relied when finalising the tender.
  2. The plaintiff claims that, if the defendant had not made these representations, then the plaintiff would not have entered into the Design and Construct Deed at all, or would only have submitted a tender at a higher lump sum price and, if accepted, entered into the contract on different terms such that it would not have suffered a loss on the project of some $61.3 million, being half of the joint venture’s loss. In addition, it is said that the defendant owed the plaintiff a duty to exercise reasonable skill and care in providing designs and advice for the bridge and viaduct structures for the M4 project, which duty is said to have been breached.
  3. Steps were taken for this Court to request service of the pleadings on the defendant in Italy. On 13 November 2020, the plaintiff also sent a letter of demand to the defendant for alleged breaches of the Service Contract, noting:

[The plaintiff] notes that the matters above sit along-side separate proceedings commenced by [the plaintiff] against [the defendant] in the New South Wales Supreme Court in respect of incorrect advice provided by [the defendant] during the tender period.

… in the event that [the plaintiff] does not receive payment … a Dispute will have arisen under the Services Contract, in which case [the plaintiff] intends to issue a Notice of Dispute pursuant to clause 46.2 [and] require that any Dispute be referred to arbitration under clause 46.9.

  1. The defendant notes that the loss claimed in the letter of demand – said to be a claim under the Services Contract – was $61,318,288.50, being the same loss claimed in these proceedings by reason of pre-contractual matters.

  2. In about March 2021, the defendant was served. On 14 April 2021, the motion presently before the Court was filed.

SECTION 7

 

  1. Section 7 of the Act provides: (emphasis added)

7   Enforcement of foreign arbitration agreements

(2)   Subject to this Part, where:

(a)   proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and

(b)   the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;

on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.

(5)   A court shall not make an order under subsection (2) if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.

  1. When exercising its powers under section 7 of the Act, the Court must have regard to the statement of objects in section 2D and the matters set out in section 39(2) of the Act: section 39(1)(a)(vi), (1)(a)(vii) and (1)(c). The objects of the Act are, relevantly, to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes, to facilitate the use of arbitration agreements made in relation to international trade and commerce, and to give effect to Australia’s obligations under international conventions: section 2D. Section 39(2) requires the Court to have regard to the fact that arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes: sub-section (b)(i).
  2. The onus of establishing the requirements of section 7(2) rests on the party seeking the stay: Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 353 per Deane and Gaudron JJ. Where the requirements are satisfied, “the court shall” stay the proceedings. A stay is mandatory and there is no discretion: Tanning Research at 350; WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd [2008] NSWSC 894; (2008) 219 FLR 461 at [7] per Barrett J.
  3. The plaintiff accepts that the Act applies and section 7(2)(a) is satisfied. The defendant contends that there are two bases on which these proceedings should be stayed:
  1. the proceedings should be stayed to permit an arbitrator to determine whether they have jurisdiction under the kompetenz-kompetenz principle; or
  2. a proper construction of the arbitration clause has the consequence that the subject matter of these proceedings “involve[s] the determination of a matter that … is capable of settlement by arbitration”, under section 7(2)(b).

KOMPETENZ-KOMPETENZ

 

  1. The principle of kompetenz-kompetenz is that the arbitrator may rule on the question of whether they have jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement, without having to resort to a court: Malcolm Holmes and Chester Brown, The International Arbitration Act 1974: A Commentary (3rd ed, 2018, LexisNexis) at [Sch 2 Art 16-1]. This principle is enshrined in Article 16(1) of the UNCITRAL Model Law on International Commercial Arbitration (being Schedule 2 to the Act), which states:

The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. …

  1. Section 16(1) of the Act provides:

Subject to this Part, the Model Law has the force of law in Australia.

  1. The plaintiff submitted that section 16 of the Act did not confer power on this Court to make orders. That may be so, but section 7 of the Act does give the Court power to stay the proceedings and the section must be read together with the kompetenz-kompetenz provision in Article 16: Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170 at [147]; Dialogue Consulting Pty Ltd v Instagram, Inc [2020] FCA 1846 at [193] per Beach J.
  2. The plaintiff also submitted that Article 1(2) of the Model Law provides that the provisions of the Model Law “apply only if the place of arbitration is in the territory of this State”, whereas here the place of arbitration is in Singapore. However, as Beach J held in Dialogue v Instagram at [189]:

… the fact that Art 16 of the Model Law does not apply to foreign-seated arbitrations is also irrelevant. The key requirement under Hancock for application of the prima facie test is whether a competence-competence provision exists under the procedural law of the seat of arbitration. If such a provision exists, then the foundation for the prima facie test is established.

  1. As to how the competence principle is applied in Australia, one need go no further than Hancock, where the Full Federal Court considered the two approaches generally taken around the globe (as comprehensively canvassed by Menon CJ of the Singapore Court of Appeal in Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57; [2016] 1 SLR 373). (Whilst Hancock concerned the comparable provisions of the Commercial Arbitration Act 2010 (NSW), for ease of reference I have interposed the provisions of the Act.) The first approach is the “prima facie approach”, described in Hancock at [141]:

[This] approach … is to give significant weight to the authority of the arbitrator and to the principle of Kompetenz-Kompetenz recognised by s 16 of the CA Act [being in the same terms as Article 16 of the Model Law]. Under this approach, the Court does not reach a final view on the balance of probabilities in respect of the matters in s [7 of the International Arbitration Act], including the scope of the arbitration agreement. If there appears to be a valid arbitration agreement which prima facie covers the matters in dispute, the matter should be referred to the arbitrator to deal with questions of jurisdiction, including the scope of the arbitration agreement.

  1. The second approach is the “full merits approach”, where the Court hears evidence and argument and finally determines the existence and scope of the arbitration agreement and whether the disputes fall within it: at [142].
  2. In Hancock, the Court commended the “prima facie” approach, although not necessarily in all cases. At [145]-[147]: (emphasis added)

145   We think that any rigid taxonomy of approach is unhelpful, as are the labels “prima facie” and “merits” approach. How a judge deals with an application under [section 7 of the International Arbitration Act] will depend significantly upon the issues and the context. Broadly speaking, however, and with some qualification, aspects of the prima facie approach have much to commend them as an approach that gives support to the jurisdiction of the arbitrator and his or her competence, as recognised by the common law and by [Article 16], whilst preserving the role of the Court as the ultimate arbiter on questions of jurisdiction … . Broadly, the approach is consonant with the structure of the [International Arbitration] Act and the Model Law. However, it is difficult to see how the Court can exercise its power under s [7] without forming a view as to the meaning of the arbitration agreement.  Further, it may be that if there is a question of law otherwise affecting the answer to the question of jurisdiction, especially one that is confined, which might be dispositive, it might be less than useful for the Court not to deal with it. …

146 … it will often not be possible fully to delineate the metes and bounds of a dispute without fully hearing the dispute. To do so, that is to hear the facts to decide the width of the dispute, would undermine the practical and effective operation of s [7]. The application must be brought early (not later than when submitting the party’s first statement on the substance of the dispute). The boundaries of the dispute may be unclear, but it will have to be characterised on the material available to be assessed as to whether it can be seen to be the “subject of” the arbitration agreement. That latter assessment will require some stability or clarity as to the meaning of the arbitration agreement. The Court is then required to construe the clause, at least to the point of being satisfied that the disputes forming the matter are the subject of the agreement, or not, as the case may be. …

147 … It can be accepted that as a general rule, unless there is an established legal basis for refusing to do so, a court should, upon legitimate request, exercise jurisdiction conferred on it. However, s [7] is found in an Act of Parliament the paramount object of which is the facilitation of the work of impartial arbitral tribunals. One of the features of that facilitation is the express recognition of the authority of the arbitral tribunal to rule on its own jurisdiction. This includes, expressly, any objection “with respect to the existence or validity of the arbitration agreement”, including any objection with respect to the existence or validity of the arbitration agreement: s 16(1) [of the Commercial Arbitration Act being in the same terms as Article 16 of the Model Law]. Section [7] should be read with s 16(1) [of the Commercial Arbitration Act being in the same terms as Article 16 of the Model Law] and thus, the word “finds” should not be read as requiring that the matters in the proviso cannot be part of the reference to the arbitrator. …

  1. The Court observed, “Of course, if there is no sustainable argument that a matter or dispute can be characterised as falling within the agreement, it should not be referred to arbitration”: at [149]. But the enquiry should not travel into the merits of the case beyond determining whether the argument is sufficiently weak not to be sustainable; “That would be to usurp the role of the arbitrator. The Court’s role in [section 7] is not to act as a court of summary disposal filtering the matters that are suitable for arbitration”: at [149]. The Court should take a broad view characterising the dispute to assess whether it is the subject of the arbitration agreement, rather than engage substantially in the merits of the case: at [151]. Further, at [377]-[378]:

377   The real issue in any case is whether the Court should hear the separate attack or permit the arbitral tribunal to hear it, by staying its own proceeding.  The proper answer to this question will depend on the nature of the attack and all the circumstances.

378 Thus, the words of Art 8 and s [7] should be read and given content against the background, first, that the Court is not required to decide the matters in the proviso [equivalent to s 7(5)]; secondly, that the competence principle is wide enough to permit the arbitral tribunal to decide any question of jurisdiction, including whether the arbitration agreement came into existence; and, thirdly, that that decision by the arbitral tribunal is not final, the Court having the final say on the question. A further consideration is that s [7] should, conformably with its language, be construed to facilitate, not impede, the process of arbitration: s [39(2)(b)(i)].

  1. In Hancock (at [148], [390]), the Court endorsed A v B [2006] EWHC 2006 (Comm); [2007] 1 Lloyd’s Rep 237, where Colman J was concerned with whether to order a trial in respect of the validity of the arbitration agreement (under the equivalent of section 7(5)) or whether a stay should be granted and the question of substantive jurisdiction should be left to the arbitrators. At [137]-[138]:

137   Whether the latter course is adopted may in many cases depend heavily on the extent to which the resolution of that issue will involve findings of fact which impact on substantive rights and obligations of the parties which are already in issue and whether in general the trial can be confined to a relatively circumscribed area of investigation or is likely to extend widely over the substantive matters in dispute between the parties. If the latter is the case the appropriate tribunal to resolve the jurisdictional issues is more likely to be the arbitration tribunal, provided it has Kompetenz-Kompetenz.

138   … The emphasis in modern international arbitration law is to maximise the arbitrators’ opportunity to determine their own jurisdiction: see in particular the judgment of Thomas J in Vale Do Rio Navegacao SA v Shanghai Bao Steel Ocean Shipping Co Ltd [2000] 2 All ER (Comm) 70.

  1. In Hancock, the Court described this passage as of considerable assistance “because it throws up the point that it is a practical question not a logical question with which we are dealing”: at [390]. In A v B, the place of arbitration was Switzerland, the law to be applied was Swiss law, the arbitrator had kompetenz-kompetenz in relation to jurisdiction and his decisions were subject to supervision and review by the Swiss courts. Colman J concluded that this was a typical case where the English court, being unable to resolve to its satisfaction the matters referred to in the equivalent provision to section 7(5), “should stand back and allow the arbitrator to proceed to determine his own jurisdiction”: at [139].
  2. Applying the same principles in Dialogue v Instagram, Beach J accepted that the kompetenz-kompetenz principle applied, however, at [196]-[198]:

196   In summary, I accept the respondents’ argument that the competence-competence principle applies … . But the fact that I could apply the principle does not entail that I should. There are no hard and fast rules. Context is everything. I do not propose to apply the principle for the following reasons shortly put.

197   First, there are tricky choice of law questions. What law should be applied to determine the existence of the arbitration agreement? I am best placed to answer this. Further, whatever choice is made I now have all bases covered in terms of being fully informed on Australian law, and by Judge Ware on US law, in order to determine (under whichever law applies) whether there is an arbitration agreement.

198   Second, I now have all the evidence in to make a final assessment on the merits as to the existence of the arbitration agreement. To leave any decision at the lower threshold of the prima facie stage would be a limp effort.

  1. Beach J considered that he was better placed than the Californian arbitrator to deal with a cross-application concerning unfair contract terms and the question of Australian statutory unconscionability and, further, was better placed to deal with the choice of law on a question of waiver. In the result, Beach J decided to determine on a final basis whether an arbitration agreement existed.

  2. The plaintiff submitted that the competence principle was only invoked when there was a challenge to the arbitration agreement itself, being one of the grounds contemplated by section 7(5). There was no such challenge here but only that arbitration agreement did not cover these proceedings. This submission does not, I think, fairly reflect the structure of section 7 nor the breadth of the competence principle as described in Hancock. Rather, the arbitrator has jurisdiction to determine whether the dispute falls within the scope of the arbitration clause and whether the arbitration agreement exists and is operative. This Court can determine such questions but, generally speaking, should leave these matters to the arbitrator unless the context in which these questions arise make it preferable for the Court to determine such matters. The question is what the context dictates in this case.
  3. The defendant submitted that, to the extent a question remained about the proper application of the arbitration agreement, particularly to the extent the question remains because of disputed facts as to how the concept designs were used, how it was developed, whether there was an opportunity to rectify the design at an earlier stage under the Services Contract, the parties’ objective intentions and the correctness of any defences under the Services Contract, the scope of the arbitration agreement should be referred to arbitration for determination. The defendant noted, in particular, that the plaintiff relied on extrinsic evidence to construe the Services Contract, and this was best left for an arbitrator to determine.
  4. The parties did not suggest that an arbitrator in Singapore, conducting the arbitration in accordance with the Rules of the International Chamber of Commerce (as the arbitration clause dictates) will lack kompetence-kompetence in relation to jurisdiction. As there is no suggestion that the arbitration agreement is null and void, inoperative or incapable of being performed, the only question for the arbitrator or this Court is whether the issues the subject of these proceedings fall within the scope of the arbitration clause. Critical to this question is the construction of Clause 2 of the Contract Conditions, “Prior Services”, reproduced at [28].
  5. At the hearing of the motion, the plaintiff relied on the evidence of Mr Simbaqueba as pointing to a conclusion that Clause 2 was drafted with the object of ensuring that work done by the defendant after winning the tender but before entry into the Services Contract was covered by the Services Contract, but not work which the defendant did in preparing designs for the tender. Mr Simbaqueba’s evidence was proffered in fairly general terms – perhaps unsurprisingly given the nature of the interlocutory hearing – and not squarely addressed by the defendant’s evidence, again, presumably by reason of the nature of the interlocutory hearing. I expect that the defendant would wish to, and could, bring forward detailed evidence in answer to Mr Simbaqueba’s version of events, being evidence more usually received at a final hearing.

  1. I am most reluctant to construe Clause 2 having regard to extrinsic evidence, in circumstances where I have only a partial picture. Whilst there is no doubt that this Court can determine this matter on a final basis, the question is whether it should, where the arbitrator may also rule on this question.
  2. Having regard to the statement of objects in section 2D and the matters set out in section 39(2) of the Act, the issues and the context in this case, there is no unique issue of law arising which points to this Court as being the obvious and convenient place to determine this issue. There is nothing particularly unusual about the context in which the scope of the arbitration clause is to be considered. These proceedings, for practical purposes, have just commenced. The evidence before the Court on this application appears incomplete. There is no question of law arising which, if disposed of by this Court, will dispose of the proceedings. It is not necessary to hear and determine the dispute in order to determine whether it falls within the arbitration clause. The prima facie approach should be followed here. The arbitral tribunal should rule on its own jurisdiction.

ARBITRATION CLAUSE

 

  1. All that remains to be satisfied is that the arbitration agreement prima facie covers the matters in dispute. As explained in Hancock, the Court needs to construe the clause “at least to the point of being satisfied that the disputes forming the matter are the subject of the agreement”, taking a broad view and not travelling into the merits of the case beyond determining whether the argument that the dispute falls within the arbitration clause is unsustainable: at [146], [151].
  2. The principles concerning the construction of an arbitration agreement, and whether a “matter” is within the scope, or in pursuance, of an arbitration agreement were recently reviewed by Bell P (Payne and McCallum JJA agreeing) in Lepcanfin Pty Ltd v Lepfin Pty Ltd (2020) 102 NSWLR 627; [2020] NSWCA 155 at [78]-[94]. In short, a dispute resolution clause is to be construed like any other clause of a commercial contract, in accordance with the parties’ intention, objectively ascertained by reference to the language used by the parties, the circumstances known to them and the commercial purpose of the contract. The context in which the dispute resolution clauses have been entered into is important and may assist in interpreting the intended reach of dispute resolution clauses. Arbitration clauses are generally afforded a broad and liberal construction. In construing such clauses, it will generally be presumed that the parties intended that all aspects of their relationship would be determined by a single forum, rather than some disputes being dealt with by an arbitrator and others dealt with by the courts. Such an approach will obviously give way to the clear language of a clause identifying certain matters as being excluded from the arbitrator’s jurisdiction.

  3. Clause 46 of Contract Conditions dealt with dispute resolution. “Dispute” was defined in clause 1.1 of the Contract Conditions as follows:

“Dispute” means any dispute or difference between the parties in respect of any fact, matter or thing arising out of, or in any way in connection with, the Contract or the Services, including:

(a)   any disputed claim for additional payment, adjustment of the Consultant’s Fee, an extension of time or breach of contract or for rectification, termination, frustration or invalidity of the Contract;

  1. Clause 46.2 and 46.3 provided for Notices of Dispute to be served, followed by negotiations, with the Rizzani Leighton Joint Venture – but not the defendant – having the right to refer a Dispute to arbitration:

46.2   Notice of Dispute

(1)   If a Dispute arises, either party may give a written notice to the other party that:

(a)   states that it is a notice under this clause 46.2;

(b)   adequately describes and gives particulars of the alleged Dispute, including the amount of the Dispute;

(c)   in the case of a notice from the [defendant], is signed by a director or company secretary of the [defendant]; and

(d)   in the case of a notice from [Rizzani Leighton Joint Venture], states whether [Rizzani Leighton Joint Venture] requires the Dispute to be referred to arbitration under clause 46.9 if not resolved by negotiation under clause 46.3

(“Notice of Dispute”).

(2)   Within 20 Business Days of a Notice of Dispute being given by the [defendant] to [the Rizzani Leighton Joint Venture], [the Rizzani Leighton Joint Venture] may give a written notice to the [defendant] stating that [the Rizzani Leighton Joint Venture] requires the Dispute to be referred to arbitration under clause 46.9 if not resolved by negotiation under clause 46.3. …

46.3   Negotiations

Within 5 Business Days of service of a Notice of Dispute, a senior representative of each of the parties must confer at least once to attempt to resolve the Dispute, and if they cannot resolve the Dispute, they must endeavour to agree upon a procedure to resolve the Dispute. Unless the parties agree otherwise, the meeting will be held in Sydney, New South Wales.

  1. The arbitration clause is clause 46.9(1), which provided: (emphasis added)

Any dispute, controversy or claim arising out of, relating to, or in connection with this Agreement, including any question regarding its existence, validity or termination must be resolved by arbitration to be conducted in accordance with the Rules of the International Chamber of Commerce. The seat of the arbitration will be Singapore. …

  1. The defined terms “Dispute” and “Contract” are not used in the arbitration clause, whilst “Agreement” – which is not a defined term – is used. It may be that clause 46.9 is a ‘boilerplate’ clause which has not been amended to incorporate the defined terms used in the Contract Conditions, as has occurred elsewhere in clause 46. More likely, the Notice of Dispute and negotiation regime applies to Disputes, as defined, whilst the arbitration clause applies more broadly. Whilst it may be argued before the arbitrator that the definition of “Dispute” should be used to construe clause 46.9, I will consider the clause 46.9 on its face for the purposes of this application. I will also proceed on the basis that “Agreement” means “Contract”, although it is arguable that it does not and, by referring to “Agreement”, the arbitration clause is not limited to the Contract but applies to disputes arising from the parties’ agreement considered more broadly.
  2. By the arbitration clause, the parties agreed to arbitrate “any dispute, controversy or claim arising out of, relating to, or in connection with this Agreement”. These phrases are “of the widest import and should not, in the absence of compelling reasons to the contrary, be read down”: IBM Australia Ltd v National Distribution Services Pty Ltd (1991) 22 NSWLR 466 at 483. In IBM Australia, Clarke JA considered these words to be sufficiently wide to encompass claims of pre-contractual misrepresentations, said to be misleading or deceptive conduct in breach of section 52 of the Trade Practices Act. At 483:

There are no indications in the contract that the words should be construed narrowly. Nor, in my opinion, are there any compelling reasons in favour of reading down the meaning of the phrase. On the contrary there are powerful considerations in favour of the contrary view. The consequence of an interpretation of the arbitration clause which excludes the claims under the Act would be that the causes of action based upon breaches of the contract would remain with the arbitrator, and be decided by him, and those in which reliance were placed upon ss 52, 82 and 87 of the Act would be determined in a court of law. As I earlier pointed out this conclusion would follow even in a case in which the same representations were said to ground claims in breach of contract and under the Act.

The parties could hardly be thought to have contemplated that the arbitration clause would work in that way. It is far more likely that they intended that all disputes between them concerning the terms of the contract, the performance of it and matters connected, in a real sense, with the contract should be referred to the one tribunal for determination. For my part I would find it difficult to ascribe to the parties to a contract an intention to submit only part of a dispute to an arbitral tribunal reserving the remainder for consideration by the Court as this would, on any view, be inefficient and costly.

  1. Likewise in Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192, the Full Court held that an arbitral clause requiring disputes “arising out of this contract” to be arbitrated in London was sufficiently wide to encompass a claim for misleading or deceptive conduct in contravention of the Trade Practices Act: at [7], [9], [49], [175]-[176] and [187]. See likewise Westrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd at [24]; Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1; QH Tours Ltd v Ship Design and Management (Aust) Pty Ltd (1991) 33 FCR 227.
  2. In Hancock, the Full Court considered it important in construing such clauses to bear in mind that “sensible parties do not intend to have possible disputes that may arise heard in two places. Effect is given to that assumption by interpreting words liberally when they permit that to be done”: at [193]. I note that, according to the plaintiff’s letter of demand (see [41]-[42]), the plaintiff intends to refer the dispute under the Services Contract to arbitration whilst maintain these proceedings in this Court. In the absence of a stay, two disputes in relation to the same project will be dealt with in two venues. It seems unlikely that the parties would have considered such an outcome as desirable when negotiating the terms of the Services Contract, including the arbitration clause.
  3. Clause 46.9 extends to “any question regarding [the Contract’s] existence [or] validity”. Such questions will usually require consideration of pre-contractual dealings. This supports a construction of the clause as including disputes which encompass pre-contractual conduct: see likewise Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; [2019] HCA 13 at [48].
  4. For the purpose of the exercise I am here undertaking, I do not think it much matters whether the misleading and deceptive conduct is said to have induced a party to enter into the contract containing the arbitration clause or whether it is said that such conduct induced the plaintiff to enter into a contract with a third party (the Design and Construct Deed) on particular terms, or at all. “[F]ine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument” should not determine which tribunal resolves the parties’ disputes: Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165.
  5. Thus, while not definitively construing the arbitration clause, on its face it is broadly worded to encompass pre-contractual representations such that the disputes the subject of these proceedings – viewed broadly – are the subject of the clause.

Services

 

  1. The plaintiff submitted that, while clause 46.9 uses words of broad reach, the clause does not extend to disputes concerning work done by the defendant long before entry into the Services Contract and which could not be considered on any view to be “Prior Services” or “Services” under the Services Contract. The Services Contract did not require the defendant to produce the tender drawings. The defendant’s work under the Services Contract was to take those designs and develop them and the plaintiff made no complaint in these proceeding about the designs produced by defendant under the Services Contract. A complaint about the tender drawings did not arise out of or relate to, and nor is it in connection with, the Services Contract. The complaint concerned alleged errors in producing the tender design, that made them unfit for use in a tender and led to a deficiency in its tender price. This was not a claim under the Services Contract and had nothing to do with that contract. However, this distinction appeared to me to be artificial and unlikely to be maintainable if these proceedings continue in parallel with an arbitration in respect of losses said to be sustained under the Services Contract.

  2. The defendant submitted that, when the parties entered into the Services Contract, they were aware that previous design work had been performed by the defendant. With that knowledge, the parties chose not to limit the ambit of the arbitration agreement to a dispute to work performed after entry into the Services Contract, but rather one arising out of, relating to, or in connection with that contract. They chose broad words of submission to arbitration with the knowledge that previous design work relating to or connected with the Services Contract had already been performed. They did not expressly seek to exclude that earlier work from the scope of the Services Contract. Reading the Services Contract as a whole, the language of the arbitration agreement was apt to encompass a claim of misleading or deceptive conduct in relation to the tender design.

  3. This submission requires a brief review of the relevant contractual provisions. It will be recalled that, under the Prior Services clause, the Services Contract applied to “any services that are part of the Services” which were performed by the defendant at the request of the Rizzani Leighton Joint Venture before the date of the Contract.“Services” was defined in clause 1.1. of the Contract Conditions as: (emphasis added)

Services” means all the services, activities, tasks and other things that the [defendant] is or may be required to perform under the Contract and includes the services set out in and reasonably inferred from Annexure C, Variations, rectification work and the provision of Contract Material;

  1. Annexure C to the Services Contract, entitled “Brief and Services”, noted that the Brief comprised the Design and Construct Deed and the “DEAL Scope of Works”, which was annexed to the Services Contract. The DEAL Scope of Works noted in paragraph 2.9:

The detailed design will in principle be developed from the Tender Design.

  1. Paragraph 2.11 of the DEAL Scope of Works, “Design Input”, noted that, throughout the entire design phase, the defendant was responsible for ensuring that all the required input was included in the design.

As a minimum the following input will be incorporated:

•   Tender design; …

  1. Paragraph 2 of Annexure C described the defendant’s role, including:

2.1   Commission

The Services include all design and engineering work required for the Main Contract Works, including but not limited to:

(a)   all design work as detailed in the DEAL Scope of Works document (referred to in the Brief 1(1)); and

(d)   All design works required in the DEAL Scope of Works document (Section 5).

  1. Paragraph 2.5 of Annexure C provided:

2.5   Concept Designs

To the extent relevant to the Services, the Consultant must:

(a)   prepare an outline design solution (including alternative proposals where required) examining Site options for review with other contractors (including design consultants) and [the Rizzani Leighton Joint Venture];

(b)   further develop the approved outline design solution:

(i)   ensuring all feasible concepts are reviewed; and

(ii)   preparing all necessary drawings, schedules and other material;

for review with other contractors (including design consultants and [the Rizzani Leighton Joint Venture];

(i)   Any other requirements specified in the DEAL Scope of Works document …

  1. Clause 1.1. of the Contract Conditions provided: (emphasis added)

Contract Material” means any documents (including specifications and drawings), software, designs, samples, models, prototypes, patterns, videos and other things prepared by or on behalf of the [defendant] for or in connection with the Contract, the Services or the Project (whether in electronic format or hard-copy format or both);

  1. As to interpretation of the Contract, clause 1.2(j) of the Contract Conditions provided:

the words ‘include’, ‘including’ and ‘includes’ and the expressions ‘for example’ and ‘such as’, are not words or expressions of limitation;

  1. By reference, in particular, to the italicised portions of these provisionsthe definition of “Services” is widely cast and inclusive such that the work done by the defendant in the tender phase may fall within “Prior Services”. But I consider this to be the wrong debate. The focus must be on the drafting of the arbitration clause, which is not limited to “Services” or, for that matter, “Prior Services” but to “any dispute, controversy or claim arising out of, relating to or in connection with this Agreement …”. Viewed broadly, the sequence of events from the defendant preparing the tender designs with a view, if the tender was accepted, to developing those designs for construction is consistent with the arbitration clause recording an agreement between the parties to submit all disputes, including in relation to the tender drawings, to arbitration.
  2. The provisions of the Services Contract on which the plaintiff relied do not provide a compelling reason to read down the arbitration clause. Nor do I think it can be said that there is no sustainable argument that the dispute falls within the arbitration agreement such that this Court should refrain from staying these proceedings and referring the matter to the arbitrator. Thus I conclude that these proceedings should be stayed pursuant to section 7(2) of the Act.

CONDITIONS

 

  1. The plaintiff sought that the stay be made subject to the following conditions:
  1. The defendant cannot raise any limitation point, in particular, any limitation defence that was unavailable to it when the proceeding was filed.
  2. The defendant will not argue that the Australian Consumer Law is inapplicable and will accept that, insofar as its conduct is alleged to contravene section 18 of the Australian Consumer Law or entitles the plaintiff to any remedy, the Australian Consumer Law is a mandatory law that the arbitrator must apply.
  1. The plaintiff submitted that both conditions were for the purpose of promoting and enforcing the agreement of the parties to resolve their disputes by arbitration, rather than by making orders which would be inconsistent with, or subversive of that agreement (Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; (2013) 298 ALR 666 at [84]).
  2. The defendant submitted that section 7(2) does not give the Court power to impose conditions, nor would it be appropriate to do so. The conditions sought are directed to substantive defences which the defendant has or may have: O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601. Where the plaintiff commenced these proceedings in breach of the arbitration agreement and the defendant has a right to have the proceedings determined by an arbitral tribunal, it would be wrong to only enforce that right subject to a condition that defeated a defence that the defendant may otherwise be able to establish.

Power to impose conditions

 

  1. The oft-cited principle as to how the power to impose conditions is to be exercised is that of Kirby P in O’Brien at 622: (emphasis added)

It is true that the subsection is expressed in apparently wide terms (“upon such conditions (if any) as it thinks fit”). But it is obvious that the conditions are incidental and ancillary to the achievement of the main purpose of s 7(2). This is to hold the parties to international commercial agreements to an agreement to arbitrate. I do not consider, in this context, that it would be proper to impose a condition which effectively distorted the agreement initially entered between the parties. Nor should such a condition be imposed as would manipulate the rights of the parties under that agreement, notwithstanding their agreement to arbitrate. Nor should conditions frustrate the achievement of the policy of the statute to enforce that agreement. The “conditions” which s 7(2) of the Act contemplates are machinery conditions. They relate to hearing and the like procedures and not to conditions which determine, in effect, the substantive rights of the parties. Those substantive rights were, relevantly, fixed by the agreement. The Court should neutrally hold the parties to that agreement. In my opinion it would be wrong for the Court to distort and frustrate that agreement (whilst requiring the stay necessitated by the statute) to impose conditions which were not within the agreement which it is the purpose of the Act to enforce.

  1. This statement was approved in WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd, where Barrett J noted that it was thus clear that it was not open to the Court to impose conditions upon a stay which would detract from the integrity of the arbitration process the Act mandates: at [30]. See likewise Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd at [90], [101] per Martin CJ (Buss JA agreeing), at [125] per McLure P; Orient Overseas Container Line Ltd v APL Co Pte Ltd (No 2) [2021] FCA 606 at [14] per Stewart J.
  2. In Cape Lambert Resources, Martin CJ considered that the legislature intended that the power to attach conditions “should be utilised for the purpose of promoting and enforcing the agreement of the parties to resolve their disputes by arbitration, rather than by making orders which would be inconsistent with, or subversive of that agreement”: at [84]. The Chief Justice considered that courts should refrain from imposing conditions which may pre-empt the decision of the arbitrator and the operation of the arbitration cause, observing at [93]:

This approach to the ambit of the powers conferred upon the court by s 7 of the Act is consistent with the limited role which national courts play when parties have agreed to resolve their disputes by international commercial arbitration. National courts are not properly regarded as competitors or rivals for the jurisdiction which the parties have agreed to confer upon an arbitral tribunal. As I have already noted, the exercise of judicial power to facilitate the agreement of the parties to resolve their disputes by arbitration, and the strictly limited supervisory role usually conferred upon national courts by the lex arbitri, which is generally limited to containing arbitral tribunals within the jurisdiction conferred upon them by the parties and ensuring that the jurisdiction is exercised, is fundamentally different in character to the role of the arbitral tribunal in resolving the dispute by making an award defining the substantive rights and obligations of the parties. International comity requires national courts to faithfully respect these limitations upon their role – in this case by appropriately construing the ambit of the powers conferred upon the court by s 7 of the Act having regard to such limitations.

  1. Martin CJ considered that conditions should not be imposed which usurp the powers of the arbitrator in circumstances where there is no pressing need or justification for such conditions. Facilitative machinery orders, on the other hand, did not usurp or subvert the powers of arbitrators in a resolution of a dispute which the parties had agreed to refer to arbitration: at [101].
  2. Most recently, in Orient Overseas Container Line, Stewart J observed that there is nothing in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (set out in Schedule 1 to the Act and with which Part II of the Act is concerned to enforce) giving power to the Court to impose conditions upon a stay of proceedings and referral to arbitration, “That is an indication that the power to impose conditions is to be read in a restricted way”: at [11]. Further, at [12]: (emphasis added)

The principle underlying Art II [of the Convention], and hence s 7, is that arbitration agreements should be recognised and enforced by staying court proceedings in favour of arbitration where the subject of the proceedings is covered by the arbitration agreement. There is no justification for construing the power to impose conditions on such a stay as including conditions which interfere with the jurisdiction and power of the arbitral tribunal or which alter the rights of the parties under their arbitration agreement; the purpose is, after all, to uphold and enforce that agreement, not to alter or undermine it or the parties’ rights under it.

  1. Stewart J was therefore hesitant to exercise any power under section 7(2) to impose conditions that would “trespass upon the arbitration which the parties agreed to and which this Court is bound to support, not undermine”: at [18].

Statute of limitations

 

  1. Section 70 of the Limitation Act 1969 (NSW) provides:

70   Application of this Act

(1)    This Act applies to an arbitration in like manner as it applies to an action.

(2)   An arbitration for any difference or matter under any provisions for arbitration is not maintainable if commenced after the date of the expiration of the period of limitation fixed by or under this Act for a cause of action in respect of the same difference or matter.

  1. As such, the time within which an arbitration must be commenced is the same as the limitation period applicable to the cause of action pursued in proceedings in this Court.
  2. As to when an arbitration is commenced, section 72(1) of the Limitation Act provides:

72 Commencement

(1)    For the purposes of this Division:

(a)    where the provisions for arbitration require or permit a party to the arbitration to give notice in writing to another party:

(i)    requiring the other party to appoint or concur in appointing an arbitrator, or

(ii)    requiring the other party to submit or concur in submitting a difference or matter to a person named or designated in the provisions for arbitration as arbitrator, or

(b)    where, in a case to which paragraph (a) does not apply, a party to the arbitration takes a step required or permitted by the provisions for arbitration for the purpose of bringing a difference or matter before an arbitrator and gives to another party notice in writing of the taking of the step,

the arbitration is commenced, as between the party giving the notice and the party to whom the notice is given, on the date on which the notice is given.

  1. Here, the arbitration clause does not provide for a notice in writing; a Notice of Dispute may be served in respect of a Dispute, but the arbitration clause does not incorporate this mechanism. Thus section 72(1)(b) applies, such that an arbitration is commenced on the date on which the plaintiff “takes a step required or permitted by the provisions for arbitration for the purpose of bringing a difference or matter before an arbitrator and gives to another party notice in writing of the taking of the step”. Commencing proceedings in this Court is unlikely to satisfy this requirement.
  2. Similar to the case at hand, in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451, the plaintiff commenced proceedings in this Court the day before a limitation period expired, notwithstanding an arbitration clause. As to whether this had the effect of preventing the limitation period from expiring if the matter was referred to arbitration, Hammerschlag J observed at [130]:

This raises issues of significant complexity concerning, amongst others, the status of an action subject to a request under [s 7(2)], and the juridical effect of the court referring the parties to arbitration and the interplay between ss [7 of the Act] and [s] 14 of the [Limitation] Act, and ss 70(1) and 72 of the Limitation Act, the latter sections having been in force for many years prior to s [7] coming into force. Counsel informed the court that they had been unable to find any pertinent authority on these issues.

(Whilst John Holland concerned the comparable provisions of the Commercial Arbitration Act 2010 (NSW), for ease of reference I have again interposed the provisions of the Act.) Ultimately, it was unnecessary for Hammerschlag J to “delve into the intricacies” of this issue: at [130].

  1. This complex issue was not the subject of argument during the hearing before me, nor canvassed in subsequent written submissions which the plaintiff sought leave to make. Nor does it appear that the issue has been the subject of judicial consideration since John Holland. Rather, the problem has been addressed from time to time by the imposition of conditions similar to the condition now sought by the plaintiff.
  2. Such a condition was sought, but refused, in O’Brien as the condition would have had the effect of extending the limitation period to that which would apply if the arbitration agreement was adhered to. There, the contract between a New South Wales company and a Florida company had an arbitration clause and provided that the agreement was governed by the laws of Florida. The New South Wales company went into liquidation, which had the effect of suspending the limitation period in respect of claims against the company. The liquidator commenced proceedings against the Florida company in Florida, which were determined by arbitration (four years later), with no damages awarded to either side.
  3. The Florida company then lodged a proof of debt (which was rejected) and commenced proceedings seeking to review the liquidator’s decision. The liquidator sought, and was granted, a stay of the proceedings by reason of the arbitration clause. If the arbitration took place in Florida – for which the liquidator contended – the Florida company’s claim was arguably statute barred. The trial judge had posited that, if a stay was granted, it should be subject to conditions so that the liquidator could not take advantage of a statute of limitation in the forum in which the arbitration was to be heard. Kirby P did not agree. At 622:

The parties should be held to the arbitration to which they agreed. That arbitration should take place in Florida, according to the terms of the agreement and by arbitrators appointed as the agreement specified. I see nothing in the slightest wrong with the conduct of the liquidator in seeking to invoke the Act. On the contrary, I believe that in doing so he is acting properly to protect the assets of the company because he believes that he may, by asserting this legal right, secure for [the NSW company], and its creditors, the protection against the claim of [the Florida company] of a limitation bar. Whether he succeeds or fails in this respect will be determined by the arbitrators. But there is nothing improper in the liquidator’s claiming the right which he derives through [the NSW company] from the agreement with [the Florida company].

  1. In Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1997) 150 ALR 345, such a condition was imposed where the proceedings were stayed and referred for arbitration in London. (As recorded in the appeal judgment, the claim concerned negligence, breach of contract, misrepresentations and contraventions of the Trade Practices Act 1974 (Cth): Hi-Fert (No 5) at 7 per Emmett J). The plaintiff had sought a condition that the defendant “shall take no objection as to the time within which the arbitration has been commenced”: at 346. The defendant sought a more confined condition, saying that it should be in no worse position as a result of its successful stay application than it would have been if the arbitration proceedings had been commenced at the same time as court proceedings. Tamberlin J agreed, at 347: (emphasis original)

In my view, this submission should be accepted because it preserves the rights of the parties. It operates to avoid the conferring of any possible additional benefit on either party beyond the rights and obligations which would have prevailed if the arbitration proceeding provided for in the agreement had been commenced.

  1. In the result, Tamberlin J imposed a condition that the arbitration “be treated as if it had been commenced with the appointment of the … arbitrator on the same day as the commencement of these proceedings”. The condition may be explicable by the fact that the proceedings concerned claims which were subject to the arbitration clause and claims which were not. The Full Court made an order that the arbitration not commence until after the non-arbitrable claims had been determined by the Federal Court. Where the applicant had properly commenced proceedings in the Federal Court, at least in respect of the claims not the subject of the arbitration clause, and where, by reason of the passage of time until determination of the Federal Court proceedings and commencement of the arbitration, limitation issues may arise, the condition preserved the status quo.
  2. A condition similar in form to that ordered in Hi-Fert was made by Hollingworth J in Ansett Australia Ltd v Malaysian Airline System Berhad [2008] VSC 109; (2008) 217 FLR 376. In that case, Ansett commenced proceedings in time. By the time the defendant obtained a stay, after a series of procedural delays, the limitation period has expired. The defendant argued that Ansett chose to commence the proceedings rather than refer its claim to arbitration and, to the extent that Ansett was now prejudiced by the grant of a stay, Ansett was the author of its own misfortune and should not be assisted by the Court: at [30]. Hollingworth J considered that this submission “completely ignores [the defendant’s] own contribution to Ansett’s current predicament, through repeated delays in this proceeding”: at [30]. Had the defendant acted promptly in seeking a stay, the stay application could have been heard and determined before the limitation period expired. At [33] and [35]:

33   In the circumstances, I would impose conditions necessary to ensure that Ansett is not prejudiced by [the defendant]’s delaying conduct.  That is to say, Ansett should not now be faced in an arbitration with any limitation periods which it did not face at the time it commenced this proceeding.

35   [The defendant] should be entitled to rely at the arbitration on any limitation period which was applicable under the proper law of the agreement at the time this proceeding was commenced. However, it should not be able to benefit from its own delays in making a stay application under the IAA.

  1. Hollingworth J considered that, if such a condition was not imposed, defendants would have an incentive when served with court proceedings in respect of a dispute covered by an arbitration agreement “to sit on their hands and allow time limits to expire before applying for a stay”. Thus, there were sound public policy reasons for imposing such a condition: at [37].
  2. The same condition was made in Orient Overseas Container Line, albeit by consent. Therefore, Stewart J did not determine whether it was otherwise appropriate to impose the condition: at [22].
  3. Having reviewed the case law, and bearing in mind that the imposition of conditions involves the exercise of judicial power (Hi-Fert (No 5) at 14) conferred by the Act, the following considerations may be relevant to whether a condition should be imposed in respect of limitation periods:

  1. whether the plaintiff has properly commenced proceedings in this Court, at least in respect of part of its claim;
  2. whether the potential expiration of limitation period is referable to the defendant’s delay or other events beyond the parties’ control, such as an order that the arbitration not take place until court proceedings are concluded;
  3. whether the condition will substantively alter the rights of the parties or preserve the status quo; and
  4. whether the condition will change the bargain between the parties to arbitrate.
  1. Here, the Services Contract provides that the law of contract is the law of New South Wales. Thus, the application of any limitation period will likely be the same, whether determined by this Court or by the arbitrator. However, as the plaintiff commenced these proceedings on – perhaps – the last day of the limitation period, the plaintiff’s claim may not be brought in time if the starting point is taken to be the date when the arbitral proceedings are commenced.
  2. The defendant submitted that Hollingworth J’s reasoning in Ansett did not engage with the scope of the power to impose conditions but, in any event, the circumstances of this case were very different. The defendant was not served with the originating process until March or April 2021. An application for a stay was made promptly, before the first directions hearing and before the time to file a List Response had expired. There was no delay by the defendant. Any delay was occasioned by the plaintiff given the time it took to file the originating process and the time after that for the plaintiff to effect service. The defendant submitted that, if the plaintiff established at the arbitration that the defendant had engaged in disentitling conduct which, for example, gave rise to an estoppel, then the arbitral tribunal would be able to prevent reliance on a limitation period.
  3. To be fair to the plaintiff, delay in effecting service overseas cannot readily be laid at the plaintiff’s door. This is an inter-Court process relying on a request to be issued by this Court and actioned, in this case, by the Italian Central Authority. Sometimes this process just takes time. That said, the fact that the plaintiff commenced these proceedings six years after the tender was submitted likely has the consequence that the conditions sought by the plaintiff will substantively alter the rights of the parties rather than preserve the status quo. The defendant is presently entitled to argue before the arbitrator that the plaintiff’s claim is out of time whilst, if I impose the condition sought, then the defendant will be deprived of this defence notwithstanding that, if the arbitrator finds that this dispute falls within the arbitration clause, the commencement of these proceedings was in breach of that clause. If the arbitrator determines that this dispute does not fall within the arbitration clause, then the plaintiff will be entitled to lift the stay and pursue its claims in this Court.
  4. The condition sought by the plaintiff is not incidental or ancillary to the achievement to the main purpose of section 7(2) but will distort the agreement initially entered into between the parties. I decline to impose the condition sought. I may have come to a different decision if the plaintiff had commenced these proceedings earlier and/or subsequent delays had been referrable to the defendant or delays inherent in the Court’s processes. But having left it to the last moment, I am not minded to affect the substantive rights of the parties. Of course, whether in fact an arbitration now commenced by the plaintiff is time-barred is a matter for the arbitrator to decide.

Australian Consumer Law

 

  1. A condition in the form of the second proposed condition was made by Allsop J (as his Honour then was) in Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102 at [111]:

… I would impose a condition upon the parties to the arbitration to consent to all aspects of any [Trade Practices] Act claims, which would have been justiciable in this Court, being litigated in the arbitration irrespective of any conclusion as to the proper law. Such a condition would solve the potential conflict of Australian domestic statutory public policy and the operation by a foreign arbitrator of the rules of conflicts of law to set at nought governing Australian law. The arbitration agreement is a contract about submission. Its enforcement should not undermine the operation of a statute such as the [Trade Practices] Act.

His Honour noted that he had not heard the parties on this condition, and would do so: at [112].

  1. A year later, however, in Comandate Marine Corporation v Pan Australia Shipping Pty Ltd, Allsop J referred to the condition made in Walter Rau and noted at [245]:

Having had the benefit of argument in the appeal here I would not impose such a condition. At least in the circumstances here, I do not see such a term as appropriate. It would, to use the expression of Gleeson CJ in Francis Travel 39 NSWLR at 167, pre-empt the decision of the arbitrator and the operation of the arbitration clause. In any event, here, Comandate Marine has undertaken to the Court to agree to the determination in the arbitration of the Trade Practices Act claims.

There, the dispute was to be governed by English law.

  1. The defendant submitted that there was no need for the second condition as it would not make inconsistent submissions to this Court and to an arbitral tribunal. In this Court, the defendant submitted that the plaintiff’s claim for damages under the Australian Consumer Law fell within the scope of the arbitration agreement. The defendant would not contend otherwise in any arbitration.
  1. Given the choice of law clause and the defendant’s contention that the plaintiff’s claim under the Australian Consumer Law falls within the arbitration clause, the second proposed condition is not appropriate. It is a matter for the arbitrator.

ORDERS

 

  1. The plaintiff and defendant each sought their costs of the motion. The defendant, however, has succeeded and should have its costs. For these reasons, I make the following orders:
  1. Order pursuant to section 7(2) of the International Arbitration Act 1974 (Cth) that these proceedings be stayed and the parties be referred to arbitration, with such arbitration to be commenced in accordance with clause 46.9 of the Services Agreement for Design Services between the Rizzani Leighton Joint Venture and Deal S.R.L. entered into or about 27 July 2015.
  2. The plaintiff to pay the defendant’s costs of the motion filed on 14 April 2021.

**********

Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company [2021] FCAFC 110

FEDERAL COURT OF AUSTRALIA

 

 

Case Name: Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company [2021] FCAFC 110
Medium Neutral Citation: [2021] FCAFC 110
Hearing Date(s): 25 February 2021
Date of Orders: 25 June 2021
Decision Date: 25 June 2021
Before: ALLSOP CJ, MIDDLETON AND STEWART JJ
Decision: THE COURT ORDERS THAT:

 

1. The appeal be allowed.

2. The orders and declaration of the Court on 26 August 2020 in NSD 94 of 2020 be set aside and substituted with an order that the proceeding be dismissed.

3. The parties file and serve written submissions of no more than five pages on the questions of costs of the proceedings below and on appeal, which questions will be decided on the papers unless otherwise ordered, as follows:

(a) the appellant within seven days of these orders; and

(b) the respondent within seven days thereafter.

 

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Catchwords: ARBITRATION – international arbitration – enforcement of award – where supervisory court appointed the arbitral tribunal – whether composition of the arbitral tribunal was in accordance with the agreement of the parties – comity – whether enforcing court should accept that the appointment of the tribunal by the supervisory court was in accordance with the agreement of the parties

 

ARBITRATION – international arbitration – enforcement of award – nature of the burden of proving a ground for non-enforcement – whether discretion to enforce award should nevertheless be exercised – nature of the discretion

 

PRACTICE AND PROCEDURE – settlement – where parties settled “in principle” – where judgment was complete subject to administrative matters prior to settlement – whether Court can hand down judgment notwithstanding settlement “in principle” – Court has a discretion to hand down judgment where it is in the public interest to do so

Legislation Cited: Civil Law and Justice Legislation Amendment Act 2018 (Cth) Sch 7 item 2

Federal Court Rules 2011 (Cth) r 36.73(1)(b)(ii)
International Arbitration Act 1974 (Cth) ss 2D, 3, 8, 39, Schs 1-2

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature 10 June 1958, 330 UNTS 3 (entered into force 7 June 1959)

UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended on 7 July 2006)

Civil and Commercial Arbitration Law (Qatar) (Law No. 2 of 2017) Art 33

Civil and Commercial Code of Procedure (Qatar) (Law No. 13 of 1990) Art 195

Cases Cited: AKN v ALC [2015] SGCA 18
Barclay’s Bank plc v Nylon Capital LLP [2011] EWCA Civ 826; [2012] 1 All ER (Comm) 912
Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu [2021] FCA 477
Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314
Blatch v Archer (1774) 1 Cowp 63; 98 ER 969
Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336
British American Tobacco Australia Services Ltd v Laurie [2009] NSWCA 414
Cameron Australasia Pty Ltd v AED Oil Ltd [2015] VSC 163
China Nanhai Oil Joint Service Corp Shenzhen Branch v Gee Tai Holdings Co Ltd [1994] HKCFI 215; [1994] 3 HKC 375
Clarke v Great Southern Finance Pty Ltd [2014] VSC 516
CSR Ltd v Cigna Insurance Australia Ltd [1997] HCA 33; 189 CLR 345
Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46; [2011] 1 AC 763
Dardana Ltd v Yukos Oil Co [2002] EWCA Civ 543; [2002] 2 Lloyd’s Rep 326
Dickenson’s Arcade Pty Ltd v Tasmania [1974] HCA 9; 130 CLR 177
Encyclopaedia Universalis SA v Encyclopaedia Britannica Inc, 03 Civ 4363 (SAS) (S.D.N.Y. Dec. 3, 2003)Encyclopaedia Universalis SA v Encyclopaedia Britannica Inc, 403 F 3d 85 (2nd Cir, 2005)Enka Insaat ve Sanayi AS v OOO “Insurance Company Chubb” [2020] UKSC 38; [2020] 1 WLR 4117
F&C Alternative Investments (Holdings) Ltd v Barthelemy (No 1) [2011] EWHC 1851 (Ch); [2012] Bus LR 884
Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International NV [2007] FCAFC 43; 157 FCR 558
Glaxo Group Ltd v Genentech Inc [2008] EWCA Civ 23; Bus LR 888Greenwich Inc Ltd (In Administration) v Dowling [2014] EWHC 2451 (Ch); WLR (D) 334Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468
Gurney Consulting Engineers v Gleeds Health & Safety Ltd [2006] EWHC 536 (TCC); 108 Con LR 58

Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] HKCFA 40; [1999] 2 HKC 205
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) [1998] FCA 1485; 90 FCR 1
Hilton v Guyot 159 US 113 (1895)
House v The King [1936] HCA 40; 55 CLR 499
IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSC 248; 38 VR 303
Liaoning Zhongwang Group Co Ltd v Alfield Group Pty Ltd [2017] FCA 1223
Liverpool Roman Catholic Archdiocesan Trustees Inc v Goldberg (No 3) [2001] EWHC 396 (Ch); 4 All ER 950 (Ch D)

Minmetals Germany GmbH v Ferco Steel Ltd [1999] 1 All ER (Comm) 315
Osborne v Auckland Council [2014] NZSC 67; 1 NZLR 766
Paklito Investment Ltd v Klockner (East Asia) Ltd [1993] 2 HKLR 39
Povey v Qantas Airways Ltd [2005] HCA 33; 223 CLR 189
Prudential Assurance Co Ltd v McBains Cooper [2000] EWCA Civ 172; 1 WLR 2000
PT First Media TBK v Astro Nusantara International BV [2014] 1 SLR 372; [2013] SGCA 57
PT First Media TBK v Astro Nusantara International BV [2018] HKCFA 12; [2018] 3 HKC 458
TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83; 232 FCR 361
TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; 251 CLR 533
Voss v Davidson [2003] QCA 252

 

Texts Cited: Allsop JLB, “Comity and Commerce” (Address to the 16th Conference of Chief Justices of Asia & the Pacific, Sydney, 8 November 2015)

Bennett H and Broe GA, “The Civil Standard of Proof and the ‘Test’ in Briginshaw: Is There a Neurobiological Basis to Being ‘Comfortably Satisfied’?” (2012) 86 ALJ 258
Blackaby N, Partasides C, Redfern A and Hunter M, Redfern and Hunter on International Arbitration (5th ed, Oxford University Press, 2009)

Born G, International Commercial Arbitration (3rd ed, Kluwer Law International, 2021)

Herzfeld P and Prince T, Interpretation (2nd ed, Lawbook Co, 2020)

Gageler S, “Alternative Facts and the Courts” (2019) 93 ALJ 585
Gageler S, “Evidence and Truth” (2017) 13 TJR 1

Van den Berg AJ, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation (Kluwer Law International, 1981)

DIVISION: General Division
Parties: BETWEEN:
HUB STREET EQUIPMENT PTY LTD (ABN 52 109 882 617)AppellantAND:
ENERGY CITY QATAR HOLDING COMPANY (REGISTERED IN THE CR UNDER NO. 34913)Respondent
Representation: Counsel for the Appellant: T Mehigan SC

Solicitor for the Appellant: Henry William Lawyers

Counsel for the Respondent: T D Castle SC

Solicitor for the Respondent: Cowell Clarke Commercial Lawyers

File Number(s): NSD 1045 of 2020
Publication Restriction: NIL
Appeal from: Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116; Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 3) [2020] FCA 1219

REASONS FOR JUDGMENT

ALLSOP CJ:

  1. I have read the reasons of Stewart J to be published.  I agree with his Honour’s reasons and I agree with the orders proposed by his Honour.  Recent events, however, have necessitated that I make some additional remarks.
  2. The appeal was heard on 25 February 2021.  On Monday, 21 June 2021, the Court was in full agreement as to the judgment to be handed down and intended to hand down judgment on Wednesday, 23 June 2021, subject to administrative matters.  The parties were to be notified on the morning of 21 June 2021.  At 10:26am on that same morning (Monday, 21 June) the appellant (with the consent of the respondent) sent an email to the chambers of Middleton and Stewart JJ and me in the following terms:

    These proceedings have settled in principle, although the settlement remains subject to its terms being carried out. Should that occur, the parties anticipate that they will seek the leave of the Court to discontinue the appeal within 30 days. We are informing the Court of this development as a courtesy.

    At my request, my associate informed the practitioners that the Court had intended to hand down judgment on 23 June 2021, and requested that the parties communicate as soon as possible to the Court their view as to whether the judgment should be handed down.  The Court received no response.  On 22 June 2021 I informed the parties, through my associate, that the matter would be listed for judgment on 25 June 2021.  Again, the Court received no response.

  3. This raises an important question as to whether the Court can or should proceed to hand down its judgment notwithstanding that the proceedings have “settled in principle”. The parties have not yet sought leave to file a notice of discontinuance pursuant to r 36.73(1)(b)(ii) of the Federal Court Rules 2011 (Cth); nor have they requested that the Court delay handing down its judgment.
  4. The issue has arisen for consideration in a number of English authorities:  Prudential Assurance Co Ltd v McBains Cooper [2000] EWCA Civ 172; 1 WLR 2000; Liverpool Roman Catholic Archdiocesan Trustees Inc v Goldberg (No 3) [2001] EWHC 396 (Ch); 4 All ER 950 (Ch D); Gurney Consulting Engineers v Gleeds Health & Safety Ltd [2006] EWHC 536 (TCC); 108 Con LR 58; Glaxo Group Ltd v Genentech Inc [2008] EWCA Civ 23; Bus LR 888; F&C Alternative Investments (Holdings) Ltd v Barthelemy (No 1) [2011] EWHC 1851 (Ch); [2012] Bus LR 884; Barclay’s Bank plc v Nylon Capital LLP [2011] EWCA Civ 826; [2012] 1 All ER (Comm) 912; Greenwich Inc Ltd (In Administration) v Dowling [2014] EWHC 2451 (Ch); WLR (D) 334. These authorities have been applied in Australia (Voss v Davidson [2003] QCA 252; Clarke v Great Southern Finance Pty Ltd [2014] VSC 516) and New Zealand (Osborne v Auckland Council [2014] NZSC 67; 1 NZLR 766).
  5. Putting to one side the complexities in the English cases arising from the English practice of circulating the draft judgment to practitioners prior to its delivery (see Practice Direction (Court of Appeal: Handed Down Judgments) [1995] 1 WLR 1055) important considerations of public policy and public interest support the judgment in this case being handed down.
  6. First, this appeal raises points of law of general interest pertaining to the nature of the burden and onus of proving grounds for the non-enforcement of arbitral awards, and, where such grounds have been made out, the nature of the discretion which permits enforcement notwithstanding the existence of vitiating irregularity.  It is thus in the public interest that these views are made the subject of a published judgment in order to facilitate the development of the law, and the provision of guidance to others, including the reduction of risks as to costs of others:  F&C Alternative Investments at [9] (Sales J).
  7. Secondly, the judgment corrects errors of both law and fact in the judgment below:  Prudential at [31] (Brooke LJ, with whom Walker and Gibson LJJ concurred); Barclay’s Bank v Nylon at [74] (Lord Neuberger MR);  Voss at [6] (Davies JA, with whom Williams and Wilson JJA concurred).
  8. Thirdly, the stage at which preparation of judgment had reached is a relevant consideration.  It is, as Lord Neuberger MR said, a highly questionable use of judicial time to prepare a judgment on a matter that has been settled:  Barclay’s Bank v Nylon at [75].  Here, the judgment was complete at the time of notification.
  9. Finally, whilst nothing in these reasons is intended to derogate from the dictum of Somervell LJ in Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314 at 321 that “the law … encourages reasonable settlements”, the parties had a long time in which they could have settled their dispute. They did not do so. The Court is unaware of the nature of the “in principle” settlement. The Court has a discretion in circumstances such as these to publish judgment where the private interests of the parties to settle the dispute without publication of judgment are outweighed by the countervailing public interest in making the judgment publicly available: F&C Alternative Investments at [1], [7]–[8] (Sales J);  Barclay’s Bank v Nylon at [74] (Lord Neuberger MR);  Clarke at [23]–[24] (Croft J); Osborne at [40]–[44] (Young J with whom Elias CJ, McGrath, Glazebrook and Tipping JJ concurred); Voss at [5]–[7] (Davies JA with whom Williams and Wilson JJA concurred); Greenwich at [131]–[137] (Smith J).
  10. In the light of the lack of clarity of the factual position concerning settlement “in principle” it is unnecessary to say anything about “matter” (in the Constitutional sense).
  11. Accordingly, I am of the opinion that judgment ought to be handed down and published.
I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop.

 

Associate:

 

Dated: 25 June 2021

REASONS FOR JUDGMENT

MIDDLETON J:

  1. I agree with Stewart J’s reasons and proposed orders.  I agree with the additional remarks of the Chief Justice.
I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment of the Honourable Justice Middleton.

 

Associate:

 

Dated:       25 June 2021

 

REASONS FOR JUDGMENT

STEWART J:

 

Introduction

 

  1. This is an appeal from a judgment enforcing an arbitration award under s 8(3) of the International Arbitration Act 1974 (Cth) (IAA). The principal ground on which the appellant contends that the award should not be enforced is that the composition of the arbitral tribunal was not in accordance with the agreement of the parties as envisaged by s 8(5)(e) of the IAA notwithstanding that the tribunal was appointed by a court at the seat of the arbitration, namely the Plenary Court of First Instance of the State of Qatar. The respondent’s principal contention in response is that the appointment, having been made by the Qatari Court, must be regarded as valid under the law of the seat and that the appellant’s remedy was to challenge it there rather than to resist enforcement in Australia. The respondent also contends that even if it is concluded that the ground for non-enforcement in s 8(5)(e), or any other ground, is made out, as a matter of discretion the Court should nevertheless enforce the award. The appeal therefore raises questions as to the nature and exercise of that discretion.
  2. For the reasons that follow, I have come to the conclusion that the appeal should be allowed.  In essence, the award should not be enforced in Australia because the arbitral tribunal was not composed in accordance with the agreement of the parties and that is a proper basis to resist enforcement, it not being necessary for the award debtor to seek to set the award aside at the seat of the arbitration.  Also, because a failure to compose the arbitral tribunal in accordance with the agreement of the parties is fundamental to the jurisdiction of the arbitrators, there is little if any scope to exercise the discretion to enforce in this case and it should not be so exercised.The statutory provisions
  3. It being common ground that the award in question is a “foreign award” as referred to in Pt II of the IAA, relevant provisions of the IAA for present purposes are the following:

    2D          Objects of this Act

    The objects of this Act are:

    (a)          to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and

    (b)          to facilitate the use of arbitration agreements made in relation to international trade and commerce; and

    (c)          to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce; and

    (d)          to give effect to Australia’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty-fourth meeting; and

    3            Interpretation

    (1)          In this Part, unless the contrary intention appears:

    arbitral award has the same meaning as in the Convention.

    foreign award means an arbitral award made, in pursuance of an arbitration agreement, in a country other than Australia, being an arbitral award in relation to which the Convention applies.

    8            Recognition of foreign awards

    (1)           Subject to this Part, a foreign award is binding by virtue of this Act for all purposes on the parties to the award.

    (3)           Subject to this Part, a foreign award may be enforced in the Federal Court of Australia as if the award were a judgment or order of that court.

    (3A)         The court may only refuse to enforce the foreign award in the circumstances mentioned in subsections (5) and (7).

    (5)           Subject to subsection (6), in any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court may, at the request of the party against whom it is invoked, refuse to enforce the award if that party proves to the satisfaction of the court that:

    (c)           that party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his or her case in the arbitration proceedings; or

    (e)          the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

    (7)           In any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court may refuse to enforce the award if it finds that:

    (b)       to enforce the award would be contrary to public policy.

    (7A)         To avoid doubt and without limiting paragraph (7)(b), the enforcement of a foreign award would be contrary to public policy if:

    (b)          a breach of the rules of natural justice occurred in connection with the making of the award.

    39          Matters to which court must have regard

    (1)          This section applies where:

    (a)       a court is considering:

    (i)           exercising a power under section 8 to enforce a foreign award; or

    (ii)          exercising the power under section 8 to refuse to enforce a foreign award, including a refusal because the enforcement of the award would be contrary to public policy; or

    (2)          The court or authority must, in doing so, have regard to:

    (a)       the objects of the Act; and

    (b)       the fact that:

    (i)          arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes; and

    (ii)         awards are intended to provide certainty and finality.

  4. As recognised in s 2D(d), s 8 was enacted following Australia’s accession to, and to give effect to, the New York Convention, i.e., the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature 10 June 1958, 330 UNTS 3 (entered into force 7 June 1959) which is reproduced as Sch 1 to the IAA: TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; 251 CLR 533 (TCL HCA) at [47] per Hayne, Crennan, Kiefel and Bell JJ. Section 8 closely mirrors the provisions of Art V of the Convention – Art V(1) is reflected in s 8(5) and Art V(2) in s 8(7). The same grounds for not enforcing an international arbitral award are also found in Art 36 of the UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended on 7 July 2006) which is reproduced as Sch 2 to the IAA.  The origins of Art 36 of the Model Law are also to be found in the New York Convention: TCL HCA at [7] per French CJ and Gageler J. Thus, Art 36(1)(a) of the Model Law mirrors Art V(1) of the New York Convention and Art 36(1)(b) of the Model Law mirrors Art V(2) of the New York Convention.
  1. It can thus be observed that the New York Convention and the Model Law represent a uniform framework for the recognition and enforcement of arbitral awards.  As explained in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83; 232 FCR 361 (TCL FCAFC) at [58] per Allsop CJ, Middleton and Foster JJ, the Model Law deals with many aspects of arbitration and arbitral procedure not touched upon by the New York Convention, which is broadly limited to protecting, recognising and enforcing awards in the field of international commercial arbitration. There is overlap between the Model Law and the New York Convention on these matters.
  2. Insofar as foreign awards are concerned, it is noteworthy that of the 193 member states of the United Nations, 165 are signatories to the New York Convention (from 168 signatories in total); the regime is not only uniform, it is also remarkably widespread.  That underscores the importance of interpreting the provisions of the IAA that implement the New York Convention, and the corresponding provisions of the Model Law, with the aim of achieving international uniformity in their interpretation: Povey v Qantas Airways Ltd [2005] HCA 33; 223 CLR 189 at [25] and [32] per Gleeson CJ, Gummow, Hayne and Heydon JJ. Due regard should be paid to the reasoned decisions of the courts of other countries where their laws are either based on, or take their content from, international conventions or instruments such as the New York Convention and the Model Law; it is of the first importance to attempt to create or maintain, as far as the language employed in the IAA permits, a degree of international harmony and concordance of approach to international commercial arbitration: TCL FCAFC at [75].
  3. Section 8(3A) of the IAA, by use of the word “only”, makes it clear that an enforcing court has no residual discretion to refuse enforcement; enforcement can be refused only if one or other of the grounds for refusal in sub-ss (5) and (7) is made out. In that regard, once the party seeking enforcement has established that it relies on a foreign award to which it (leaving aside any assignment for the present) and the respondent are parties, the onus is on the respondent who seeks to resist enforcement to establish one or other of the enumerated grounds. That much is clear from the wording of the chapeau to s 8(5) that the court may refuse to enforce the award if the party against whom it is invoked “proves to the satisfaction of the court” that a ground for non-enforcement is made out.
  4. As will be seen, a question nevertheless arises as to the standard of the burden on the party resisting enforcement.  I will return to that question in the context of the first issue to be determined in the appeal.  A question also arises as to the court’s discretion to enforce an award even when a ground for non-enforcement is established.  I will return to that question in the context of the second issue to be determined in the appeal.Background
  5. The following facts are not in dispute.  They are principally drawn from the primary judgment, Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116 at [7]-[26].
  6. The respondent, Energy City Qatar (ECQ), the award creditor, is a company incorporated in Qatar.  The appellant, Hub Street Equipment Pty Ltd (Hub), the award debtor, is a company incorporated in Australia with its principal place of business in Sydney.
  7. In 2010, ECQ and Hub entered into a contract for Hub to supply and install street lighting equipment and accessories, and street furniture and accessories, in Doha, Qatar.
  8. Relevant contractual provisions include:

    (1)          Article 46, headed “SETTLEMENT OF DISPUTES – ARBITRATION”:

    Any dispute connected with inter alia the formation, performance, interpretation, nullification, termination or invalidation of this Agreement or arising there from [sic] or related thereto in any manner whatsoever which is not amicably settled within 28 days, or such other period as the parties may subsequently agree, shall be referred to arbitration in accordance with the rules of arbitration in Qatar.  An Arbitration Committee shall consist of three members, one member being appointed by each party within 45 days of one party receiving a written notice from the other party to start arbitration proceedings.  The third member shall be mutually chosen by the first two members and shall chair the Arbitration Committee and issue the decision of the Arbitration Committee which shall be by a majority vote and shall be binding on both parties.  If a decision as to the appointment of the third such member cannot be reached within 28 days from the last date of the appointment of the member by the Parties and their appointed Tribunal Members, the matter of appointment of such member shall be referred by either party to the competent Qatari Courts.

    (2)          Article 47, which provides that the contract was made in the State of Qatar and is subject to the laws of the State of Qatar.

    (3)          Article 50, which provides that the English language shall be the ruling language of the contract and accordingly all matters relating to the contract shall be in English.

  9. In August 2011, ECQ paid US$820,322.16 to Hub under the contract as an advance payment.  However, in 2012 ECQ decided not to proceed with the contract and sought repayment of the money paid under the contract.  Following some email communications and meetings in 2012 in which ECQ continued to seek repayment of the money, Hub informed ECQ that it would identify its position after obtaining legal advice.  However, Hub never communicated again with ECQ in circumstances where Hub retained the money ECQ had paid to it.
  10. Crucially, ECQ never sent a notice to Hub under Art 46 of the contract giving Hub 45 days to appoint one member of the arbitration committee.  Instead, in June 2016 ECQ filed a statement of claim in the Plenary Court of First Instance of the State of Qatar seeking orders that the Court appoint an arbitral tribunal of three arbitrators including an arbitrator nominated by ECQ.  In doing so, ECQ relied on Art 195 of Law No. 13 of 1990 promulgating the Civil and Commercial Code of Procedure (Qatar) (the Civil Procedure Code) which was in force at the relevant time (and until February 2017).  The English translation of Art 195 of the Qatari Civil Procedure Code that was available in the proceeding is in the following terms:

    If a dispute arises between the parties prior to an agreement between them as to the arbitrators, or if one or more of the arbitrators refuses to act as such, or withdraws, or is dismissed, or is prevented from acting due to an encumbrance, and no agreement exists between the parties in this respect, the court which has jurisdiction to consider the dispute shall appoint the necessary number of arbitrators at the request of one of the parties, filed in accordance with the normal procedure for filing a claim.  The court shall hear the application in the presence of the other parties or in their absence after being summoned to appear before the court.  The court’s decision in respect of the foregoing may not be appealed in any way whatsoever.  However, its decision to reject the appointment of arbitrators shall be subject to appeal pursuant to the relevant provisions of Article 205.

  11. In November 2016, ECQ sent a notice of the court proceeding to Hub at the office of a related company in Qatar, not to the nominated address in Sydney at which Hub had agreed in the contract to receive notices.  The notice was translated from Arabic to English by an employee of the related company and brought to the attention of the directors of Hub in December 2016.  Hub did not participate in the Qatari Court proceeding.
  12. The Qatari Court made orders in January 2017 appointing an arbitral tribunal.  Thereafter, the arbitral tribunal sent to Hub’s nominated address six notices in English about the conduct of the arbitration between April 2017 and July 2017, with the arbitration being adjourned on three occasions due to Hub’s failure to attend.  Hub did not participate in the arbitration proceeding.
  13. The primary judge was satisfied that notice of the court proceeding was given to Hub’s directors, and that each of the six letters from the arbitral tribunal were given to Hub and that Hub understood from them that ECQ had commenced an arbitration against Hub for recovery of the US$820,322.16 which had been paid to Hub.  The primary judge inferred that Hub decided not to involve itself in the arbitration because it decided that was what was in its best commercial interests at the time.
  14. On 1 August 2017, the arbitral tribunal issued the award obliging Hub to pay ECQ:

    (1)          US$820,322.16, being the full value of the advance payment;

    (2)          US$75,000.00, as compensation against damages incurred by ECQ; and

    (3)          US$150,000.00, as full fees of the arbitration.

  15. The award is in Arabic.  It is apparent from the English translation of the award that the arbitral tribunal was satisfied that it had notified Hub of the conduct of the arbitration on three occasions, after which it adjourned the arbitration, but that as there was never any appearance by Hub it proceeded to determine the dispute and make the award in Hub’s absence.The primary judgment
  16. On the basis of the factual findings made by her Honour, which are not challenged on appeal, the primary judge (at [28]) rejected Hub’s grounds for resisting enforcement of the award based on its factual contentions that it had not received proper notice of the arbitration proceeding (s 8(5)(c) of the IAA), that it was unable to present its case in the arbitration proceeding as it never received notice of the proceeding (also s 8(5)(c)), and the arbitral award involved a breach of the rules of natural justice and thus the award should not be enforced as it would be contrary to public policy to do so (ss 8(7) and 8(7A)(b) of the IAA).
  17. The primary judge (at [30]) rejected Hub’s contention that the award should not be enforced because the arbitral procedure was not in accordance with the agreement of the parties in that contrary to Art 50 of the contract it was not conducted in English and the award was issued in Arabic (relying on s 8(5)(e) of the IAA). That was on the basis that the notices from the arbitral tribunal to Hub about the arbitration were in English, and Hub decided to ignore them and take no part in the arbitration despite knowing that it was being conducted. Having done so, there was no prejudice to Hub occasioned by the fact that the arbitral proceeding was conducted in and the arbitral award issued in Arabic. For those reasons, the primary judge, as a matter of discretion, would have decided to enforce the award against Hub notwithstanding the fact that the arbitral procedure was not in accordance with the agreement of the parties.
  18. The remaining grounds on which Hub resisted enforcement of the award were related, namely that it did not receive proper notice of the appointment of the arbitrators and the composition of the arbitral authority was not in accordance with the agreement of the parties as the Art 46 procedure in the contract had not been followed. These grounds relied on paragraphs (c) and (e) of s 8(5) of the IAA. The primary judge dealt with these grounds together (at [31]-[60]).
  19. The primary judge observed (at [34]) that the Qatari Court stated (in the English translation of its judgment):

    Whereas the two parties failed to agree upon tribunal of arbitrators, with which the court decides to appoint a tribunal consisted of three arbitrators…

  20. With reference to that statement by the Qatari Court and Art 195 of the Qatari Civil Procedure Code, the primary judge (at [59]) reasoned that it must be taken that the Qatari Court was satisfied that a dispute had arisen between ECQ and Hub prior to an agreement between them as to the arbitrators, and, whether that is so or not, Hub had not proved that according to Qatari law Art 195 of the Qatari Civil Procedure Code did not apply to the circumstances of the case.  That was because Hub’s expert on Qatari law, Dr Al-Adba, did not in his affidavit take into account the judgment of the Qatari Court and did not consider whether Art 195 was engaged by the factual circumstances of the case.  Further, the primary judge found that there was a factual foundation in the evidence for the conclusion that a dispute had arisen between the parties prior to an agreement between them as to the arbitrators, being Hub’s failure to revert to ECQ once it had obtained legal advice.  The primary judge found that refusal to respond to a request for repayment is capable of constituting a dispute within the meaning of Art 195.
  21. In essence, the primary judge (at [59]) held that the onus of proof lay on Hub and that Hub had not proved that Art 195 did not operate so as to allow the appointment of arbitrators in the circumstances of the case.  As such, it was held that Hub had not proved that the appointment of the arbitrators by the Qatari Court was not in accordance with Art 46 of the contract.
  22. With regard to the burden of proof, the primary judge (at [60]) cited IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSC 248; 38 VR 303 at [53] per Warren CJ that “the enforcing court should start with a strong presumption of regularity in respect of the tribunal’s decision and the means by which it was arrived at” and “the conduct of the parties to the agreement at each of the various stages prior to an enforcement order being sought in these courts, and its consistency with the defence subsequently asserted, will be a relevant factor to consider when deciding whether that burden has been discharged to the necessary standard.”
  23. Finally, the primary judge (at [61]) stated that if her Honour’s conclusions in rejecting Hub’s grounds for resisting enforcement of the award were incorrect, then she would nevertheless have declined to exercise the discretion to refuse enforcement given by s 8(5) of the IAA in Hub’s favour. The reasons identified by the primary judge were that Hub had received actual notice of the proceeding by ECQ in the Qatari Court and knew that the notice concerned ECQ seeking repayment of the money yet did nothing to ascertain what the proceeding was about, and Hub received actual notice of the constitution of the arbitral tribunal and the conduct of the arbitration in ample time to take a role in the arbitration but chose not to do so. The primary judge thus concluded (at [62]) that there would be no unfairness to Hub by enforcement of the award against it as it had had adequate opportunity to participate and had chosen not to do so.
  24. In the result, the primary judge entered judgment for ECQ against Hub in the amount of US$1,045,322.16 and ordered that Hub pay the cost of the proceeding.The grounds of appeal
  25. Although the notice of appeal identifies four grounds of appeal, they were grouped together in argument in such a way that there are in effect two principal issues in the appeal.
  26. First, Hub contends that the award should not be enforced because Hub was not given proper notice of the arbitration proceeding and the composition of the arbitral tribunal was not in accordance with the agreement of the parties under Art 46 of the contract (in reliance on paragraphs (c) and (e) of s 8(5) of the IAA). Hub submits that Art 195 of the Qatari Civil Procedure Code did not override the parties’ agreement as to the mode of commencement and notification of the arbitral proceeding, and the requirement to give notice of the commencement of the arbitral proceeding under Art 46 of the contract could not be cured by giving notice of the proceeding before the Qatari Court to appoint an arbitral tribunal. Hub submits that the existence of a dispute between the parties did not constitute a failure to agree on the composition of the tribunal within Art 195 of the Qatari Civil Procedure Code and the appointment of arbitrators by the Qatari Court under Art 195 did not cure the failure to constitute the arbitral tribunal in accordance with Art 46 of the contract.
  27. Secondly, Hub contends that any residual discretion under s 8(5) of the IAA to enforce the foreign award despite a ground for non-enforcement being established – whether as to the language of the arbitration as found by the primary judge or the composition of the tribunal as contended on issue 1 – was not enlivened or should not be exercised. In that regard, Hub submits that the primary judge ought to have concluded that the failure to conduct the arbitration in English was a fundamental departure from the agreed arbitral procedure with the consequence that the Court’s narrow residual discretion under s 8(5) to enforce an arbitral award was not enlivened. A similar submission is made with regard to the composition of the tribunal.Issue 1: the appointment of the arbitral tribunal
  28. Article 46 of the contract provides in the customary way for each party to a dispute to appoint an arbitrator and for the two arbitrators so appointed to appoint the third member of the tribunal.  To an Australian lawyer, Art 195 of the Qatari Civil Procedure Code provides in the customary way for the court at the seat of the arbitration to appointment arbitrators where the parties’ agreed procedure has failed.  It does not, on the face of it, provide for the court to appoint arbitrators contrary the parties’ agreed procedure simply because the parties are in a contractual dispute.  If that were the case, then the court could always appoint arbitrators whatever the parties had agreed which would be contrary to the fundamental premise underlying arbitration, and the court’s enforcement of arbitration awards, which is that the jurisdiction of the tribunal arises from the agreement or consent of the parties: Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) [1998] FCA 1485; 90 FCR 1 at 14 per Emmett J, Beaumont and Branson JJ agreeing; TCL HCA at [9] and [29] per French CJ and Gageler J and [81] and [109] per Hayne, Crennan, Kiefel and Bell JJ. As it was put by Menon CJ in AKN v ALC [2015] SGCA 18 at [37], “a critical foundational principle in arbitration is that the parties choose their adjudicators” (cited with approval in Cameron Australasia Pty Ltd v AED Oil Ltd [2015] VSC 163 at [21] per Croft J).
  29. However, it is not for the court where enforcement is sought, being this Court, to construe Art 46 of the contract or Art 195 of the Qatari Civil Procedure Code with reference to the law of the forum.  Those are matters for, respectively, the law governing the agreement to arbitrate and the law of the seat, which in the present case is in both instances Qatari law.  In that regard, it is uncontroversial in the present case that the law governing the substance of the dispute, the agreement to arbitrate and the arbitration process were all the same.  On that tripartite distinction, see Enka Insaat ve Sanayi AS v OOO “Insurance Company Chubb” [2020] UKSC 38; [2020] 1 WLR 4117 at [1]-[6] and [170].
  30. That appreciation leads to an examination of the evidence before the primary judge of Qatari law.  In that regard, it is important to acknowledge at the outset that ECQ does not contend that the Qatari Court judgment that appointed the arbitrators is an authoritative statement of Qatari law or that it creates an issue estoppel or res judicata between the parties, but rather that it is a ministerial act which has force and effect in the State of Qatar, being the place of the seat of the arbitration, and should be given recognition as a matter of comity.
  31. It should also be observed that in opening the case before the primary judge, the advocate for Hub said that the Qatari Court had made its decision on the basis that it had power to appoint the tribunal because the process set out in Art 46 had been attempted but had not achieved an outcome.  It was said that the Qatari Court was misled, and that it viewed Art 195 in exactly the same way as that provision would be viewed in Australia, namely that it is “a backstop that the Court can use when the agreement between the parties has broken down”.
  1. In opening the case before the primary judge, counsel for ECQ accepted that there was no notice under Art 46 prior to the Qatari Court proceeding, and that by saying that the Qatari Court was misled was to in effect ask the primary judge “to sit on appeal from a Qatar court”.
  2. In the light of what was said in opening, and contrary to what was at least hinted at on behalf of ECQ on the appeal hearing, I am satisfied that the point under consideration was properly raised before the primary judge.  That point is whether Hub can resist enforcement of the award in Australia on the basis that the arbitral tribunal was not appointed in accordance with the parties’ agreement notwithstanding the appointment of the tribunal by the Qatari Court because the Qatari Court misapprehended what had taken place between the parties with regard to the appointment of a tribunal.
  3. ECQ’s statement of claim in the Qatari Court by which it sought the appointment of three arbitrators, after citing Art 195 of the Qatari Civil Procedure Code, stated the following:

    Whereas and as the Defendant had refrained from execution of its legal and contractual obligations then accepting to recourse to arbitration despite being agreed upon in the agreement connecting the two parties, against that the Plaintiff instituted this lawsuit with the request to appoint a triple arbitral tribunal by which the Plaintiff nominates the arbitrator Yarub Rayan

  4. It is not clear from that translation whether the Qatari Court was being informed that Hub had not observed its legal and contractual obligation to submit to arbitration, or whether it was that Hub had not observed its underlying legal and contractual obligations, i.e., to repay the money paid in advance.
  5. The reasons for judgment of the Qatari Court records that the Court had “heard pleading and reviewed the documents and deliberated legally”, the facts were summed up in the statement of claim of which Hub was legally notified, a docket of exhibits was submitted which included a copy of the contract, and ECQ had appeared by an attorney and Hub had not appeared despite being legally notified.  The Qatari Court quoted Art 195 of the Civil Procedure Code and referred to Art 46 of the contract.  It then stated as follows:

    Whereas the Plaintiff had instituted this lawsuit alleging that the Defendant had breached its obligations as per the contract and adhered to the condition of arbitration contained in the contract subject matter of lawsuit.  Later, it had contacted it by a letter by its virtue it had nominated Mr. Moneer Abdulaziz Shalabi as an arbitrator for its behalf and asked to appoint an arbitrator by its side and the Defendant failed to appear before the court despite of the legal notification accordingly it had not objected against the submitted arbitration application.  Whereas and as Items of the contract in Article (46) thereof provided for on appointment triple arbitral tribunal, each party shall appoint one member and the third member shall be nominated by the first and second members who will chair the committee and issue the decision of the arbitral decision and in case of failure to agree upon appointment of those members it shall be referred by either party to the competent Qatari Courts.  Whereas the two parties failed to agree upon tribunal of arbitrators, with which the court decides to appoint a tribunal consisted of three arbitrators from the table of court’s experts as arbitrators to decide in the dispute subject matter of lawsuit with which the court adjudicate as will be contained in the pronouncement.

    (Emphasis added.)

  6. From this it is apparent that the Qatari Court was advised, or in any event understood, that after the institution of the proceeding before the Court, ECQ had notified Hub that it had nominated Mr Shalabi as an arbitrator and it asked Hub to appoint an arbitrator but that Hub had failed to appear before the Court, and presumably had failed to appoint an arbitrator.  That was apparently the basis for the conclusion that the parties had failed to agree upon a tribunal of arbitrators which the Qatari Court regarded as enlivening its power to appoint the tribunal under Art 195 of the Civil Procedure Code.  On that basis it proceeded to appoint a tribunal of three: a civil engineer, an electrical engineer and an accountant.  Neither Mr Rayan, who had been nominated in the statement of claim, nor Mr Shalabi who was said to have been nominated after the court proceeding had been commenced, was appointed.
  7. Since it is an uncontroversial finding of fact of the primary judge that Hub had not been notified of the appointment by ECQ of an arbitrator and invited to appoint an arbitrator, as required by Art 46 of the contract, it is apparent that the Qatari Court proceeded upon a misapprehension as to the facts.  The reason for the misapprehension is not apparent, or particularly relevant.  It is nevertheless tolerably clear, the imperfections of translation accounted for, that the Qatari Court appointed the tribunal because, as it understood the position, ECQ had invoked the Art 46 procedure but Hub had failed to respond.
  8. Only Hub adduced expert evidence on Qatari law.  As indicated, its expert was Dr Al-Adba, a practising Qatari lawyer with a Bachelor of Laws (Qatar University), Master of Laws (Institute of International and Development Studies, Geneva), Graduate Diploma in Law (Harvard Law School) and Doctor of Philosophy (Manchester University).  Dr Al-Adba’s affidavit included the following statements of opinion:

    (1)          The most important thing to validly commence an arbitration is legal notification as agreed in the agreement.  Without this, the dispute might be premature and the arbitration deed and verdict will be invalid.

    (2)          The valid way either party to the contract with the wording of Art 46 may begin an arbitration against the other party is for the claimant to send a written notice by prepaid post to the respondent to the address provided in the contract and, within 45 days of that notice, each party may appoint an arbitrator.

    (3)          In the event that the notice under the contract is not responded to, the claimant may apply to the court for a judicial notification to appoint an arbitrator.

  9. In cross-examination, Dr Al-Adba gave the following evidence:

    (1)          With reference to the judgment of the Qatari Court, of which he was not aware at the time he prepared his affidavit, he said that the court had adjudicated to appoint the arbitral tribunal.  He then agreed with the proposition that until a judgment is set aside it represents the law in the State of Qatar.

    (2)          In response to the proposition that since the court appointed the arbitrators the award would not be null and void, he said that if the arbitrators are appointed by the court, “for some extent the appointment might be okay, if the notification is delivered”, but the award of the arbitrators might be null and void.  Dr Al-Adba would seem to have meant that if notification under Art 46 of the contract had been given and not responded to, then the appointment of the arbitrators would be valid but that whether or not an arbitration award would be valid and enforceable would depend on other considerations.

    (3)          He agreed with the proposition that “if you wanted to argue that the court should not have appointed the arbitrators then you have to make an application under article 33 of the Qatari Arbitration Law”.  That was a reference to Art 33 of the Civil and Commercial Arbitration Law (Law No. 2 of 2017) which was in force from March 2017, i.e., at the time of the hearing before the primary judge but not at the time of the judgment of the Qatari Court.  It provides for recourse against an arbitral award on narrow grounds that mirror those in Art 34 of the Model Law, the State of Qatar having adopted domestic legislation based on the Model Law.

    (4)          He did not agree with the proposition that it is a normal part of the procedure in Qatar to give notice of appointment of an arbitrator under the contract in the statement of claim commencing a lawsuit in which the court is asked to appoint arbitrators.

  10. It was not put to Dr Al-Adba that Art 195 of the Civil Procedure Code gave the court the power to appoint arbitrators where the procedure agreed by the parties for the appointment of arbitrators had not been followed. The high point of the cross-examination was that if Hub disagreed with the appointment by the Qatari Court it had to apply to set aside the award. That, of course, does not deal with the position in January 2017 when the appointment was made, which was when Art 195 of the Qatari Civil Procedure Code applied which states that the appointment of arbitrators under that provision “may not be appealed in any way whatsoever”. Also, it does not answer whether enforcement of the award can be resisted in Australia under s 8(5)(e) of the IAA. It merely speaks to what could be done in Qatar.
  11. In re-examination, Dr Al-Adba said that the statement of claim by which the lawsuit to appoint the arbitrators was commenced would not be considered as a notice of the kind contemplated by the arbitration agreement in Art 46 of the contract.
  12. The conclusions to draw from the evidence are that Art 46 required the notice and invitation to appoint an arbitrator procedure to be followed and Art 195 of the Civil Procedure Code gave to the court the power to appoint arbitrators where the parties had failed to agree.  That is also apparently what the Qatari Court understood that it was doing.  The evidence does not support the proposition that Art 195 empowered the court to override the agreement of the parties as to the appointment of the arbitral tribunal.  The Qatari Court apparently acted on the misapprehension that the Art 46 procedure had been followed but had failed to produce the appointment of a tribunal and on that basis it exercised its power of appointment.
  13. In those circumstances, under Qatari law as the applicable law, the composition of the arbitral tribunal was not in accordance with the agreement of the parties. The basis to resist enforcement of the award in reliance on s 8(5)(e) of the IAA was accordingly established. In my respectful view, the primary judge was in error in concluding that Hub had not proved that according to Qatari law Art 195 of the Civil Procedure Code did not apply to the circumstances of the case. Although there was a factual foundation to, and evidence to support, the conclusion that a dispute had arisen between the parties, that had not been prior to an agreement between them as to the arbitrators. They agreed on the method and procedure for the appointment of arbitrators in their contract at the outset, long before any dispute arose. There was also no dispute between them with regard to following the procedure required by Art 46 of the contract; ECQ, for whatever reason, had simply not followed that procedure and had gone prematurely to court which resulted in the appointment of a tribunal that was contrary to the parties’ agreement.
  14. Because the primary judge decided this point on the basis that Hub had not discharged the burden on it to prove that the composition of the arbitral tribunal was not in accordance with the agreement of the parties, it is necessary to consider the question of the standard of the burden of proof.  As indicated, the primary judge cited and apparently applied dicta of Warren CJ in IMC Aviation.  However, differing views were expressed on that question in IMC Aviation.
  15. The case concerned which party bore the onus on the question of whether the award debtor was a party to the arbitration agreement as referred to in s 8(1) of the IAA as it was then worded. Subsequent amendment of s 8(1) in response to the judgment in IMC Aviation (by the Civil Law and Justice Legislation Amendment Act 2018 (Cth), item 2 of Sch 7) makes it clear that for enforcement the award must be between the parties to the award, rather than the parties to the agreement. The Court was unanimous in the result, namely that the appeal should be allowed, but there were two judgments with different approaches to the burden of proof, one by Warren CJ and the other by Hansen JA and Kyrou AJA. It is to the joint judgment that one must look to find the rationes decidendi or, if the relevant point is not ratio, the majority dicta: Dickenson’s Arcade Pty Ltd v Tasmania [1974] HCA 9; 130 CLR 177 at 188 per Barwick CJ.
  16. The joint judgment in IMC Aviation (at [127]) recognised that s 39(2) of the IAA provides that in interpreting the IAA the court must have regard to its objects set out in s 2D as well as the stated facts that arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes and that awards are intended to provide certainty and finality.
  17. With regard to what has been described as the “pro-enforcement bias” of the New York Convention, the joint judgment (at [128]) reasoned that that means that the IAA, and the Convention, recognising the role and importance of arbitration in international trade and commerce and the certainty and finality of awards, has simplified the procedure for enforcing foreign awards while also limiting the grounds upon which the enforcement of such awards may be resisted and placed the onus of establishing those grounds upon the party resisting enforcement.  In support of that statement the judgment cited Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46; [2011] 1 AC 763 at [101] per Lord Collins of Mapesbury JSC; Blackaby N, Partasides C, Redfern A and Hunter M, Redfern and Hunter on International Arbitration (5th ed, Oxford University Press, 2009) p 588 [10.09] and Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] HKCFA 40; [1999] 2 HKC 205 at [99] per Sir Anthony Mason NPJ. Those references are all good authority for the proposition for which they were cited, and they reflect the approach with regard to the Convention in two significant common law jurisdictions.
  18. In Dallah, Lord Mance JSC (at [30]) expressed the matter as follows:

    The scheme of the New York Convention, … may give limited prima facie credit to apparently valid arbitration awards based on apparently valid and applicable arbitration agreements, by throwing on the person resisting enforcement the onus of proving one of the matters set out in article V(1) … . But that is as far as it goes in law.  Dallah starts with advantage of service, it does not also start 15 or 30 love up.

  19. Lord Hope of Craighead DPSC, Lord Saville of Newdigate JSC and Lord Clarke of Stone-cum-Ebony JSC agreed with the reasons of Lord Mance and Lord Collins JJSC.
  20. The joint judgment in IMC Aviation concluded (at [191]-[192]) that the primary judge in that case had been in error in concluding that the party resisting enforcement bears an onus that is “very high” and that “clear, cogent and strict proof” is required. Their Honours concluded that the IAA neither expressly nor by necessary implication provides that the standard of proof under ss 8(5) and (7) is anything other than the balance of probabilities, as one would expect in a civil case. The true position, it was concluded, is that what may be required, in a particular case, to produce proof on the balance of probabilities will depend on the nature and seriousness of that sought to be proved. See also Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu [2021] FCA 477 at [25] per Middleton J where this approach was adopted. This includes the elementary maxim that all evidence is to be weighed according to the proof of which it was in the power of one side to have produced, and in the power of the other to have contradicted: Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970.
  21. Warren CJ, in contrast, reasoned (at [52]-[53]) that the enforcing court should start with “a strong presumption of regularity” and that it should treat allegations of vitiating irregularity, which her Honour had identified as being the grounds to resist enforcement in s 8(5)(a)-(e), as “serious”. On that basis, with reference to Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336 at 362 per Dixon J, her Honour concluded that a “correspondingly heavy onus falls upon the award debtor if it wishes to establish such an allegation on the balance of probabilities.”
  22. In my view, the expression of the point in the joint judgment is to be preferred to that of the Chief Justice for the reasons given in the joint judgment referred to above.  The nature of the “vitiating irregularity” and hence how “serious” it should be regarded to be may differ.  In one case it may involve allegations of or akin to fraud and in another case, such as the present where the issue is in essence whether the agreed commencing procedure was followed, it may be quite bland without any moral taint of “seriousness” although obviously of great importance; the “seriousness” or “gravity” of an allegation of fact on which an award debtor relies in order to establish a ground of non-enforcement is not necessarily of the nature of seriousness contemplated in Briginshaw such as by its nature to be more exacting to prove before the court will have “comfortable satisfaction” (Rich J at 350) or “feel an actual persuasion” (Dixon J at 362) of its having been established. See British American Tobacco Australia Services Ltd v Laurie [2009] NSWCA 414 at [10]-[13] per Allsop P; Bennett H and Broe GA, “The Civil Standard of Proof and the ‘Test’ in Briginshaw: Is There a Neurobiological Basis to Being ‘Comfortably Satisfied’?” (2012) 86 ALJ 258; Gageler S, “Evidence and Truth” (2017) 13 TJR 1 at 6-8; Gageler S, “Alternative Facts and the Courts” (2019) 93 ALJ 585 at 590-591.
  23. I respectfully agree with the joint judgment that the IAA neither expressly nor by necessary implication provides that the standard of proof under ss 8(5) and (7) is anything other than the balance of probabilities as ordinarily applied in a civil case. The point about the IAA having a pro-enforcement bias is that the grounds upon which enforcement may be resisted are finite and narrow, and not that they must be established to a standard that is higher than the ordinary standard. This is also the approach that better accords with that followed internationally.
  24. Finally on IMC Aviation, I do not see how, as stated by Warren CJ (at [53]) and cited by the primary judge, the conduct of the parties to the agreement at each of the various stages prior to an enforcement order being sought, and its consistency with the defence subsequently asserted, will be a relevant fact to consider when deciding whether the burden of establishing vitiating irregularity has been discharged to the necessary standard.  Such conduct may conceivably be relevant to the question of discretion, to which I will shortly turn.  The grounds for non-enforcement are, however, narrow and specific.  The conduct of the parties between the points at which the dispute arises and an enforcement order is made in the court cannot be relevant to, for example, the questions of whether a party to the arbitration agreement was under some legal incapacity at the time when the agreement was made, or the arbitration agreement is valid under the law applicable to it, or the award debtor was given proper notice of the appointment of the arbitrator, or the composition of the arbitral authority was in accordance with the agreement of the parties.
  25. In the result, Hub proved to the requisite standard that the composition of the arbitral tribunal was not in accordance with the arbitration agreement. It has thus established the ground for non-enforcement expressed in s 8(5)(e) of the IAA and Art V(1)(d) of the New York Convention. The question then turns to the matter of the court’s discretion to nevertheless enforce the award. But before doing so, it is necessary to consider one further submission made by ECQ.
  1. ECQ submits that Hub’s remedy was to seek to set aside the appointment of the arbitral tribunal or the award at the seat, i.e., Qatar, rather than to rely on the wrong composition of the tribunal as a ground to resist enforcement.  As indicated, that is on the basis that as a ministerial act the decision of the Qatari Court to appoint the arbitrators exists and is effective in Qatar and as a matter of comity this Court should regard it as effective until set aside.
  2. It is well established that as a general rule an award debtor does not have to take positive steps at the seat of the arbitration to set aside the award and can wait until the award is sought to be enforced before raising any defences to enforcement.  That arises from the text and structure of the New York Convention and the Model Law which provide for the same grounds for recourse against an award and resisting enforcement of any award and do not expressly or by implication require an award debtor to take one course rather than the other; the award debtor has a choice: it can actively seek to set aside the award in the supervisory court at the seat of the arbitration or it can wait and raise defences to the award in the enforcing court when the award is sought to be enforced.
  3. In Dallah (at [23] per Lord Mance JSC) it was said that a person who denies being party to any relevant arbitration agreement has no obligation to participate in the arbitration or to take any steps in the country of the seat of what they maintain to be an invalid arbitration leading to an invalid award against them. The party initiating the arbitration must try to enforce the award where it can. Only then and there is it incumbent on the award debtor denying the existence of any valid award to resist enforcement. It was also said (at [28]) that there is nothing in the text containing any suggestion that a person resisting recognition or enforcement in one country has any obligation to seek to set aside the award in the other country where it was made. See also [103] per Lord Collins JSC.
  4. What Lord Mance JSC had said on this point in Dallah was endorsed by Hansen JA and Kyrou AJA in IMC Aviation at [320]. The same position has been recognised in Singapore: PT First Media TBK v Astro Nusantara International BV [2014] 1 SLR 372; [2013] SGCA 57 (PT First Media SG) at [71] per Menon CJ for the Court, adopted in Liaoning Zhongwang Group Co Ltd v Alfield Group Pty Ltd [2017] FCA 1223 at [117]-[118] per Gleeson J.
  5. The position is, however, different where the court at the seat of the arbitration has itself rejected a challenge to the award.  It will generally be inappropriate for the enforcement court of a Convention country to reach a different conclusion on the same question of asserted defects in the award as that reached by the court of the seat of arbitration: Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468 at [65] per Allsop CJ, Besanko and Middleton JJ. The Court in Gujarat endorsed the observations of Coleman J in Minmetals Germany GmbH v Ferco Steel Ltd [1999] 1 All ER (Comm) 315 (at 331) that outside an exceptional case such as where the powers of the supervisory court are so limited that they cannot intervene even where there has been an obvious and serious disregard for basic principles of justice by the arbitrators or where for unjust reasons, such as corruption, they decline to do so, any suggestion that procedural defects in the conduct of the arbitration which have already been considered by the supervisory court should be reinvestigated by the enforcing court is to be most strongly deprecated.
  6. In Hebei, the Hong Kong Court of Final Appeal similarly held (at [84]-[85]) that the New York Convention recognises that although an award may be valid by the law of the place where it is made, its making may be attended by such a grave departure from basic concepts of justice as applied by the court of enforcement that the award should not be enforced. Thus, the refusal by a court of supervisory jurisdiction to set aside an award does not debar an unsuccessful applicant from resisting enforcement of the award in the court of enforcement. It is implicit in the reasoning that the circumstances in which opposition to enforcement will be successful in such an event are necessarily constrained.
  7. In PT First Media TBK v Astro Nusantara International BV [2018] HKCFA 12; [2018] 3 HKC 458 (PT First Media HK), awards made in Singapore and subject to the supervision of the courts in Singapore had been denied enforcement in Singapore on the fundamental basis that the arbitrators lacked jurisdiction, but they had not been set aside there (see PT First Media SG referred to above). Indeed, there had been no application there to set them aside. When enforcement was sought in Hong Kong, the award debtors resisted enforcement in reliance on the lack of jurisdiction of the arbitrators and the award creditor countered by arguing that since the awards had not been set aside in Singapore they were still a valid source of debt. The Court of Final Appeal (at [75] and [79]) reaffirmed the principle that absent considerations such as waiver an award debtor has a choice whether to actively pursue setting aside the award in the supervisory court or passively resisting enforcement in the enforcing court. Thus the failure to seek to set aside the awards in Singapore was no obstacle to resisting their enforcement in Hong Kong.
  8. The present case fits neither the paradigm case of the award debtor having a choice between whether to challenge the award at the seat or resist enforcement nor the case where the award has been endorsed by the supervising court at the seat, by rejecting a challenge to it, and the award debtor seeks to challenge it again at the enforcement stage.  In the first case there is no supervisory court endorsement of the award and in the second there is, whereas in the present case there is involvement of the supervisory court at the stage of appointment of the arbitral tribunal but no endorsement of the award.  ECQ consequently relies on comity rather than the structure of the common international regime for the recognition and enforcement of arbitral awards to justify this Court’s acceptance of the Qatari Court’s appointment of the tribunal notwithstanding the Qatari Court’s misapprehension already identified.
  9. In CSR Ltd v Cigna Insurance Australia Ltd [1997] HCA 33; 189 CLR 345 at 395-396, per Dawson, Toohey, Gaudron, McHugh, Gummow and Kirby JJ, citing Hilton v Guyot 159 US 113 (1895) at 163-164, it was recognised that “comity”, in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and goodwill, on the other. It is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws. See also Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International NV [2007] FCAFC 43; 157 FCR 558 at [18]-[19] per Black CJ, Allsop and Middleton JJ. Thus, comity is not an uncritical, automatic or unexamined recognition of a foreign court’s process or judgment; it is nuanced and depends on the nature of what is sought to be recognised, the purpose for which recognition is sought, domestic rights and the ramifications of recognition. See Allsop JLB, “Comity and commerce” (Address to the 16th Conference of Chief Justices of Asia & the Pacific, Sydney, 8 November 2015) [43].
  10. There is no detraction from the principle of comity, so understood, by not enforcing the award in this case on the basis that the Qatari Court acted on a misapprehension of the true position in appointing the arbitral tribunal. There are several considerations that lead to that conclusion. First, there is no disrespect of, or lack of goodwill towards, the Qatari Court to recognise that it acted upon a misapprehension of what we now know the facts to be. Secondly, any exercise of jurisdiction of the Qatari Court to appoint arbitrators to the dispute of the parties rested on the parties’ agreement, and since what they agreed was not followed the basis for the exercise of that jurisdiction was lacking; the failure goes to the very heart of the decision that ECQ would have this Court recognise. Thirdly, Hub did not invoke the process of the Qatari Court the result of which it is now seeking to resile from; it agreed a particular procedure for the commencement of arbitral proceedings and the appointment of an arbitral tribunal and when that was not followed it ignored what was subsequently done to appoint the arbitral tribunal, which it was entitled to do. Fourthly, Hub has the right (subject to the question of discretion which I will come to) under the law of Australia to not have enforced against it here an arbitral award by an arbitral tribunal that was not composed in accordance with what it had agreed. Section 8(5)(e) of the IAA is a law of the Commonwealth of Australia that the Court cannot merely brush aside in the interests of comity; the Court is duty bound to apply it.
  11. Support for that approach is to be found in the decision of the United States Court of Appeals for the Second Circuit in Encyclopaedia Universalis SA v Encyclopaedia Britannica Inc, 403 F 3d 85 (2nd Cir, 2005).  The arbitration agreement provided for each party to appoint an arbitrator and for them to jointly appoint the third arbitrator, but in the event of disagreement between them the third arbitrator would be appointed by the President of the Tribunal of Commerce of Luxembourg (apparently a chamber of the Luxembourg District Court) at the request of the arbitrator who was first to make such a request.  Encyclopedia Universalis SA (EUSA) appointed Danziger and Encyclopaedia Britannica Inc (EB) appointed Layton, and they conferred on various matters but not on the identity of the third arbitrator.  Then, Danziger wrote to the President of the Tribunal stating that he and Layton had been unable to agree on a third arbitrator.  The Presiding Judge of the Tribunal appointed the third arbitrator, Decker.  There was then a dispute about the appointment of the third arbitrator which went to a hearing before the Presiding Judge who ordered that Decker proceed with the arbitration.  EB and Layton did not participate in the ensuing arbitration proceeding which produced an award in favour of EUSA.
  12. EUSA then sued in the Southern District of New York seeking recognition and enforcement of the arbitration award pursuant to the New York Convention.  The Second Circuit agreed (at 91) with the District Court that “the Tribunal’s premature appointment of Decker irremediably spoiled the arbitration process” – it was premature because Danziger had sought the appointment before he and Layton had reached disagreement on it.  It was held that courts must not overlook agreed-upon arbitral procedures in deference to the strong public policy in favour of international arbitration, and that the New York Convention required that the parties’ commitment to the form of their arbitration be respected.  On that basis, the District Court’s refusal to enforce the award was upheld.  That conclusion was reached notwithstanding that the arbitral tribunal had been appointed by the Tribunal de Commerce in Luxembourg after a hearing at which both EB and EUSA were represented by counsel.  The District Court concluded that the defect in the proceedings was not attributable to any decision made by the Tribunal, but rather to the premature involvement of the Tribunal as a result of Danziger’s actions: Encyclopaedia Universalis SA v Encyclopaedia Britannica Inc, 03 Civ 4363 (SAS) (S.D.N.Y. Dec. 3, 2003) at 10.
  13. The present case is similar.  The defect in the proceeding is not attributable to the decision of the Qatari Court to appoint the arbitral tribunal, but to the premature involvement of the Qatari Court at the suit of ECQ.
  14. For these reasons, Hub’s reliance on s 8(5)(e) of the IAA is not answered by reliance on any regularising effect of the Qatari Court’s judgment.Issue 2: the discretion
  15. The essential questions are whether, as a matter of discretion, the award can or should be enforced notwithstanding that, first, the arbitration proceeding was conducted in Arabic, not English, and, second, the arbitral tribunal was prematurely appointed by the Qatari Court, both contrary to the procedure agreed by the parties.
  16. As indicated, the primary judge concluded in relation to the arbitral proceeding not being conducted in English, which her Honour found to have been a ground for non-enforcement that was established, that as a matter of discretion the award should nevertheless be enforced.  The exercise of that discretion is challenged in the appeal in which House v The King [1936] HCA 40; 55 CLR 499 error is required to be established, i.e., that the primary judge acted upon a wrong principle, allowed extraneous or irrelevant matters to guide or affect the decision, mistook the facts, or did not take into account some material consideration (at 505 per Dixon, Evatt and McTiernan JJ).
  17. The primary judge also said that had she found that the ground of non-enforcement that the arbitral tribunal was not composed in accordance with the agreement of the parties had been established, she would nevertheless have exercised the discretion to enforce the award.  Since the primary judge did not, in fact, exercise the discretion, because of the conclusion that the ground for non-enforcement had not been established, this Court, on finding that that ground is established, must exercise the discretion for itself – no question arises as to finding an error with the exercise of the discretion by the primary judge in accordance with the principles expressed in House v The King.
  18. Article V(1) of the New York Convention provides that recognition and enforcement of the award “may be refused” on one or more of the enumerated grounds. Article V(2) similarly provides that recognition and enforcement of an arbitral award “may also be refused” on one or other of the grounds then set out. Article 36(1) of the Model Law and ss 8(5) and (7) of the IAA use the same permissive language of “may”. It is that language that is the source of the contention that there vests a discretion in the enforcing court to enforce an award even if one of the enumerated grounds for non-enforcement is made out, i.e., the court may, not must, refuse to enforce an award if a ground for non-enforcement is established. In domestic statutory interpretation, a provision which uses the word “may” is prima facie permissive: Herzfeld P and Prince T, Interpretation (2nd ed, Lawbook Co, 2020) [4.220] and the authorities there cited.
  19. In TCL FCAFC, this Court stated (at [55]), relevantly, that an international commercial arbitration award will not be denied recognition or enforcement under Art V of the New York Convention “unless there is demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness”. Although referred to by Hub in argument, those statements do not speak generally to the discretion to enforce an award even where a ground for non-enforcement is made out. Rather, they were made in the context of the public policy ground for non-enforcement which, uniquely, takes account of what might otherwise be discretionary factors in its assessment of the ground on non-enforcement. This is apparent from the Court’s statement (at [111]) that it is not profitable to seek to differentiate between the engagement of public policy under the relevant articles and a supposedly separate and a later question whether to exercise the discretion to enforce.
  20. Hub is correct in submitting that there is no authoritative statement in Australia of the nature of the discretion to enforce an award that is conveyed by ss 8(5) and (7) of the IAA. It was accepted in TCL FCAFC (at [48]) that there is a discretion to enforce, and that is supported by the use of “may” as indicated. For the reasons already explained, it is necessary to look to international authorities in reaching a view on the nature of the discretion.
  21. Dr van den Berg in The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation (Kluwer Law International, 1981) p 265, with reference to the permissive language of “may be” in both the first and second paragraphs of Art V of the New York Convention, said that for the first paragraph it means that even if a party against whom the award is invoked proves the existence of one of the grounds for refusal of enforcement, the court still has a certain discretion to overrule the defence and to grant the enforcement of the award.  The learned author reasoned that such overruling would be appropriate, for example, in the case where the respondent can be deemed to be estopped from invoking the ground for refusal.  For the second paragraph, it would mean that a court can decide that, although the award would violate domestic public policy of the court’s own law, the violation is not such as to prevent enforcement of the award in international relations.
  22. In Dardana Ltd v Yukos Oil Co [2002] EWCA Civ 543; [2002] 2 Lloyd’s Rep 326, Mance LJ (at [8] and [18], with whom Thorpe LJ and Neuberger J agreed) was not impressed with the suggestion that there is no discretion to enforce an award even where one of the grounds for non-enforcement is established, but, citing the passage from van den Berg referred to above, held that it is not “an open discretion”:

    The use of the word “may” must have been intended to cater for the possibility that, despite the original existence of one or more of the limited circumstances, the right to rely on them had been lost, by for example another agreement or estoppel.

  23. In Hebei the Hong Kong Court of Final Appeal considered the discretion to enforce an award even where a ground for non-enforcement had been made out. Sir Anthony Mason NPJ, with whom Li CJ and Ching and Bokhary PPJ agreed, agreed (at [93]) with Kaplan J in China Nanhai Oil Joint Service Corp Shenzhen Branch v Gee Tai Holdings Co Ltd [1994] HKCFI 215; [1994] 3 HKC 375 at [48]-[49] that the New York Convention confers a residual discretion on the court of enforcement to decline to refuse enforcement, even if a ground for refusal might otherwise be made out. That arises from the use of the permissive “may” in Art V of the Convention. In China Nanhai the discretion to enforce was exercised on the basis that the established irregularity was not prejudicial, or made no difference, as had been the position in Paklito Investment Ltd v Klockner (East Asia) Ltd [1993] 2 HKLR 39, also per Kaplan J.
  24. In Hebei it was said (at [94]) that whether the respondent’s conduct which justified the exercise of the discretion was described as giving rise to an estoppel, or a breach of the bona fide principle, or simply as a breach of the principle that a matter of non-compliance with the governing rules shall be raised promptly in the arbitration, was beside the point. It was said that on any of those bases, the respondent’s conduct in failing to raise in the arbitration its objection to unilateral communications having been made to the Chief Arbitrator was such as to justify the court of enforcement in enforcing the award. The factual basis for that (which was described at [104]) was that although the respondent had been aware of the irregularity at an early stage it had failed to take various steps that might have rectified the irregularity, including applying for the removal of the Chief Arbitrator, and had simply proceeded with the arbitration as if nothing untoward had happened.
  25. In PT First Media HK, the Court of Final Appeal held (at [42]) that the absence of a valid arbitration agreement between the parties is a fundamentally important factor militating against discretionary enforcement. It was thus concluded (at [44]) that the primary judge had misdirected himself by failing to take into account the fundamental defect that the awards were sought to be enforced against parties who were not parties to the arbitration agreement in respect of whom the awards were made without jurisdiction, and that had he taken this into account he could only have exercised his discretion to refuse enforcement.
  1. In Dallah, where the issue was whether the award debtor was a party to the arbitration agreement, Lord Mance JSC referred (at [67]) with approval to what he had said in the Court of Appeal in Dardana (referred to at [94] above) with regard to the discretion to enforce being restricted and to cover, as possible examples, circumstances of another agreement or estoppel. His Lordship said (at [68]) that absent some fresh circumstance such as another agreement or an estoppel, it would be a remarkable state of affairs if the word “may” enabled the court to enforce or recognise an award which it found to have been made without jurisdiction. It was also said (at [69]) that general complaints that the respondent did not behave well, unrelated to any known legal principle, were equally unavailing in a context where the respondent had proved that it was not party to the arbitration agreement.
  2. In the final sentence of [69] Lord Mance JSC said: “There is here no scope for reliance upon any discretion to refuse enforcement which the word ‘may’ may perhaps in some other contexts provide.”  It seems that what must have been meant is that “there is here no scope for reliance upon any discretion to refuse non-enforcement which the word ‘may’ may in some other contexts provide.”
  3. Lord Collins JSC (at [127]) also referred to what Mance LJ had said in Dardana about there being no arbitrary discretion and that the use of the word “may” was designed to enable the court to consider other circumstances, which might on some recognisable legal principle affect the prima face right to have an award set aside.  In addition to the example of estoppel that had been given in Dardana, Lord Collins JSC gave as another possible example where there had been no prejudice to the party resisting enforcement, and added that “it is not easy to see how that could apply to a case where a party had not acceded to an arbitration agreement.”
  4. It is to be noted that Gary Born in International Commercial Arbitration (3rd ed, Kluwer Law International, 2021) vol III p 3746 [§26.03[B][6]] reasons (with reference to Dallah) that it would be exceptional to recognise an award in cases where a recognition court (i.e., an enforcing court) concludes that no valid arbitration agreement was concluded or that the dispute exceeds the scope of the arbitration agreement, and also that it is difficult to see how awards that violate applicable public policy could ordinarily be subject to discretionary recognition.  This is the point made in TCL FCAFC (referred to at [91] above) and is presumably because any discretionary considerations would already have been taken into account in considering whether enforcement would be contrary to public policy. The learned author contrasts such cases with cases involving procedural irregularities where considerations of materiality, prejudice, waiver and estoppel may make recognition appropriate notwithstanding a technical basis for non-recognition.
  5. As already identified, the New York Convention has a pro-enforcement bias.  That finds expression in the narrow and limited grounds for non-enforcement which the award debtor must establish.  There is, however, no justification in the text and structure of the Convention to justify a broad-ranging or unlimited discretion to enforce even when one of the narrow grounds for non-enforcement is made out.  There is, equally, no justification in the text and structure to conclude that there is no discretion, or to limit it to such an extent that in cases of irregularity that has caused no material prejudice the court must nevertheless not enforce the award.
  6. Relevantly, the parties agreed by Art 50 of their contract that the English language would be the ruling language of the contract and that all matters relating to the contract would be in English, but contrary to that the arbitration was conducted in Arabic. There is no challenge to the primary judge’s conclusion that that was an irregularity within the meaning of s 8(5)(e) of the IAA as the arbitral procedure was not in accordance with the agreement of the parties. Contrary to the submission by Hub, in my view the primary judge was correct to conclude that the irregularity had no prejudice to Hub because it had received notices of the arbitration in English and it had elected not to participate. Such immateriality of the irregularity would fully justify the exercise of the enforcement discretion notwithstanding the irregularity. Hub’s submissions to the contrary, and in particular that the language irregularity affected the “structural integrity of the arbitration”, are not accepted. No House v The King error is established in the exercise of the discretion in relation to the language ground.
  7. Insofar as the other ground is concerned, the composition of the arbitral tribunal other than in accordance with the agreement of the parties is fundamental to the structural integrity of the arbitration; it strikes at the very heart of the tribunal’s jurisdiction.  That is a fundamental matter, much like in Dallah and PT First Media where the award debtor was not party to the arbitration agreement, such that the discretion to nevertheless enforce was not available.  Equally fundamental was a failure to give notice of the arbitration which precluded the exercise of the discretion to nevertheless enforce the award: Beijing Jishi at [155]-[156]. I would accordingly not exercise the discretion to enforce the award. ECQ’s reliance on the conduct of Hub in not responding to the Qatari Court proceeding or the notices from the arbitral tribunal, in divesting itself of its assets (even if established, on which no finding is required to be made) and in falsely contesting in the proceeding before the primary judge that it had received various notices, is to no avail in the circumstances.Conclusion
  8. In the result, the appeal should be allowed.  The orders of the primary judge on 26 August 2020 should be set aside and substituted with orders dismissing ECQ’s application to enforce the award.  Because most of Hub’s grounds for resisting enforcement, in particular those that were evidence-heavy such as that it received no notice of the arbitration proceeding, failed before the primary judge whose findings thereon were not challenged on appeal, it is not clear that Hub should have the costs of the proceeding at first instance.  I would therefore invite the parties to make brief written submissions on these costs.
  9. Although there is no immediately apparent reason why the costs of appeal should not follow the event, we did not hear the parties on the costs of the appeal so I would give them the opportunity to make written submissions on these costs as well.
  10. I have also read the additional remarks of the Chief Justice with which I agree.
  11. In the result, I would make the following orders:

    (1)          The appeal be allowed.

    (2)          The orders and declaration of the Court on 26 August 2020 in NSD 94 of 2020 be set aside and substituted with an order that the proceeding be dismissed.

    (3)          The parties file and serve written submissions of no more than five pages on the questions of costs of the proceedings below and on appeal, which questions will be decided on the papers unless otherwise ordered, as follows:

    (a)          the appellant within seven days of these orders; and

    (b)          the respondent within seven days thereafter.

     

I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.

 

Associate:

Dated:       25 June 2021

Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. (No 3) [2021] FCAFC 112 (25 June 2021) (Allsop CJ, Perram and Moshinsky JJ)

FEDERAL COURT OF AUSTRALIA

 

Case Name: Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. (No 3) [2021] FCAFC 112 (25 June 2021) (Allsop CJ, Perram and Moshinsky JJ)
Medium Neutral Citation: [2021] FCAFC 112
Hearing Date(s): 24 August 2020
Date of Orders: 1 February 2021
Decision Date:  1 February 2021
Before: ALLSOP CJ, PERRAM AND MOSHINSKY JJ
Decision: THE COURT ORDERS THAT:

 

1. The appeal be allowed.

2. Orders 1, 2, 3 and 4 of the orders made on 24 February 2020 are set aside.

3. The appeal is stood over to a date to be fixed for further argument on the form of order for the recognition of the award and otherwise for the disposition of the appeal including on the question of costs.

4. The parties should confer and formulate draft orders providing for the delivery of written submissions on these issues with a page limit of 10 pages per submission.

 

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Catchwords: ARBITRATION – international arbitration – applications for recognition and enforcement of awards of the International Centre for Settlement of Investment Disputes (ICSID) under s 35(4) of the International Arbitration Act 1974 (Cth) (‘Arbitration Act’)

 

PRIVATE INTERNATIONAL LAW – foreign state immunity – where foreign state respondent asserts sovereign immunity – interaction between s 9 of the Foreign States Immunities Act 1985 (Cth) (‘Immunities Act’) and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) which is given the force of law by s 32 of the Arbitration Act – where s 9 of the Immunities Act provides that a foreign state is immune from the jurisdiction of the courts of Australia in a proceeding – where s 10 of the Immunities Act provides that a foreign state is not immune in a proceeding in which it has submitted to jurisdiction whether by agreement or otherwise – whether by Art 54(2) of the ICSID Convention the foreign state respondent has agreed to submit itself to the jurisdiction within the meaning of s 10 of the Immunities Act

 

PUBLIC INTERNATIONAL LAW – foreign state immunity – interpretation of the ICSID Convention – whether the ICSID Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award – meaning of recognition and enforcement in Art 54 and execution in Art 55 – where Art 55 provides that nothing in Art 54 shall be construed as derogating from the law in force in any Contracting State in relation to immunity from execution

Legislation Cited: Foreign States Immunities Act 1985 (Cth) Pts II, IV; ss 3, 7, 9, 10International Arbitration Act 1974 (Cth) Pt IV; ss 32, 34, 35
Judiciary Act 1903 (Cth) s 39B
Federal Court Rules 2011 (Cth) r 36.32

Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Opened for signature 10 June 1958. 330 UNTS 3 (entered into force 7 June 1959)

Convention on the Settlement of Disputes between States and Nationals of Other States. Opened for signature 18 March 1965. 575 UNTS 159 art 50, 51, 54, 55, 64. (entered into force 14 October 1966)

The Energy Charter Treaty. Opened for signature 17 December 1994. 2080 UNTS 95 art 26. (entered into force 16 April 1998)

UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended on 7 July 2006)

Vienna Convention on the Law of Treaties. Opened for signature 23 May 1969. 1155 UNTS 331 arts 4, 33. (entered into force 27 January 1980)

Cases Cited: Benvenuti & Bonfant v People’s Republic of the Congo (Cour d’appel, Paris, 26 June 1981) 1 ICSID Reports 368; 108 Journal du Droit International 843

Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 117 FCR 424
Coulton v Holcombe [1986] HCA 33; 162 CLR 1
Lahoud v The Democratic Republic of Congo [2017] FCA 982
Liberian Eastern Timber Corporation (LETCO) v Liberia, (United States District Court for the Southern District of New York, 12 December 1986) 2 ICSID Reports 383

Micula v Romania [2020] UKSC 5; 1 WLR 1033
O’Brien v Komensaroff [1982] HCA 33; 150 CLR 310
Plaintiff S157/2002 v Commonwealth of Australia [2003] HCA 2; 211 CLR 476
PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2012] HCA 33; 247 CLR 240
Re McBain; Ex parte Australian Catholic Bishops Conference [2002] HCA 16; 209 CLR 372
Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal (Cour de cassation, 11 June 1991) 2 ICSID Reports 341; 118 Journal du Droit International 1005

TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; 251 CLR 533
Thiel v Federal Commissioner of Taxation [1990] HCA 37; 171 CLR 338
Traxys Europe SA v Balaji Coke Industry Pvt Ltd (No 2) [2012] FCA 276; 201 FCR 535
University of Wollongong v Metwally (No 2) [1985] HCA 28; 60 ALR 68

Kronke H, Nacimiento P, Otto D, Port NC (Eds), Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention (Kluwer Law International, 2010)

Schreuer CH, The ICSID Convention: A Commentary (2nd ed, Cambridge University Press, 2009)

van den Berg AJ, The New York Arbitration Convention of 1958 (Kluwer 1981)

Texts Cited: NIL
DIVISION: General Division
Parties: BETWEEN:

KINGDOM OF SPAIN

Appellant

 

AND:

INFRASTRUCTURE SERVICES LUXEMBOURG S.A.R.L.

First Respondent

 

ENERGIA TERMOSOLAR B.V.

Second Respondent

Representation: Counsel for the Appellant: Mr I M Jackman SC with Mr M R Tyson

Solicitor for the Appellant: Squire Patton Boggs

Counsel for the Respondents: Mr B Walker SC with Mr J Hogan-Doran and Mr C Brown

Solicitor for the Respondents: Norton Rose Fulbright

Counsel for the Intervener: Mr K Dharmananda SC with Mr L Firios

Solicitor for the Intervener: Lipman Karas

File Number(s): NSD 645 of 2020
Publication Restriction: NIL
Appeal from:  Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157

 

 

JUDGMENT

ALLSOP CJ:

  1. I have read the reasons for judgment to be published of Perram J.  I agree with the orders that his Honour proposes.  Subject to the following largely by way of elaboration, I agree with his Honour’s reasons. The orders to which the applicant was entitled were those that properly reflected the outcome of a recognition proceeding and that did not involve any form of execution contemplated by Arts 54(3) and 55 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) and Part IV of the Foreign States Immunities Act 1985 (Cth). I agree that the parties should be heard on the proper form of the order to be made to achieve that outcome.
  2. As the reasons of the learned primary judge and of Perram J make clear the principal difficulty at the centre of the debate is linguistic or semantic. That is not to minimise the importance of the question: far from it. The ICSID Convention is not only an important international convention underpinning and supporting the flow of investment capital around the world, but it is also a law of the Parliament by force of s 32 of the International Arbitration Act 1974 (Cth). The confusion and difficulty capable of being generated by attempts to agree upon legal procedure amongst different nations with different legal systems was evident in the negotiation and creation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty-fourth meeting (the New York Convention) only a handful of years before the ICSID Convention.  That negotiation was well known to the negotiators and drafters of the ICSID Convention.  The distinguished commentator and practitioner Albert Jan van den Berg has remarked that various of the proposals for the enforcement procedure for article III of the New York Convention created “a Babel-like confusion at the Conference”: van den Berg, The New York Arbitration Convention of 1958 (Kluwer 1981) at 235. Justice Perram refers to the “interpretive carnage” of the discussion dealt with deftly by Professor Schreuer as referred to in Perram J’s reasons at [93].
  3. Recognition and enforcement of an arbitral award are distinct, but related concepts.  The linguistic debate as to whether execution is synonymous with enforcement or is a concept within it need not, it seems to me, be debated or resolved as a question of fixed content, for all purposes.  We are dealing here with Arts 54 and 55 of the ICSID Convention.  As Professor Schreuer’s authoritative work (The ICSID Convention: A Commentary (Cambridge University Press, Second Edition)) makes clear, the related aims of Arts 54 and 55 were clear.
  4. Article 54 was intended to be available against both a State and an investor.  The inclusion of enforcement in article 54 was to give recourse against the defaulting investor: Schreuer op cit at p 1119 [7]. Professor Schreuer says that it “was considered highly unlikely that the State party to the Convention would not carry out its treaty obligations … to comply with an award”: ibid.  Nevertheless, articles 54(1) and (2) and the drafts thereof refer and referred to recognition and enforcement against the parties in equal terms: ibid.
  5. The preservation of State immunity from execution was taken for granted, though non-compliance by a State with an award was regarded as extremely unlikely: Schreuer op cit p 1152 [3]. Article 55 left the matter to the place of attempted execution or enforcement in that sense.
  6. The obligation to recognise an award under article 54 was unequivocal and unaffected by questions of immunity from execution.  As the reasons of Perram J and as the discussion of Professor Schreuer (op cit pp 1128–1134) both show, sovereign immunity from execution (Arts 54(3) and 55) does not arise at the point of recognition.
  7. If a proceeding is commenced in a competent court seeking a form of order that will permit or facilitate enforcement of, or execution procedures for, pecuniary obligations imposed by an award as if the award were a final judgment of the court, to the extent they are lawfully available, is that proceeding to be characterised as enforcement or execution (if there be a difference) or as recognition?
  8. I do not see that it can be other than a species of recognition and that it cannot be execution.  The order (whether in terms of that made by the United States District Court in Liberian Eastern Timber Corporation (LETCO) v Liberia, United States District Court for the Southern District of New York (12 December 1986) 2 ICSID Reports 383 or by Foster J in Traxys Europe SA v Balaji Coke Industry Pvt Ltd (No 2) [2012] FCA 276; 201 FCR 535) is one which gives the required recognised status to the award in the domestic firmament: It is to be seen as (recognised as) equivalent to a domestic judgment and is to be enforceable as such. This is a procedure for making the award operative within the domestic legal system. In many countries this is referred to as exequatur.  It enables steps thereafter to be taken to obtain satisfaction of the pecuniary obligations under the award whether by seizure or sale or sequestration of property, or appointment of a receiver to property, or otherwise.  It is logically and practically anterior to such later steps which can only be characterised as execution.  That (as a matter of language) an exequatur order, or an order that the award be enforceable as if it were a judgment of the court, or an order that judgment be entered in an amount of the award, could meaningfully be described in a particular context as an order being part of the process of enforcement (at its commencement, or as its point of commencement) does not mean that it is to be characterised as execution, or as a step or a procedure to which Arts 54(3) and 55 speak.
  9. The relationship between recognition and enforcement can be seen by the wording of the ICSID Convention itself and the International Arbitration Act.  Whether the French and Spanish languages have a penumbra or range of meaning in the words exécution and ejecutar to encompass a non-execution procedure of enforcement would be a matter of evidence.  I am unconvinced that the question of resolution of the meaning of the English, French and Spanish texts can be done in ignorance of the content by way of evidence of two of the three languages.  But it does not matter.  The proceeding which this Court has before it, which is untouched by foreign State immunity from execution, is one to obtain an order equivalent to exequatur: a form of recognition of the status of the award as a judgment of the Court or as equivalent to a judgment of the Court so that it may be, henceforth, enforced by way of pecuniary obligations as if it were such a judgment, subject to the Kingdom of Spain’s rights of immunity as to execution recognised by Arts 54(3) and 55, as part of the International Arbitration Act. In point of characterisation that is a proceeding to recognise the award in respect of which proceeding Spain has, by acceding to the ICSID Convention, submitted to the jurisdiction of the Court and waived immunity under s 10 of the Foreign States Immunities Act 1985 (Cth).
  10. I agree with Perram J that the orders made at first instance may go beyond what is an appropriate reflection of the substantive rights of the applicant under Art 54.
I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop.

 

Associate:

Dated:       1 February 2021

 

REASONS FOR JUDGMENT

PERRAM J:

 

I.  INTRODUCTION

 

  1. The Respondents obtained an award against the Appellant Kingdom under the provisions of an international treaty to which Spain and Australia are both Contracting States, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Opened for signature 18 March 1965. 575 UNTS 159 (entered into force 14 October 1966) (‘the ICSID Convention’).  The dispute between them related to the investment by the Respondents of EUR139,500,000 into solar power generation projects within the territorial confines of Spain.  They had been encouraged to do so by a subsidy program put in place by Spain which was subsequently withdrawn.  The Respondents alleged that the withdrawal of the subsidy program was a contravention of another treaty, The Energy Charter Treaty. Opened for signature 17 December 1994. 2080 UNTS 95 (entered into force 16 April 1998) (‘the ECT’).  Pursuant to Art 26(3)(a) of the ECT Spain agreed with the other Contracting States to that treaty that it gave its unconditional consent to the submission of the dispute to international arbitration and, by Art 26(4)(a) it agreed to an international arbitration under the auspices of the ICSID Convention.
  2. The arbitrators eventually awarded the Respondents EUR101,000,000 with interest. The Respondents then applied to this Court at first instance for a number of orders including an order that Spain pay it that amount with interest. Spain filed a notice contesting the jurisdiction of the Federal Court of Australia on the basis that it was immune from suit as a foreign state under s 9 of the Foreign States Immunities Act 1985 (Cth) (‘the Immunities Act’). It was accepted by both parties that the Immunities Act is the sole basis for foreign state immunity in this country and as such exhausts the common law: PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2012] HCA 33; 247 CLR 240 at [8] per French CJ, Gummow, Hayne and Crennan JJ.
  3. There is an exception to that immunity where a foreign state has agreed by treaty to submit itself to jurisdiction.  The Respondents argued that by acceding to Art 26 of the ECT and, more particularly, to the ICSID Convention, Spain had agreed with the Contracting States to the ICSID Convention (including Australia) to submit itself to the jurisdiction of this Court.  The issues in this appeal really only concern the operation of the ICSID Convention and little reference will be made to the ECT in the reasons which follow.
  4. At first instance, it was common ground between the parties that the question of whether Spain had agreed to submit itself to the jurisdiction of this Court was the only substantive issue and would determine the outcome of the application.  The primary judge accepted that Spain’s accession to the ICSID Convention constituted an agreement by treaty to submit itself to the Court’s jurisdiction and his Honour therefore rejected Spain’s plea of foreign state immunity.  His Honour made the following orders:

    (1)          The applicants have leave under s 35(4) of the International Arbitration Act 1974 (Cth) to enforce the award of the International Centre for Settlement of Investment Disputes dated 15 June 2018 as rectified by the award dated 29 January 2019 in Case No. ARB/13/31 against the respondent;

    (2)          The respondent pay the applicants €101,000,000;

    (3)          The respondent pay the applicants interest on €101,000,000 from 20 June 2014 to 15 June 2018 at the rate of 2.07%, compounded monthly, and from 16 June 2018 to the date of payment at the rate of 2.50%, compounded monthly;

    (4)          The respondent pay the applicants US$635,431.70 and £2,447,008.61;

    (5)          The respondent pay the applicants’ costs of the proceeding, save that if any party wishes to vary this order 5 it may apply to do so by filing an interlocutory application to that effect with written submissions of no more than three pages within 14 days of the making of these orders.

  5. Spain now appeals from those orders.  As in the Court below, the principal question is whether Spain’s accession to the ICSID Convention constitutes a submission to the jurisdiction of the Federal Court.  Despite that, Spain submitted that Art 26 of the ECT was unlawful under European law.  However, this orphan submission does not appear connected to any question relating to foreign state immunity.  Spain did not advance an argument at trial or on appeal that this Court should refuse to recognise the Respondents’ award on such a jurisdictional basis.  I therefore disregard this submission.
  6. Returning to the actual issue – foreign state immunity – this turns on the operation of the Immunities Act and is a question of federal statute law. The relevant provisions are s 9 (which confers the immunity), s 10(1) and (2) (which create exceptions to the immunity) and s 3 (which contains two relevant definitions). They are as follows:

    3  Interpretation

    (1)          In this Act, unless the contrary intention appears:

    agreement means an agreement in writing and includes:

    (a)       a treaty or other international agreement in writing; and

    (b)       a contract or other agreement in writing.

    proceeding means a proceeding in a court but does not include a prosecution for an offence or an appeal or other proceeding in the nature of an appeal in relation to such a prosecution.

                General immunity from jurisdiction

    Except as provided by or under this Act, a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding.

    10  Submission to jurisdiction

    (1)          A foreign State is not immune in a proceeding in which it has submitted to the jurisdiction in accordance with this section.

    (2)          A foreign State may submit to the jurisdiction at any time, whether by agreement or otherwise, but a foreign State shall not be taken to have so submitted by reason only that it is a party to an agreement the proper law of which is the law of Australia…

  1. The proceeding at first instance was a ‘proceeding’ within the meaning of the definition in s 3 so the prima facie position was that s 9 afforded Spain the immunity it asserts. Section 9, however, is expressed to be subject to this Act which makes the existence of the immunity defeasible to any exception elsewhere provided for in the Immunities Act. One such exception appears in s 10(1) which extinguishes the immunity of a foreign state where it has submitted itself to jurisdiction. Section 10(2) expands upon that concept by stipulating that a foreign state’s submission to jurisdiction may be evidenced by an ‘agreement’. The definition of ‘agreement’ in s 3 clarifies what would otherwise be obvious in the case of a nation state viz that its agreement may be evidenced by a treaty to which it has acceded.
  2. It is in the light of these provisions that the Respondents submitted below and submit again in this Court that the ICSID Convention is an agreement within the meaning of s 10(2). Two articles of the ICSID Convention are principally relevant, Art 54 and Art 55. They are (in the English version of the text) as follows:

    Article 54

    (1)          Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.

    (2)          A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority which such State shall have designated for this purpose a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary-General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation.

    (3)          Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.

    Article 55

    Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.

  3. The Respondents contend that the effect of Art 54(2) is that Spain has expressly agreed that a party with the benefit of an award under the ICSID Convention may apply to a ‘competent court’ for the recognition of the award and that the Federal Court is such a court. They submit that the maintenance by Spain of an entitlement to rely upon foreign state immunity in a recognition proceeding before a ‘competent court’ is incompatible with its agreement to Art 54(2). As such, so the argument runs, Spain must be taken to have agreed by treaty to submit itself to the jurisdiction of this Court within the meaning of s 10(2).
  4. Spain does not dispute that the Federal Court is a ‘competent court’ within the meaning of Art 54(2), a path altogether foreclosed to it by s 35(3) of the International Arbitration Act 1974 (Cth) (‘the International Arbitration Act’) (‘The Federal Court of Australia is designated for the purposes of Article 54’). However, Spain does maintain that it is entitled to rely on the immunity conferred by s 9. Why? There are several steps in this, Spain’s principal argument. The first is the contention that the Respondents’ proceeding is to be understood as a proceeding to ‘enforce’ the Respondents’ award within the meaning of Art 54(2). Next Spain submits that the word ‘execution’, where it appears in Art 55, must be understood as including a proceeding to ‘enforce’ an award (the reasons for this are, to an extent, complex and discussion of this issue may be postponed for now). In any event, it matters because if Spain be correct, it has the consequence that Art 54(2) must be read so that it does not derogate from any Australian law relating to the immunity of Spain from enforcement in that sense. So construed, Spain submits that Art 54(2) cannot evidence any agreement on its part that it will not rely upon its immunity under s 9. Since Art 54(2) should not be construed as amounting to such an agreement in the case of a proceeding to enforce an award, it must follow – says Spain – that it cannot have agreed either to waive its immunity by accession to Art 54(2) or, consequently, to have submitted itself to jurisdiction within the meaning of s 10(1) and (2). Since that exception is not engaged it must therefore remain entitled to rely upon the immunity conferred by s 9.
  5. Alternatively, as its secondary argument, Spain submits that even if this Court concludes that ‘execution’ in Art 54(3) and Art 55 does not mean ‘enforcement’, nevertheless, the question of the proper construction of Art 55 can only be definitively resolved by the International Court of Justice.  Until it is so determined by that court, Spain submits that its own interpretation of ‘execution’ is at least arguable so that its accession to Art 54 and Art 55 cannot represent its clear agreement to submit to jurisdiction.
  6. I would reject Spain’s principal argument for two cumulative reasons. The first relates to the proper construction of Art 54(2). It distinguishes recognition proceedings from enforcement proceedings and, further, does so in a way which is dichotomous. Whether Art 55 applies to proceedings for execution only (as the Respondents submit) or enforcement as well (as Spain submits), it has no application to recognition proceedings. In the context of such a proceeding Spain has agreed with Australia that the Respondents may apply to the Federal Court for recognition of their award. In proceedings of that kind, it must necessarily be taken to have agreed not to rely upon the immunity from suit it would otherwise have as a foreign state. In recognition proceedings there is necessarily therefore an ‘agreement’ by Spain to submit to jurisdiction within the meaning of s 10(2); the exception to s 9 provided for by s 10(1) is consequently engaged; and the immunity conferred by s 9 can no longer be extant.
  7. The second reason for rejecting Spain’s principal argument relates to the correct characterisation of the Respondents’ proceeding in the Court below.  The proceeding in the Court below was a recognition proceeding.  Once it is so characterised, the dichotomy in Art 54(2) observed in the preceding paragraph necessitates the conclusion, contrary to Spain’s submission, that the proceeding in the Court below could not be a proceeding to enforce the award within the meaning of Art 54(2).  Being one it could not be the other.  Since Art 55 has no application to recognition proceedings, Art 54(2) operates in accordance with its tenor as an agreement by Spain to submit to the jurisdiction of this Court as a competent court under Art 54(2) in a recognition proceeding.
  8. It is true that some of the relief sought by the Respondents at first instance was not in the nature of recognition, but even so the primary judge granted relief on the basis that the Court was recognising the award.  There is no basis, therefore, upon which one may conclude that the primary judge erred in declining to accept Spain’s plea of foreign state immunity in relation to a recognition proceeding, although there may be an issue as to whether the relief granted achieved that outcome.
  9. It is implicit in that conclusion that the question of whether ‘execution’ includes ‘enforcement’ in Art 54 and Art 55 is, whilst interesting, irrelevant.  Regardless of what execution and enforcement mean in Art 54 and Art 55 they are both distinct from recognition.II.  ARTICLE 55 DOES NOT APPLY TO RECOGNITION PROCEEDINGS
  10. Recognition, enforcement and execution are concepts which predate and exist outside of the ICSID Convention.  Simplistically, recognition refers to the formal confirmation by a municipal court that an arbitral award is authentic and has legal consequences under municipal law.  Enforcement goes a step further.  It refers to the process by which a successful party seeks the municipal court’s assistance in ensuring compliance with the award (as recognised) and obtaining the redress to which it is entitled.  Execution refers to the formal process by which enforcement is carried out.  Importantly, these concepts are not hermetically sealed from one another.  See generally Kronke H, Nacimiento P, Otto D, Port NC (Eds), Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention (Kluwer Law International, 2010) pp 7-8.
  11. However, those general concepts do not decide the issue before the Court which turns instead on the text of the ICSID Convention.  What does it say?  Art 54(1) requires Contracting States to recognise an award.  Art 54(2) permits a party having the benefit of an award to apply to a competent court for its recognition.  It also permits a party to apply for the enforcement of the award by application to a competent court.  As such the article explicitly contemplates two distinct applications to the competent court (or other authority).  If enforcement in Art 54(2) were synonymous with recognition this distinction would appear to be pointless.  The article therefore recognises the distinction between the two applications and requires applications for both to be made to the ‘competent court’.  For completeness, I note that Spain did not submit, in response to the Respondents’ contention that theirs was an application for recognition, that Art 54(2) did not contemplate such an application on its own.
  12. The distinction between the two applications is also reflected in the substantive provisions of Art 54(1).  Article 54(1) imposes two obligations on a Contracting State, first, recognition of the award as binding and, secondly, implicitly in relation to an award which has been recognised, enforcement of the pecuniary obligations imposed by the award ‘as if’ it were a final judgment of a domestic court.  (The curiosity that the federal part of Art 54(1) appears not to be limited to the enforcement of pecuniary obligations may be noted but is irrelevant in this case since only enforcement of pecuniary obligations was granted.)
  13. Article 54(1) and (2) show that a party may seek recognition of an award without seeking its enforcement.  It is also possible, as Art 54(2) shows, for a party to apply for enforcement of the award without applying for its recognition.  In such a case, however, it will be implicit in any enforcement step thereafter approved by the court that the award will have been recognised or, to put it another way, whilst a party seeking recognition need not formally seek enforcement under Art 54(2), any application for enforcement, if granted, will necessarily entail recognition.  Article 54 does not contemplate the enforcement of awards which have not been recognised.
  14. It is in light of that distinction therefore that one then turns to Art 55.  Focus on Art 55 is appropriate because it is the keystone of Spain’s argument.  It is only the status of that article as a non-derogation provision which equips Spain to submit that Art 54(2) does not necessarily involve a submission to jurisdiction.
  15. Spain’s contentions about Art 55 turn on the meaning of the word ‘execution’ which it says includes the concept of ‘enforcement’.  I explain below why I accept this submission and reject the Respondents’ contention that the concepts of execution and enforcement in Art 54 and Art 55 are distinct.  However, the fact that ‘execution’ includes ‘enforcement’ is of no assistance to Spain in a proceeding which seeks recognition.  Because recognition is necessarily distinct from enforcement or execution, the distinction between execution and enforcement is irrelevant in the present litigation.
  16. What does matter is that Art 55 does not refer to recognition and there can be no warrant for reading it as if it did.  To the contrary, were it read as applying to a recognition proceeding the exception in Art 55 would consume in its plenitude the entirety of Art 54, at least where an award against a Contracting State is concerned.  Why?  Amongst other things, Art 54(1) requires each Contracting State to recognise an award as binding.  But the recognition required by Art 54(1) is not immediately self-executing, except perhaps in the case where enforcement is sought in the territory of a Contracting State which is one of the parties to the award.  Apart perhaps from that case – which is of no present relevance – Art 54(1) is instead contingent on the making of the application referred to in Art 54(2), which is to say, only on the production of the certified copy of the award to a competent court (or other authority) does the binding effect of Art 54(1) come into play.  Their combined effect is that a Contracting State is required to recognise an award when a certified copy of the award is furnished to the competent court (or other authority).
  17. If ‘execution’ were construed to include ‘recognition’ in Art 55 there could be no circumstance in which the recognition application expressly contemplated by Art 54(2) could ever be made against a Contracting State.  This would render the recognition procedure in Art 54(2) perpetually unavailable against a Contracting State and would have the consequence that the obligation to recognise an award in Art 54(1) as binding could never be engaged.  In every case against a Contracting State, the competent court in Art 54(2) would be met with a plea of foreign state immunity and recognition would be unavailable.  Such a construction of Art 54(2) and Art 55 would be perverse.
  18. For completeness, two matters should be noted.  First, this problem does not arise where a Contracting State seeks to enforce an award against an investor.  In such a case, no question of foreign state immunity ever arises.  However, whilst this may be accepted, it does not provide any plausible justification for reading Art 54(2) and Art 55 so as to have the otherwise empty operation implied for them by Spain’s construction.  Secondly, it may be noted that the fact that recognition is wholly distinct from enforcement (including, if necessary, execution) is also reflected in the heading to Section 6: ‘Recognition and Enforcement of the Award’ where Art 54 and Art 55 are contained.
  19. For those reasons, Art 55 does not apply to recognition proceedings and is unavailable to modify the meaning of Art 54(1) and (2) in relation to such proceedings.  It is true, as Spain correctly points out, that there are some parts of the ICSID Convention where ‘enforcement’ must include ‘recognition’.  For example, Art 50 (which is contained in Section 5 of Chapter IV) provides a mechanism by which the parties may submit a request for interpretation of an award to the Tribunal which rendered it via the Secretary-General of ICSID.  Art 50(2) allows the Tribunal considering that request to ‘stay enforcement of the award’.  I accept the submission, in this context, that ‘enforcement’ would include an application for recognition.  A similar jurisdiction is conferred by Art 51 in relation to the discovery of facts after the award which are thought decisively to affect the outcome.  Article 51(4) gives the Tribunal an analogous power to stay the award pending resolution of that issue.  Again, I would accept that in that context ‘enforcement’ must extend to recognition.
  20. However, relevantly both those provisions occur in Section 5 whereas Art 54 and Art 55 occur in Section 6.  Section 5 is entitled ‘Interpretation, Revision and Annulment of the Award’ and deals with the powers and functions of the Tribunal in relation to those matters.  The powers and functions of the Tribunal in relation to awards rendered is clearly a matter entirely distinct from the recognition and enforcement of such awards by a Contracting State.  In the latter context, it is clear from the text of Art 54 that ‘enforcement’ cannot include ‘recognition’ for the reasons I have already given.  Admittedly this conclusion results in the word ‘enforcement’ having a broader meaning in Section 5 than it has in Section 6 but this construction fits comfortably with the respective subject matter of each Section and is, by far, a preferable outcome to a construction of ‘enforcement’ in Section 6 which neuters the central obligation imposed on Contracting States to recognise an award as binding.III.  HAS SPAIN SUBMITTED TO JURISDICTION BY ACCESSION TO ART 54?
  21. The question then arises whether Art 54(1) and (2) constitute Spain’s agreement to submit to the jurisdiction of the Federal Court in a recognition proceeding.  The answer is that they do.  Art 54(2) is in terms Spain’s agreement with Australia that the Respondents may apply to a competent court for recognition and, as noted above, the Federal Court has been designated as a competent court for the purposes of Art 54.  Spain has therefore agreed to submit to the jurisdiction of this Court in relation to a recognition proceeding.  Article 55 can have no impact on that conclusion because it has no application to recognition proceedings.
  22. The view that a plea of immunity is not available in recognition proceedings is well-established and Spain’s contentions are notable for their heterodoxy: Benvenuti & Bonfant v People’s Republic of the Congo, Cour d’appel, Paris (26 June 1981) 1 ICSID Reports 368 at 371; 108 Journal du Droit International 843 at 845 (‘Benvenuti’); Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal, Cour de cassation (11 June 1991) 2 ICSID Reports 341; 118 Journal du Droit International 1005 (‘SOABI’); Liberian Eastern Timber Corporation (LETCO) v Liberia, United States District Court for the Southern District of New York (12 December 1986) 2 ICSID Reports 383 at 387-388 (‘LETCO’); Lahoud v The Democratic Republic of Congo [2017] FCA 982 at [20] per Gleeson J (‘Lahoud’).The proceeding at first instance was a recognition proceeding
  23. The preceding conclusion will lack utility unless the proceeding at first instance was relevantly a recognition proceeding.  What is a recognition proceeding?  Art 54(2) does not stipulate how an application for recognition is to be made and the question is therefore governed by the relevant domestic law of the Contracting State in which recognition is sought.  Procedures differ between jurisdictions.
  24. Many civilian jurisdictions have a procedure known as exequatur where a foreign judgment or arbitral award is recognised by a domestic court.  After the grant of an exequatur a party may subsequently seek execution.  It is established in relation to the ICSID Convention that recognition under Art 54(2) may be afforded by the grant of an exequatur: Benvenuti at 845.
  25. In the United States the practice which appears to have been adopted by the United States District Court for the Southern District of New York in relation to recognition under Art 54(2) involves an order in this form (LETCO at 384):

    …it is ORDERED that the annexed arbitration award, as rectified, in favour of LETCO be docketed and filed by the Clerk of this Court in the same manner and with the same force and effect as if it were a final judgment of this Court…

  26. In Australia, the position is not entirely clear. However, it appears that the recognition under Art 54(2) may be afforded by entry of judgment on the award or by making an order granting leave to enforce the award ‘as if it were a final judgment’ of this Court. This emerges from the domestic legislation governing ICSID awards. In Australia the ICSID Convention is given effect to by ss 31 to 38 of the International Arbitration Act which between them constitute all of Part IV of that Act. Section 35 provides:

    35  Recognition of awards

    (1)          The Supreme Court of each State and Territory is designated for the purposes of Article 54.

    (2)          An award may be enforced in the Supreme Court of a State or Territory with the leave of that court as if the award were a judgment or order of that court.

    (3)      The Federal Court of Australia is designated for the purposes of Article 54.

    (4)          An award may be enforced in the Federal Court of Australia with the leave of that court as if the award were a judgment or order of that court.

  1. The interpretation of this provision is not altogether without difficulty.  It does not, in terms, confer an entitlement on a party to seek recognition of an award but instead refers only to enforcement.  On the other hand, it is headed ‘Recognition of awards’ so that there is a degree of tension between the heading and what the provision appears to say.
  2. Other provisions in Part IV are relevant to the ascertainment of the meaning of s 35(4). Section 34 proceeds on the assumption that s 35 deals with both the recognition and enforcement of an award. It operates to make Part IV an exhaustive code in relation to the recognition and enforcement of an ICSID award. It provides:

    34  Investment Convention awards to prevail over other laws

    Other laws relating to the recognition and enforcement of arbitral awards, including the provisions of Parts II and III, do not apply to:

    (a)       a dispute within the jurisdiction of the Centre; or

    (b)      an award under this Part.

  3. If s 35 does not apply to recognition proceedings under Art 54(2) then the effect of s 34 will be to prevent the possibility of recognition of the award as an award to which the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Opened for signature 10 June 1958. 330 UNTS 3 (entered into force 7 June 1959) (‘New York Convention’) or the UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended on 7 July 2006) (‘UNCITRAL Model Law’) (which are also given effect by the International Arbitration Act) might otherwise apply.
  4. So construed, s 35 would appear to achieve an outcome contrary to the plain words of Art 54(2). Article 54(2) requires Australia to provide a mechanism for a party to apply to a competent court for recognition of an award. This is relevant because, in general, a construction of the International Arbitration Act which gives effect to Australia’s international obligations should, if possible, be preferred. As Gleeson CJ stated in Plaintiff S157/2002 v Commonwealth of Australia [2003] HCA 2; 211 CLR 476 at 492 [29]:

    where legislation has been enacted pursuant to, or in contemplation of, the assumption of international obligations under a treaty or international convention, in cases of ambiguity a court should favour a construction which accords with Australia’s obligations.

  5. This is particularly so in light of s 32 which gives the ICSID Convention the force of law in Australia:

    32  Application of Investment Convention to Australia

    Subject to this Part, Chapters II to VII (inclusive) of the Investment Convention have the force of law in Australia.

  6. If the word ‘enforced’ is not construed to include ‘recognised’ then s 35(4) will not give effect to the recognition procedure required by Art 54(2). The heading to s 35 and the specification by s 34 that Part IV is a code with respect to the recognition of awards under the ICSID Convention strongly suggest that Parliament intended s 35 to include an entitlement to apply for recognition. Such a conclusion would involve reading ‘enforced’ in s 35(4) as including ‘recognised’, a meaning which it can in my opinion comfortably accommodate.
  7. On the other hand, having concluded that ‘recognise’ and ‘enforce’ are distinct concepts in Art 54 there is perhaps something anomalous about concluding that they are not distinct for the purposes of s 35, particularly where Part IV is evidently intended to give effect to the ICSID Convention. This consideration may tend in the opposite direction to suggest that ‘enforced’ should not include ‘recognised’.
  8. However, if that were correct, it would leave the recognition procedure unaccountably missing from the provisions which itself would infringe Australia’s obligations under Art 54. On balance, it seems to me that the preferable construction of s 35(4) is one in which ‘enforced’ includes ‘recognised’.
  9. That conclusion makes it unnecessary to consider whether the Court would, in any event, have jurisdiction arising from the conferral on this Court of jurisdiction in matters arising under a law of the Parliament by s 39B(1A)(c) of the Judiciary Act 1903 (Cth). Here the thinking would be that s 32 gives the force of federal statute law to Art 54(2) itself which thereby becomes a surrogate federal law under which a federal matter may directly arise. The same reasoning supports this Court’s jurisdiction in the recognition of arbitral awards under the UNCITRAL Model LawTCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; 251 CLR 533 (‘TCL’) at 543 [2] per French CJ and Gageler J and 561 [52] per Hayne, Crennan, Kiefel and Bell JJ. There would appear to be no relevant distinction insofar as federal jurisdiction is concerned between the position of this Court under the UNCITRAL Model Law as explained in TCL and under the ICSID Convention.
  10. There may, however, be a difficulty with this approach which relates to s 34. To the extent that s 39B(1A)(c) confers a jurisdiction on this Court to entertain a recognition proceeding, it may be arguable that it is one of the ‘other laws’ referred to in s 34. If so, it may not be an available source of jurisdiction. In light of the manner in which I would construe s 35(4), however, it is not necessary to form a view on that issue.
  11. I therefore conclude that the Court has jurisdiction to entertain a recognition proceeding under s 35(4). So to conclude does not, however, assist in identifying the procedural features of a recognition application. The question of procedure will be governed by the domestic law of the Contracting State in whose territory recognition is sought. Nevertheless, Art 54 and Art 55 provide some guidance on the legal consequences of recognition and from these consequences some guidance, limited perhaps, may be gleaned as to its procedural features.
  12. The purpose of recognition is to give effect to the stipulation of Art 54(1) that each Contracting State (here, relevantly, Australia) will recognise the award as binding.  Because it is binding, a party may seek to enforce its pecuniary obligations as if they were a final judgment of a court of that State: Art 54(1).  But the binding effect of an award may also be asserted by other non-pecuniary methods which include, as French CJ and Gageler J observed in TCL at 552 [23], a plea of former recovery or the assertion of a res judicata or issue estoppel. Further, the binding effect extends not only to the pecuniary obligations imposed by the award but also to its non-pecuniary terms.
  13. What Art 54(2) requires of a Contracting State is a procedure which will result in relief which, if granted, will have those kinds of effects.  Furthermore, the procedure must be such as to enliven in a party with the benefit of an award an entitlement to apply for the kind of ‘execution’ referred to in Art 54(3).  As the primary judge, with respect, correctly observed the expression ‘the laws concerning the execution of judgments’ can only refer to judgments which exist (for completeness, I reject out of hand Spain’s submission that an application for a pre-trial asset seizure order can be described as a form of execution).  But this does not mean that Art 54 requires that recognition should be afforded only by means of the entry of a judgment.  It is instead merely to be understood as a reference to a body of law.
  14. What Art 54(1) does require, however, is that the enforcement of an award’s pecuniary obligations will proceed ‘as if it were a final judgment’.  So viewed, Art 54(3) then furthers this fiction.  The award-cum-as-if-judgment is to be executed (or enforced – it really does not matter) by applying to the award the law which ordinarily applies to the execution (or, on Spain’s submissions, enforcement) of judgments.
  15. So whatever recognition constitutes as a matter of local procedure it nevertheless must be sufficient to enliven the execution (or, as Spain submits, enforcement) procedures which Art 54(3) expressly contemplates.  And, as noted, it must also be sufficient to enable the entry of pleas of res judicata and the like.
  16. As a matter of Australian law, it is possible that one way of achieving these outcomes is to enter judgment in the amount of the pecuniary obligations imposed by the award.  Such a judgment has all the procedural qualities just described.  It can give rise to a plea of res judicata, it can be used by way of a plea of prior satisfaction and its existence fits tidily into a legal framework that contains the ‘laws concerning the execution of judgments’ referred to in Art 54(3).  If execution is available against the other party to the award it will be a straightforward procedural matter to apply for it if a judgment has been entered.
  17. The statutory framework governing arbitral awards under the New York Convention is contained in Part II of the International Arbitration Act and is materially different to the provisions dealing with the ICSID Convention under Part IV. Nevertheless, it seems well-established in relation to such awards that recognition is afforded by the entry of a judgment: Traxys Europe SA v Balaji Coke Industry Pvt Ltd (No 2) [2012] FCA 276; 201 FCR 535 at [71]-[72] per Foster J (and the cases there collected). It seems difficult to identify any point of principle which would justify a departure from that practice in the case of ICSID awards.
  18. On the other hand, it is also possible that recognition may also be granted by means of an order that the award be recognised ‘as if’ it were a judgment of the Federal Court.  This was the approach of French CJ and Gageler J in TCL at 551 [21] in relation to awards under the UNCITRAL Model Law although their Honours were clear that this was not the only procedure available (‘An appropriate order, although not necessarily the only appropriate order … would be an order that the arbitral award be enforced as if the arbitral award were a judgment or order of the Federal Court’: at [24]).  Gleeson J used this ‘as if’ form of order in Lahoud which is the same procedure adopted by the United States District Court for the Southern District of New York in LETCO.
  19. In my view, either approach may be procedurally open and, if that is the case both would be essentially equivalent to an exequatur.  My tentative preference would be for the former procedure.  The process of relying upon an award in another court for the purpose of establishing a res judicata is likely to be more straightforward, at least from a practical perspective, if recognition takes the form of a Federal Court judgment rather than the possibly more perplexing order for non-initiates that the award has the effect as if it were a judgment of the Federal Court.  Similar practical considerations may suggest that an application to this Court’s registry for enforcement remedies such as a writ of execution may run more smoothly if what is entered is an actual judgment.
  20. The relief which was sought by the Respondents at first instance was as follows (figures in points 4 and 5 as they appear in the original):

    Orders sought

    The Applicants, being parties to an arbitral proceeding, apply to the Court to enforce an award under section 35(4) of the International Arbitration Act 1974.

    The Applicants seek the following orders:

    1.           Pursuant to s 35(4) of the International Arbitration Act 1974 (Cth), the Applicants have leave to have the award of the International Centre for Settlement of Investment Disputes in Case No. ARB/13/31 against the Respondent dated 15 June 2018 as rectified by the Award dated 29 January 2019 enforced as if it were a judgement of the Court.

    2.           A declaration that the Respondent has breached Article 10(1) of the Energy Charter Treaty by failing to accord fair and equitable treatment to the Applicants’ investments.

    3.           The Respondent pay the Applicants EUR101,000,000.00.

    4.           The Respondent pay the Applicants interest on the amount of EUR101,000,000.00 from 20 June 2014 to 15 June 2018 at the rate of 2.07%, compounded monthly, and interest from 16 June 2018 to the date of payment at the rate of 2.07%, compounded monthly.

    5.           The Respondent pay the Applicants USD635,431.70 as a contribution to the payment of their share of the costs of the proceedings and GBP2,447,008.61 as a contribution to the payment of their legal representation costs and expenses.

    6.           Pursuant to s 43(1) of the Federal Court of Australia Act 1976 (Cth), the Respondent is to pay the Applicants’ costs of this proceeding as agreed or assessed.

  21. Some of this relief seems not to have been pressed, although elements of prayers 1, 3, 4, 5 and 6 can be seen in the orders eventually made by the trial judge set out at [14] above. In any event, the primary judge reasoned that the appropriate way to recognise an award was to enter judgment on it: [78]. Despite that conclusion, this was not the order his Honour in fact made. Instead, by order 1 his Honour granted the Respondents leave under s 35(4) of the International Arbitration Act to enforce the award against Spain and by order 2 ordered it to pay EUR101,000,000 rather than entering judgment in that sum (together with ancillary orders). There are problems, with respect, with both of these orders although it is difficult to see that the trial judge could have been expected to apprehend what they were, given the way the case was presented.
  22. Although the grant of leave under s 35(4) in order 1 partially tracks the language of that provision, it omits the words ‘as if the award were a judgment’ of the Federal Court. Further, on its face it leaves open the possibility that enforcement may now proceed without any further consideration of the issues arising under Art 55. It is plain from the trial judge’s reasons that he intended no such operation for the order but it is an operation it appears to have.
  23. The requirement of order 2 that Spain pay the Respondents EUR101,000,000 may also be seen as an order requiring Spain to do something, whereas under the process of recognition what occurs is that the award is put on the same footing as if it were a final judgment, no more and no less.
  24. In my view, orders 1 and 2 should be set aside as they do not reflect a correct approach to recognition.  It is possible that order 2 should have been in the form of a judgment for EUR101,000,000 or the ‘as if’ order contemplated in TCL.  I would set aside order 3 and order 4 (which relate to interest and the costs of the arbitral proceeding) for the same reason.
  25. I would hear the parties further on what form recognition should take.  There was no argument before this Court on appeal on this issue and I apprehend the same was true before the trial judge.  This has the procedural consequence that the appeal must be allowed to permit the correction of the form of recognition although the substantive conclusion of the trial judge that Spain was not entitled to rely upon a plea of foreign state immunity stands vindicated.
  26. On appeal, Spain submitted in writing that the Respondents had not put their case below as being one purely concerned with recognition but had instead characterised the application as one for recognition and enforcement.  It submitted that it was too late for the Respondents now to submit that it was purely a case of recognition.  Spain did not seek to elaborate on how the trial was conducted.  The Respondents claim that a submission was made to the trial judge at T66.1ff that the relief sought was in the nature of recognition.  There it was said:

    And coming back to your Honour’s question about the “or”, there’s nothing in even the French or Spanish version that talks of immunity from recognition.

    One way in which this court recognises an international award as being – as having the status of a judgment of this court is by making a declaration that it does have that status, and the question is what flows from that.

  27. I incline to the view that this was not sufficient to raise the point.  However, it makes no difference.  The issue is directly raised by ground 3 of the Respondents’ amended notice of contention and was addressed in their written submissions in the Full Court.  Although Spain submitted that it was too late for the matter to be raised it did not point to any species of procedural prejudice occasioned to it by the alleged late raising of the matter.  Further, it did not make any substantive submission as to why the proceeding could not be characterised as a recognition proceeding although it had an abundant opportunity to do so in this Court.
  28. Generally speaking a party is bound on appeal by the way their case was put at trial which reflects the public interest in the finality of litigation: University of Wollongong v Metwally (No 2) [1985] HCA 28; 60 ALR 68 (‘Metwally (No 2)’) at 70 per the Court. Nevertheless, it has also been accepted that where a question of law is raised for the first time on appeal but proceeds on the same proven or admitted facts, it may nevertheless be expedient in the interests of justice to entertain it: O’Brien v Komesaroff [1982] HCA 33; 150 CLR 310 (‘O’Brien’) at 319 per Mason J. O’Brien initially confined the principle’s application to ultimate appellate courts but it is now accepted that it extends to intermediate courts of appeal as well: Coulton v Holcombe [1986] HCA 33; 162 CLR 1 at 8 per Gibbs CJ, Wilson, Brennan and Dawson JJ. Further, as Metwally (No 2) shows at 71, in some cases it may appear that a decision was made not to run a point at trial in which case the party will be held to their election save perhaps in ‘exceptional circumstances’.
  29. In this case, the point is not so much the raising of a fresh ground but rather the narrowing of a ground pursued at trial.  On the assumption that the Respondents did not squarely put their case at trial as one only of recognition, it is clear nevertheless that they did put it as one of recognition and enforcement.  What they now wish to say is, therefore, not by way of supplement but rather in the nature of a subtraction.  On the assumption that such a narrowing is governed by the principles in cases such as Coulton v Holcombe (a proposition I doubt), nevertheless I would still grant leave if necessary to pursue the matter in that fashion.  The issue is solely whether the relief granted by the primary judge can be legally characterised as recognition within the meaning of Art 54(2).  This involves no evidence and is purely a question of law.  Further, it is a question of law decisive of this appeal and of considerable importance for the operation of the ICSID Convention.  The ground also reflects the way the self-same issue has been approached by other courts considering the operation of Art 54(2): BenvenutiSOABILETCO and Lahoud.
  30. The conclusion that the proceeding was a recognition proceeding means that Art 55 has no application. Consequently, for the reasons I have already given, Art 54(2) operates as an agreement by Spain not to raise any immunity it would otherwise have and hence to submit itself to the jurisdiction of the competent court referred to in that article. There is therefore an agreement within the meaning of s 10(1) and (2) and immunity is not available under s 9. However, for the reasons I have given, the appeal must be allowed on a limited basis so as to hear further argument on the form that recognition should take.IV.  SPAIN’S SUBSIDIARY ARGUMENT: MEANING OF ART 55 NOT CLEAR UNTIL DECLARED BY THE INTERNATIONAL COURT OF JUSTICE
  31. I have explained above that the dispute as to whether ‘execution’ in Art 55 includes the concept of enforcement is beside the point because the proceeding was a recognition proceeding to which Art 55 does not apply.  Whether, in that circumstance, ‘execution’ includes ‘enforcement’ in Art 55 is presently therefore of no moment.  The opinion of the International Court of Justice on the issue, whilst definitive, would be definitive on an issue which does not matter.  Spain’s secondary argument therefore passes wide of the mark.
  1. However, out of deference both to the submissions of the parties on the issue as well as the careful, detailed and cogently reasoned analysis of the primary judge, it is appropriate to make some short remarks about it.
  2. Both the primary judge and I arrive at the same ultimate forensic destination which is the proposition that Art 55 has no application to Art 54(2) in relation to the proceeding which is actually before the Court.  However, the journeys which we take to get there differ, although they are each no less scenic.
  3. As I have explained, I see Art 54(2) as drawing a distinction between recognition, on the one hand, and enforcement and execution, on the other and read Art 55 as not applying to the former.  Since I characterise the present proceeding as a recognition proceeding this leads me to conclude that Art 55 has no application to the proceeding.
  4. The trial judge perceived a different dichotomy, that between recognition and enforcement, on the one hand, and execution, on the other.  His Honour construed Art 55 as only applying to execution.  Since he characterised the proceeding as one for recognition and enforcement this led him to the same conclusion that Art 55 did not apply to the present proceeding.
  5. The central proposition underpinning his Honour’s conclusion was that ‘execution’ could only refer to steps which took place after judgment.  This followed from the reference in Art 54(3) to ‘the laws concerning the execution of judgments’.  That law took as its point of departure its application to judgments which necessarily existed.  In that sense, ‘execution’ had to involve a reference to procedural steps which in domestic law post-dated judgment.  In his Honour’s view, the current proceeding was a proceeding for recognition and enforcement of the award and what was sought in it necessarily antedated the existence of a judgment.  Consequently, because ‘execution’ in Art 55 was only concerned with post-judgment procedural steps it necessarily followed that it could not apply to pre-judgment steps such as, and including, an application for recognition and enforcement.  Since it could not apply to the present proceeding, it followed that Spain had submitted itself to jurisdiction by Art 54(2).
  6. Had it been necessary to address this issue, I would have respectfully differed from the primary judge although only with considerable diffidence.  I would have done so because I accept Spain’s submission that ‘execution’ and ‘enforcement’ are essentially synonymous in Art 54 and Art 55 and conclude, further, that they both bear the broader meaning of ‘enforcement’.  Spain’s reasons for this turned on the French and Spanish texts of the treaty which are equally authoritative.  The problem in a nutshell is this: wherever the word ‘execution’ appears in the English text, the French word ‘l’execution’ appears in the French text and the Spanish word ‘ejecutar’ (or variants of that word) appear in the Spanish text.  By itself this does not cause a problem.  What does cause a problem, however, is that wherever the word ‘enforce’ (or ‘enforcement’) appears in the English text, the self-same words – ‘l’execution’ and ‘ejecutar’ – appear in the French and Spanish texts.
  7. Contrary to the Respondents’ submissions, one does not need to know what these words mean to see the nature of the problem to which they give rise.  The English text observes a distinction between ‘execution’ and ‘enforcement’ because the words are different but this distinction is not extant in the French and Spanish texts.
  8. The rules applicable to the interpretation of the ICSID Convention are, in substance, to be found in the Vienna Convention on the Law of Treaties. Opened for signature 23 May 1969. 1155 UNTS 331 (entered into force 27 January 1980) (‘Vienna Convention’).  Although as a matter of treaty law the Vienna Convention does not apply to the interpretation of the ICSID Convention (the conclusion of the ICSID Convention having preceded the inception of the Vienna Convention and the Vienna Convention having no retrospective application: see Art 4), it makes no difference as the treaty is ‘no more than an indorsement or confirmation of existing practice’: Thiel v Federal Commissioner of Taxation [1990] HCA 37; 171 CLR 338 at 349 per Dawson J and ‘the interpretation provisions of the Vienna Convention reflect the customary rules for the interpretation of treaties’ (at 356 per McHugh J).
  9. There was no dispute between the parties that the ICSID Convention had been done in English, Spanish and French.  The Convention’s testimonium records this fact: ‘DONE at Washington, in the English, French and Spanish languages, all three texts being equally authentic…’.  Article 33(1) of the Vienna Convention provides that where ‘a treaty has been authenticated in two or more languages, the text is equally authoritative in each language’.   Article 33(3) then provides that the ‘terms of the treaty are presumed to have the same meaning in each authentic text’ which is to an extent in tension with the linguistic imperatives of Art 33(1).  This tension is resolved in Art 33(4) which requires that where a difference in meaning emerges which cannot otherwise be resolved by ordinary principles of interpretation ‘the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted.’
  10. The disjunct between the Spanish and French texts, on the one hand, and the English text, on the other, can be resolved in only one of two ways.  Either the English text can control the French and Spanish texts or they can control the English text.  If the English text is to control then one must import into the French and Spanish texts the distinction observed in the English.  In the French text, this would require giving ‘l’execution’ the meaning of ‘enforce’ or ‘enforcement’ where those words appear in the English text.  But where the word ‘execution’ appears in the English text, the word ‘l’execution’ would need to bear the meaning of ‘execution’.  A similar approach would need to be taken to the word ‘ejecutar’ in the Spanish text.
  11. The upshot is that the meaning of ‘l’execution’ and ‘ejecutar’ would, on this construction, vary by reference to their location within Art 54 and Art 55 and to the corresponding wording of the English text.
  12. If, on the other hand, the Spanish and French texts control the English text then this necessitates eliding the difference between ‘execution’ and ‘enforcement’ and, in effect, making them synonymous.  On this reading, the meaning of both ‘execution’ and ‘enforcement’ become a single concept which corresponds with ‘l’execution’ and ‘ejecutar’.  Since ‘execution’ is narrower in meaning than enforcement (which can, as a matter of ordinary language, include ‘execution’) the upshot is that ‘execution’ should be expanded in meaning to encompass ‘enforcement’.
  13. The problem may now be seen.  If ‘execution’ in Art 55 means ‘enforcement’ in this broad sense, then Art 55 applies to any proceeding for enforcement in that sense.  Of course, the primary judge characterised the present proceeding as a proceeding for recognition and enforcement.  To avoid the conclusion, therefore, that Art 55 applied to the present proceeding (so characterised) his Honour therefore had to reject the second construction (where the French and Spanish texts control the English text) and embrace the first (where they do not).
  14. This is Spain’s complaint.  It submits that this is not a construction which, as a matter of interpretation, should be preferred.  I agree.  It is much more likely that ‘execution’ and ‘enforcement’ should be given the same meaning to bring them into line with the Spanish and French texts than it is that the words ‘l’execution’ and ‘ejecutar’ fluctuate in meaning depending on where they appear.  The linguistic violence involved in the former approach is much less than that involved in the latter.
  15. This is also the view of Professor Schreuer in The ICSID Convention: A Commentary (2nd ed, Cambridge University Press, 2009) at pp 1134-1135 (citations omitted):

    Art. 54(1) uses the word “enforce” twice. Art. 54(2) also refers to “enforcement”. By contrast, Art.54(3) uses the word “execution” twice. This would suggest that the words “enforcement” and “execution” stand for different concepts. But a look at the equally authentic French and Spanish texts of the Convention yields a different picture. The French text consistently uses “l’exécution” five times in paras. 1, 2 and 3 of Art. 54. Similarly, the Spanish text is consistent in using “ejecutar” and “ejecuten” in Art. 54(1), “ejecución” in Art. 54(2) and “ejecutará” and “ejecución” in Art. 54(3). This means that a distinction between enforcement and execution cannot be sustained on the basis of the French and Spanish texts.

    The three texts are equally authoritative and must be reconciled. Under Art. 33(4) of the 1969 Vienna Convention on the Law of Treaties, when a comparison of the authentic texts discloses a difference of meaning which cannot be reconciled by the Convention’s other rules on interpretation, the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted. In the case of Art. 54 of the ICSID Convention, the interpretation that best reconciles the three texts would appear to be that the words “enforcement” and “execution” are identical in meaning. This is more plausible than the alternative of giving different meanings to the same French and Spanish words in paras. 1 and 2 on the one hand and in para. 3 on the other.

    The Convention’s drafting history yields no information that would explain this inconsistency. The answer may simply lie in the circumstances of the work on this Article which took place under great time pressure and is described by Broches as being characterized by great fluidity, sometimes bordering on confusion.

  16. Although Professor Schreuer refers here to the Vienna Convention, at footnote 65 to the second of these paragraphs he observes ‘The Vienna Convention on the Law of Treaties is not, technically, applicable to the ICSID Convention but reflects customary international law on this point.’ An essential part of the view expressed in the passage above turns on the application of the rules of treaty interpretation applicable to inconsistent multilingual treaties.  However, as Professor Schreuer also noted there is a lively academic debate about the distinctions which may exist between enforcement and execution in Art 54.  Professor Schreuer collects this commentary in footnotes 70 and 71 at p 1135.  Whilst he thought that none of these uses of ‘enforcement’ and ‘execution’ were inherently incorrect, he thought it best to stay away from this issue and focus on their shared distinction from recognition.  This is a view, with respect, which I share.
  17. The primary judge analysed the material in these two footnotes closely and concluded that they supported a distinction in Art 54 between execution and enforcement: [156]-[161]. I agree with his Honour that this material supports that distinction. However, none of the articles in question deals with the problem identified by Professor Schreuer that the Spanish and French texts are incapable of supporting any such distinction. Although I can see in English plain differences between the concepts enforcement and execution, this Court is bound to apply the customary rules reflected in the Vienna Convention to the interpretation of a treaty in three different languages. If the material in the two footnotes had addressed itself to the tri-lingual problem identified by Professor Schreuer then I might take a different view. However, none does and they do not therefore seem to engage with the point he made.
  18. The primary judge apprehended at [150]-[152] that there was a tension with Professor Schreuer’s view that execution and enforcement are interchangeable for the purposes of Art 54 but that Art 55 only applies to the immunity from execution.  At p 1153 Professor Schreuer said this:

    Art. 55 only applies to immunity from execution. It does not apply to immunity from jurisdiction. The question of immunity from jurisdiction does not arise in the context of the Convention.

    Therefore, State immunity cannot be used to thwart proceedings for the recognition of an award.

  19. The primary judge expressed the tension in these terms (at [152]):

    This view stands in tension with Professor Schreuer’s view, articulated in respect of Art 54, that enforcement and execution are the same and interchangeable. If they were, then Art 55 would not have the limited scope that he gives to it, unless execution has different meanings in Arts 54 and 55. That is not a satisfactory solution.

  20. I respectfully differ from this.  At p 1136, having surveyed the interpretative carnage to which the words ‘enforce’ and ‘execute’ have given rise Professor Schreuer said this:

    The best that can be suggested at this stage is that great caution should be exercised when using the word “enforcement” in the context of Art. 54. This Commentary uses “enforcement” as meaning the same as “execution” unless indicated otherwise.

  21. In light of that observation, I do not see that the tension the primary judge perceived arises.  The principal reason for this is the caution urged in the first sentence.  The Professor’s view is that insofar as Art 54 is concerned one should exercise great care in the use of the word ‘enforcement’.  The second sentence is a more general statement (‘This Commentary’) and contrasts with the first sentence (‘in the context of Art 54’).  I do not think that Professor Schreuer was suggesting anything so straightforward as the statement that enforcement and execution were synonymous in Art 54.
  22. That having been said, one can well understand why the primary judge was driven to his approach of giving the different meanings to ‘execution’ and ‘enforcement’.  Since his Honour had characterised the proceeding as being for recognition and enforcement it followed that to have concluded otherwise would have resulted in Art 55 applying to the proceeding and his Honour thereafter being forced to accept Spain’s dyspeptic plea of foreign state immunity.  Having surveyed the background to the ICSID Convention and the travaux préparatoires his Honour was abundantly satisfied that such an outcome could not be fairly said to have been contemplated by anyone.  His Honour’s thorough analysis of that material is unanswerable and indeed Spain did not attempt to submit to the contrary.  I agree with his Honour’s conclusions to which I have nothing useful to add.
  23. But I do not think that the interpretative pressure his Honour felt was real.  In fact, what really mattered about the proceeding was that it was a recognition proceeding to which, on no view, could Art 55 apply.  So viewed, the flawed outcome which his Honour correctly perceived flowed from Spain’s submission could be evaded even if ‘enforcement’ and ‘execution’ were treated synonymously in the English text.
  24. So in that way I differ respectfully from the primary judge.  However, as I have already explained, it leads me to the same conclusion which his Honour reached.
  25. A number of matters should be noted for completeness.  First, I reject the Respondents’ submission that what Professor Schreurer said about this problem was inconsistent with what he had said about Art 55.  As I have explained, there is no contradiction.  The Professor was of the view that Art 55 did not apply to proceedings for recognition.  That is this case.  Secondly, it is not necessary to consider Spain’s submission that the UK Supreme Court’s decision in Micula v Romania [2020] UKSC 5; 1 WLR 1033 (‘Micula’) assists it on the construction question.  Had it been necessary, I would have seen considerable force in the Respondents’ submission that whilst the Supreme Court did make remarks supportive of Professor Schreuer’s view as to the equivalence of enforcement and execution in Art 54(3), this was in quite a different context and without a focus on the issue in the present appeal.
  26. In those circumstances, I accept that Spain’s construction of ‘execution’ and ‘enforcement’ is correct.  Consequently, the primary premise on which its subsidiary argument rests – ambiguity – is not established.
  27. In any event, even if I had arrived at the contrary view that the English text should control the French and Spanish texts I would have arrived at that conclusion by applying the principles of treaty interpretation reflected in the Vienna Convention.  Having done so, there would be no remaining ambiguity so far as this Court is concerned.  It is possible, I accept, that the International Court of Justice could render an opinion on the meaning of Art 54 and Art 55 for Art 64 of the ICSID Convention allows Contracting Parties to submit to that court any question of interpretation they have been unable to resolve.  Its opinion would, no doubt, be more definitive than this Court’s opinion.  But that does not mean that this Court’s opinion is not definitive in the meantime.  The Court has determined what Spain agreed to.  There is simply no room after that conclusion for a contention that somehow it can be said that it has not agreed.V.  OTHER MATTERS
  28. The appellate jurisdiction of this Court to review the primary judge’s conclusion that Spain was not entitled to rely upon s 9 turns upon the identification of error in the trial judge’s reasons: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 117 FCR 424 at [30] per Allsop J. I do not think the primary judge erred in his conclusion that Spain was not entitled to rely upon a plea of foreign state immunity. Whilst I differ from the primary judge on the issue of the meaning of ‘execution’ in Art 55, I do not think the difference is material to the outcome of the appeal. I do think, however, that error is shown in the form of recognition granted by the primary judge.
  29. Apart from the central issues, Spain’s written and oral submissions in this Court identified a cacophony of other errors claimed to have been committed by the primary judge.  Leaving aside those which deal with the question of foreign state immunity, these submissions (and the two omnibus grounds of appeal with which, from time to time, they occasionally intersected) have no relevance.  Even if the Court accepted that the errors were established so that the Court’s review jurisdiction was enlivened, his Honour did not err in his ultimate conclusion that foreign state immunity was not available in the current proceeding.  There is no formal utility therefore in assessing their merit.
  30. However, I would make the following brief remarks:
  31. I do not accept that his Honour erred in the sequencing with which he approached the ICSID Convention and the Immunities Act. It is plain that his Honour began with the Immunities Act and then turned to the ICSID Convention. But even if he had not done that I fail to see why this could matter. Both the Act and the Convention had to be interpreted. As the Respondents correctly submitted, the order in which one does this is immaterial.
  32. I do not accept Spain’s submission that his Honour had created a new exception to foreign state immunity beyond the exceptions set out in s 10. The primary judge asked himself the question in s 9, posed for himself the question of whether there was an exception in s 10, correctly apprehended that this turned on whether there was an ‘agreement’ and then assessed whether the ICSID Convention constituted such an agreement.
  33. I do not accept that Part IV of the Immunities Act has any relevance to the questions presently before the Court. Part IV is entitled ‘Part IV Enforcement’. Part IV does not apply until a Court has concluded that a foreign state has no immunity from jurisdiction. So much is clear from s 7(4):

    Part IV only applies where, by virtue of a provision of Part II, the foreign State is not immune from the jurisdiction of the courts of Australia in the proceeding concerned.

  1. In this case, the question is whether the exception in s 10(1) (which is in Part II) has been established. Until that question has been answered Part IV has no legal consequences since it is incapable of application by reason of s 7(4). As a matter of logic, it is impossible for Part IV to have any impact on the question of whether an exception in Part II has been engaged since its application necessarily post-dates any determination that an exception applies. Accordingly, Part IV is irrelevant to any issue presently before the Court.
  2. The question of whether the reference to the laws relating to immunity from execution in Art 55 is a reference to Part IV of the Immunities Act or the whole of the Immunities Act is, likewise, an irrelevant question. Since Art 55 has no application to a recognition proceeding the question does not arise in the present case. If and when the Respondents seek to execute their award, then Art 55 will be relevant.
  3. The Respondents pursued an argument that s 34 of the International Arbitration Act (above at [44]) excluded the operation of the Immunities Act. This was on the basis that the Immunities Act fell within the expression ‘Other laws relating to the recognition and enforcement of arbitral awards’ which are declared by s 34 not to apply to an ICSID award. The primary judge rejected this argument. In my view, the issue does not arise since Spain is not entitled to rely on the immunity conferred by s 9 of the Immunities Act under that Act’s own provisions. The implications of the Respondents’ submissions are not necessarily fully manifest in the current appeal. For example, if the Immunities Act is one of the laws referred to in s 34, this may have serious consequences when the time comes to consider how the Respondents’ judgment might be enforced under Part IV. This Part provides for an immunity from execution against the diplomatic and military assets of a foreign state which, if this argument be correct, will be lost. Australia may well have international obligations in that regard which would be necessary inputs into the interpretative task. In that circumstance, I would prefer to express no view on the issue until such time as the question actually arises. For the same reason, I prefer to express no opinion on the question of whether the International Arbitration Act impliedly repeals the Immunities Act.
  4. I do not accept Spain’s contention that it is assisted by the words ‘as if’ in Art 54(1).  Here the argument was that Art 54(1) requires the pecuniary obligations imposed by the award to be enforced ‘as if’ they were a final judgment of a domestic court.  Spain submits that it would then have been open to it to raise foreign state immunity as a reason why the judgment should be vacated and if the judgment could be vacated on that basis it must therefore be open to resist its initial entry on the same basis.  Spain cited Micula to show that a stay of a judgment resulting from an ICSID award may, in principle, be obtained.  Whilst I accept the internal logic of this submission when considered strictly in a vacuum, the argument of course must prosper, if at all, in the hostile atmosphere of Art 54.  It shows clearly that foreign state immunity is not available in a recognition proceeding.  Once it is accepted, as it must be, that the Respondents are entitled recognition under domestic law and that that domestic law is itself merely the instantiation of the recognition procedure to which Spain itself has explicitly agreed by means of the solemn public act of acceding to a treaty, it follows for the reasons already given that there can be no plea of foreign state immunity available to it whether before judgment or, even on the approach in Micula, after judgment. The problem it has is that the immunity has been lost by reason of an agreement within the meaning of s 10(2) of the Immunities Act.
  5. I do not accept that there is any substance in Spain’s submission that the mere fact that Spain had agreed to an arbitration in Art 26 of the ECT did not entail that it had waived its foreign state immunity.  The correctness of the submission need not be assayed for the question is not whether Art 26 of the ECT effects a submission to jurisdiction; it is whether Art 54(2) of the ICSID Convention does.VI.  APPLICATION FOR LEAVE TO INTERVENE
  6. At the hearing of the appeal the European Commission sought leave to intervene in the proceeding.  The Court dismissed the application for intervention at that time and said that it would provide reasons for this in due course.  My reasons for refusing leave to the European Commission’s application to intervene are as follows:
  7. The arbitration which took place between Spain and the Respondents under the ICSID Convention occurred because Spain is a party to the ECT and because by Art 26 of the ECT Spain agreed to arbitrate disputes with residents of other Contracting Parties.   The Respondents are residents of Luxembourg and the Netherlands, both of which are also Contracting Parties under the ECT.  Spain, the Netherlands and Luxembourg are also members of the European Union.  The European Commission wishes to contend that Art 26 properly construed does not constitute an offer to arbitrate and that, if to the contrary it does, it is unlawful as between members of the EU as a result of European constitutional law.
  8. These are, without doubt, most interesting questions. Leave to intervene should, however, be refused for two reasons. First, it is irrelevant to the question before this Court which is whether Spain is entitled to rely on a plea for foreign state immunity. No doubt the issues which the Commission wishes to ventilate are relevant to the jurisdiction of the arbitral tribunal but its jurisdiction (or perhaps more precisely the absence of its jurisdiction) is not a matter which the Court can consider under s 35(4) of the International Arbitration Act. The sole issue for the competent court under Art 54(2) is whether the party seeking the recognition of the award has presented a certified copy of it. This Court has also had to consider the additional legal question of whether a plea of foreign state immunity may be maintained in such a proceeding. Neither of those issues is affected by the meaning of Art 26 of the ECT or whether Art 26 is lawful under EU law.
  9. Secondly, even if that were not so, the present argument was not advanced by Spain to the trial judge and is not advanced by it on appeal.  The Court would therefore be called on to resolve an issue which does not form part of the matter between the parties and consequently is not within the jurisdiction of the Court: Re McBain; Ex parte Australian Catholic Bishops Conference [2002] HCA 16; 209 CLR 372 at [22], [27] per Gleeson CJ, [72] per Gaudron and Gummow JJ, [249] per Hayne J.
  10. In terms of the intervention rule, r 36.32(2)(a) of the Federal Court Rules 2011 (Cth), I do not therefore accept that the European Commission’s contribution would be ‘useful’.VII.  ORDERS
  11. I propose the following orders:

    (1)          The appeal be allowed.

    (2)          Orders 1, 2, 3 and 4 of the orders made on 24 February 2020 are set aside.

    (3)          The appeal is stood over to a date to be fixed for further argument on the form of order for the recognition of the award and otherwise for the disposition of the appeal including on the question of costs.

    (4)          The parties should confer and formulate draft orders providing for the delivery of written submissions on these issues with a page limit of 10 pages per submission.

I certify that the preceding one hundred and seven (107) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Perram.

 

Associate:

Dated: 1 February 2021

REASONS FOR JUDGMENT

MOSHINSKY J:

  1. I have had the considerable benefit of reading in draft the reasons for judgment of the Chief Justice and of Perram J.  I agree with the orders proposed by Perram J.  I agree with Perram J’s reasons, subject to the point made by the Chief Justice in [9] of his reasons: whether the French and Spanish languages have a penumbra or range of meanings would be a matter of evidence.  I also agree with the additional reasons given by the Chief Justice.
I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky.

 

Associate:

Dated:       1 February 2021

 

Orient Overseas Container Line Ltd v APL Co Pte Ltd (No 2) [2021] FCA 606

FEDERAL COURT OF AUSTRALIA

 

Case Name: Orient Overseas Container Line Ltd v APL Co Pte Ltd (No 2) [2021] FCA 606
Medium Neutral Citation: [2021] FCA 606
Hearing Date(s): 3 June 2021
Date of Orders: 3 June 2021
Decision Date: 3 June 2021
Before: STEWART J
Decision: THE COURT ORDERS THAT:

 

1. Pursuant to s 7(2) of the International Arbitration Act 1974 (Cth) and in accordance with cl 15.3 of the Joint Service Agreement (referenced in the plaintiff’s Amended Concise Statement) and cl 22.2 of the Cross Slot Charterparty that is an appendix to that Agreement, this proceeding NSD 645 of 2020, brought in the Court by the plaintiff against the defendants and by the cross-claimants against the cross-respondent, be stayed until further order.

2. The stay the subject of order 1 above be on the following conditions:

(a) Any arbitration once commenced shall be treated as if it had been commenced on the date on which this proceeding was commenced.

(b) Unless and until otherwise ordered by this Court, any arbitration involving the matters the subject of this proceeding is not to proceed until the earlier of the determination, dismissal, discontinuance or withdrawal at first instance of the claims made by the applicants in proceeding NSD 66 of 2021 against either of the plaintiff or the first defendant in this proceeding.

(c) The parties to this proceeding are released from the implied undertaking to the extent of using documents and information which are produced or obtained in this proceeding or in proceeding NSD 66 of 2021 for any arbitration commenced that involves the matters the subject of this proceeding.

(d) The defendants are to preserve evidence in accordance with order 4 of the orders of 11 June 2020 and orders 2 and 3 of the orders of 18 June 2020 until the conclusion of any arbitration commenced that involves the matters the subject of this proceeding.

3. No order as to costs.

4. The parties have liberty to apply, including to apply to vary any of the conditions the subject of orders 2(b) to 2(d).

 

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Catchwords:

ARBITRATION – application for stay of proceeding subject to conditions under s 7(2) of the International Arbitration Act 1974 (Cth) – stay and certain conditions by consent, other conditions contested – scope of the power to order conditions – whether proposed conditions intrude on the arbitration – whether power to order injunction as a condition to a stay

ADMIRALTY – stay of slot-charterer’s claim against vessel interests for indemnity for any liability to cargo interests in favour of arbitration – conditions of stay with respect to cargo interests’ separate proceeding against vessel interests – common issues

Legislation Cited: Federal Court of Australia Act 1976 (Cth) Pt IVA

International Arbitration Act 1974 (Cth) Pt II s 7(2), Sch 1
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (opened for signature 10 June 1958, 330 UNTS 3 (entered into force 7 June 1959))

Cases Cited: Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; 298 ALR 666
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1
O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601
Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; 100 FCR 420
Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102Holmes M and Brown C, The International Arbitration Act 1974 – A Commentary (3rd ed, LexisNexis, 2018) p 63 [s 7-22]
Texts Cited: NIL
DIVISION: General Division
Parties: BETWEEN:
ORIENT OVERSEAS CONTAINER LINE LTDPlaintiffAND:
ANL SINGAPORE PTE LTD

First Defendant

 

APL CO PTE LTD

Second Defendant

 

CMB OCEAN 13 LEASING CO PTE

Third Defendant

 

AND BETWEEN:
APL CO PTE LTD (and another named in the Schedule)

First Cross-Claimant

 

AND:
ORIENT OVERSEAS CONTAINER LINE LTD

Cross-Respondent

Representation: Counsel for the Plaintiff and Cross-Respondent: J K Kennedy

Solicitor for the Plaintiff and Cross-Respondent: HWL Ebsworth

Counsel for the Defendants and Cross-Claimants: C O Gleeson

Solicitor for the Defendants and Cross-Claimants: Thynne + Macartney

File Number(s): NSD 645 of 2020
Publication Restriction: NIL
Decision under appeal: NIL

 

JUDGMENT

STEWART J:

  1. This is another interlocutory judgment arising from an incident in which the MV APL England lost scores of containers overboard, and others were damaged, when it suffered a container stow collapse on 24 May 2020 off the coast of New South Wales.
  2. By interlocutory application, the first defendant (the time-charterer of the vessel) sought a stay of the proceeding under s 7(2) of the International Arbitration Act 1974 (Cth) (the IAA) and the referral of the dispute as between the plaintiff (a slot-charterer) and it to arbitration.  That was in reliance on an arbitration clause in the slot charterparty incorporated into a joint service agreement.
  3. Such a stay would have left the proceeding on foot as between the plaintiff and the second defendant (the bareboat charterer) and third defendant (the owner).  Sensibly, the parties have come to an agreement to refer the claim by the plaintiff against all the defendants to arbitration together.  They have also agreed a number of conditions upon which the stay should be ordered.  There remains a dispute about two of the conditions that I am required to resolve.
  4. The conditions with respect to which there is a dispute concern the relationship between the claims in the present proceeding, and hence in the arbitration, and the claims in proceeding NSD 66 of 2021.  In that proceeding, a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth), a number of cargo interests (shippers and/or consignees and their insurers) assert claims against the defendants to the present proceeding (the vessel interests) and a number of other parties including the plaintiff to the present proceeding (NVOCCs, freight forwarders and slot-charterers). The plaintiff’s claims in the present proceeding are for indemnities in respect of any liability that it might have to cargo interests, whether those interests are represented in the other proceeding or not.
  5. From that brief description of the two proceedings it is readily apparent that there are likely to be considerable areas of overlap between them and, hence, between the arbitration and the other proceeding once the present proceeding is stayed.  For example, the seaworthiness of the vessel and the cause of the stow collapse are likely to be at the centre of both proceedings.  Recognising that overlap, and the inefficiencies and discreditable spectre of conflicting outcomes that may arise from a multiplicity of proceedings on the same issues, the parties are agreed that the stay of the present proceeding should be on the condition that the arbitration is not to proceed until the determination of the other proceeding.  They differ, however, on what the appropriate stage of that determination should be.
  6. The defendants contend for the wording that the arbitration is not to proceed until the earlier of the determination, dismissal, discontinuance or withdrawal “of all claims made in proceeding NSD 66 of 2021 by or against the parties to this proceeding”, whereas the plaintiff contends that the wording in inverted commas be replaced with “at first instance of the claims made by the applicants in proceeding NSD 66 of 2021 against either of the plaintiff or the first defendant in this proceeding.”  It was explained that the defendants regard their proposed wording as having the effect of the arbitration being stayed pending the final determination, including on any appeal or appeals, of the claims in the other proceeding.  The plaintiff, on the other hand, says that the stay of the arbitration should end when any claim against either the plaintiff or the first defendant in this proceeding is concluded at first instance in the other proceeding.  That is the first dispute to be resolved.
  7. The other dispute is that the defendants say there should be a further condition that the plaintiff is not to make any claims against the defendants, by way of cross-claim or otherwise, in proceeding NSD 66 of 2021 seeking the same or similar relief as is sought in this proceeding or the arbitration.  The plaintiff says that that is in the nature of an injunction for which there is no justification because there is no reasonable apprehension that such claims will be made.  Moreover, it is said, if they are made then any problem that that creates can be dealt with then.
  8. The defendants make submissions in support of the conditions that they contend for essentially with reference to considerations relevant to convenience, practicality and sensible case management of the proceedings. For reasons that will shortly become apparent, it is not necessary to go into the detail of those submissions.
  9. The source of the court’s power to impose conditions on a stay under s 7(2) of the IAA, which stay the parties have in this instance agreed to, is the same sub-section. It provides, relevantly, that on the application of a party to a relevant arbitration agreement “the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings … and refer the parties to arbitration.”
  10. Section 7(3) provides that where a court makes an order under sub-s (2), it may, for the purpose of preserving the rights of the parties, make such interim or supplementary orders as it thinks fit in relation to any property that is the subject of the matter to which the first-mentioned order relates.  Thus, s 7(3) explicitly confers on the court the power to make interim orders, which would naturally include orders in the form of an injunction, but restricted to being in relation to any property that is the subject of the matter to be referred to arbitration.  The power to order injunctions having been included in sub-s (3), there is thus, on the face of it, no basis to read sub-s (2) as including the power to make orders in the form of an injunction.
  11. It is important to understand s 7(2) in proper context. It is in Pt II of the IAA which concerns the enforcement of foreign arbitration agreements and awards in order to give effect to the New York Convention, i.e., the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration which is set out in Sch 1 to the IAA. Article II(1) of the Convention provides that each Contracting State shall recognise an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship. Article II(3) of the Convention provides that the court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of the article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. There is nothing in the Convention giving power to the court to impose conditions upon a stay of proceeding and referral to arbitration. That is an indication that the power to impose conditions is to be read in a restricted way.
  12. The principle underlying Art II, and hence s 7, is that arbitration agreements should be recognised and enforced by staying court proceedings in favour of arbitration where the subject of the proceedings is covered by the arbitration agreement.  There is no justification for construing the power to impose conditions on such a stay as including conditions which interfere with the jurisdiction and power of the arbitral tribunal or which alter the rights of the parties under their arbitration agreement; the purpose is, after all, to uphold and enforce that agreement, not to alter or undermine it or the parties’ rights under it.
  13. It is also to be borne in mind that in terms of ss 39(1)(b) and 39(2)(a) of the IAA, s 7(2) is to be interpreted having regard to the objects of the Act in s 2D. Section 2D includes as the objects of the Act, encouraging the use of arbitration, facilitating the use of arbitration agreements, and giving effect to Australia’s obligations under the New York Convention.
  14. In that regard, in O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601 at 622, Kirby P acknowledged that s 7(2) of the IAA is expressed in apparently wide terms, but said that “it is obvious that the conditions are incidental and ancillary to the achievement of the main purpose of s 7(2) [which] is to hold the parties to international commercial agreements to an agreement to arbitrate.” His Honour thus declined to impose a condition that had been imposed by the primary judge that the arbitration take place in New South Wales rather than Florida and explained:

    I do not consider, in this context, that it would be proper to impose a condition which effectively distorted the agreement initially entered between the parties. Nor should such a condition be imposed as would manipulate the rights of the parties under that agreement, notwithstanding their agreement to arbitrate. Nor should conditions frustrate the achievement of the policy of the statute to enforce that agreement. The “conditions” which s 7(2) of the Act contemplates are machinery conditions. They relate to hearing and the like procedures and not to conditions which determine, in effect, the substantive rights of the parties. Those substantive rights were, relevantly, fixed by the agreement. The Court should neutrally hold the parties to that agreement. In my opinion it would be wrong for the Court to distort and frustrate that agreement (whilst requiring the stay necessitated by the statute) to impose conditions which were not within the agreement which it is the purpose of the Act to enforce.

  15. In Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; 298 ALR 666, Martin CJ, with whom McLure P and Buss JA relevantly agreed, cited (at [90]) that extract from O’Brien with approval and then observed (at [93]):

    This approach to the ambit of the powers conferred upon the court by s 7 of the Act is consistent with the limited role which national courts play when parties have agreed to resolve their disputes by international commercial arbitration. National courts are not properly regarded as competitors or rivals for the jurisdiction which the parties have agreed to confer upon an arbitral tribunal. As I have already noted, the exercise of judicial power to facilitate the agreement of the parties to resolve their disputes by arbitration, and the strictly limited supervisory role usually conferred upon national courts by the lex arbitri, which is generally limited to containing arbitral tribunals within the jurisdiction conferred upon them by the parties and ensuring that the jurisdiction is exercised, is fundamentally different in character to the role of the arbitral tribunal in resolving the dispute by making an award defining the substantive rights and obligations of the parties. International comity requires national courts to faithfully respect these limitations upon their role – in this case by appropriately construing the ambit of the powers conferred upon the court by s 7 of the Act having regard to such limitations.

  16. There are several cases in this Court where claims subject to an arbitration agreement and claims not so subject have been brought in the same proceeding, and the proceeding has been stayed in respect of the first-mentioned claims which have been referred to arbitration while the second-mentioned claims have continued before the court, but a condition has been imposed on the stay that the arbitration not proceed until the second-mentioned claims have been determined.  See, for example, Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 at 28-29 per Emmett J, Beaumont and Branson JJ agreeing; Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; 100 FCR 420 at [68]-[70] per Merkel J; Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102 at [110] per Allsop J. There is, however, a view that such a condition is beyond the power of the court under s 7(2) of the IAA: Holmes M and Brown C, The International Arbitration Act 1974 – A Commentary (3rd ed, LexisNexis, 2018) p 63 [s 7-22].
  17. It is not necessary for present purposes to engage upon that debate.  First, the present is not such a case.  All the claims in the present case are to be referred to arbitration.  The question that arises is not with regard to the relationship between stayed claims and non-stayed claims in this case, but rather the relationship between the stayed claims in this case and other, different claims between different parties in another case, albeit that the determination of those claims will in all likelihood determine issues that are common to the claims to be stayed in this case.  Secondly, I consider that since the stay in the present case and the principal terms upon which it is to be granted is by agreement of the parties, it not having been necessary for me to decide whether there should be a stay, it would be unwise and potentially intrusive into the terrain of the arbitral tribunal for me to impose terms more restrictive on the plaintiff in its pursuit of the arbitration proceeding than it has agreed to.
  18. In the latter regard, it is really a matter for the arbitral tribunal whether it should stay its proceeding pending the outcome of the other proceeding in this Court, or whether for whatever reason and on whatever basis the arbitral proceeding should continue in tandem with the other proceeding in this Court. The parties have agreed by their agreement to arbitrate that those matters are matters for the tribunal, and I would accordingly be hesitant to exercise any power under s 7(2) to impose conditions on the stay of the proceeding in this Court that would trespass upon the arbitration which the parties agreed to and which this Court is bound to support, not undermine.
  19. It is also to be observed that the defendants’ position is that they want not only for the proceeding against them in this Court to be stayed in favour of arbitration, but they also want the arbitration to be stayed (beyond when the plaintiff has agreed to it being stayed).  That strikes me as being an attempt by them to have their cake and eat it.
  20. In the circumstances, I am only prepared to impose conditions that are as onerous as has been agreed. The terms of conditions that go beyond such agreement are beyond what I am satisfied should be imposed, and it may be that they are in any event beyond power. That is not to say that as a general rule only conditions that have been agreed by the parties can be imposed under s 7(2) – far from it. What I am saying is that in this case where the stay is by agreement and the parties have agreed the principal conditions on which the stay should be ordered, I will not impose further conditions, or alter the wording of conditions, so as to burden the plaintiff beyond what it has agreed to when such burden is to intrude in the arbitration.
  21. That deals with the first issue about when the stay on the arbitration should end. Insofar as the second issue is concerned, aside from my reservations as to the power of the court to order an injunction as a “condition” under s 7(2) of the IAA, I am not persuaded that there is any need or justification at this stage for that protection which the defendants seek.
  1. I will accordingly make orders in the form agreed to by the plaintiff.  It should be noted that in those orders it is only the wording of order 2(b) that was the subject of contest.  The condition that was the subject of the other contest does not appear in the orders, and the rest of the orders are by consent which has meant that I have not had to examine them in any detail.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.

One Sector Pty Ltd v Panel Concepts Pty Ltd [2021] QDC 54

DISTRICT COURT OF QUEENSLAND

 

Case Name: One Sector Pty Ltd v Panel Concepts Pty Ltd [2021] QDC 54
Medium Neutral Citation: [2021] QDC 54
Hearing Date(s): 19 March 2021
Date of Orders: 8 April 2021
Decision Date: 8 April 2021
Before: Barlow QC DCJ
Decision: Application dismissed
Catchwords: ARBITRATION – ARBITRATION AGREEMENT – ARBITRATION AGREEMENT AS GROUND FOR STAY OF COURT PROCEEDINGS – POWER OF COURT TO STAY – VALID ARBITRATION AGREEMENT – Plaintiff sub-contracted defendant to complete construction work – Plaintiff suing defendant for breach of contract – Sub-contract includes dispute resolution clause – Dispute resolution clause includes potential referral to arbitration – Whether clause amounts to arbitration agreement under Commercial Arbitration Act.

 

ARBITRATION – ARBITRATION AGREEMENT – ARBITRATION AGREEMENT AS GROUND FOR STAY OF COURT PROCEEDINGS – POWER OF COURT TO STAY – TIME FOR APPLICATION –Plaintiff suing defendant for breach of contract – Plaintiff successfully sought default judgment – Defendant applied to have default judgment set aside – Defendant filed affidavit in support of application to set aside judgment – Whether statements in affidavit describing proposed defences amounted to first statement on the substance of the dispute.

Legislation Cited: Commercial Arbitration Act 2013 (Qld), s 8
Cases Cited: CPB Contractors Pty Ltd v Celsus Pty Ltd (2017) 353 ALR 84, considered

 

Gilgandra Marketing Co-operative Ltd v Australian Commodity & Marketing Pty Ltd [2010] NSWSC 1209, considered

 

Pathak v Tourism Transport Ltd [2002] 3 NZLR 681, cited

Texts Cited: NIL
DIVISION: Civil
Parties:  

ONE SECTOR PTY LTD
(Plaintiff/Respondent)

v

PANEL CONCEPTS PTY LTD

(Defendant/Applicant)

Representation: Counsel:

 

S Colditz, for the plaintiff

J Marr, for the defendant

 

Solicitors:

 

Active Law for the plaintiff

Robinson Locke Litigation Lawyers for the defendant

File Number(s): BD 2957/2020
Publication Restriction: NIL
Decision under appeal: NIL

 

JUDGMENT

Introduction
1. The defendant was a sub-contractor of the plaintiff – the head contractor – under a contract for the construction of an industrial complex. The plaintiff sues the defendant for damages for breach of that contract.

2. The defendant applies for a stay of the proceeding, pursuant to s 8(1) of the Commercial Arbitration Act 2013, so that the parties may refer their dispute to arbitration pursuant to the contract.

3. Subsection 8(1) of the Act provides:
A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

4. “Arbitration agreement” is defined in s 7, in essence, as a written agreement to submit to arbitration disputes that have arisen or may arise between the parties.

5. The contract in this case is apparently a standard form of subcontract drawn by the plaintiff. Its operative part (the general conditions) is not long. Clause 25, upon which the defendant relies, is headed “Dispute Resolution.” It is set out in the annexure to these reasons.

6. The defendant’s principal contention is that none of the steps referred to in clause 25 has been taken and therefore the parties remain obliged, by clause 25.1, to comply with the steps set out in the balance of the clause before the plaintiff may continue with this proceeding. Therefore it seeks a stay of this proceeding. The parties agree that an order staying the proceeding is an effective way of the court referring the parties to arbitration under s 8.

7. The plaintiff submits that the parties have taken the steps provided in clauses 25.2 to 25.4 (a notice of dispute, followed by a without prejudice conference), but it says that, after the conference, the defendant did not issue a further notice of dispute, under clause 25.5, setting out the details of the dispute and referring it to arbitration. Nor have the parties otherwise agreed on arbitration which, the plaintiff contends, is an alternative route for arbitration (that is, by a separate agreement).

8. The plaintiff opposes a stay on a number of grounds:
(a) first, there is no arbitration agreement, as the preconditions to the operation of the contractual requirement that the parties arbitrate their differences have not been met;
(b) secondly, the defendant made this application too late – in particular, after it had, in this proceeding, submitted its first statement on the substance of the dispute;
(c) thirdly, any arbitration agreement in the contract is inoperative as the defendant has chosen to participate in this proceeding rather than to arbitrate and it should be held to that choice.

Is there an arbitration agreement?

9. The defendant contends that clause 25 constitutes an arbitration agreement. The parties must therefore comply with the steps provided in that clause before they may litigate. But the plaintiff contends that none of the steps taken by the parties to date was a step under clause 25 or, if any action purported to be such a step, it was taken too late. Therefore there is no current or operative agreement that the disputes the subject of this proceeding be referred to arbitration.

10. The plaintiff submits that only clause 25.5 permits one party, in the circumstances described in that clause, unilaterally to refer disputes to arbitration. A party may do so only after the following steps have occurred:
(a) one party has given to the other a notice of dispute under clause 25.2;
(b) the parties have held a without prejudice conference, either within 7 days of the giving of the notice of dispute under clause 25.3 or later under clause 25.4 if either party is a member of the Queensland Master Builders Association;[1]
(c) if the parties do not settle at a conference, one party has given the other a second notice of dispute and referred the dispute to arbitration.

11. Unless those steps are taken within the time periods stated, then arbitration may only occur if the parties agree to proceed to arbitration. In the event of such an agreement, clauses 25.6 to 25.9 apply. Otherwise, either party may commence and proceed with litigation.

12. In his submission, Mr Colditz, counsel for the plaintiff, sought to distinguish between a unilateral referral to arbitration under clause 25.5 and a bilateral, separate agreement under clause 25.6. The basis of this distinction was the reference, in clauses 25.6 and 25.9 to “the parties” referring or failing to agree to refer a dispute to arbitration. Mr Colditz submitted that clauses 25.6 to 25.9 did not apply to a unilateral referral under clause 25.5. Rather, those clauses refer to the possibility that, in the absence of a unilateral referral, the parties may agree jointly to refer their dispute, to arbitration. In this case, there was no unilateral referral, nor have the parties separately agreed to refer their dispute to arbitration. Therefore, there is no arbitration agreement.

13. I respectfully disagree with that construction. The contract is not well drawn, but clearly clauses 25.6 to 25.8 apply to an arbitration to be conducted after one party requires referral under clause 25.5. The references to “the parties” should be construed as referring to either party. Otherwise clauses 25.6 to 25.8 would be redundant (being entirely dependent on there being a fresh agreement to arbitrate). Furthermore, the reference, in clause 25.9(c) to a referral to arbitration under clause 25.6 is clearly an error, as the only method of referring a matter to arbitration is under clause 25.5.

14. The effect of clauses 25.5 to 25.9 is that:
(a) if the parties have had a without prejudice conference after a notice of dispute under clause 25.2 was given, then either party may give the other another notice of dispute setting out details of the dispute then existing (which may not be all the original disputes) and, by that notice, elect to refer to arbitration the items of dispute set out in the notice;
(b) if either party makes such a referral and the parties cannot agree on an arbitrator, the method of selection of an arbitrator set out in clauses 25.6 and 25.7 will be used to have one appointed;
(c) if neither party gives the other a notice of dispute and referral to arbitration (under clause 25.5) within 7 days of a conference under clause 25.3,[2] or if a conference did not take place due to the refusal of the party given the original notice of dispute, either party may commence litigation about the disputes set out in the original notice of dispute.

15. Clause 25 as a whole is clearly an arbitration agreement.
Was the defendant’s application for a stay made too late?

16. The plaintiff contends that the defendant sought to refer the dispute to arbitration too late, as the first occasion on which the defendant, by its solicitor, mentioned referral to arbitration was on 9 March 2021, after it had successfully applied to have a default judgment against it set aside. In support of that application, the defendant’s solicitor swore an affidavit in which he said,[3]I am informed by John Hennessy and believe that the Defendant has a Defence and a Counterclaim, being:
(a) At all times, the Defendant was ready and willing to complete the work pursuant to the subcontract, including rectifying any alleged defects. However, the Plaintiff prevented the Defendant from performing work because the Defendant was denied access to site. As the Plaintiff prevented the Defendant from performance, by the doctrine of prevention, it cannot take advantage of its own default and allege breach of contract by the Defendant.
(b) The Plaintiff’s claim for alleged liquidated damages includes claim for a period caused by the Plaintiff itself which prevented earlier performance. The Plaintiff only gave access to site after 4 December 2018. As such the liquidated damages claim seek to take advantage of delay caused by the Plaintiff. Further, the period of time includes time when the Defendant was prevented from performance due to exclusion from site.

17. Counsel for the plaintiff submitted that those paragraphs comprise the defendant’s “first statement on the substance of the dispute,”[4] in which case the defendant became disentitled to file its application seeking a stay after it filed that affidavit.

18. Mr Colditz referred me to several authorities that have considered what amounts to a “first statement on the substance of the dispute.” I have also reviewed the discussion of the section and its equivalents in other jurisdictions in Commercial Arbitration Act 2010 (NSW) (Annotated) published by Westlaw AU.

19. I preface my consideration of this issue by noting that a court should attempt to construe the Act in a manner consistent with the UNCITRAL model law on international commercial arbitration, on which the Act is based.[5]

20. In CPB Contractors, at [91]-[92] Lee J referred to two decisions of other Courts. Of particular assistance is that of Slattery J in Gilgandra Marketing Co-operative Ltd v Australian Commodity & Marketing Pty Ltd [2010] NSWSC 1209. His Honour commenced his decision by remarking, at [1], that the case illustrated that a party operating under the Act may need to decide early to pursue a stay application.

21. In Gilgandra, the plaintiff commenced an action for a debt allegedly owed and obtained an interlocutory injunction restraining the defendant from dealing with the goods sold to it by the plaintiff. Directions were made for pleadings and a prompt trial. The defendant filed an unconditional notice of appearance and then took other steps, including applying to set aside the injunction. Some months later, it filed its defence and, on the same day, a motion seeking a stay of the proceeding to enable arbitration under the sale agreement. Slattery J held that it was not entitled to a stay.

22. At [49] to [53], his Honour considered a number of New Zealand decisions on when a party’s first statement on the substance of the dispute is made. His Honour extracted the following passage from a learned article[6] summarising those decisions:
It has been variously held that the following constitute a “party’s first statement on the substance of the dispute”:
(a) a notice of opposition and affidavit in opposition to an application for an interim injunction;
(b) an originating application for an order setting aside a statutory demand and supporting affidavit;
(c) an affidavit in reply in a summary judgment application in which the plaintiff raises matters which are the subject of an arbitration agreement in reliance on which the plaintiff subsequently seeks to stay proceedings brought by the defendant;
(d) proceeding with a claim after making an application for interim relief with reference to an arbitration agreement but failing then or immediately after the resolution of the interim relief application to apply for a stay, so adopting the statement in the interim relief application as a statement on the substance of the dispute.

23. Slattery J went on to say:
“the principles stated in a decision in Pathak v Tourism Transport Ltd[7] show that a defendant who opposes interim relief in Court and fails to seek a stay or protest jurisdiction in respect of the substantive dispute at an early time under Article 8(1) will be prevented from seeking a stay. … Heath J found that had a stay been sought by the plaintiff immediately after the resolution of the interim relief application it would have been granted … [but] because the plaintiff had proceeded with the Court action and therefore adopted the earlier statement made in the interim relief the plaintiffs had therefore submitted their first statement on the substance of the dispute and that it was too late then to seek a stay.

24. Notably, in Pathak, Heath J referred to a number of other New Zealand decisions on the equivalent provision to s8(1) of the Queensland Act. In one,[8] it was held that, in filing a response to an interim injunction application, the defendant had submitted to the court’s jurisdiction. Its notice of opposition to the interim injunction application and its affidavits in support constituted a statement on the substance of the dispute.

25. In another,[9] the Master held that an affidavit filed on behalf of the applicant to set aside a statutory demand was a “first statement on the substance of the dispute”.

26. Heath J concluded, most relevantly, that “a defendant who opposes interim relief and fails to seek a stay (or protest jurisdiction) in respect of the substantive dispute will also be prevented from seeking a stay.”[10]

27. Slattery J, after referring to those decisions, concluded at [54] that the defendant’s opposition to the plaintiff’s application for interim relief was its first statement on the substance of the dispute. But even if that were not the case, its failure to seek a stay immediately afterwards and its conduct in cooperating over some two months in bringing the proceeding on for hearing, even before a formal defence was filed, was a continuing adoption by it of its first statement at the interlocutory hearing.

28. Returning now to CPB Contractors, having briefly referred to the New Zealand cases, Lee J concluded at [92] that they –
supported the principle that a respondent which opposes interim relief and fails to seek a stay or protest jurisdiction in respect of a substantive dispute at an early time would be prevented from seeking a stay.

29. Lee J went on to refer to decisions of courts of Singapore and Hong Kong. In particular, his Honour quoted this observation from the Court of Appeal of Singapore:[11]

It now seems to be fairly settled that a “step” is deemed to have been taken if the applicant employs court procedures to enable him to defeat or defend those proceedings on their merits and/or the applicant proceeds, from a procedural point of view, beyond a mere acknowledgment of service of process by evincing an unequivocal intention to participate in the court proceedings in preference to arbitration.

30. Lee J concluded that the State in the case before him had not made its application for a stay prior to filing its first response on the substance of the dispute and therefore was not entitled to a stay of the proceeding.
31. Counsel for the plaintiff in this proceeding submitted that the sworn statements as to the defences available to the defendant in this proceeding were in common with the common feature in all the cases, namely that they constituted statements that “contained what the party in question said about how the substantive dispute in the primary proceedings should be determined.”[12]

32. In its application to set aside the default judgment,[13] the defendant in this case also sought an order that it have 28 days from setting aside the judgement within which to file a notice of intention to defend and defence. It did not seek an order staying the proceeding for the purpose of an arbitration. I have set out above what Mr Robinson deposed to about the defences available to the defendant. On 1 March 2021, the day before the proposed hearing of its application, the defendant consented to an order that it file and serve its notice of intention to defend and defence by 23 March 2021.

33. It was not until its solicitors wrote to the plaintiff’s solicitors on 9 March 2021[14] that the defendant first raised the arbitration agreement, purported to refer the dispute to arbitration and foreshadowed making this application for a stay of the proceeding to enable arbitration to take place.

34. One might ordinarily think that the phrase “first statement on the substance of the dispute” would be referring to a formal document that makes a claim in court proceedings or responds in detail to the claim. The phrase is used in the Model Law because it applies to many countries with different procedural requirements. In the Australian context, one might consider that it refers to such documents as a statement of claim and a defence, or perhaps an affidavit supporting an originating application. In contrast, one might think, a short description of the bases of defences available in an affidavit to set aside a default judgment might not constitute such a statement. This is particularly so when courts have decided that a plaintiff’s application for, or opposing, an interim injunction, which must include evidence setting out the factual basis for the application, does not comprise such a statement.

35. However, the almost unanimous weight of authorities in which equivalent provisions have been considered is to the effect that a party who submits to a court’s jurisdiction in a proceeding concerning the subject matter of an arbitration agreement and, in that proceeding, makes some statement of the nature of its claim or defence, except where a proposed claimant invokes a court’s jurisdiction and power to grant interim relief, is thereafter prevented from seeking a stay under s 8 or its equivalents. While I am not bound by those authorities, I am not persuaded that they are clearly wrong. In the circumstances, I should follow them.

36. In its application to set aside the judgment, it was not necessary for the defendant to demonstrate to the court that it has a good arguable defence, because the application was based on the basis that the judgment was irregularly entered.[15] It could have sought to set aside the judgement on that basis and, at the same time, sought a stay. It did not do so. Instead, it sought to set aside the judgment and to seek an order that it file its unconditional notice of intention defend and a defence. In support, Mr Robinson described, although in short compass, the defences on which the defendant apparently intended to rely.

37. Having regard to the weight of authority, I conclude that Mr Robinson’s description of those defences do constitute the defendant’s first statement on the substance of the dispute. It is therefore now too late for it to seek a stay under s 8.

38. That conclusion makes it unnecessary for me to consider and determine the plaintiff’s third ground of opposition to the application. However, I will record that the defendant’s application, by which it not only sought to set aside the default judgment but also sought an order that it file a notice of intention to defend and a defence, as well as its consent to that latter form of order, seem clearly to constitute an election to defend the litigation in this proceeding rather than by arbitration. This third ground therefore does seem to have merit.

39. The defendant’s application must be dismissed. I shall hear from the parties on costs and directions for the next step in the proceeding.

Subcontract clause 25

25. Dispute Resolution

25.1 Except to the extent that any litigation that may be commenced for injunctive relief in relation to any matter arising out of or in connection with the Subcontract Agreement, the requirements of this clause are a condition precedent to either party commencing (or, if wrongly commenced, continuing) litigation.

25.2 If a dispute or difference arises out of, or in connection with, the Subcontract, either party may give the other party a written notice of dispute setting out the details of the dispute including any amount in dispute.
‘Without Prejudice’ Conference

25.3 The parties shall arrange, and participate in, a ‘without prejudice’ conference between them, or their authorised representatives, in an attempt to resolve the dispute or difference set out in the notice of dispute within 7 Days after the giving of the notice of dispute.

25.4 Subject to one of the parties being a member of the Queensland Master Builders Association:
(a) if either party gives a written notice to the Queensland Master Builders Association and the other party requesting that the Queensland Master Builders Association appoint a person to facilitate discussion in a ‘without prejudice’ conference, the Queensland Master Builders Association may appoint such a person; and
(b) On any appointment of a person by the Queensland Master Builders Association under Clause 25.4(a), the parties shall permit that person to make suitable arrangements for, and to facilitate discussion in, the ‘without prejudice’ conference.

Mediation or Arbitration

25.5 If the parties fail to resolve all of the dispute or difference set out in the notice of dispute during the ‘without prejudice’ conference, or if the party given the notice of dispute fails to participate in a ‘without prejudice’ conference within 7 Days after the giving of the notice of dispute, then either party may give the other party a written notice of dispute setting out the details of the dispute including any amount in dispute and may refer all or any part of the dispute or difference to mediation or arbitration.

25.6 If the parties refer all or any part of the dispute or difference set out in the notice of dispute to mediation or arbitration but fail to agree on the person to be appointed as the mediator or the arbitrator, then either party may give a written notice to the President of the Queensland Master Builders Association and the other party requesting that the President appoint (as the case may be):
(a) a mediator to facilitate the mediation; or
(b) An arbitrator to decide all or that part of dispute or difference referred to arbitration.

25.7 If either party gives a notice under Clause 25.6, the President shall give to the parties a written notice setting out the name and contact details of (as the case may be):
(a) the mediator appointed by the President to facilitate the mediation; or
(b) The arbitrator appointed by the President to decide all or that part of the dispute or difference referred to arbitration.

25.8 On the giving of a notice under Clause 25.7, the parties shall:
(a) request the mediator or the arbitrator named in the notice to make suitable arrangements for (as the case may be) the mediation or the arbitration; and
(b) Participate in (as the case may be) the mediation or the arbitration and pay the costs of the mediation (including the costs of the mediator) or the costs of the arbitration (including the costs of the arbitrator) in equal shares unless otherwise agreed by the parties or decided by the arbitrator.

25.9 If the parties fail to:
(a) agree to refer any part of the dispute or difference set out in the notice of dispute to mediation or arbitration within:
(i) 7 Days after the ‘without prejudice’ conference; or
(ii) If the party given the notice of dispute fails to participate in a ‘without prejudice’ conference 14 Days after the giving of the notice of dispute, or
(b) resolve all of the dispute or difference set out in the notice of dispute during any mediation,
Then either party may commence litigation in relation to any part of the dispute that is not:
(c) agreed to be referred to mediation or arbitration under Clause 25.6; or
(d) Resolved during any mediation.

25.10 Notwithstanding the giving of a notice of a dispute, the parties shall, subject to the Subcontract, continue to perform the Subcontract.

________________________________________

[1] Neither party is a member of the QMBA.

[2] That period of 7 days derives from clause 25.9, which I consider applies to a referral by either party under clause 25.5 (or indeed by both parties). If there is no referral within 7 days of a conference, either party may commence litigation.

[3] Affidavit of Malcolm Robinson filed on 24 February 2021, paragraph 8 (errors in original).

[4] Commercial Arbitration Act, s8

[5] CPB Contractors Pty Ltd v Celsus Pty Ltd (2017) 353 ALR 84, [43]. The model law was produced under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the “New York Convention”.

[6] Tómas Kennedy-Grant QC, “The New Zealand Experience of the UNCITRAL Model Law: A Review of the Position as at 21 December 2007” (2008) 4 AIAJ 1.

[7] Pathak v Tourism Transport Ltd [2002] 3 NZLR 681.

[8] The Property People Ltd v Housing New Zealand Ltd (1999) 14 PRNZ 66.

[9] Anderson Switchboards & Electronic Ltd v Schneider Electrical (NZ) Ltd (High Court, Auckland, M 1215-IM00, 16 January 2001), a decision of Master Kennedy-Grant.

[10] Pathak, 692.

[11] Carona Holdings Pte Ltd v Go Go Delicacy Pte Ltd [2008] 4 SLR 460; [2008] SGCA 34, [55]. Emphasis in the original.

[12] Quoting from Mitchell J in Australian Maritime Systems Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52, [93].

[13] Court document no 9, filed on 24 February 2021.

[14] Affidavit of Paul Jason Hick filed by leave on 19 March 2021, “PH-6”, pp 339-341.

[15] A defendant may almost always have an irregularly entered judgment set aside as of right: Cusack v De Angelis [2008] 1 Qd R 344, [36].

Venetian Nominees Pty Ltd V Weatherford Australia Pty Ltd [2021] WASC 137

SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

 

Case Name: VENETIAN NOMINEES PTY LTD v WEATHERFORD AUSTRALIA PTY LTD [2021] WASC 137
Medium Neutral Citation: [2021] WASC 137
Hearing Date(s): 15 FEBRUARY 2021
Date of Orders: 5 MAY 2021
Decision Date: 5 MAY 2021
Before: 5 MAY 2021
Decision: Application dismissed
Catchwords: Arbitration – Private arbitration award made concerning disputed apportionment of outgoings under a lease – Interim award determination made pursuant to issues in Arbitration Agreement – Challenge to set aside award under s 34(2)(a)(ii) and (iv) of the Commercial Arbitration Act 2012 (WA) – Application to Supreme Court to set award aside on alleged basis of plaintiff being unable to present its case or on the basis of alleged unfairness grievances as to arbitral procedure – Contention as to an ‘unpleaded’ argument being accepted and relied on by arbitrator – Contention of a failure to ensure a fair hearing by providing insufficient opportunity to respond by evidence – Whether present application permissible or whether a de facto appeal ‘dressed up’ under the guise of fitting within s 34(2)(a) of the Commercial Arbitration Act
Legislation Cited: Commercial Arbitration Act 2012 (WA), s 34(2)(a)
Cases Cited: AKN v ALC [2015] SGCA 18
Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253
Ivankovic v West Australian Planning Commission [2020] WASC 40
Ray Mullins & Sons Pty Ltd v Skycorp Investments Pty Ltd [2011] WASCA 49
Spaseski v Mladenovski [2019] WASC 65
The State of Western Australia v Mineralogy Pty Ltd [2020] WASC 58
Texts Cited: NIL
Category: (In Chambers)
Parties:  

VENETIAN NOMINEES PTY LTD

Plaintiff

 

AND

 

WEATHERFORD AUSTRALIA PTY LTD

Defendant

Representation: Counsel:

 

Plaintiff : Mr M Hotchkin
Defendant : Mr M Howard SC & Ms S B Nadilo

 

Solicitors:

 

Plaintiff : Hotchkin Hanly
Defendant : Jackson McDonald

File Number(s): ARB 6 of 2020
Publication Restriction: NIL
Decision under appeal: NIL

 

JUDGMENT

KENNETH MARTIN J:

Linguistic camouflage aside, this is an attempted appeal by the plaintiff against a decision of an arbitrator delivered in a wholly private arbitration. There presents the problem. There is, by the clear words of the local arbitration statute, no appeal available against the adverse arbitral decision. No doubt by reason of that inconvenient obstacle, the present challenges directed against the arbitrator’s award decision have been grammatically cast as an alleged failure by the arbitrator to hear some of the plaintiff’s arguments and, alternatively the too frequently seen allegation of a denial of procedural fairness within the arbitration process. Curial challenges attempted against non-appealable award decisions continue to bedevil and undermine legislative policy endeavours to entrench arbitration as a quick, relatively inexpensive and final medium for private dispute resolutions. Unfortunately, too many unsuccessful arbitration participants still see it as worth their while to ‘roll the dice’ by manufacturing a pathway to a court, where strained procedural unfairness arguments rise to the fore as something of a last refuge of the desperate. Here, such challenges have been productive of delay to the successful party enjoying the fruits of the award and have necessitated an allocation of resources – equivalent to what would otherwise have been devoted to the hearing of a full blown appeal by way of a rehearing. This farcical position should no longer be entertained. Where the backdoor strategy is unsuccessfully deployed in future it should be met with a punitive costs sanction.

Background

The arbitration:

A wholly private arbitration was conducted in 2020 between the plaintiff, Venetian Nominees Pty Ltd (Venetian), and the defendant, Weatherford Australia Pty Ltd (Weatherford). The arbitration was conducted under the Commercial Arbitration Act 2012 (WA) (the CA Act) before Mr Marcus Solomon SC as the parties’ appointed arbitrator.
In the arbitration, Weatherford was the claimant. Venetian, a member of the Caratti Group of companies, was the respondent. The arbitration concerned a money dispute arising out of the parties’ written lease agreement of 13 November 2012 entered between Venetian as Lessor and Weatherford as Lessee (the Lease). The Lease is in evidence before the court on the current application, found attached to the affidavit of Michael Charles Hotchkin sworn 25 August 2020 at MCH1.
Procedural orders concerning a provision of pleadings and written submissions had issued in the arbitration prior the arbitral hearing across two days of March 2020.
Due to COVID-19 constraints which had prevailed at the time, the arbitral hearing was conducted remotely, utilising an audio-link between the arbitrator and the respective counsel for each of the parties.
At the heart of the arbitral dispute was a controversy over the true meaning of a phrase used within the text of cl 4.6 of the Lease.

Clause 4.6

The fiscal dispute between the lease parties ultimately concerned the correct level of the Lessor’s (ie, Venetian’s) apportionment of the outgoings for its land, known as lot 9009, and as were assessed and allocated by it to its Lessee.
The dispute had manifested under factual circumstances whereby the land area to be leased by Weatherford (known as the ‘Premises’) at the time the Lease was entered, was only a smallish component (roughly 11%) of the Lessor’s overall land at the relevant location. In that respect, cl 4.6 of the Lease read:

If any such Outgoings shall not be separately and wholly assessed or charged against the Premises then the Lessee shall pay to the Lessor within seven (7) days of written demand thereof that proportion thereof that the area of the Premises (as certified by the Lessor) bears to the total lettable area of the premises covered by the relevant assessment or charge (as certified by the Lessor). (emphasis in bold and noting the distinction between capital ‘P’ Premises (the leased area) and the lower case ‘premises’, in reference to the Lessor’s land).
The dispute arose because Weatherford, as Lessee, was complaining it had been overcharged by its landlord, Venetian, in respect of the proper proportion of outgoings payable by it to Venetian over time. Weatherford claimed that it had overpaid moneys by reason of Venetian’s erroneous prior apportionments of claimed outgoings. Weatherford contended Venetian had attributed too great a proportion of Venetian’s own outgoings to it (ie, to Weatherford) and Weatherford was claiming back its contended outgoings overpayments in the arbitration.
Venetian’s primary outgoings exposure arose because it, as a landowner, had received from various rating authorities such as the City of Swan, or the State entity responsible for issuing land tax, what were global rating or tax assessments issued levied by reference to the total area of Venetian’s landholding (lot 9009). As mentioned by cl 4.6 of the Lease, Weatherford, as Lessee, was only required to bear contractually to Venetian an appropriate proportion (by land area) of its Lessor’s outgoings. Ultimately, this contractual outgoings proportionate reimbursement liability to Venetian under the Lease distilled to a ratio calculation – over which the parties descended into disagreement. At the heart of the dispute was the true meaning of the phrase seen in cl 4.6 of the Lease, namely, ‘total lettable area of the premises covered’ vis-à-vis the outgoing assessment or charge to the Lessor.
As will be seen, the ratio or fractional calculation required by cl 4.6 can be mathematically described as: . The correctly ascertained fraction or ratio is then applied to Venetian’s total levied outgoings against its aggregate landholding area to derive the correct proportion of outgoings which may be properly levied under cl 4.6 to Weatherford under the Lease.
There had been no debate before the arbitrator, and there remained no debate before this court, that the numerator, or top line of the fraction reference to be used in the calculation (N), was the ‘area of the Premises’ of the Lessee (ie, the area of Weatherford’s leased land).
Next, the denominator (D) component is the ‘total lettable area of the premises covered by the relevant assessment or charge’ rendered to the Lessor (as in cl 4.6). It was the denominator input figure (D) which had generated the controversy in the arbitration.

It follows that even if I am wrong in my construction of clause 4.6 such that any common area over the larger lot is to be omitted from the calculation of the denominator, no such common areas were designated and certified in accordance with the requirements of the Lease.  (emphasis in bold)

The Premises, being the fractional input (N), is the square meterage of Weatherford’s tenancy area as identified in the Lease, namely some 31,600m2. That figure was wholly uncontroversial.
Item 1 in a Schedule to the Lease (see page 32 of the Lease) by reference to a term ‘Premises’ refers to ‘Corner Milly Court and Metal Circuit, Malaga, Western Australia having an area of approximately 31,600m2 as hachured on the plan attached hereto and erected on the Land together with the Lessor’s chattels[.]’
Item 2 of the same Schedule refers to ‘Land’. It refers to ‘Part Lot 9010 on Deposited Plan 66057 being Lot [blank] on Deposited Plan [blank] and being all of the land in Certificate of Title Volume [blank] Folio [blank][.]’
At this point it may be helpful for overall orientation purposes to pause to direct some attention to a useful diagram of Venetian’s land, and which shows Weatherford’s leased Premises. To that end, I refer to the affidavit of Mr Basil Georgiou sworn 19 October 2020, tendered on behalf of Weatherford. I refer in particular to attachment BG-27, page 405. I incorporate as Schedule 1 to these reasons a copy of the diagram as it is found at page 405 (the aerial plan).
As can be seen, the aerial plan identifies various features, including an overhead powerline pylon base, the leased area of Weatherford’s Premises, a hatched area in orange indicating so-called common areas (including a car park, access and driveway), a lot boundary line in green and a broken green horizontal line indicating what is a Western Power easement over Venetian’s land. To that end, see the key in the bottom left.
Weatherford’s Premises are found depicted at the bottom right‑hand corner of the aerial plan, marked as ‘Weatherford’.
The dispute

Because the parties could not resolve a dispute over the correct level of the proportion of outgoings payable by Weatherford to Venetian, they agreed to the appointment of a private arbitrator and hence, to Mr Solomon SC’s appointment in May 2019. That was effected by an arbitration agreement of 15 May 2019. By that agreement, the ‘dispute’ was defined in an attached document called ‘Agreed Issues for Determination’.
In simple terms, the ‘battle ground’ of the arbitral dispute, relevant to the present application, was over the correct total lettable area denominator input figure (D) to be used in the ratio exercise required to determine the correct apportionment of a component of the Lessor’s overall outgoings exposures, over to its Lessee.
Of course, as a matter of simple mathematics, given that the numerator area (N) input figure for the area of Weatherford’s Premises as Lessee is fixed (agreed at 31,600m2), then the higher the (area) figure used as the denominator input (D) in the fraction, then necessarily, the lower must be the ultimately calculated Lessee’s proportion of outgoings payable to its Lessor. The reverse also follows, so that the lower the number used as the denominator input (D), then the higher the end amount of outgoings payable by Weatherford to Venetian.
Hence, for a time and, indeed, right up until the start of the arbitral hearing before the learned arbitrator, it had been the contention of Weatherford as Lessee that the denominator input figure (D) – as a matter of the proper construction and interpretation of the phrase ‘total lettable area’ of the premises – was the entirety of the square meterage area of Venetian’s land.
Venetian had never apportioned outgoings to Weatherford on that basis in the past. Instead, Venetian had followed an outgoings apportionment methodology of reducing the area of the square meterage figure to be used in the denominator input figure (D) by deducting certain areas from out of its total land holding area. The Venetian deduction of areas approach achieved the end result of reducing the potential quantum level of the denominator figure (D) – and thereby increased mathematically the allocated proportion of outgoings ultimately claimed as payable by Weatherford to Venetian. But if the denominator figure (D) was to be numerically higher, then correspondingly, Weatherford’s as calculated outgoings exposure to Venetian would be lower.
In particular, two areas of Venetian’s land look to have been the subject of deduction against the aggregate cl 4.6 denominator input figure (D) calculated under the apportionment methodology of Venetian. First, in this category appears to be the area of land the subject of an easement over Venetian’s land held by Western Power – see the top right and across of the aerial plan (the easement area) scheduled to these reasons.
Under the parties’ starting pleadings at the arbitration, the argument to sustain a deduction of the Western Power easement area to reduce the level of (D) looks to have been advanced by Venetian – along the lines that an existence of such a registered easement area favouring Western Power had rendered that land area as being inappropriate or unsuitable for development by Venetian. It appears Venetian’s stance was that in consequence, all the easement area was not a ‘lettable area’, or even a potentially lettable area, within Venetian’s land for the purpose of cl 4.6. As a result, the easement area was not included in the denominator input figure (D) used to apportion the lease outgoings. As seen from the aerial plan in Schedule 1, the Western Power easement area within Venetian’s overall land holding (marked by broken green lines) is located some distance to the north and to the west of the Weatherford (leased) Premises.
A second broad area of land also deducted from out of the (D) figure by Venetian was attributable to the land areas as shown on the aerial plan as cross‑hatched in orange, referred to as the ‘common areas’. Some of the common areas are found some distance to the west of Weatherford’s Premises (save for an orange cross‑hatched area abutting and adjacent to the as identified Nick Scali (leased) premises, directly to the north of the Weatherford Premises).
Again the underlying issue was whether or not, by regard ultimately to the true meaning of the cl 4.6 phrase ‘total lettable area of the premises covered’, all these common areas of land within Venetian’s aggregate land could legitimately be deducted from the ultimately used denominator input figure (D). That, of course, would thereby contribute in the end to a higher eventual outgoings apportionment liability exposure for Weatherford than would otherwise be the case, had all those areas of land not been carved away from the level of the denominator input figure (D).
Ultimately, of course, the contention of Venetian as Lessor was and remained that such common areas over its land as were used for car parking, access and for driveways, were not, by reason of such common usage deployment, then to be assessed as a part of its lettable area, or as potentially lettable areas by Venetian.

Issues for determination

Before the arbitration hearing commenced, arguments between the parties over the correct apportionment of outgoings to Weatherford had essentially distilled to two major areas of conflict, as reflected in the parties’ Agreed Issues for Determination. The first battle ground to be resolved by the arbitrator was over the true meaning of the denominator phrase used within cl 4.6, namely, ‘the total lettable area of the premises’. Then, once a true meaning was ascertained, a second battle concerned the application of that true meaning to the underlying facts. A key question to be answered in this exercise was whether the areas of Venetian’s land as had been deducted away from the denominator input figure (D) used by Venetian, and so removing from (D) the Western Power easement area as well as the so-called common areas within Venetian’s land, were so legitimately deducted. Collectively, these two battles were known as ‘issue 1’ in both the arbitration and upon the present application.
As mentioned, Weatherford had first contended by its pleadings at the arbitration that the denominator input figure (D) should be the entirety of the square meterage of Venetian’s land – and for which a relevant outgoings assessment or charge had been levied against it by the relevant rating or taxation body. But a difficulty with that ambit submission, as the arbitrator eventually construed the phrase, was that if that had been the true meaning, then it was more likely that the chosen cl 4.6 terminology would have been more simple. Clause 4.6 could merely then have referred to the total area of the Lessor’s ‘land’. Instead, a distinct phrase and the word ‘premises’ in lower case was used. The as chosen words of cl 4.6, reasoned the arbitrator, suggested a somewhat different concept was (objectively) envisioned, and so not just the entirety of the area of the Lessor’s land (see Award pars 92 -93).
Conduct of the arbitration

As mentioned, the arbitration hearing was conducted on 31 March and 1 April 2020. Prior to the hearing, various procedural orders had been issued by the arbitrator to facilitate the hearing – see the attachments to Mr Hotchkin’s affidavit and attachments to the affidavit of Michael Andrew Daniels sworn 19 October 2020.
Given a prevalent COVID-19 pandemic afflicting Western Australia at the time and restrictions upon gatherings as then imposed, the arbitration was conducted remotely by telephone links over two days of hearing. There does not appear to be any issue taken by Venetian over the fact of the hearing taking place by audio-link.
The parties did not ever arrange for a transcript of the two days of arbitral hearing to be produced. As such, there was and is no independent verbatim record of what transpired across the hearing days. This is not at all satisfactory or acceptable in this court. In the context of a presently attempted challenge put against the award based on alleged unfairness in the overall process, or a failure to afford procedural fairness to Venetian – an absence of a verbatim transcript is simply hopeless towards reliably evaluating, after an event, what happened at the hearing from an overall fairness perspective. Affidavits relied on in this current application each contain accounts and recollections of the hearing – see Mr Hotchkin’s affidavit at pars 7, 11 – 14, Mr Georgiou’s affidavit at pars 5, 46 – 52, 54 – 56, 58 – 59, 61 -65, 70 – 76, and Mr Daniels’ affidavit at pars 31 -36. Mr Daniels’ affidavit also attaches various handwritten notes he made during the course of the arbitration hearing (see MAD-10 to MAD-12). There was no cross-examination upon any of this material at the hearing in this court. But this is all still a second best approach which, albeit not objected to by the respondent, is unsatisfactory and should not be repeated save in the most exceptional of circumstances.
Nevertheless, it is notable that Mr Hotchkin (par 13), Mr Georgiou (par 64) and Mr Daniels (par 66), all identify that at the conclusion of oral submissions, Venetian filed a Summary of Respondent’s Oral Submissions of 3 April 2020 (see Mr Hotchkin’s affidavit at MCH14). Those written submissions (and Weatherford’s responsive written submissions of 6 April 2020), were referred to by the arbitrator in the Award (reasons) (pars 60 – 61).
Legal principles bearing upon the present application by Venetian

I pause at this point to re-emphasise that upon the present application I am not concerned over any question about whether or not the arbitrator was right or wrong on his ultimate contractual interpretation of cl 4.6 of the Lease. As I began, I repeat that the present application of Venetian cannot and will not be determined in the manner of any kind of appeal against the Award. It is nothing of the sort. Rather, all I am concerned with is, for the purposes of Venetian’s present invocation of s 34(2)(a)(ii) and (iv) of the CA Act, whether (and without a verbatim transcript) Venetian can make good a serious contention that in the two-day hearing before the learned arbitrator it was, overall, either ‘unable to present its case’, or that the Award of the arbitrator upon issue 1 was made ‘on the basis of an arbitral procedure not in accordance with the Arbitration Agreement’ (see Venetian’s originating summons filed 26 August 2020).
In the end, Venetian’s s 34(2)(a)(ii) and (iv) contentions commonly distil to a similar basket of assembled grievances as articulated in Venetian’s originating summons under the ensuing pars 1, 2 and 3(a) – (j).
Notwithstanding the textual magnitude of what is found there, the essential nature of the underlying grievance looks to be that the learned arbitrator denied Venetian a fair hearing or, in other words, that the arbitral hearing was procedurally unfair to Venetian in some allegedly significant respects.
In Spaseski v Mladenovski [2019] WASC 65 commencing at [49], I have earlier discussed arbitral challenges by reference to observations of Menon CJ in the Singapore Court of Appeal decision AKN v ALC [2015] SGCA 18. In particular, I drew attention there to his Honour’s identification of the central notion of party autonomy and to the consequences of the parties’ choices made towards choosing to proceed by an arbitration. His Honour had observed at [37]:

… The courts do not and must not interfere in the merits of an arbitral award and, in the process, bail out parties who have made choices that they might come to regret, or offer them a second chance to canvass the merits of their respective cases …
Menon CJ had referred to a policy of minimal curial intervention towards arbitral proceedings as being a mainstay of the Model Law – the adoption of which locally in this State is, of course, the basis for the significant structural changes that were made to West Australian law by the enactment of the CA Act in 2012, all of which I explained at some length in Spaseski at [49] and following.
In Spaseski at [56], I also cited Menon CJ’s observations concerning the ingenuity of lawyers towards circumventing the constraints against the challenging of an arbitrator’s award by appeal. Here, I need to repeat again from his Honour’s reasons in AKN v ALC at [38] this salient observation:

… That is not to say that the courts can never intervene. However, the grounds for curial intervention are narrowly circumscribed, and generally concern process failures that are unfair and prejudice the parties or instances where the arbitral tribunal has made a decision that is beyond the scope of the arbitration agreement. It follows that, from the court’s perspective, the parties to an arbitration do not have a right to a ‘correct’ decision from the arbitral tribunal that can be vindicated by the courts. Instead, they only have a right to a decision that is within the ambit of their consent to have their dispute arbitrated, and that is arrived at following a fair process.
At [57] in Spaseski, I also identified article 18 of the Model Law, stipulating a need for equal treatment of parties in arbitration proceedings, expressed in terms that:

The parties must be treated with equality and each party must be given a reasonable opportunity of presenting the party’s case.
At [58] in Spaseski, I emphasised the adjective ‘reasonable’ preceded the noun ‘opportunity’. See also my further observations in The State of Western Australia v Mineralogy Pty Ltd [2020] WASC 58 at [2] and [78] and then in Ivankovic v West Australian Planning Commission [2020] WASC 401 at [212] – [213], [220] and [222] concerning the limited scope for challenges against an arbitral award in the wake of the new regime of the CA Act in this State.
For present circumstances concerning Venetian’s expressed grievance to the effect that it was denied a reasonable opportunity to present its case concerning the true meaning of the critical phrase at issue between the parties within cl 4.6 of the Lease, I would reiterate the further observations of Menon CJ from AKN v ALC. They were made, of course, in relation to attempted appeals ‘dressed up’, essentially, to look like process grievances in order to circumvent a closed gate against appeals otherwise by the Model Law.
I re-emphasise the learned Chief Justice’s observations from [39] of AKN v ALC. His Honour had said:

In the light of their limited role in arbitral proceedings, courts must resist the temptation to engage with what is substantially an appeal on the legal merits of an arbitral award, but which, through the ingenuity of counsel, may be disguised and presented as a challenge to process failures during the arbitration. A prime example of this would be a challenge based on an alleged breach of natural justice. When examining such a challenge, it is important that the court assess the real nature of the complaint. Among the arguments commonly raised in support of breach of natural justice challenges are these:

(a) that the arbitral tribunal misunderstood the case presented and so did not apply its mind to the actual case of the aggrieved party;

(b) that the arbitral tribunal did not mention the arguments raised by the aggrieved party and so must have failed to consider the latter’s actual case; and

(c) that the arbitral tribunal must have overlooked a part of the aggrieved party’s case because it did not engage with the merits of that part of the latter’s case.

Although such arguments may be commonly raised, more often than not, they do not, in fact, amount to breaches of natural justice.
At [61] of Spaseski, by reference to s 34(2)(b)(ii) of the CA Act, I also cited Croft J’s observations in the Supreme Court of Victoria in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326. His Honour had said at [42] – [43]:

As is clear from this passage, Art 18 of the Model Law – and, by implication, s 18 of the Act – does not invoke the principles of natural justice or procedural fairness developed in, for example, administrative law, or other common law principles not developed in the context of the Model Law. Such common law principles undoubtedly flow from the same jurisprudential source as Art 18 of the Model Law in that they are, fundamentally, concerned with fairness, equality and due process. Indeed, there are many circumstances where these principles may overlap with the requirements of [Art 18] and may produce similar outcomes. However, ultimately, the requirement of fairness and equality of treatment of the parties in arbitration is distinct from, and often more straightforward in its application than the position developed by the common law in various contexts.

The relevant test is to be drawn from the words of s 18 of the Act itself and may be stated as follows: ‘Were the parties treated with equality and was each party given a reasonable opportunity of presenting the party’s case?’ As is apparent from the reasons that follow, a failure to recognise and apply this test may result in the adoption of an impermissible judicial approach to the question of whether an objecting party was denied procedural fairness or natural justice in breach of the Act. Like any other provision of the Act which mirrors the Model Law, s 18 must not be viewed ‘through the prism of principles and doctrines not found in the Model Law or the New York Convention, and which may be peculiar to a particular domestic jurisdiction’. The temptation to approach the application of the Act in this way – the temptation of ‘domesticity’ – the temptation of ‘domesticity’ must be resisted in order to promote uniformity between the application of the Act and the application of the Model Law as required by s 2A of the Act and as emphasised by the Court of Appeal in Subway Systems Australia Pty Ltd v Ireland. (footnotes omitted)
Bearing all these considerations in mind, the essential question here is whether Venetian, in a context of a two-day arbitral hearing in circumstances where the participating parties had been offered the opportunity by the learned arbitrator at the end of that hearing to file further written submissions and any extra materials – were treated with equality and whether Venetian overall was afforded a ‘reasonable opportunity’ to present its case. Contextually, it should be kept in mind as well that to the extent that Venetian acted in the past to reduce the square meterage of the input (D) to a level below the full area of its rated or taxed land, Venetian must be expected at the time of so acting to have held a basis for it excising those chosen areas from the denominator input figure (D) in producing its apportionment of outgoings to Weatherford. For Venetian to suggest unfair surprise in it being asked later to explain its land area excision rationale in conducting its derivation to arrive at the level of (D) that was used is, of itself, somewhat curious.
The ultimate issue of contractual interpretation concerning the phase ‘total lettable area’ used in the parties’ lease is a question of law (not fact) and about which there could be only one true meaning. Venetian faces a difficult hurdle in contending that a contended rival interpretation was not accepted by the arbitrator when it has no right to appeal against that determination.
Indeed, despite the many layers of lipstick, the essential nature of Venetian’s grievance is ultimately exposed to being that its advocated rival interpretation of the clause’s true meaning was rejected by the arbitrator. Such a grievance is not a true process grievance. It is a poorly disguised attempted appeal raised against a decision reached against it. Save to say, losing is not a violation of procedural fairness principles.
The arbitrator’s Award and determination

The arbitrator delivered reserved reasons for decision constituting his determination and forming a part of the Award, on 29 June 2020. By that determination over some 34 pages of reasons, the learned arbitrator comprehensively traversed the parties’ rival submissions and positions, over what ultimately was the parties’ basal dispute over the contested true meaning of the cl 4.6 phrase (being issue 1 for the arbitrator) at issue, namely ‘total lettable area’.

Meaning of ‘total lettable area’

The arbitrator’s consideration of this issue of law commences at par 67 of his reasons, referring to a leading local appellate authority discussing the orthodox principles of contractual interpretation, namely, Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 at [42]. The parties were not in any level of dispute over these principles. Hence, that starting platform was perfectly orthodox and appropriate.
It is necessary then to look even more closely at the arbitrator’s reasons underlying his eventual issue 1 determination.
Having considered the parties’ rival positions, the learned arbitrator eventually decided for himself the true meaning of the clause at issue. That was his obligation – irrespective of the parties’ rival stances.
The true meaning question, of course, was not a determination of fact, it was a determination of law. Having cited Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 at [98] the learned arbitrator then proceeded to observe at Award pars 69 – 72:

… Thus, the meaning of clause 4.6 is to be determined by reference to what a reasonable business person would have understood by the phrase “total lettable area of the premises covered by the relevant assessment or charge”, having regard to the background knowledge of the surrounding circumstances….

It is necessary to begin with a consideration of the text of clause 4.6. As noted above, there is no dispute about what is meant by the area of the Premises or the area of the premises covered by the charge. The dispute centres on the meaning of the word lettable in the context of the clause.

In my respectful view, neither of the parties’ constructions sits entirely simply and easily with the word lettable.

The words plainly mean able to be let.
Referring to Weatherford’s submission as to the meaning of those words, the learned arbitrator then said at par 73:

As noted above, Weatherford’s construction requires the word lettable to include undeveloped land. In the usual context of commercial leasing it would be somewhat unusual to refer to undeveloped land as lettable, although it is not necessarily inapt to refer to cleared but undeveloped land as able to be let. In that regard, it may also be observed that the clause does not state immediately lettable or other words to that effect. The word lettable of itself, as a matter of plain language, is capable of encompassing land that is able to be let in due course even if it is not immediately available to be let.

Referring to Venetian’s rival proposal meaning of ‘lettable’, the learned arbitrator observed at par 74:

“… Venetian’s construction requires some embellishment of the text to clarify that it means land that is both developed and available for letting. I appreciate that Venetian contends that lettable of itself necessarily connotes land that is developed and is to be distinguished from ‘usable’, but as a matter of plain English there remains some strain in the proposition that developed land that a lessor resolved not to let (for example because it is to the lessor’s commercial advantage for some reason such as making it available as common area) is not area that is able to be let or capable being let. In addition, as I have observed, there is an element of immediacy in Venetian’s construction that is not mandated by the word lettable of itself. Venetian submitted that lettability is not a concept that speaks of ‘possibility’. But neither does it necessarily require immediacy or inevitability. As a matter of plain language, land may be able to be let even if it is not available to be let now, and even if it is ultimately never let.”

Next, commencing at par 75, the learned arbitrator observed that it was not possible simply from the bare text of cl 4.6 alone to determine its true meaning. In perfectly orthodox fashion, he determined it was necessary to look beyond the bare text to the surrounding circumstances and so to the background and genesis of the Lease, including to a progenitor Heads of Agreement of 10 January 2011 – identifying such matters under par 76(a) through (e) of his reasons.

Part of the facts as identified at the time of the parties’ earlier Heads of Agreement in reference then to Venetian’s lot 9009, were that the proposed leased premises to Weatherford had then constituted only approximately 11% of a much larger area of Venetian’s lot 9009.

On 29 August 2011, the parties entered their Agreement for Lease. The deed provided that Venetian would construct a facility and the parties would enter into a lease.

At par 80, the learned arbitrator identified some mutually known surrounding circumstances contextually prevailing at the time of the Agreement for Lease, noting the proposed leased premises were to be only a small part (approximately 10.3%) of the much larger lot in Venetian’s single ownership (lot 9009). At that time, the balance of lot 9009 had been cleared for potential development, but it ‘remained largely undeveloped’. An (objective) intention towards an eventual creation of an independent (ie, smaller) lot just for the premises leased to Weatherford out of a portion of lot 9009 was also identified (see par 80(f)).

With those surrounding facts then identified, the learned arbitrator returned to the differences as between the parties over their rival meanings as advocated for cl 4.6.
At this point, he observed upon, in effect, the pragmatics of their dispute in monetary terms over a correct apportionment of some of the Lessor’s outgoings exposure to its lessee, Weatherford. He duly observed at par 82:

“The real practical difference between the competing constructions relates to whether clause 4.6 requires Weatherford to contribute to the cost of outgoings for land that remained undeveloped or was common area – even if the common area was some distance from and did not provide any shared facility for the Premises. Having regard to the surrounding circumstances referred to at paragraph 80 above, in my view, it is most unlikely that a reasonable business person would have objectively understood clause 4.6 to require the lessee to bear a significant proportion of the cost of outgoings in respect of the very considerable areas of the lot 9009 that remained undeveloped or for common area that provided no utility to the Premises. This is especially so as the lessee would have no control, or even visibility, of the lot’s future development beyond a vague expectation that it was in the lessor’s interest to develop the balance of the lot in due course. (emphasis in bold)”

At par 83 of his reasons the learned arbitrator acknowledged Venetian’s submission concerning the true meaning of the phrase ‘lettable area’ and that its contention may not sit comfortably with including land that was cleared, but not yet developed. Nevertheless, in evaluating that submission, the learned arbitrator reasoned that Venetian’s preferred construction would expose it to other difficulties which, in the end, were more persuasive considerations (see pars 84 – 86, 89 – 90). The learned arbitrator now reasoned as follows:

[91] For those reasons, I do not accept that objectively construed, the Lease requires Weatherford to bear a proportion (in the circumstances that prevailed upon entry to the Lease, quite a significant proportion) of the outgoings that relate to the whole of the larger lot 9009 or 9010. I also consider that unwarranted ambiguities and potential difficulties arise with Venetian’s proposed construction of the clause.

[92] At the same time, I accept the submission of Venetian that:

(a) the clear choice in clause 4.6 of wording other than simply ‘Land’ as defined; and

(b) the references to ‘common area’ and (in my view, to a lesser extent) ‘complex’ in the Lease;

are strong indicators that clause 4.6 contemplates, as the denominator in the applicable ratio, an area different from, and less than, the ‘Land’.

I pause here to observe that notwithstanding Venetian’s multiple as expressed process grievances, in terms of an alleged unfair denial of a fair opportunity to present key arguments bearing upon its rival construction of cl 4.6, the learned arbitrator had in fact, accepted some important aspects of Venetian’s arguments as a matter of overall contractual construction (as now exposed under par 92). This was to reduce the scope and therefore the numerical area of the denominator input figure (D) to below the total square meterage area of Venetian’s land. This was against the starting rival contention of Weatherford.

That arbitrator’s constructional view as expressed at par 92 could, in the end, consequentially increase the ratio of outgoings to be apportioned to and payable by Weatherford. Success for Venetian in that degree can hardly be complained about.
But the learned arbitrator then proceeded to observe at par 94:

Weatherford responds to that challenge by accepting that the denominator can indeed be less than the Land where there is some regulatory impediment to the leasing of a portion of the larger lot. Venetian counters that no such prospect is evident in the Heads of Agreement, Agreement for Lease, or the Lease and nor was it ever in the contemplation of the parties. (emphasis in bold)

Reference to some ‘regulatory impediment’ so seen in par 94 grounds a key part of the unfair process grievances raised at this hearing by Venetian, in terms of a contended unfair inability to put arguments, or as a denial of fairness to it, by reason of the arbitral procedure followed. But having found that the denominator input figure (D) generated by the term ‘lettable area’ was not the whole area of the Lessor’s land, what the arbitrator was then doing at par 94, quite correctly on my view, was then seeking to identify any genres of areas of Venetian’s land which might be outside that meaning of ‘lettable area’. Any such excluded areas so found would only favour Venetian, not disadvantage it, in the apportionment of outgoings calculation to be conducted. That was not unfair to Venetian.

Areas to be excluded from ‘total lettable area’

Upon the rejection of the ambit denominator area meaning submission (‘lettable area’ being all of Venetian’s land), Weatherford also put a further and alternative submission to the arbitrator, concerning what could be (limited) excludable areas from the denominator input figure (D). Weatherford had, by senior counsel, postulated excising any area in the larger lot of Venetian that was shown to be constrained by some regulatory impediment against that area being lettable. This fall back alternative construction of Weatherford looks (without having a transcript) to have emerged, in effect, during oral arguments of counsel put during the arbitral hearing, as an aspect of the ultimate legal debates over the true meaning of the phrase ‘lettable area’ within cl 4.6.

Contrary again to the procedural unfairness submission of Venetian as was put to this court, I assess there to be nothing unfair or untoward to Venetian in the arbitration over a dispute over the true cl 4.6 interpretation of ‘lettable area’ in the arbitrator determining what areas of land fell within or outside of that criterion. The true meaning of ‘lettable area’ under cl 4.6 was at the very heart of the dispute between the parties.

Even if the submitted fall back construction of Weatherford only emerged during the arbitral hearing, the learned arbitrator at the end of a two day hearing had then afforded the parties an equal and very fair opportunity to make further submissions in writing and as well to tender any further materials that each side thought relevant. The opportunity afforded was generous and more than fair.

Nor on what I have before me (ie, with no transcript) can I ascertain that Venetian, through counsel, had ever sought to object at the hearing when Weatherford’s fall back interpretation had been raised by senior counsel to the arbitral exploration of this aspect of determining the true meaning of ‘lettable area’ within cl 4.6 of the Lease.
Venetian’s grievance as put to this court as to it being taken by surprise, or by not having an opportunity to tender evidence upon or over this aspect of the question of true meaning, is also misplaced. On my assessment, no factual evidence from Venetian could ostensibly bear upon the objective question of interpretation (law) concerning the true meaning of ‘lettable area’ within cl 4.6 of the Lease.

In any event, the learned arbitrator then continued at pars 95 – 96 of his reasons:

In addition, there is force in Venetian’s contention that in principle, if an area is indeed common area, then it is not lettable. Thus, as a matter of textual construction, the expression lettable area in the context of clause 4.6 needs to be understood in light of the fact that if an area is indeed ‘Common Area’ under the Lease, then it cannot be part of the lettable area.

In my view, the references to ‘common area’ and ‘complex’ are readily explicable in a manner that does not mandate the constructional conclusion urged by Venetian.
Evaluating the implications of finding many such common areas across the breadth of a large lot 9009, the learned arbitrator rendered this observation, at par 100:

In addition, the Lease does not refer to any common area that may exist in the whole of lot 9009 to serve any tenancy no matter how remote, or independent from the Premises, it might be. The references to common areas are largely qualified by reference to areas that serve the Premises or are used by the Lessee: clauses: 5.1.8, 5.5.1, 5.6.6. I agree with the submission made orally by counsel for Venetian that whether the common areas serve the Premises as a matter of fact, does not impact upon the proper construction of the Lease. Nevertheless, the references to ‘serve’ and ‘use’ in respect of common areas under the Lease are significant as a matter of proper construction, quite independently of the factual matters emphasised by Weatherford. (emphasis in bold)

[I note in passing that in the context of what is Venetian’s process grievance, as to the fairness of the arbitral hearing by way of an alleged unfair inability to engage with the arbitrator against the meaning ultimately arrived at by the learned arbitrator, that in fact, counsel for Venetian through his submission (as noted under par 100) had very directly engaged then with the arbitrator upon the concept of common areas served by the premises. The Venetian submission seen above in par 100 which was accepted by the learned arbitrator concerning the issue of construction of the Lease did just that].
The learned arbitrator then continued upon the topic of ‘common areas’ as a concept in terms of an area that may or may not present as appropriate to excise from the denominator by its meterage in the ‘Premises’ as ‘lettable’ or not:

[101] Clause 5.5.4 and clause 24 (definition of ‘Outgoings’) refer to common area without reference to service of the premises or use by the Lessee. However, both those clauses refer to the common areas of the complex ‘of which the Premises form part’. That serves to illustrate that a common area in the Lease contemplates a joint facility enjoyed within a ‘complex’ in common with other tenancies.

[102] Perhaps, most importantly, ‘Common Areas’ the subject of a substantive grant of tenure in clause 1, is a defined term in clause 24 set out at paragraph 27 above. The definition refers to areas intended by the lessor ‘to be for the use of lessees of the Land … and are so designated from time to time by the Lessor …’.

[103] In my view, it would be a curious construction of the words ‘for the use of lessees of the Land’ to include reference to a common area for the use of lessees on the lot that were some distance, and entirely separate, from and independent of the Premises and where that area was of no utility to the lessee the subject of the Lease.

[104] Further, a Common Area is an area which the lessor has ‘so designated’. The Shorter Oxford dictionary defines the word designate to mean point out or indicate. Pointing out and indicating, and thus designating, is not a unilateral act that can be done in the absence of some manifestation or communication to another. It is necessary to indicate or point out to someone else. In context, that designation in my view is required to be to the lessee. If Common Areas are the subject of the grant of tenure it seems to me most unlikely that on a proper construction, the lessor’s designation can be to some third party without notice to the lessee of the Lease.

[105] There was no evidence of a designation communicated to Weatherford of any common area that Venetian intended for Weatherford’s use in common with any other tenancy or that would serve the Premises. That is not surprising as lot 9009, at least in respect of a section leased to Weatherford, did not develop in a manner that lent itself to shared facilities, less still a ‘complex’.

The learned arbitrator continued as to a certification process for a common area at par 106:

Moreover, that outcome is reinforced by the terms of clause 4.6 itself which provides for a certification process in respect of both the area numerator and the denominator. It stands to reason that if the lessor has “designated” areas as common area for use by lessees, in order to provide a level of transparency and clarity, the lessor is required to ‘certify’ that area. There was no evidence of any relevant certification. Once again that is unsurprising in the circumstances.

At par 107 the learned arbitrator referred to the aerial plan (which was PL‑15 before him and which I have included as Schedule 1 to these reasons), showing various depicted areas on lot 9009 as common areas. The arbitrator said at par 107:

There was no evidence that Weatherford had been given notice or was even aware of those depictions. Perhaps more significantly, it became apparent that the depictions did not in any event reflect the manner in which the proportion under clause 4.6 had been calculated. Although this was in Weatherford’s favour, that is beside the point. The document rather reinforced the conclusion that there had been no ‘designation’ less still any certification, of common area under the Lease.

Another process grievance of Venetian is that it did not get the opportunity to engage by evidence. There is no substance in this grievance. What the learned arbitrator was doing was interpreting in surrounding context, the text of cl 4.6, which after the phrase ‘total lettable area of the premises’ had manifested the further words ‘as certified by the Lessor’.

It was entirely orthodox and proper for the learned arbitrator to identify and give some function to those surrounding words, in a context of Venetian’s challenged approach to the apportionment of outgoings to its Lessee.
As seen, Venetian’s cl 4.6 challenged approach had been to excise from the denominator figure (D) all areas that it unilaterally attributed as being common areas within its land and which were thereby, it considered, not lettable by it. Those area excisions from (D), mathematically, increased the proportion of Venetian’s outgoings that could be apportioned to and recovered from Weatherford.

At the arbitration hearing Venetian was always, in effect, defending the legitimacy of its outgoings apportionment approach taken by it as regards deducting all common areas from out of the lettable area figure in the ratio’s denominator. Venetian could hardly have been taken by surprise that in that overall context, the true meaning of the term ‘certification’ as it is used by cl 4.6 came under scrutiny as well within that overall context.

At par 108, the arbitrator recorded, dealt with and ultimately rejected a submission by Venetian (made orally by counsel) as to a notion of designation of common areas by reference to planning approval documents that duly identified car parks and public toilets. Likewise, a submission was put by Venetian to the effect that outgoings claim invoices as were issued to Weatherford by Venetian could in themselves constitute a sufficient lessor’s certification for the purposes of meeting cl 4.6. Such certification by invoice arguments were made, considered, but ultimately rejected by the learned arbitrator as matters of true construction of the term ‘certification’ in cl 4.6. There was a direct engagement upon this aspect of the dispute for Venetian through its counsel at the arbitral hearing at the time. There was no element of surprise or forensic prejudice. The issue was fought upon and lost fairly and squarely at the hearing.

Again, the question on the present application is not whether the learned arbitrator was right or wrong over that end determination. That issue is not up for any level of review in this court. There is no appeal.

The only issue is whether there was some ascertainable process deficiency by an absence of a fair hearing afforded to Venetian by it being denied a reasonable opportunity to engage with the overall process of interpretive evaluation concerning the true meaning of cl 4.6 of the Lease.

Clearly, as is recorded in par 108, Venetian did at the hearing actively engage with the ‘certification’ aspect of the controversy under cl 4.6 and the true meaning issues concerning the designation of common areas. Venetian, through counsel, made submissions to that end. Ultimately, some of Venetian’s submissions were not accepted. Losing does not equate to procedural unfairness.

Overall, I can discern (again with no transcript) no process or procedural failure adverse to Venetian. Venetian was not denied the reasonable opportunity to engage over these aspects of the controversy.
Paragraph 109 towards common areas under the learned arbitrator’s reasons displays that Venetian lost at two levels – as a matter of construction and then further, as a determination of fact. Paragraph 109 reads:

It follows that even if I am wrong in my construction of clause 4.6 such that any common area over the larger lot is to be omitted from the calculation of the denominator, no such common areas were designated and certified in accordance with the requirements of the Lease. (emphasis in bold)

At par 111 the learned arbitrator addressed a further submission by the parties, particularly Venetian, at the arbitration hearing concerning the force of a decision of the West Australian Court of Appeal. This was the decision in Ray Mullins & Sons Pty Ltd v Skycorp Investments Pty Ltd [2011] WASCA 49. That was an appeal concerning the determination of the proportion of outgoings payable by lessees rendered in the particular circumstances of a different lease with different textual provisions. The learned arbitrator plainly evaluated the implications of this case authority. There was no process deficiency or unfairness in that approach.

Conclusion on construction of cl 4.6

Commencing at par 112, the learned arbitrator expressed his final constructional conclusions by reference to what he gave then as a ‘simple example’.
At this point he explained, by reference to the parties’ rival contentions, how as a matter of the true meaning of cl 4.6, the applicable ratio for a proper determination of the payment of outgoings ( ) was to be arrived at: see pars 113 – 117. Having explained the example and the results that would arise under Venetian’s and Weatherford’s rival constructions, the learned arbitrator concluded at par 118:

Under Venetian’s construction, the lessee would be making a significant contribution to the undeveloped area and common area that service other tenancies but not its tenancy. Assuming, common terms in the other leases the balance would be paid by the other lessees and the lessor would pay nothing for the outgoings associated with the undeveloped and unleased land.

The learned arbitrator, in terms of the as required task towards construing a commercial lease instrument and affording it a commercially sensible interpretation, was perfectly entitled to render that observation. As I will explain, that observation and the process under which it was arrived at do not manifest any process deficiency or unfairness capable of being legitimately challenged under the CA Act in this court where, again, there is no appeal.

Arbitrator’s ultimate conclusion on issue 1

Ultimately, on issue one 1, the arbitrator found:

[119] By reason of the matters set out above, in my view, the proper apportionment of Outgoings for which Weatherford is liable is determined under clause 4.6 on the following basis:

(a) the numerator is 31,600;

(b) the denominator is the whole area of the larger lot (lot 9009, 9010 or 9011 as the case may be), less:

(i) any area in respect of which there is a regulatory prohibition preventing it from being lettable. There was not evidence of any such area, and so I determine that this is not relevant to the calculation;

(ii) any Common Area designated by Venetian by overt manifest conduct communication to Weatherford of an area that served or was for the use of the Premises, and certified by Venetian for the purposes of clause 4.6. There was no evidence of any such area, and so I determine this is not relevant to the calculation.

[120] It is common cause that Weatherford has paid the Outgoings on the basis of Venetian’s construction. It has therefore overpaid.

[121] I therefore determine in accordance with the Agreed Issues for Determination document, that to the extent of the overpayment, Weatherford is entitled to deduct that amount from future payment to be made by Weatherford to Venetian under the Lease.

That concluded the learned arbitrator’s reasoning upon issue 1.
Venetian’s specific grievance with the concept of ‘regulatory prohibition’

Venetian’s primary challenge, by which it alleges it was unfairly unable to present its arbitral case, is that the concept of a ‘regulatory prohibition’ (that phrase as seen used in Award par 119(b)(i)) only emerged, at earliest, at the arbitral hearing.
Given the arbitration hearing was not transcribed, Venetian accepts it cannot be known with certainty how the concept of a ‘regulatory prohibition’ was first raised. It is said that the concept was either first raised by senior counsel for Weatherford during the arbitral hearing, or alternatively appeared for the first time in the Award. The uncertainty over this is unsatisfactory in this court.

A significant emphasis was placed on the fact that none of the pleadings exchanged prior to the hearing contained reference to any such concept. Venetian says that Weatherford’s statement of claim in the arbitration does not mention a ‘regulatory prohibition’ in its pleaded construction of cl 4.6. Nor, it is put, is there any basis to give rise to such an idea from the pleaded construction. Venetian argues then that ‘pleadings … are critical for fairly governing the conduct of a matter’ (Venetian’s written submissions dated 30 November 2020, par 25). Venetian heavily emphasises a fundamental rule of pleadings that the party who pleads a proposition is the party that is required to make good that proposition to the legal burden, including carrying any evidential burden.

An allied strand of Venetian’s expressed process grievance is that there was no basis for it to have anticipated from the text of the Lease (in cl 4.6 or otherwise) that a concept of ‘regulatory prohibition’ would arise, nor to consider and argue what it means. The implication of this was said by Venetian to have had the following impact (written submissions, par 26):

The significance of the belated idea of a ‘regulatory prohibition’ in the fair determination of the matter, when it was not a pleaded construction for clause 4.6 in the Defendant’s case, arises because there is no basis in the text of clause 4.6, or otherwise by reference to any other provisions in the Lease, that such a concept should properly have been anticipated by the Plaintiff, and if so, what it actually meant.

The significance of that concern is made evident by the Arbitrator’s finding that there was ‘no evidence’ of a regulatory prohibition, when:

(a) the only relevant evidence could have been of a ‘regulatory prohibition’ prior to the date of the Lease, and the Plaintiff’s point in an attempt to engage with the idea was that the absence of such evidence was a point in favour of the Plaintiff, not against it; and

(b) if the finding of there being ‘no evidence’ could only have been in respect of a ‘regulatory prohibition’ after the date of the Lease, then it is not capable in point of law of assisting in the proper construction of clause 4.6 of the Lease, and could not reasonably be anticipated as a possible finding by the Arbitrator.

Venetian says that if the arbitrator was impressed by the lack of evidence post-Lease execution, then that, and the fact that there was a lack of evidence would be used against it in a cl 4.6 construction, should have been put to Venetian.

Venetian argues that the onus that should have been on Weatherford to prove what the concept of a ‘regulatory prohibition’ meant, came to be shifted towards Venetian – in effect, to disprove the regulatory prohibition. Much is made of this, particularly from an evidentiary standpoint. Venetian says that as this point was not pleaded, it was not able to anticipate it would need to call evidence as to whether the phrase ‘regulatory prohibition’ was known at the time of the Lease, which would then go to the construction of cl 4.6.

Further, Venetian says that the reference to an ‘Easement’ in Weatherford’s arbitral pleading is relevant to the unfairness of the conduct of the arbitration, in that there was evidence of a ‘regulatory prohibition’ because of the terms of the Western Power easement, and the pleaded alternative of the easement was not engaged with by the arbitrator.

Venetian contends (written submissions, par 32):

The reason that the pleaded reference by the Defendant to the ‘Easement’ in paragraph 16 of the Defendant’s Statement of Claim is relevant to the unfairness of the conduct of the Arbitration is that, if the idea of a ‘regulatory prohibition’ relates to any form of prohibition asserted by any public authority (which is not addressed at all by the Arbitrator), then:

(a) there was evidence of such a ‘regulatory prohibition’ before the Arbitrator, because the terms of the Easement to Western Power pleaded at paragraph 16 of its Statement of Claim prohibited any development in the Easement area without its consent; and

(b) the existence of the Easement was the pleaded alternative to the Defendant’s case, yet the Arbitrator did not engage at all with that aspect of the Defendant’s alternative pleaded case, relying instead on an undeveloped idea which had not been pleaded or could otherwise have reasonably been anticipated in a way which differed from the express prohibition contained in the Western Power Easement Deed. (footnotes omitted)

Venetian says further that the shift of the legal and evidential burden to it, from Weatherford, particularly a departure from Weatherford’s pleading, constitutes failure to accord procedural fairness on the part of the arbitrator.
Weatherford by its submissions rejects all these contentions. It says, and emphasises, that at no point did Venetian ever object to the issue of regulatory prohibitions being raised – either the time the submission was made prior to, during or after the arbitration hearing.

Weatherford says that even if the arbitrator made findings of fact without probative evidence, which it denies, that would only trigger a review if such a finding results in real unfairness or practical injustice. Given Venetian did not raise issues as to evidentiary burden at the time of the arbitration hearing, nor in its subsequent written submissions, Weatherford says that no unfairness or injustice was suffered by Venetian.

As to the allegation that the burden of proof was shifted, Weatherford says that such an inquiry in truth, goes to challenge the merits of the arbitrator’s findings, and thus, in substance, is really an appeal against a finding of the award. It says Venetian’s ground is ‘dressed up’ as a breach of the arbitration procedure – an exercise the court must avoid engaging in (Weatherford’s written submissions dated 22 December 2020, par 52). Weatherford says that court should also avoid ‘bailing out’ Venetian for its strategic choice not to object to, nor to call evidence at the time the issue of a regulatory prohibition was raised. This, Weatherford says, was an intentional forensic decision by Venetian which it now obviously regrets, but that none of this is to the immediate point.

Finally, as to the argument that the Western Power easement constituted a ‘regulatory prohibition’ and was not a part of Weatherford’s alternate construction which it abandoned, Weatherford says the evidence shows that its alternate construction of cl 4.6 fell away, when Venetian amended its defence prior to the arbitration hearing. Again, this is said to be a strategic choice on the part of Venetian. Further, it is said that even if the arbitrator did not deal with or determine an alternate construction of Weatherford, it is difficult to see how that could lead to an unfairness suffered by Venetian (Weatherford’s written submissions dated 22 December 2020, par 57).
Venetian’s grievance with the concept of common areas

Whilst there is overlap between Venetian’s complaints about ‘regulatory prohibition’ and what it says regarding common areas, the ‘common areas’ issue was always squarely in play at the time of the arbitration hearing.

Venetian says that it presented and fought a case by reference to the terms of the Lease, and the context in which ‘common areas’ might arise from other terms of the Lease. However, it complains the arbitrator dealt with a point of the application of cl 4.6, rather than engaging in this construction of the clause. The application of cl 4.6 is said to not arise in any of the pleadings or submissions.

A particular grievance emphasis by Venetian is against the arbitrator making findings of fact as to the ‘certification’ or designation of common areas, or the factual lack thereof. Venetian says that the arbitrator conflated the task of construing cl 4.6 with a factual undertaking, as to whether the common areas had been designated or certified. If Venetian was to have been treated fairly and have reasonably anticipated that finding, it is said that Weatherford should have pleaded this in its arbitral reply pleading. This, according to Venetian, was not done. According to Venetian, the primary grievance over this not occurring is that the arbitrator should have told it (Venetian) that he would, as Venetian submits, depart from orthodox principles of construction by referring to evidence or apply the construction of ‘common areas’ as a figure to be excluded from the ‘lettable area’ calculation.

Venetian says that it suffered unfairness in presenting its case by the arbitrator departing from the pleaded case of the parties. This, according to Venetian, was because the arbitrator’s finding that Venetian, as Lessor, was ‘required’ to certify the common areas (Award par 106) had not arisen or emerged from the pleadings or oral submissions, and was inconsistent with the text of the Lease which only ’empowers’ Venetian, rather than ‘compels’ it.

A final point Venetian makes as to the alleged unfairness it suffered in process was that without warning from the arbitrator, it was unable to put in evidence about how ‘common areas’ are created within the property industry. I return to this argument later.

Weatherford, in reply submits that Venetian has misapprehended what was ‘in the ring’ before the arbitrator, whether by the pleadings, or otherwise. By this, Weatherford is saying that the issue of common areas was in play before the arbitration hearing – in particular, in Venetian’s opening submissions. Weatherford also says that over the time before the hearing the issue of common areas was a relevant issue. Not only that, but Weatherford says that from the Award it is clear that common areas were, in fact, in the arbitral arena (identifying Award pars 62 and 108).

Weatherford submits that arguments of unfairness in process as to the issue of common areas are without merit. First, it says that the submission that Venetian should have been put on notice about the application of common areas as a disputed issue, is wrong. Weatherford says that the requirement for the designation of common areas in the text of the Lease itself (cl 24) was central to Venetian’s case and was addressed by Venetian at the hearing – both orally and in writing.

Second, Weatherford says that Venetian had an opportunity to present evidence as to how the common areas are or were designated to tenants under any Lease in the relevant lot 9009, however, it made an election to not adduce any such evidence.

Finally, as to the argument that Venetian was denied an opportunity to dissuade the arbitrator of a view he ultimately reached, Weatherford says this is not to the point. Relying on Amasya at [55], it is said that the fact that the arbitrator might have arrived a different conclusion if the arbitration played out differently, is an irrelevant consideration.

Process unfairness: common areas

I turn to the aspect of the procedural grievance contention by Venetian that it was denied an opportunity by the arbitrator to lead evidence in support of its rival construction of the clause.

Venetian contends that it could have led expert evidence if it had been given proper notice of the ultimate construction conclusion reached by the learned arbitrator about how common areas in a lease are designated. To that end, an affidavit of Paul Edward Testar sworn 25 August 2020 was sought to be relied upon by Venetian at the present application. Mr Testar says in his affidavit that he is employed as the commercial property manager of the Caratti Group of companies (of which Venetian is a member) and has 30 years’ experience in the development, sale, leasing and management of commercial real estate.

Mr Testar commenced working for the Caratti Group in September 2013. His work involves management of its property portfolio, including about 50 real property assets across Western Australia at various metropolitan and country locations.
The expert evidence that Venetian complains it was denied the opportunity to lead, looks to be found as expressed under pars 11 through 16 of Mr Testar’s affidavit. This evidence is directed towards common areas – the concept that Mr Testar at par 10 says that he is very familiar with in the context of his commercial leasing experience.

At par 11 Mr Testar explains what he believes the notion of common areas normally include. He relates that they are typically shared by tenants in a complex and their customers, visitors and service contractors. But none of that looks to be particularly controversial or helpful. In my assessment, this evidence does not in any sense carry a potential impact concerning the present controversy over a process grievance.

At par 12, Mr Testar seeks to contend that in his experience that ‘Common area is rarely identified on a plan in a lease …’. However, I do not accept that Mr Testar is qualified to express such sweeping views about the contents of written leases generally, or their plans generally. This is obviously a diverse subject matter which must be almost infinite in its potential dimensions.

Likewise Mr Testar’s further observations under par 13 as to the size or measurement of common areas in a complex as being set out in a lease document. This proposed evidence from Mr Testar about what ‘lease documents’ generally provide towards common areas and their designations is equally, in my view, too broad. It is sweeping, generalised, unhelpful, of no weight and ultimately inadmissible.

Even more sweeping generalised observations by Mr Testar at his par 14 concerning tenancy complexes being subject to ‘ongoing development’ are so trite in terms of such complexes changing from time to time, as to be facile. They are unhelpful.

At par 15, Mr Testar purports to speak of a so-called practice of all landlords as being not to designate common areas ‘by specifically notifying each and every tenant during the term of each and every lease of any change to a common area’. Again in my view, such generalised attempted evidence was never admissible. And even if it were admitted, it could not possibly relevantly bear towards the key issue of construction confronting the learned arbitrator during the present hearing.
Likewise unhelpful is par 16, by Mr Testar’s reference to a designation of common areas by painted lines depicting car parking bays and the demarcation directing traffic in common driveways, etc. That purported expression of an expert opinion is again, simply too broad and ultimately, yet again, is wholly irrelevant to the construction exercise required to be undertaken by the learned arbitrator in reference to the phrase ‘lettable area’, used within cl 4.6 of the Lease.

Determination on present application under s 34(2) of the CA Act

The present application, as expressed, seeks to set aside the arbitral determination by a resort to s 34(2)(a)(ii) and (iv) of the CA Act, on a basis that Venetian was not able to ‘present its case’ to the arbitrator, or that the arbitral procedure was somehow unfair, by denying Venetian a reasonable opportunity to present its case. In the end, the contentions are untenable.

Venetian received an entirely fair two-day arbitral hearing. The process followed by the learned arbitrator, on my assessment, was perfectly fair. I repeat that an opportunity for the arbitrating parties to file even further materials given at the conclusion of two days of arbitral hearing, was afforded. The indulgence provided a more than fair opportunity to address any issues as regards further legal submissions or extra documentary expert evidence that Venetian may have wished to have further submitted, arising in the wake of the two days of hearing. But no extra evidence was sought to be added to Venetian’s case. Yet there is a process grievance raised to this court. That is truly breathtaking in its audacity.
Nor did Venetian ever complain to the arbitrator about being denied a fair or reasonable opportunity to present any part of its case at the hearing or afterwards.

An impression I hold, reading only the limited materials put before me (there being no transcript of the two days of arbitral hearing) is that the true underlying grievance Venetian complains over does not really concern the end meaning conclusion reached by the learned arbitrator. Rather, Venetian’s gripe is more against the arbitrator’s conclusion as to ‘regulatory prohibition’ – namely that ‘there was not evidence of any such area, and so I determine this is not relevant to the calculation’ (Award par 119(b)(i) and (ii)).

The construction conclusion of the learned arbitrator allowing Venetian the theoretical scope to reduce the denominator’s fractional number down to below the actual whole area of the larger lot of land owned by Venetian was actually a constructional conclusion reached in Venetian’s favour. A consequence would thereby, as a matter of mathematics theoretically, ultimately increase the proportion of the outgoings to be payable by Weatherford to its Lessor.

Within this overall framework it looks that the numerical areas of its land that Venetian in fact decided to excise against the denominator input figure (D) had included the subject Western Power easement area. The problem for Venetian at the hearing was that merely proving a bare existence of that easement alone was not enough for it to prove that this same easement area was thereby ‘not lettable’ by Venetian. That was a forensic failure on its part – no-one else’s.

Depending on how Venetian had run its arbitral case, it may have been open then for it to have led evidence upon that pragmatic factual utilisation question – in terms of the uses of the Western Power easement area of its land as not being lettable and so, for that area to be excisable from the denominator input figure (D) used in the fraction. But that was a question of fact over which the parties might then have been at odds at the hearing.

Venetian did not run a non-utilisation of the easement area case before the arbitrator at the hearing that way, as best I can ascertain from what is before me. It only tendered the easement document, thinking (presumably) that was enough. It was not.

At the time Venetian’s contention looked to be that a mere existence of a registered easement favouring Western Power had thereby prevented this part of its land from being developed and so, therefore, that the easement area affected was not lettable and so, further, that its area was excisable from the D figure.

That argument was ultimately not accepted at the hearing. But that is not a process grievance. That is just a badly run case.
Nor do I assess in the submissions of Venetian upon the present application complaining of a process failure any suggestion that Venetian might have tendered some tangible negative evidence – in terms of a (non) use and negative letting potential of the area of the Western Power registered easement.

Indeed, the terms of the easement itself, found within Mr Hotchkin’s affidavit at MCH13, explicitly envisage the easement area as retaining some utility for farming purposes (see page 256).

The point is that the true construction of cl 4.6 of the Lease was not really the problem for Venetian with the easement area. The true forensic problem was a lack of any evidence led by Venetian to engage with the interpretation as was reached by the learned arbitrator – which, as seen, actually favoured Venetian had it led the required factual evidence to a non‑utilisation end (if such evidence was ever available, of course).

Likewise, in respect of the arbitrator’s common areas conclusion and observation at par 119(b)(ii) to the effect that there was no evidence of a common area communicated to Weatherford ‘of an area that served or was for the use of the Premises … ‘. There was again a more than sufficient opportunity to engage over that issue at the hearing afforded to Venetian had it chosen to take it up. It did not.

Conclusion

In the end, on what is put before this court, it simply cannot be reliably shown that Venetian suffered a disadvantage by reason of being denied a reasonable opportunity to present its case, or that the arbitral hearing process overall was unfair to it. Venetian must accept that there is no appeal against the arbitrator’s Award and come to terms with that adverse result.
Consequently, the application advanced under Venetian’s originating summons of 26 August 2020 fails to demonstrate any basis for the court to intervene against the Award by under s 34(2)(a)(ii) or (iv) of the CA Act and is dismissed upon publication of these reasons.

I reserve other questions, including as to costs orders.

I will hear the parties as to the precise terms of an appropriate costs order in due course, if that is required.

Cheshire Contractors Pty Ltd v Civil Mining & Construction Pty Ltd [2021] QSC 75

Supreme Court of Queensland

 

Case Name: Cheshire Contractors Pty Ltd v Civil Mining & Construction Pty Ltd
[2021] QSC 75
Medium Neutral Citation: [2021] QSC 75
Hearing Date(s): 12 February 2021
Date of Orders: 19 April 2021
Decision Date: 19 April 2021
Before: Henry J
Decision:
  1. The parties are referred to arbitration pursuant to s 8(1) Commercial Arbitration Act 2013 (Qld).
  2. Cairns Supreme Court proceeding 571/20 is stayed.
  3. The court will agree to hear the parties as to costs, if costs have not been agreed by 9.15am 28 April 2021 (leave given for out of town parties to appear by telephone or video-link).
Catchwords: ARBITRATION – ARBITRATION AGREEMENT – DEFINITIONS AND FORM OF ARBITRATION AGREEMENT – ARBITRATION AGREEMENT AS GROUND FOR STAY OF COURT PROCEEDINGS – where the applicant defendant engaged the plaintiff respondent as sub-contractor for roadwork construction – where the plaintiff respondent complains it was required to complete work and incur associated costs beyond that contemplated by the original agreement – where the plaintiff respondent alleges it is owed money for this additional work – where the plaintiff respondent says the applicant defendant should be estopped by convention from denying that the plaintiff respondent is entitled to reasonable additional remuneration or damages or compensation pursuant to ss 236, 237 Australian Consumer Law for loss suffered as a result of the applicant defendant’s alleged unconscionable conduct – where the plaintiff respondent requests an order in relation to the return of a bank guarantee – where the applicant defendant relies upon an arbitration clause in the contract to refer the parties to arbitration and permanently stay the proceeding – where the plaintiff respondent contends the matter ought not be referred to arbitration as its claim does not rely on the contract and rather arises by operation of law outside the contract – whether there is an “arbitration agreement” as per s 8(1) Commercial Arbitration Act 2013 (Qld) – whether the application has been “brought in a matter which is the subject of the arbitration agreement” – whether the agreement is “null and void, inoperative or incapable of being performed” – whether the matter should be referred to arbitration – whether the proceeding should be stayed.
Legislation Cited: Australian Consumer Law (Cth), s 20, s 21, s 236, s 237

Commercial Arbitration Act 2013 (Qld), s 7, s 8

Cases Cited: Astro Vencedor SA v Mabanaft [1971] 2 QB 588, applied.

 

Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99, cited.

 

Commandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45, distinguished.

 

CPB Contractors Pty Ltd v Celsus Pty Ltd (2017) 353 ALR 84, applied.

 

Duncombe v Porter (1953) 90 CLR 295, applied.

 

Francis Travel v Virgin Atlantic Airways (1996) 39 NSWLR 160, applied.

 

Hi-Fert v Kiukiang Carriers (1998) 90 FCR 1, distinguished.

 

IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466, explained.

 

Incitec Ltd v Alkimos Shipping Corporation [2004] FCA 698, cited.

 

Inghams Enterprises Pty Ltd v Hannigan (2020) 379 ALR 196, distinguished.

 

McCann v Switzerland Insurance (2000) 203 CLR 579, cited.

 

Methanex Motonui Ltd v Spellman [2004] 1 NZLR 95; [2004] 3 NZLR 454, cited.

 

Re Hohenzollern Actien Gesellschaft and City of London Contract Corp (1886) 54 LT 596, applied.

 

Roose Industries Ltd v Ready Mixed Concrete Ltd [1974] 2 NZLR 246, explained.

 

TCL Air Conditioner v Federal Court (2013) 251 CLR 533, applied.

 

Westfield Management v AMP Capital (2012) 247 CLR 129, applied.

 

Woolf v Collis Removal Service [1948] 1 KB 11, applied.

 

Yeshiva Properties No 1 Pty Ltd v Lubavitch Magal Pty Ltd [2003] NSWSC 615, distinguished.

Texts Cited: NIL
Category: TRIAL
Parties:  

CIVIL MINING & CONSTRUCTION PTY LTD

ABN 18 102 557 175

(applicant)

 

v

 

CHESHIRE CONTRACTORS PTY LTD

ABN 75 124 700 385

(respondent)

Representation: COUNSEL:
M Jonsson QC for the applicant defendant
M Hindman QC for the plaintiff respondentSOLICITORS:
O’Connor Law for the applicant
Clayton Utz for the respondent
File Number(s): SC No 571 of 2020
Publication Restriction: NIL
Decision under appeal: Referred to Arbitral Hearing

 

Judgement:

 

Introduction

The applicant defendant, Civil Mining & Construction Pty Ltd (CMC), was contracted by the Queensland Department of Transport and Main Roads (TMR) as principal for roadworks construction (the project).  CMC sought the aid of a civil engineering roadworks sub-contractor to perform some of the works.

CMC entered into a written sub-contract (the contract) with the plaintiff respondent, Cheshire Contractors Pty Ltd (Cheshire).  A dispute has arisen between CMC and Cheshire, which alleges it is owed money by CMC in connection with the works Cheshire performed for CMC.  Cheshire filed a claim against CMC in this court seeking money owing in the sum of $1,393,616.80 plus GST, interest thereon and the return of a bank guarantee.

Rather than file a defence, CMC countered with the present application which relies upon an arbitration clause in the contract to refer the parties to arbitration and permanently stay the proceeding.

Cheshire contends the matter ought not be referred to arbitration for reasons including that its claim does not rely on the contract and rather arises by operation of law outside the contract.

Background

 

In carrying out the subcontracted works, Cheshire was obliged by the contract to comply with the performance requirements of TMR’s specifications.  The specifications required construction under the contract to use only materials that complied with the material specified therein, and not use any material that did not comply with the specifications (out of spec material).  The specifications of material anticipated to be found in the earth in the vicinity of works in a project of this kind will not always meet expectations, resulting in greater than anticipated expense.

During the performance of Cheshire’s work, out of spec material was encountered in at least 12 locations on the site of the contract works. On eleven occasions CMC allegedly gave Cheshire a direction on how to integrate or otherwise deal with the out of spec material.

Cheshire notified CMC of its intention to make a claim arising from the use of out of spec material.  CMC requested Cheshire provide it with a letter upon which CMC could base a latent condition claim on TMR for the use of out of spec material.  Cheshire complied.  This is the genesis of Cheshire’s current complaint, in effect, that CMC in serving its own interests procured Cheshire to make a claim for remuneration on a basis different than that contemplated by the contract.  Following receipt of that letter, CMC stated to Cheshire that the letter would not suffice as a variation claim and suggested amendments to the document.  Cheshire amended its out of spec claim letter accordingly and again submitted it to CMC.

Cheshire contends the parties consensually departed from the contract by agreeing that they would progress their dealings on the mutual assumption and convention that the latent conditions encountered by Cheshire in the course of excavation could not have been anticipated by them at the time of tender for the contract works.  It was also agreed, allegedly, that the requirement to complete road excavation and road embankment work operations with out of spec material would need to be reasonably remunerated additionally to the remuneration already allowed under the contract in respect of excavation and embankment works.  Further, it was allegedly agreed that CMC would make payment to Cheshire for its work involving use of out of spec material on a basis consistent with any payment it received from TMR for its claim to be made on TMR.

In March 2016 CMC made a claim on TMR for use of out of spec material (CMC’s Latent Condition Claim), seeking payment for it.   In April of 2016, CMC again requested Cheshire to provide further information and Cheshire made a claim on CMC for payment of Cheshire’s out of spec claim.

During July and August 2016, CMC and TMR engaged in dispute resolution meetings in regard to CMC’s Latent Condition Claim. In the course of those meetings CMC and TMR jointly appointed a third-party engineer to independently assess and value CMC’s Latent Condition Claim.

CMC received an approval and payment from TMR for CMC’s Latent Condition Claim under the Head Contract, (the TMR Payment). This was the amount of $2,507,975.00 as certified for payment for two of the applicant’s progress payments and the amount of $2,597,462.00 approved as ‘variations’ – being $1,643,975.00 for ‘Latent Conditions’ and $953,667.00 for ‘VVA-092 Latent Condition Claim’.

On about 9 November 2016 Cheshire issued a final progress claim for the amount of Cheshire’s out of spec claim.  By letter of 23 November 2016, CMC responded saying the amount it proposed to pay was $0.00.  The letter explained in denying Cheshire’s claim “for a purported latent condition” it relied upon clauses 2.1.1 and 13 of the contract’s general conditions.  Clause 13 imposed temporal and other requirements for the submission of claims.  Clause 2.1.1 provided:

 

“2.1.1       The Subcontractor agrees and accepts the obligation to fully inform itself on site conditions and all documents furnished by CMC, prior to it tendering for the Subcontract Works and to fully satisfy itself regarding all the conditions, risks, contingencies and other circumstances which might affect its performance of the Subcontract Works. In particular, the Subcontractor shall accept the obligation to thoroughly investigate all matters regarding the relevant site, surface and sub-surface conditions. No increase in the Subcontract Sum will be allowed for the Subcontractor’s failure to ensure that it is fully informed regarding all the circumstances relating to its performance of the Subcontract Works. Also CMC shall not be liable for any additional cost which may be incurred by the Subcontractor in the event that different site, surface and sub-surface conditions are experienced by the Subcontractor to those which may be shown in the Subcontract documents provided by CMC, the information in such documents being provided by CMC for indicative purposes only.” (emphasis added)

In short, CMC’s position was that Cheshire’s claim for payment did not conform with the contract’s temporal requirements and money was not payable under the terms of the contract because Cheshire assumed the risk of encountering out of spec material.

In February 2020 Cheshire gave notice of dispute seeking referral to mediation pursuant to clause 12 of the contract which in part provides:

“12.  Disputes

 

12.1         Early resolution

 

It is mandatory that the Parties comply with this clause before a dispute or difference is referred to mediation.  Disputes or differences arising between the Parties shall be negotiated between the Parties with the bona fide intention of resolution without unreasonable delay. …

 

12.3         Settlement of unresolved disputes or differences

 

12.3.1       If disputes or differences arising between the Parties cannot be resolved pursuant to clause 12.1 then either party shall refer such disputes or differences to a CMC Director and in the case of the Subcontractor means (sic) a Company Director or Partner of the Subcontractor of the respective Parties in writing.  Within 7 days of receipt of the written referral of such disputes or differences to Company Directors, Directors shall meet or otherwise confer to hold good faith discussions in an effort to resolve the disputes or differences by amicable agreement.

 

12.3.2       Should the parties fail to reach agreement in accordance with clause 12.3.1 the Parties agree that the disputes or differences shall within 14 days from the receipt of the written referral pursuant to clause 12.3.1 be referred to mediation.  Either party may refer the dispute or difference to ACDC in writing requesting the appointment of a mediator.  The mediation shall be conducted in accordance with the Australian Commercial Dispute Centre (“ACDC”) mediation Rules and Procedures, and the Chairperson of the ACDC or the Chairperson’s nominee will select the mediator and determine the mediator’s remuneration.  The Parties agree that the costs of any mediator appointed shall be borne equally between the Parties.” (emphasis added)

 

It will be relevant later in these reasons that where clause 12 refers to “disputes or differences” such references are to the description at the outset of clause 12.3.1, namely “disputes or differences arising between the Parties”.

A mediation proceeded on 4 August 2020 but was unsuccessful.  Cheshire did not further pursue the dispute resolution process.

Cheshire complains it was required to complete work and incur associated costs beyond that contemplated by the originally contracted Subcontract Works. By making and pursuing what was in effect CMC’s out of spec claim, Cheshire alleges it lost the opportunity to make an alternative claim for damages or remuneration under and in compliance with the contract. Cheshire argues CMC is, or ought to be, estopped by convention from denying that Cheshire is entitled to reasonable additional remuneration in respect of excavation and embankment works. Cheshire claims it is entitled to payment by CMC in the sum of $1,393,616.80 plus GST as reasonable remuneration for works done by the respondent or alternatively, the same sum as damages or compensation pursuant to ss 236, 237 Australian Consumer Law (Schedule 2 Competition and Consumer Act 2010 (Cth)) for loss suffered as a result of CMC’s allegedly unconscionable conduct.

Further, Cheshire seeks an order that CMC return a bank guarantee issued by Westpac Banking Corporation in the sum of $48,430.41 or that the applicant notifies Westpac Banking Corporation that Cheshire’s bank guarantee has been lost and that the applicant no longer has any interest in that guarantee.  Cheshire provided the guarantee as security in satisfaction of clause 7.7.1 of the contract.  The defects liability period under the contract expired on 21 October 2016.  By a letter dated 9 November 2016, Cheshire requested CMC to return the remaining security.  It is alleged CMC has not made a call on the bank guarantee, has failed or refused to release to Cheshire the bank guarantee and failed or refused to confirm that the bank guarantee has been lost but is no longer required.

The ensuing reasons will, for ease of explanation, consider whether the present application should succeed on the premise that the claim is for relief based on estoppel by convention or statutory unconscionable conduct and does not seek the additional order about the bank guarantee.  Having done so the reasons will then return to the fact the claim also seeks the order about the bank guarantee and consider whether that makes a difference to the outcome otherwise of the application.

The legislated obligation to refer to arbitration

 

In bringing its application to refer the parties to arbitration and stay the proceeding, CMC contends it and Cheshire are parties to an arbitration agreement under the contract and the matters the subject of the proceeding fall within the ambit of that arbitration agreement.

If that contention is correct the court is obliged to refer the parties to arbitration pursuant to s 8(1) Commercial Arbitration Act 2013 (Qld) (the Act) which provides:

“8 Arbitration agreement and substantive claim before court

 

(1)   A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.” (emphasis added)

 

CMC’s application has met the timeframe stipulated by s 8(1) so the determinative questions arising from the remaining elements of s 8(1) are:

 

(a)          Is there an “arbitration agreement”?

 

(b)          Is CMC’s Supreme Court claim “brought in a matter which is the subject of the arbitration agreement”?

 

(c)          Should this court find the agreement “null and void, inoperative or incapable of being performed”?

 

As will become apparent from reasons below, the answers to those questions are, respectively, yes, yes and no.

Definition of an arbitration agreement

 

Section 7 of the Act relevantly defines an arbitration agreement as follows:

“7 Definition and form of arbitration agreement

 

(1)     An arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

 

(2)     An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. …” (emphasis added)

 

The term “defined legal relationship”, used in s 7(1), is not defined by the Act.

Arbitration clause 12.3.3

 

The purported arbitration agreement is here said to be in the form of clause 12.3.3 in the contract.  It falls within clause 12 about dispute resolution, earlier passages of which are quoted above.  Following the mediation clause at 12.3.2, clause 12.3.3 provides:

 

“12.3.3      If the disputes or differences have not been settled within six (6) weeks (or such other period as may be agreed to in writing between the parties) after the appointment of the mediator, the disputes or differences shall be referred to arbitration by either Party in accordance with and subject to The Institute of Arbitrators and Mediators Australia (Queensland Chapter), Rules for the Conduct of Commercial Arbitrations. In any arbitration both Parties shall be entitled to be legally represented. The parties shall appoint an arbitrator within 7 days of referral to arbitration. If the Parties fail to agree on the identity of the arbitrator, the Parties agree that the President, for the time being of the Institute of Arbitrators and Mediators Australia, is on written request from a Party to appoint an arbitrator to hear and determine the disputes or differences. The Parties agree that they will not be able to proceed to arbitration unless clause 12.3.2 has first been complied with.” (emphasis added)

It is not suggested in the present context that the above use of the term “differences” additionally to “disputes” carries any significance.  These reasons will approach consideration of the matter on the basis a difference is a form of dispute and refer for convenience to disputes rather than to both disputes or differences.

 

Consideration

 

Cheshire argues the purported arbitration agreement at clause 12.3.3 does not meet that aspect of the definition at s 7(1) of the Act which speaks of an agreement to submit to arbitration disputes which have arisen or which may arise between the parties “in respect of a defined legal relationship”. It argues clause 12.3.3 fails to define the requisite “disputes or differences” to which it refers by reference to any identified legal relationship, whether contractual or otherwise, and so, absent the articulation of a defined legal relationship within clause 12.3.3, it cannot be an arbitration agreement.

In support of its argument that the defined legal relationship, if there is one, must be ascertainable from the purported arbitration clause, Cheshire referred to the following observation by French CJ and Gageler J in TCL Air Conditioner v Federal Court:[1]

“[P]arties who enter into an arbitration agreement for commercial reasons ordinarily intend all aspects of the defined relationship in respect of which they have agreed to submit disputes to arbitration to be determined by the same arbitral tribunal.”[2]

 

However, that passage does not suggest a requirement that the defined relationship must be ascertainable from the arbitration clause considered in isolation.  Such a requirement would be contrary to orthodox principles of construction, particularly that the whole of the relevant instrument is to be considered in construing its meaning.[3]  Clause 12.3.3 falls for interpretation in the broader context of the document as a whole, which is that it is a clause within a contract.  Clause 12.3.3’s references to the “The Parties” is to the parties to the contract, that is, CMC and Cheshire.  They have a defined legal relationship in that they are parties to a contract.

 

This answers only part of Cheshire’s argument. Cheshire complains that clause 12.3.3 does not contain any description of the nature of the disputes so as to indicate, consistently with the s 7 definition, that they are disputes arising between the parties in respect of their defined legal relationship as parties to the contract. The purported agreement says nothing as to the nature of the disputes other than that they are disputes arising between the parties. For this reason, Cheshire contends clause 12.3.3 fails to meet the s 7 definition of an arbitration agreement.

In support of that argument Cheshire emphasised referral to arbitration causes the significant result of denying the right of adjudication by a court.  In submitting that ought not occur unless it is clear the denial was intended, Cheshire cited the following observation of Fullagar J in Duncombe v Porter about a general principle of interpretation:[4]

 

“Rights which exist at common law or by statute are not to be regarded as denied by words of dubious import.  Before any such denial is accepted, it must appear with reasonable clarity from the language used that the denial is intended.”[5]

 

In the present case, it is implausible having regard to the language of clause 13.3.3 that no denial at all was intended.  It is the breadth of that denial which is the real issue.

In considering whether the language of clause 13.3.3 is sufficiently clear to deny Cheshire the court-based pursuit of its claim it is necessary to consider the meaning of the clause in the context of the contract in which it appears.  These reasons earlier concluded the legal relationship of CMC and Cheshire is a defined one, namely the relationship of parties to a contract.  Such a relationship is defined not merely by the contract’s specific provisions as to the legal rights and obligations existing between the parties but also by the general law applicable to such contracting parties.  Indeed, it has been observed it will be sufficient to constitute a defined legal relationship between parties if there exists a relationship which gives rise to “the possibility that one is entitled to some form of legal remedy against the other”.[6]

 

It is a reasonable inference, premised upon the circumstance that clause 12.3.3 forms part of the contract into which the parties entered, that the disputes to which it refers are, at least, disputes in respect of the rights and obligations conferred and imposed by that contract.   Cheshire would argue even this inference goes too far and CMC would argue it does not go far enough.

Three relevant general principles of interpretation tell against Cheshire’s argument.  The first, already noted, is that the whole of the relevant instrument is to be considered in construing its meaning.  The second is commercial contracts should be construed to give effect to their commercial purpose.[7]  This contract’s purpose was the performance of paid works, which supports the interpretation that disputes about payment should be caught by clause 12.3.3.   The third interpretive principle is that arbitration clauses should not be construed narrowly.[8]  On this point, in Incitec Ltd v Alkimos Shipping Corporation[9] Allsop J, as he then was, observed:

 

“The clear tide of judicial opinion as to arbitration clauses, where the fair reading of them is not confined, is to give width, flexibility and amplitude to them.”[10]

 

The application of these principles compels the inference that the disputes to which clause 12.3.3 refers are, at least, disputes in respect of the rights and obligations conferred and imposed by the contract in which the clause is found.  But how much further does it reach, if at all?

CMC’s argument at its most extreme would in effect have it that clause 12.3.3’s reference to disputes arising between the parties encompasses any disputes arising between them.  However, there is nothing in the contract to fuel the objective attribution of such a free form intention, unconstrained by the context of the contract within which it is found and the limits of the legal relationship it defines.

CMC relied upon some cases in which clauses referring “all disputes” (or disputes described in similarly broad language) to arbitration were upheld, despite the uncertain breadth of their description.[11]  Significantly, none of these cases suggest the range of such disputes is to be regarded as unlimited by the context of the source document.  To the contrary, the clauses in those cases were read down to conform with that context.

 

The cases in this field vary in articulating the degree or nature of connection the dispute must have with that context.  However, some common threads can be identified.

In Re Hohenzollern Actien Gesellschaft and City of London Contract Corp[12] the contract, for the supply of locomotives and boilers, provided for arbitration of “[a]ll disputes”.  Payment was conditional upon the purchaser’s engineer’s certification that the locomotives and boilers had been received in working order.  Certification was not forthcoming and it was optimistically argued there was no dispute because certification was a condition precedent to entitlement under the contract.  Lord Esher MR observed:

 

“Now, of course “all disputes” cannot mean disputes as to matters that have no relation at all to the contract.  But I think that those words are to be read as if they were “all disputes that may arise between the parties in consequence of this contract having been entered into”.  I think that, as my brother Mathew pointed out in the court below, there being all these clauses in the contract as to any of which a dispute might arise, this last clause was added to settle them all.”[13] (emphasis added)

 

In Woolf v Collis Removal Service[14] the arbitration clause related to “any claims upon or counterclaim to any claim made by the contractors”.  The plaintiff claimed damages for a breach of contract and or negligence because of loss and damage of goods stored in a location other than the warehouse which the plaintiff had contracted with the defendants to have the goods stored at.  The decision to stay the action pursuant to s 4 Arbitration Act 1889 was upheld on appeal, Asquith LJ observing:

 

“The arbitration clause in the present case is, as to the subject matter of claims within its ambit, in the widest possible terms.  That clause is not, in terms, limited to claims arising “under” the contract.  It speaks simply of “claims”.  This, of course, does not mean that the term applies to claims of every imaginable kind.  Claims which are entirely unrelated to the transaction covered by the contract would no doubt be excluded; but we are of opinion that, even if the claim in negligence is not a claim “under the contract”, yet there is a sufficiently close connexion between that claim and that transaction to bring the claim within the arbitration clause, even though framed technically in tort.”[15] (emphasis added)

 

In Astro Vencedor SA v Mabanaft,[16] there was a claim in tort for wrongful arrest of a chartered ship, which arrest had occurred to secure damages allegedly owed in connection with a claim the shipowner had wrongfully stopped discharging oil during the charter contract.  The claim about stopping the oil was caught by the arbitration clause, which covered “[a]ny dispute arising during the execution of this charter-party”.  The issue was whether the claim in tort was also within the scope of the arbitration clause.  Lord Denning MR, with whom the rest of the court agreed, concluded it was, observing the arrest was “the follow-up to” and “so closely connected to” the claim about stopping the oil as to be within the scope of arbitration.[17]  This approach echoes Lord Asquith’s test of sufficiently close connection in Woolf.  Its reference to the chain of causal connection likewise echoes Lord Esher’s test of consequential connection in Hohenzollern.

 

In Roose Industries Ltd v Ready Mixed Concrete Ltd,[18] a contract for the supply of metal chips and so-called “all-in” materials referred to both categories in a number of its clauses, but the clause relating to quality mentioned metal chips only.  The purchaser sought a declaration or alternatively rectification in order to require the “all-in” materials to conform to the same standard specification as for metal chips.  An arbitration clause applied to “[a]ny dispute which may arise between the parties to this agreement”.  However the primary judge refused a stay of the action to permit arbitration on the basis the arbitrator would have no jurisdiction to order rectification, that being “clearly outside the arbitration clause”.  That decision was reversed by the New Zealand Court of Appeal which observed:

 

“In our view, the court should restrict the operation of such a wide clause no further than necessary, and on that reasoning should exclude, in the words of Asquith LJ in Woolf v Collis Removal Service …, only claims which are entirely unrelated to the commercial transaction covered by the contract.  Here, the essential question in dispute is whether the parties intended that the “all-in” materials should be required to conform to the standard specification.  That seems to be very much a question arising out of that commercial transaction.  With great respect …, we cannot agree that the particular dispute is not within the arbitration clause.”[19] (emphasis added)

 

In IBM Australia Ltd v National Distribution Services Ltd,[20] IBM agreed to supply systems integration services, including IBM hardware and software.  A dispute arose regarding the suitability of the hardware and software which manifested as an alleged breach of the Trade Practices Act 1974 (Cth) for misleading or deceptive conduct. The relevant arbitration clause was expressed to govern “any controversy or claim arising out of or related to this agreement or the breach thereof”. In concluding there was no basis to exclude from arbitration claims arising under the Trade Practices Act, Handley JA observed the words “related to this agreement or the breach thereof” should not be read down, noting:

 

“These words can only have been added to include within the submission claims other than in contract such as claims in tort, and restitution, or in equity.  I can see no basis for excluding claims arising under statutes which grant remedies enforceable in or confer powers on courts of general jurisdiction.”[21]

 

In the same case, after engaging a lengthy review of the authorities, Kirby P observed:

 

“From the foregoing trend of authority, both in Australian and overseas courts, it can be seen that an arbitration clause, expressed in the language of the clause here under consideration, is not to be narrowly construed.  It is sufficiently wide to include claims for rectification and for relief on the ground of misrepresentation or mistake. …  Whilst it is true that the conduct complained of as being in breach of the Trade Practices Act (Cth) is alone sufficient to enliven the provisions of that Act and whilst such provisions do not depend upon the agreement of the parties, such considerations do not determine the simple question posed. That question is whether the misrepresentations alleged are “related to this agreement or the breach thereof”. It is enough to say that, in this case, it was open to … determine that the relationship was made out on the pleadings.”[22] (emphasis added)

 

In Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways,[23] an agency agreement between an English principal and an Australian agent for air passenger transport contained an arbitration clause referring “[a]ny dispute or difference arising out of this Agreement” to arbitration.  The dispute arising was a claim for damages for breach of contract, alternatively equitable damages “arising out of an unconscionable departure from representations and/or a common assumption made and induced by the defendant”.  A clause of the agreement had provided the agreement could be terminated at any time on three months’ notice, however it was allegedly subsequently promised or represented by the English principal there would be no termination until the end of 1995.  Notwithstanding this, the English principal gave notice of termination in 1994.  The English principal’s alleged representation was said to have induced a common assumption that there would be no termination until the end of 1995 and was also said to have been a representation involving misleading or deceptive conduct under the Trade Practices Act.  The primary issue for determination by the New South Wales Court of Appeal was whether the claims concerning the purported termination having regard to the alleged representation, estoppel and misleading conduct gave rise to a dispute or difference arising out of the agency agreement.

 

Gleeson CJ, with whom Meagher JA and Sheller JA agreed, distinguished Allergan Pharmaceuticals Inc v Bausch & Lomb Inc[24] where Beaumont J held an arbitration clause did not cover a dispute under the Trade Practices Act, the agreement merely being part of the background to the alleged contraventions so that the dispute did not arise out of it.  Gleeson CJ observed:

 

“In the present case the alleged contravention of the Act arose out of a representation concerning the duration of the agreement, and the appellant’s claims concern its purported termination.  The agreement is not merely the background to the dispute.  The dispute is about the agreement, and its performance, and whether it was properly and lawfully brought to an end.”[25]

 

That reasoning has the effect that a dispute pursuing rights said to arise outside a contract should nonetheless be regarded as arising out of or closely connected with the contract where the dispute turns upon whether or not the parties’ rights are constrained by the strict operation of the terms of the contract.  The present case appears to involve just such a dispute, in that CMC relies upon the strictures of the contract’s payment provisions in contending Cheshire is not owed more, whereas Cheshire relies on CMC’s conduct to ground a right to further payment notwithstanding the contractual provisions upon which CMC relies.

In this respect both the present case and Francis Travel are distinguishable from Hi-Fert v Kiukiang Carriers,[26] on which Cheshire placed reliance.  In that matter the issue of current relevance was whether a cargo owner’s claims met the requirement of the arbitration clause of the charter contract that they arose from the contract.  The claims alleged the charterer of a vessel conveying the cargo had engaged in misleading and deceptive conduct, made negligent misrepresentations and breached collateral warranties.  Those claims related to conduct said to have induced the cargo owner to have entered into an addendum contract.  The Full Court of the Federal Court considered the alleged loss would not have been suffered but for the entry into the addendum contract, as distinct from the charter contract, and concluded the claims did not arise out of the charter contract.[27]  In contrast, in the present case there is only said to be one contract and the work performed by Cheshire would not have been performed but for the entry into that contract.

 

Cheshire also relied upon Inghams Enterprises Pty Ltd v Hannigan,[28] where the New South Wales Court of Appeal reversed a primary judge’s determination that a claim for damages for breach of contract fell within the scope of the arbitration subclause of the dispute resolution clause in the contract.  The clause was relevantly worded as, “the Dispute concerns any monetary amount payable and/or owed by either party to the other under this Agreement” (emphasis added).  The New South Wales Court of Appeal concluded Mr Hannigan’s claim for unliquidated damages was not a claim for an amount payable or owed “under” the contract.  Meagher JA, agreeing with Bell P, observed:

 

“The distinction between monetary amounts which are payable or owed “under a contract” and remedies which arise by operation of law is a recognised and meaningful one.  Whereas ‘liquidated damages’ are recoverable in satisfaction of a right of recovery created by the contract itself and accruing by reason of breach, unliquidated damages for breach of contract are compensation assessed by the court in accordance with common law principles for loss occasioned by breach.

It follows that the notified dispute does not concern a monetary amount payable or owed by Inghams to Mr Hannigan under their agreement and accordingly it is not a dispute referred to arbitration by clause 23.6.1.”[29]

 

That conclusion was an inevitable result of the arbitration clause’s specific confinement to disputes concerning any monetary amount payable or owing “under” the agreement.  The present clause has no such specificity.  There is nothing in it to suggest it ought to be read down as applying only to amounts payable under the contract as distinct from amounts payable by operation of law.  Indeed, the parties’ decision to impose no qualification on the nature of the disputes referred to in clause 12.3.3 of the contract supports a liberal width being given to the degree of connection the disputes should have with the contract in order to come within the clause’s reach.

 

Section 8 of the Act directs attention to the matter which is the subject of Cheshire’s claim in the Supreme Court. That matter might be stated in various ways but at its most fundamental it is the question of whether Cheshire should be paid more than it already has been for works it was contracted to perform. Admittedly, that question arises out of the conduct relied upon to raise an entitlement to payment other than pursuant to the contract. But it is also, to adopt the language of Roose Industries, very much a question arising out of the commercial transaction to which the contract gave rise.

A dispute about the question is a dispute arising between the parties out of the commercial relationship created by the contract.  But for that relationship, Cheshire would not have been performing the works for CMC for which it seeks more payment.  The connection between the contract and the performance of the work gives the dispute the degree of close and consequential connection with the contract which is contemplated by authorities such as Hohenzollern, Woolf and Astro Vencedor.  Further, consistently with the quality contemplated in Francis Travel, the dispute turns upon whether or not the parties’ rights are constrained by the strict operation of the terms of the contract or whether events between the parties should found a right to payment beyond the terms of the contract.   These features in combination compel the conclusion that Cheshire’s claim has been brought in a matter which is the subject of an arbitration agreement.

That conclusion must result in the application succeeding, unless the court finds the arbitration agreement is null and void, inoperative or incapable of being performed. Cheshire argued clause 12.3.3 is inoperative.

In part that argument relied upon the same arguments unsuccessfully advanced in contending the clause is too vague or uncertain to meet the s 7 definition. In support of that contention Cheshire additionally cited Yeshiva Properties No 1 Pty Ltd v Lubavitch Magal Pty Ltd,[30] apparently as an example of a case considering reference to “all” disputes where such language was considered too uncertain to leave the matter to arbitration.  However, consideration of that matter does not assist by parity of reasoning because its relevant facts were considerably vaguer than the present case, including the absence of a formal document and lack of intention to be bound until such a document was executed.  For reasons already given as to the proper interpretation of clause 12.3.3, the clause was not so vague or uncertain that contractual effect ought not be given to it.

 

Cheshire’s written outline of argument indicated inoperability would be argued on the basis that Cheshire’s reliance upon estoppel by convention precluded reliance upon the contract including the arbitration agreement,[31] citing CPB Contractors Pty Ltd v Celsus Pty Ltd[32] and that case’s reference to the Singapore High Court decision in Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd.[33]  In CPB Contractors, after referring to Dyna-Jet, Lee J concluded an arbitration agreement will be inoperative where it has ceased to have effect, though how it may cease to have effect will vary in individual cases.[34]  His Honour concluded a construction arbitration agreement did not cease to have effect by reason of a mediated agreement not involving the builder or a completion deed clause establishing a further consolidated arbitration process.

 

In the present case Cheshire’s reliance upon estoppel by convention merely seeks to establish a right to payment not provided for by the contract.  The pursuit and existence of such a right does not appear to be inconsistent with the continued operation of the contract and its arbitration clause.

In oral argument Cheshire’s argument broadened to the submission that its complaints of statutory unconscionability were non-arbitrable.[35] It was argued there is an implicit public interest dimension to the category of unconscionability relied upon in ss 20 and 21 Australian Consumer Law.  It was highlighted, for example, that those sections allow the court to have regard to industry codes of conduct (not that such codes are said to be relevant to Cheshire’s claim).  Cheshire placed reliance upon an observation of Allsop J in Commandate Marine Corp v Pan Australia Shipping Pty Ltd[36] that a common element to the notion of non-arbitrability in the context of international arbitration is that a sufficient element of legitimate public interest in the disputed matters makes the enforceable private resolution of the dispute outside the national court system inappropriate.  However, that is not the context with which the present matter is concerned.

 

It is uncontroversial that, as the plurality observed in Westfield Management v AMP Capital,[37] the policy of the law is against enforcing contractual arrangements which “operate to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest, rather than for the benefit of an individual alone”.  However, is also well established it is an implied term of an arbitration clause that the arbitrator should reach a decision according to the existing law of the land and should exercise every right and discretionary remedy given to a court of law.[38]  Cheshire has not demonstrated how reference to mediation in the present context would deprive it of the protection of the provisions of the Australian Consumer Law on which its claim relies.  The arbitrator will be obliged to determine Cheshire’s disputed right to payment considering those provisions to the extent they are relevant to the facts as found by the arbitrator.

 

The above analysis demonstrates there is no substance to Cheshire’s arguments as to inoperability.  On the materials presently before the court[39] it has not been shown the court should make a finding pursuant to s 8 that the arbitration clause is inoperative.

 

If follows s 8 of the Act requires this court to refer the parties to arbitration pursuant to clause 12.3.3 of their contract.

That conclusion has been arrived at on the premise that the claim is for relief based on estoppel by convention or statutory unconscionable conduct and does not seek the additional order about the bank guarantee.  Enlarging consideration now to the matter of the bank guarantee does not alter the conclusion, indeed it fortifies it.  In oral submissions Cheshire’s counsel categorised the foundation of the order as being part of its unconscionability case.[40]  That is not apparent from Cheshire’s pleading.  In any event the provision of the bank guarantee was a contractual requirement, so any dispute as to its return inevitably involves a sufficiently close and consequential connection with the contract that it is a matter which is subject to clause 12.3.3.

 

Conclusion

CMC has made good its argument that the parties should be referred to arbitration pursuant to s 8 of the Act.

CMC’s application also sought a “permanent stay” of Cheshire’s proceeding.   In the present context the integrity of the reference can be safeguarded simply by a stay.  It will in effect operate as a stay of permanent effect unless, in consequence of some event or decision in the arbitration process, the dispute cannot be determined by arbitration.  Such a development could ground an application to lift the stay.

On the face of it costs should follow the event but I will allow the parties an opportunity to be heard.

Orders

 

My orders are:

  1. The parties are referred to arbitration pursuant to s 8(1) Commercial Arbitration Act 2013 (Qld).

 

  1. Cairns Supreme Court proceeding 571/20 is stayed.

 

  1. I will hear the parties as to costs, if costs have not been agreed in the meantime, at 9.15am 28 April 2021 (out of town parties having leave to appear by telephone or video-link).

 

 

Citations:

[1] (2013) 251 CLR 533.

 

[2] (2013) 251 CLR 533, 550 [16].

 

[3]        See for instance the oft-cited observations on this principle by Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99, 109.

 

[4] (1953) 90 CLR 295.

 

[5] (1953) 90 CLR 295, 311.

 

[6]        Methanex Motonui Ltd v Spellman [2004] 1 NZLR 95, 121 [85]; endorsed on appeal [2004] 3 NZLR 454, 471 [62].

 

[7]        See for example, McCann v Switzerland Insurance (2000) 203 CLR 579, 589.

 

[8]        See for example, Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, 165; Commandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45.

 

[9] [2004] FCA 698.

 

[10] [2004] FCA 698, [36] (citations omitted).

 

[11]       Applicant’s submissions in reply [15]; Roose Industries Ltd v Ready Mixed Concrete Ltd [1974] 2 NZLR 246 (and other cases cited therein).

 

[12] (1886) 54 LT 596.

 

[13] (1986) 54 LT 596, 597.

 

[14] [1948] 1 KB 11.

 

[15] [1948] 1 KB 11, 18.

 

[16] [1971] 2 QB 588.

 

[17] [1971] 2 QB 588, 595.

 

[18] [1974] 2 NZLR 246.

 

[19] [1974] 2 NZLR 246, 249.

 

[20] (1991) 22 NSWLR 466.

 

[21] (1991) 22 NSWLR 466, 487.

 

[22] (1991) 22 NSWLR 466, 477.

 

[23] (1996) 39 NSWLR 160.

 

[24] (1985) ATPR 40-636.

 

[25] (1996) 39 NSWLR 160, 166-167.

 

[26] (1998) 90 FCR 1.

 

[27] (1998) 90 FCR 1, 17, 22 (per Emmett J with whom Branson J agreed and Beaumont generally agreed).

 

[28] (2020) 379 ALR 196.

 

[29] (2020) 379 ALR 196, 245 [150] – [151] (citations omitted).

 

[30] [2003] NSWSC 615 [52]; Plaintiff’s outline of argument [18].

 

[31] Plaintiff’s outline of argument [19].

 

[32] (2017) 353 ALR 84, 98-100.

 

[33] [2016] SGHC 238 [166].

 

[34] (2017) 353 ALR 84, 100.

 

[35]       T 1-33 L 11 (the submission included reference to the complaint of estoppel by convention but the argument which developed focussed upon the complaints of statutory unconscionability).

 

[36] (2006) 157 FCR 45, 98.

 

[37] (2012) 247 CLR 129.

 

[38]       Government Insurance Office v Atkinson Leighton Joint Venture (1981) 146 CLR 206, 234-235, 246-247.

 

[39]       A qualification added in deference to the possibility this court is not presently possessed of all information which may be put before an arbitrator – see Rinehart v Rinehart (No 3) (2016) 257 FCR 310, 347.

 

[40]       T 1-34 L 42.

 

First Solar (Australia) Pty Ltd, in the matter of Lyon Infrastructure Investments Pty Ltd v Lyon Infrastructure Investments Pty Ltd (No 2) [2021] FCA 109

Court of Appeal
Supreme CourtNew South Wales

 

Case Name: First Solar (Australia) Pty Ltd, in the matter of Lyon Infrastructure Investments Pty Ltd v Lyon Infrastructure Investments Pty Ltd (No 2)
Medium Neutral Citation: [2021] FCA 109
Hearing Date(s): 5 February 2021 – 16 February 2021
Date of Orders: 18 February 2021
Decision Date: 18 February 2021
Before: STEWART J
Decision: There be judgment against the first defendant in the sum of $6,016,686.70 plus interest from 31 July 2020.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Catchwords: ARBITRATION – domestic commercial arbitration – application for order in the terms of the award pursuant to s 54(1) of the Federal Court of Australia Act 1976 (Cth) – where no order was made referring a proceeding or part of it to arbitration pursuant to s 53A(1) – where parties by consent sought a stay of the proceeding pending the determination of the arbitration – whether consent orders for the stay should be varied to add an order under s 53A(1) – whether the award is “in relation to a matter in which the Court has original jurisdiction” pursuant to s 54(1) and r 28.14(1) of the Federal Court Rules 2011 (Cth) – controversy submitted to arbitration is a federal matter – dispensing with certain formal requirements – money judgment in the terms of the award granted
Legislation Cited: Competition and Consumer Act 2010 (Cth) Sch 2 (Australian Consumer Law) s 18

Corporations Act 2001 (Cth) s 471B

Federal Court of Australia Act 1976 (Cth) ss 53A(1)–(1A), 53AA, 54

International Arbitration Act 1974 (Cth) Pts II–IV, Schs 1–3

Judiciary Act 1903 (Cth) s 39B

Federal Court Rules 2011 (Cth) rr 28.14, 41.06

Commercial Arbitration Act 2010 (NSW) ss 1, 35

Commercial Arbitration Act 1984 (NSW) s 33 (repealed)

Arbitration Act 1996 (UK) s 101

Arbitration Act 1950 (UK) s 26(1) (repealed)

Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Opened for signature 10 June 1958. 330 UNTS 3 Art 1 (entered into force 7 June 1959)

Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Opened for signature 18 March 1965. 575 UNTS 159 (entered into force 14 October 1966)

UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended on 7 July 2006)

Cases Cited: Bellerive Homes Pty Ltd v FW Projects Pty Ltd [2019] NSWSC 193
Cargill Australia Ltd v Oroonoka Pty Ltd [2011] NSWSC 620
Continental Grain Co v Bremer Handelsgesellschaft mBH (No 2) [1984] 2 Lloyd’s Rep 121
Fencott v Muller [1983] HCA 12; 152 CLR 570
FG Hemisphere Associates LLC v Democratic Republic of Congo [2010] NSWSC 1394
First Solar (Australia) Pty Ltd, in the matter of Lyon Infrastructure Investments Pty Ltd v Lyon Infrastructure Investments Pty Ltd [2018] FCA 1666
Hyundai Engineering & Steel Industries Co Ltd v Two Ways Constructions Pty Ltd (No 2) [2018] FCA 1551Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2021] FCAFC 3
Leveraged Equities Pty Ltd v Huxley [2010] NSWCA 179
Mahaffy v Mahaffy [2018] NSWCA 42; 97 NSWLR 119
Mahaffy v Mahaffy [2013] NSWSC 245
Norsk Hydro ASA v State Property Fund of Ukraine [2002] EWHC 2120 (Comm)Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd [1981] HCA 7; 148 CLR 457
Re Wakim; Ex parte McNally [1999] HCA 27; 198 CLR 511
Rizhao Steel Holding Group Co Ltd v Koolan Iron Ore Pty Ltd [2012] WASCA 50; 287 ALR 315
Siminton v Australian Prudential Regulation Authority (No 3) [2008] FCAFC 89; 168 FCR 140
Traxys Europe SA v Balaji Coke Industry Pvt Ltd (No 2) [2012] FCA 276; 201 FCR 535
Uganda Telecom Ltd v Hi-Tech Telecom Pty Ltd (No 2) [2011] FCA 206; 277 ALR 441
Xiadong Yang v S&L Consulting Pty Ltd [2008] NSWSC 1051
Texts Cited: NIL
Category: Corporations and Corporate Insolvency/ Commercial and Corporations
Parties: BETWEEN:

FIRST SOLAR (AUSTRALIA) PTY LTD

Plaintiff

 

AND:

 

LYON INFRASTRUCTURE INVESTMENTS PTY LTD

First Defendant

 

LYON INFRASTRUCTURE INVESTMENTS 1 PTY LTD (IN LIQUIDATION)

Second Defendant

 

LYON SOLAR PTY LTD (IN LIQUIDATION)

Third Defendant

Representation: Counsel for the Plaintiff:               G P Gee

Solicitor for the Plaintiff:               Marque Lawyers

Counsel for the Defendants:       The defendants did not appear

File Number(s): NSD 1652 of 2017
Publication Restriction: NIL
Decision under appeal: N/A
 Court or Tribunal: Federal Court of Australia
  Jurisdiction:
  Citation: [2021] FCA 109
  Date of Decision: 18 February 2021
  Before: Stewart J
  File Number(s): NSD 1652 of 2017

 

REASONS FOR JUDGMENT

 

STEWART J:

 

Introduction

 

By interlocutory application, the plaintiff, First Solar (Australia) Pty Ltd, seeks an order in the terms of an arbitration award as follows:

 

The First Defendant pay the Plaintiff damages plus interest in the amount of $6,016,686.70.

I have resolved that the plaintiff should have relief in the form of judgment in its favour in the sum awarded plus interest.  In order to explain why I have reached that conclusion, it is necessary to set out some background.

 

Background

As explained by Markovic J in First Solar (Australia) Pty Ltd, in the matter of Lyon Infrastructure Investments Pty Ltd v Lyon Infrastructure Investments Pty Ltd [2018] FCA 1666 (the first judgment), by amended originating process filed on 21 December 2017 the plaintiff sought, on the one hand, relief against Lyon Infrastructure Investments Pty Ltd (the first defendant) and, on the other hand, relief against Lyon Infrastructure Investments 1 Pty Ltd (Lyon 1) (the second defendant) and Lyon Solar Pty Ltd (the third defendant).

In respect of Lyon, the plaintiff sought an order that its registration as a company be reinstated and that, following such reinstatement, it be wound up.

As against Lyon 1 and Lyon Solar, the plaintiff sought declarations that Lyon 1 and Lyon Solar hold the assets of Lyon, secured in favour of the plaintiff, on trust, or as bailee for the plaintiff and that Lyon 1 and Lyon Solar have no right, title or interest in those assets; an order that a receiver be appointed to Lyon 1 and Lyon Solar; damages for breach of trust, or, in the alternative, an account of profits; an order that Lyon 1 and Lyon Solar deliver up the assets to the plaintiff, in the alternative, to Lyon; and, damages for inducing Lyon’s breach of contract: the first judgment at [2].

Following an order by a registrar of this Court on 18 October 2017, Lyon was restored to the register with effect from 19 October 2017.

On 24 November 2017, an order was made by Markovic J to stay the proceeding between the plaintiff and Lyon pending the determination of an arbitration between them.  That order is recorded as having been made by consent, although the circumstances of its making are not otherwise disclosed in the evidence.

On 2 November 2018, Markovic J stayed the proceeding as between the plaintiff and Lyon 1 and Lyon Solar pending the determination of the arbitration between the plaintiff and Lyon.  The reasons for that stay are set out in the first judgment.

Thereafter, the plaintiff commenced arbitration proceedings against all three of the defendants and the three mutual directors of the defendants.  Lyon 1, Lyon Solar and the directors submitted to the arbitration and confirmed their agreement to be bound by the determination of the arbitration between the plaintiff and Lyon.

Lyon 1 and Lyon Solar were wound up with effect from 17 October 2019. The result was that the principal proceeding as against those defendants, which was in any event stayed pending the finalisation of the arbitration, was automatically stayed by operation of s 471B of the Corporations Act 2001 (Cth). Also, on 23 October 2019 the arbitration was stayed as against those parties. The arbitration proceeded, however, against Lyon and the directors.

On 10 July 2020, the arbitrator, Mr Daniel Meltz, published a partial final arbitral award in Sydney.  The award was partial in the sense that it set out the arbitrator’s findings on the disputes between the parties but gave them the opportunity to make further submissions on final orders, interest and costs.

As found by the arbitrator, the agreement to arbitrate was contained in a Deed of Variation to a Loan Agreement dated 19 May 2016 between the plaintiff and Lyon.  It provided for the referral of the dispute for resolution by final and binding arbitration in Sydney in accordance with the rules of the Australian Disputes Centre (ADC) and for the arbitration to be conducted by a single arbitrator appointed in accordance with the ADC Rules.

The claims by the plaintiff against Lyon were for repayment of a loan plus interest and for breach of a “take-or-pay agreement” in connection with the supply of solar modules.  The arbitrator found that the loan agreement was valid and that the loan was due and repayable with interest.  The arbitrator also found in favour of the plaintiff on the “take-or-pay agreement” claim, finding that the plaintiff was entitled to damages in the amount of US$3.25m plus interest.

Lyon raised a set-off claim in the arbitration. The basis for the claim was that the plaintiff engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL) in representing in a “Price Warranty” that its solar panels were competitive in the Australian renewable energy market in terms of their price, performance and the terms on which they were supplied.  The arbitrator rejected the set-off claim.

The plaintiff’s claim against the directors in the arbitration was also for misleading and deceptive conduct contrary to the ACL.  The claim was rejected by the arbitrator.

On 31 July 2020, the arbitrator published his final arbitral award.  The award is in the following terms:

Lyon Infrastructure pay First Solar damages plus interest in the amount of AUD$6,016,686.70; and

Each party pay their own costs.

On 6 August 2020, the solicitor for the three defendants in the action filed a notice of ceasing to act.  He gave as the defendants’ last known addresses for service the addresses of their registered offices.  In the case of Lyon 1 and Lyon Solar that was the address of the liquidator.  The plaintiff gave notice of its interlocutory application to the defendants at those addresses but the defendants did not oppose the relief that was sought or appear at the hearing.

Consideration

 

Domestic, not international, arbitration

The first point to note about the arbitration is that it was not an international arbitration and enforcement of the award is therefore not governed by the International Arbitration Act 1974 (Cth) (IAA).  In that regard, the award is not an arbitral award “made in the territory of a State other than the State where the recognition and enforcement of [the award is] sought” as referred to in Art I of the New York Convention (Convention on the Recognition and Enforcement of Foreign Arbitral Awards) adopted in 1958 by the United Nations Conference on International Commercial Arbitration, the English text of which is set out in Sch 1 to the IAA.  The award is therefore not to be enforced under Pt II of the IAA.

Also, the arbitration was not an international commercial arbitration as referred to in Art 1 of the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended on 7 July 2006, the English text of which is set out in Sch 2 to the IAA. The award is therefore not to be enforced under Pt III of the IAA. The award is also not an award of the International Centre for Settlement of Investment Disputes under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States signed by Australia on 24 March 1975, the English text of which is set out in Sch 3 to the IAA.  The award is therefore not to be enforced under Pt IV of the IAA.

Because the arbitration is not an arbitration to which the Model Law (as given effect by the IAA) applies and at the time of the conclusion of the arbitration agreement the parties to the arbitration agreement had their places of business in Australia, the arbitration is a domestic commercial arbitration as referred to and defined in s 1 of the Commercial Arbitration Act 2010 (NSW). Ordinarily, such an award would only be enforceable in a state court pursuant to s 35 of the Commercial Arbitration Act or one of its analogues in another state.

The plaintiff nevertheless invokes s 54(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) in seeking enforcement of the award in this Court.  That section is relevantly in the following terms:

54       Arbitration awards

(1)           The Court may, upon application by a party to an award made in an arbitration (whether carried out under an order made under section 53A or otherwise) in relation to a matter in which the Court has original jurisdiction, make an order in the terms of the award.

 

Significantly, notwithstanding that the stay of the principal proceeding in this Court pending the arbitration was made by consent, no order was made pursuant to s 53A(1) of the FCA Act. That section empowers the court, but only with the consent of the parties (see s 53A(1A)), to refer the proceedings in the court, or any part of them or any matter arising out of them, to arbitration.

The plaintiff submits that the relief that it seeks, namely “an order in the terms of the award”, is justifiable on one of two alternative bases under s 54.

First, the plaintiff submits that notwithstanding that there was no referral by the court under s 53A(1), the fact that the parties by consent sought a stay of the proceeding as against Lyon pending the determination of the arbitration indicates that their failure to seek an order under s 53A(1) was clearly an oversight that can now be remedied by the application of the slip rule. Secondly, the plaintiff submits that the arbitration was in any event “in relation to a matter in which the court has original jurisdiction”. It is convenient to deal with each of these bases in turn.

 

Referral under s 53A(1)

I am not satisfied that there is any justification to vary the consent orders of 24 November 2017 by adding an order, ex post facto, under s 53A(1) that the proceeding or part of it be referred to arbitration. The principal reason for that is that it is not apparent that the subject matter of the arbitration was necessarily part of the proceeding, or was a matter arising out of the proceeding, that was then before the court.

Section 53A(1) only enables the court by order to “refer proceedings in the Court, or any part of them or any matter arising out of them” to arbitration. Whilst it may be that the plaintiff’s claims in the arbitration, namely the claim for repayment of the loan and for damages for breach of the “take-or-pay agreement”, formed part of the plaintiff’s claim that Lyon be wound up, and in that sense formed part of the proceeding or were matters arising out of the proceeding, that is not clear on the evidence. It is even less clear that the other claims in the arbitration, being Lyon’s set-off claim and the plaintiff’s claims against the directors, formed part of the proceeding or arose out of the proceeding in the court.

It is to be noted that the referral of a proceeding or part of a proceeding to arbitration under s 53A(1) has substantial consequences beyond the recognition or enforcement of an award under s 54. Notably, under s 53AA the arbitrator in such an arbitration may apply to the court for leave to refer a question of law arising in the arbitration to the court. That is not a mechanism that is otherwise available to an arbitrator. It is therefore not lightly to be inferred that parties intended, but accidentally overlooked to seek, a referral to arbitration under s 53A(1) when they sought a stay of a proceeding in favour of an arbitration.

It is apparent that the agreement to arbitrate, being the Deed of Variation dated 19 May 2016, was concluded some 18 months before the plaintiff filed the originating process in the proceeding.  The arbitration was conducted pursuant to that agreement, rather than pursuant to any implied or tacit referral by the Court of anything before the Court to arbitration.

There is therefore no basis for the plaintiff to rely on s 53A(1) to justify enforcement of the award under s 54.

 

A matter in which the court has original jurisdiction

Rule 28.14 of the Federal Court Rules 2011 (Cth) (FCR) sets out certain requirements with regard to an application for an order in terms of an arbitration award as follows:

28.14   Applications for order in terms of an award

 

(1)       A party may apply to the Court for an order in the terms of the award if:

 

(a)       the matter has not been referred to the arbitrator by the Court; but

 

(b)       the matter is a matter in which the Court has original jurisdiction.

 

(2)           A party who wants to make an application under subrule (1) must file an originating application, in accordance with Form 50.

 

(3)       The application must be accompanied by:

 

(a)       a copy of the arbitration agreement; and

 

(b)       a copy of the award; and

 

(c)       an affidavit stating:

 

(i)          the material facts demonstrating why the Court has original jurisdiction in the matter that is the subject of the award; and

 

(ii)         the extent to which the award has not been complied with, at the date the application is made; and

 

(iii)        the usual or last-known place of residence or business of the person against whom it is sought to enforce the award or, if the person is a company, the last-known registered office of the company.

 

(4)       The application may be made without notice.

 

Note:    Without notice is defined in the Dictionary.

 

Rule 28.14(1)(b) restates the requirement of s 54 that in order for the court to make an order in the terms of the award the matter that was the subject of the arbitration must be a matter within the original jurisdiction of the court. The Federal Court has original jurisdiction in respect of any matter arising under any laws made by the Parliament other than a criminal matter: Judiciary Act 1903 (Cth), s 39B. That directs attention to what is a “matter”, particularly in a case such as the present where federal and non-federal “claims”, seeking to use that word neutrally, are made in the same proceeding.

The concept of “matter” as a justiciable controversy, identifiable independently of the proceedings which are brought for its determination and encompassing all claims made within the scope of the controversy, has long been accepted: Fencott v Muller [1983] HCA 12; 152 CLR 570 at 591–592 per Gibbs CJ and 603 per Mason, Murphy, Brennan and Deane JJ. When a court which can exercise federal jurisdiction has its jurisdiction attracted in relation to a matter, that jurisdiction extends to the resolution of the whole matter between the parties: Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd [1981] HCA 7; 148 CLR 457 at 475 per Barwick CJ.

What is and what is not part of the one controversy depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships.  The scope of a controversy which constitutes a matter is not ascertained merely by reference to the proceedings which a party may institute, but may be illuminated by the conduct of those proceedings and especially by the pleadings in which the issues and controversy are defined and the claims for relief are set out.  But in the end, it is a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter.  See Fencott v Muller at 608.

There will ordinarily be a single controversy and, therefore, a “matter” if all the claims arise out of “a common substratum of facts”: Philip Morris at 512 per Mason J; Re Wakim; Ex parte McNally [1999] HCA 27; 198 CLR 511 at [75] per McHugh J. Further, though the facts upon which a non-federal claim arises do not wholly coincide with the facts upon which a federal claim arises, it is nevertheless possible that both may be aspects of a single matter arising under a federal law: Fencott v Muller at 607.

Applying those broadly stated principles to the present case, it is to be observed from the arbitrator’s awards that all the claims in the arbitration arose from a common substratum of facts. In particular, Lyon’s set-off claim which, it will be recalled, alleged breach by the plaintiff of s 18 of the ACL and which was hence a federal matter, was integrally part of the dispute between the plaintiff and Lyon with regard to repayment of the loan and breach of the “take-or-pay agreement”. The same is true of the plaintiff’s claims for breach of s 18 of the ACL against the directors of Lyon. Those claims arise under a law of the Parliament and thus invoke federal jurisdiction.

In those circumstances I am satisfied that the award made in the arbitration is “in relation to a matter in which the Court has original jurisdiction” as referred to in s 54(1) of the FCA Act and r 28.14(1) of the FCR.

 

Dispensing with certain formal requirements

The plaintiff acknowledges that it has not met the requirement of r 28.14(2) of filing an originating application in accordance with Form 50. Rather, it has filed an interlocutory application within the existing proceeding. Form 50 identifies the documents that should accompany the application, which are the same as those required by r 28.14(3). The plaintiff’s interlocutory application satisfies all those requirements, save that it is not accompanied by a copy of the arbitration agreement. However, the relevant terms of the arbitration agreement are set out verbatim in the arbitrator’s partial final arbitral award. Also, there was no dispute before the arbitrator as to the agreement to arbitrate or the arbitrator’s jurisdiction. There is therefore nothing significant in the plaintiff’s oversight, and no prejudice attaches to it.

In the circumstances, there is equally no prejudice attaching to the plaintiff not having sought relief in the terms of the arbitral award by way of originating application.

For those reasons, on the plaintiff’s application I dispense with the requirements of r 28.14 that the application be brought by way of originating application and that it be accompanied by a copy of the arbitration agreement.

 

The proper form of order

The question arises as to the proper form of the order that I should make.  That is because of the distinction between granting judgment against Lyon in a particular amount, on the one hand, and ordering Lyon to pay that amount, on the other, which was seen by the Full Court in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2021] FCAFC 3 at [63]-[65] per Perram J (Allsop CJ and Moshinsky J agreeing) to have some significance, subject to further submissions and determination still to be made in that case. As pointed out on behalf of the plaintiff in this case, the significance in that case was because of the need, in that case, to distinguish between the recognition of an award and its enforcement. That need does not arise in the present case.

The power under s 54 of the FCA Act is expressly a power to “make an order in the terms of the award”. The award requires Lyon to “pay [the plaintiff] damages plus interest in the amount of AUD$6,016,686.70”. For that reason the plaintiff seeks an order in those terms, rather than, for example, “judgment in the sum of $6,016,686.70 plus interest”. The plaintiff is nevertheless content to have an order in the latter form.

In Uganda Telecom Ltd v Hi-Tech Telecom Pty Ltd (No 2) [2011] FCA 206; 277 ALR 441, Foster J (at [13]) observed that “[c]ourts in this country and elsewhere have accepted that the appropriate way of recognising and enforcing a foreign monetary arbitral award is for the enforcing court to enter judgment or make an order for payment which reflects the terms of the award” (my emphasis).  His Honour then cited a number of cases both in Australia and in England.  See also Traxys Europe SA v Balaji Coke Industry Pvt Ltd (No 2) [2012] FCA 276; 201 FCR 535 at [3] and [113] per Foster J.

 

Insofar as Australian cases are concerned, it is to be noted that s 33 of the Commercial Arbitration Act 1984 (NSW) and its analogues in other states, being the Commercial Arbitration Acts that preceded the current uniform state Commercial Arbitration Acts that apply the terms of the UNCITRAL Model Law to domestic arbitration, provided that where leave to enforce an award is given “judgment may be entered in terms of the award”. Under that provision, there are numerous cases where awards that were phrased in the form “that A pay B $X” were enforced in court by orders in the form of “judgment for A against B in the sum of $X” or similar, i.e., judgment for a certain sum rather than an order to pay that sum. See, for example, Xiadong Yang v S&L Consulting Pty Ltd [2008] NSWSC 1051 at [3], [10] and [15] per Hammerschlag J; FG Hemisphere Associates LLC v Democratic Republic of Congo [2010] NSWSC 1394; Cargill Australia Ltd v Oroonoka Pty Ltd [2011] NSWSC 620 at [7] and [12] per Hammerschlag J; Leveraged Equities Pty Ltd v Huxley [2010] NSWCA 179 at [16] per Allsop ACJ (Macfarlan JA and Handley AJA agreeing); Rizhao Steel Holding Group Co Ltd v Koolan Iron Ore Pty Ltd [2012] WASCA 50; 287 ALR 315 at [9] and [152] per Martin CJ (Buss and Murphy JJA agreeing). That approach is not, however, universal. See, for example, Hyundai Engineering & Steel Industries Co Ltd v Two Ways Constructions Pty Ltd (No 2) [2018] FCA 1551 at [24] per O’Callaghan J.

Insofar as English cases are concerned, I note that s 101 of the Arbitration Act 1996 (UK) employs the same language, namely that if leave to enforce an award is given then “judgment may be entered in terms of the award”.  Section 26(1) of the Arbitration Act 1950 (UK) also used that wording.  In Continental Grain Co v Bremer Handelsgesellschaft mBH (No 2) [1984] 2 Lloyd’s Rep 121, Bingham J entered judgment under the 1950 Act in a certain sum against the award debtor on an award that had awarded sums of money for damages.

In Norsk Hydro ASA v State Property Fund of Ukraine [2002] EWHC 2120 (Comm) at [6]-[7] and [18]-[19], Gross J held, with reference to the 1996 Act, that an order providing for enforcement of an award must follow the award allowing true “slips” and changes of name to be accommodated, but that an order naming a different party to the party named in the award was not such an order. No criticism was made of the fact that the judgment had been in the form of judgment for a sum of money whereas the award had been in the form of an order to pay.

It is apparent from the cases that I refer to that where it is provided that judgment may be made “in terms of the award” – and I interpolate to add that I do not consider the wording “in the terms of the award” in s 54 to signify any different meaning – it does not mean that the judgment must be in exactly the same words as the award. Rather, it means that the terms of the judgment must give effect to the award, or the “judgment or order must reflect the Award and cannot differ in any material way from the terms thereof”: Traxys Europe at [72]. That that is so is borne out by consideration of the circumstance where part of an award has been paid, such as that envisaged by r 28.14(3)(c)(ii) which requires evidence of the extent to which the award has been complied with as at the date the application for an order under s 54 is made. If part of a money award has been paid there would be no justification for an order for payment of the whole amount of the award, but only for the balance. If “in the terms of the award” meant “in the actual/exact words of the award” then no order enforcing the partially paid award would be possible. That could not have been the intention.

It is also to be observed that in this Court “judgment” includes an “order”: FCA Act, s 4; Traxys Europe at [73]. There is therefore no significance in s 54 providing for an “order” to be made in the terms of the award rather than for a “judgment” being so made.

One of the reasons why it is said that an order that the defendant pay a sum of money may be different in effect to a judgment against the defendant in that sum is because it may be contemptuous of the former order but not of the latter judgment for the defendant to fail to pay.  There is some complexity to that debate which involves, amongst other things, consideration of the history of imprisonment for civil debt and, in some courts at least, the difference, if any, between judgment and order.  It is sufficient for present purposes to note that the position is not clear.  See Mahaffy v Mahaffy [2013] NSWSC 245 at [59] per Garling J, Mahaffy v Mahaffy [2018] NSWCA 42; 97 NSWLR 119 and Bellerive Homes Pty Ltd v FW Projects Pty Ltd [2019] NSWSC 193. In the latter case, a judgment in the form of “the first defendant is to pay [the first plaintiff] the sum of …” was treated as a judgment debt and it was held that civil contempt proceedings could not be brought against a debtor for failing to pay a judgment debt: at [10] and [128] per N Adams J. In Siminton v Australian Prudential Regulation Authority (No 3) [2008] FCAFC 89; 168 FCR 140 at [24] per Spender ACJ and Lander and Buchanan JJ, it was held that failure to pay a fine that was ordered to be paid as punishment for contempt could itself found a contempt, but the broader question of the possibility of contempt for failure to pay a money judgment or an order to pay money was not dealt with. It is also to be observed that in the Federal Court there can be no punishment for contempt for failing to comply with an order unless the relevant order is endorsed to that effect as required by r 41.06 of the FCR.

In the circumstances, my view is that the better course is to enter judgment sounding in money, rather than to order payment of a sum of money.  That course avoids the debate about contempt, it is in conformity with what seems to me to be the predominant practice, and it gives the plaintiff what it needs and is entitled to.  It also avoids complications that might otherwise arise if and when it comes to apply for the issue of a writ of execution.

Conclusion

For those reasons, there should be judgment for the plaintiff against Lyon (the first defendant) in the sum of $6,016,686.70 plus interest from the date of the award, namely 31 July 2020.  The plaintiff does not seek the costs of the interlocutory application.

I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.

**********

 

 

Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82 (04 May 2020)

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Hearing dates: 11 December 2019
Date of orders: 04 May 2020
Decision date: 04 May 2020
Before: Bell P at [1]; Meagher JA at [118]; Gleeson JA at [158]
Decision: (1)   Grant leave to appeal.

 

(2)   Allow the appeal.

 

(3)   Set aside orders (1) and (3) made by Slattery J on 16 September 2019.

 

(4)   Declare that the dispute the subject of the respondent’s Notice of Dispute dated 29 May 2019 is not required to be submitted to arbitration pursuant to cl 23.6 of the Queensland Broiler Chicken Growing Agreement between the parties dated 22 September 2015.

(5)   The respondent pay the appellant’s costs of the proceedings at first instance and on appeal.

Catchwords: ARBITRATION – multi-tiered dispute resolution clause – clause included as a component an arbitration clause for certain types of disputes – proper construction of arbitration clause and its scope – principles applicable to the construction of such clauses.

 

CONTRACT – dispute resolution clause – clause contemplating court proceedings in some circumstances and arbitration proceedings in other circumstances – proper construction of the clause – whether a claim for damages for breach of contract “concerned” a “monetary amount payable and/or owed” “under” the agreement.
CONTRACT – construction and interpretation – multi-tiered dispute resolution clause – principles applicable to construction of dispute resolution clauses.

CONTRACT – waiver – whether commencement of earlier court proceedings seeking declarations as to breach of contract resulted in waiver of right to submit claim for damages for breach of contract to arbitration.

Legislation Cited: Civil Procedure Act 2005 (NSW) s 26(1)
Foreign States Immunities Act 1985 (Cth) s 11(1)
Income Tax Assessment Act 1936 (Cth) s 160U(3)
International Arbitration Act 1974 (Cth)
Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW) s 5(7)
Land Title Act 1994 (Qld) s 62
Supreme Court Act 1970 (NSW) s 101(2)(r)
Cases Cited: AAP Industries Pty Limited v Rehaud Pte Limited [2015] NSWSC 468
Ace Insurance Ltd v Moose Enterprise Pty Ltd [2009] NSWSC 724
Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418; [1996] HCA 39
Armacel Pty Ltd v Smurfit Stone Container Corporation (2008) 248 ALR 573; [2008] FCA 592
Attorney General for New South Wales v Melco Resorts & Entertainment Limited [2020] NSWCA 40
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36
Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd (2019) 99 NSWLR 419; [2019] NSWCA 61
Australian Securities Commission v Lord (1991) 33 FCR 144; (1991) 105 ALR 347
BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (2008) 168 FCR 169; [2008] FCA 551
Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; (2013) 298 ALR 666
Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468
Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd (1995) 58 FCR 365
Chan v Cresdon Pty Ltd (1989) 168 CLR 242; [1989] HCA 63
Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295
Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192
Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35
Commonwealth v Amann Aviation Pty Ltd (1992) 174 CLR 64; [1991] HCA 54
Concut Pty Ltd v Worrell (2000) 75 ALJR 312; [2000] HCA 64
Continental Bank NA v Aeakos Compania Naviera SA [1994] 1 WLR 588
Corporate Affairs Commission (SA) v Australian Central Credit Union (1985) 157 CLR 201; [1985] HCA 64
Electra Air Conditioning BV v Seeley International Pty Ltd [2008] FCAFC 169
Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation (2014) 251 CLR 640; [2014] HCA 7
Energy Resources of Aust Ltd v Commissioner of Taxation (2003) 52 ATR 120
FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association (1997) 41 NSWLR 117
Faxtech Pty Ltd v ITL Optronics Ltd [2011] FCA 1320
Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2007] 4 All ER 951
Firebird Global Master Fund II Ltd v Republic of Nauru (2015) 258 CLR 31; [2015] HCA 43
Francis Gregory Hannigan v Inghams Enterprises Pty Limited [2019] NSWSC 321
Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160; (1996) 131 FLR 422
Galafassi v Kelly (2014) 87 NSWLR 119
Gaynor v Attorney General of New South Wales [2020] NSWCA 48
Global Partners Fund Limited v Babcock & Brown Limited (in liq) [2010] NSWCA 196; (2010) 79 ACSR 383
Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190
Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170
Harding v Wealands [2007] 2 AC 1; [2006] UKHL 32
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers (No 5) (1998) 90 FCR 1; (1998) 159 ALR 142
HIH Casualty & General Insurance Ltd (in liq) v RJ Wallace (2006) 68 NSWLR 603; [2006] NSWSC 1150
IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466; (1991) 100 ALR 361
Inghams Enterprises Pty Ltd v Francis Gregory Hannigan [2019] NSWSC 1186
Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936
JTA Le Roux Pty Ltd as trustee for the FLR Family Trust v Lawson [2013] WASC 293
Kraft Foods Group Brands LLC v Bega Cheese Limited (2018) 358 ALR 1; [2018] FCA 549
Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2017] NSWSC 203
Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 93 ALJR 1164
Mastrobuono v Shearson Lehman Hutton Inc. 514 U.S. 52 (1995)
McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579; [2000] HCA 65
Mineral Resources Ltd v Pilbara Minerals Ltd [2016] WASC 338
Mitsubishi Motors Corp v Soler-Chrysler Plymouth Inc 473 US 614 (1985)
Mobis Parts Australia Pty Ltd v XL Insurance Company SE [2016] NSWSC 1170
Morris-Garner v One Step (Support) Ltd [2019] AC 649; [2018] UKSC 20
Moschi v Lep Air Services Ltd [1973] AC 331; [1972] 4 WLUK 46
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Paharpur Cooling Towers Ltd v Paramount (WA) Ltd [2008] WASCA 110
Paper Products Pty Ltd v Tomlinsons (Rochdale) Limited (1993) 43 FCR 439; [1993] FCA 346
Parnell Manufacturing Pty Ltd v Lonza Ltd [2017] NSWSC 562
Perovich v Whitton (No 2) (2016) 250 FCR 272; [2016] FCAFC 152
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827; [1980] 2 WLUK 146
Plenary Research Pty Ltd v Biosciences Research Centre Pty Ltd [2013] VSCA 217
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14
PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2011] FCAFC 52
Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81; [2007] HCA 53
Recyclers of Australia Pty Ltd v Hettinga Equipment Inc (2000) 100 FCR 420; [2000] FCA 547
Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; (2019) 366 ALR 635
Rinehart v Rinehart (No 3) (2016) 257 FCR 310
Rinehart v Welker (2012) 95 NSWLR 221; [2012] NSWCA 95
Robinson v Harman (1848) 1 Exch 850; 154 ER 363
Rotheberger Australia Pty Ltd v Poulsen [2003] NSWSC 788
Royal Bank of Scotland plc v Babcock & Brown DIF III Global Co-Investment Fund LP [2017] VSCA 138
Samick Lines Co Ltd v Owners of the “Antonis P Lemos” [1985] AC 711
Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332; [1990] HCA 8
TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533; [2013] HCA 5
Tea Trade Properties Ltd v CIN Properties Ltd (1990) 1 EGLR 155
The Queen v Khazal (2012) 246 CLR 601; [2012] HCA 26
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56
Texts Cited: G B Born, International Commercial Arbitration (2nd ed, 2014, Wolters Kluwer)
A Briggs, Agreements on Jurisdiction and Choice of Law (2007, Oxford University Press)
M Davies (ed), Jurisdiction and Forum Selection Clauses in International Maritime Law (2005, Kluwer Law International)
M Davies, A S Bell, P L G Brereton and M Douglas, Nygh’s Conflict of Laws in Australia (10th ed, 2019, LexisNexis Butterworths)
D W Greig and J L R Davis, The Law of Contract (1987, The Law Book Company Limited)
J D Heydon, Heydon on Contract (2019, Lawbook Co)
D Joseph, Jurisdiction and Arbitration Agreements and their Enforcement (3rd ed, 2015, Sweet & Maxwell)
K Lewison, The Interpretation of Contracts (5th ed, 2011, Sweet & Maxwell)
K Lewison, The Interpretation of Contracts (6th ed, 2015, Sweet & Maxwell)
Category: Principal judgment
Parties: Inghams Enterprises Pty Limited (Applicant)
Francis Gregory Hannigan (Respondent)
Representation: Counsel:
P S Braham SC, D Neggo (Applicant)
M S Henry SC (Respondent)Solicitors:
Paradise Charnock O’Brien (Applicant)
Hannigans Solicitors (Respondent)
File Number(s): 2019/307488
Publication restriction: N/A
 Decision under appeal  Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity – Duty List

Citation:

[2019] NSWSC 1186

Date of Decision:

16 September 2019

Before:

Slattery J

File Number(s):

2019/269478

HEADNOTE

[This headnote is not to be read as part of the judgment]

Inghams Enterprises Pty Limited (Inghams) entered into a chicken growing contract (the Agreement) with Mr Francis Gregory Hannigan (Mr Hannigan), under which Mr Hannigan received batches of one day old chicks from Inghams, grew them in sheds into chickens and returned them to Inghams. For this service, Inghams paid Mr Hannigan a “Fee”, as defined in the Agreement. The Agreement closely regulated the process of the supply of chicks and return of chickens, and the standard of care expected of Mr Hannigan whilst the chicks were in his custody.

On 8 August 2017, Inghams purported to terminate the Agreement and refused to supply chicks for growing to Mr Hannigan. On 30 August 2017, Mr Hannigan commenced proceedings in the Supreme Court seeking a declaration that Inghams’ purported termination of the Agreement was wrongful (the 2017 proceedings). He did not seek damages in those proceedings, but he reserved his rights in correspondence and before the Court. The 2017 proceedings were heard by Robb J, who entered judgment for Mr Hannigan on 29 March 2019, declaring in effect that Inghams had wrongfully terminated the Agreement. Inghams resumed supplying chicks to Mr Hannigan on or about 17 June 2019.

Mr Hannigan issued a Notice of Dispute to Inghams dated 29 May 2019, seeking damages from Inghams for loss of profits, based on Inghams’ failure to supply chicks to Mr Hannigan from 8 August 2017 (the purported termination date by Inghams) to 17 June 2019 (the resumed dated of supply). A mediation was unsuccessfully undertaken by the parties on 28-29 August 2019, and thus Mr Hannigan contended that cl 23.6 of the Agreement entitled him to refer the dispute to arbitration. Clause 23.1 of the Agreement provided:

“A party must not commence court proceedings in respect of a dispute arising out of this Agreement (“Dispute”) (including without limitation any Dispute regarding any breach or purported breach of this Agreement, the interpretation of any of its provisions, any matters concerning a party’s performance or observance of its obligations under this Agreement, or the termination or the right of a party to terminate this Agreement) until it has complied with this clause 23.”

Clause 23 made provision, in sub-clauses 3 and 4, for the initial informal and then formal mediation of disputes. Clause 23.6 provided as follows:

“If:

23.6.1   the Dispute concerns any monetary amount payable and/or owed by either party to the other under this Agreement, including without limitation matters relating to determination, adjustment or renegotiation of the Fee under Annexure 1 or under clauses 9.4, 10, 11, 12, 13 and 15.3.3; and

23.6.2   the parties fail to resolve the Dispute in accordance with Clause 23.4 within twenty eight (28) days of the appointment of the mediator

then the parties must (unless otherwise agreed) submit the Dispute to arbitration using an external arbitrator (who must not be the same person as the mediator) agreed by the parties or, in the absence of agreement, appointed by the Institute Chairman.”

Inghams commenced proceedings in the Supreme Court to restrain the referral to arbitration, and sought declarations that (a) Mr Hannigan’s damages claim did not fall within cl 23 of the Agreement and that (b) even if it did, Mr Hannigan had waived any entitlement to arbitrate the dispute under cl 23 because of his commencement of the 2017 proceedings.

The primary judge held that Mr Hannigan was entitled to refer his damages claim to arbitration under cl 23.6 of the Agreement.

The principal issues before the Court of Appeal were:

  1. Whether the primary judge erred in his construction of cl 23.6 of the Agreement, in finding that the claim for damages fell within cl 23.6.1 and could be referred to arbitration (the construction issue);
  2. Whether the primary judge erred in not finding that Mr Hannigan had waived his right to refer the dispute to arbitration, pursuant to cl 23.6 of the Agreement (the waiver issue).

The Court held (Meagher JA, Gleeson JA agreeing, Bell P dissenting), granting leave to appeal and allowing the appeal:

As to the construction issue:

  1. By Meagher and Gleeson JJA: the primary judge erred in his construction of cl 23.6 of the Agreement. The subject matter of the notified dispute, being a claim for unliquidated damages, was not a claim to or about an amount “payable” or “owed” by Inghams to Mr Hannigan under the Agreement, nor was it a dispute which affected or related to the negotiation, adjustment or determination of any such amount. As the claim did not concern a monetary amount payable under the Agreement, and as the obligation to pay damages for breach of contract was not created by or did not arise under the Agreement, the Court held that the dispute was not a dispute which fell within cl 23.6.1. Accordingly, the dispute was not one which must have, in the absence of any ad hoc agreement, been submitted to arbitration: [127]-[156]; [158].
  2. By Bell P (dissenting): the primary judge did not err in his construction of cl 23.6 of the Agreement. A liberal approach should be applied to the construction of the dispute resolution clause, based both on the legal principles applicable to dispute resolution clauses and a number of textual indications in cl 23.6.1, suggesting that the parties intended the clause to be construed broadly. Accordingly, the Dispute in question did fall within the ambit of cl 23.6, with Mr Hannigan entitled to pursue his claim for damages by way of arbitration: [68]-[107].
  3. Discussion by Bell P of dispute resolution clauses and the principles applicable to their interpretation: [48]-[67] (Bell P).

As to the waiver issue:

  1. By Meagher and Gleeson JJA: as the dispute was not required to be referred to arbitration, the waiver issue did not arise. However, agreeing with Bell P’s reasoning in this respect, if the dispute was required to be referred to arbitration, Mr Hannigan had not waived his right to insist that occur: [118]; [158].
  2. By Bell P: the primary judge did not err in finding that Mr Hannigan had not waived his right to refer the dispute to arbitration. There had been no unequivocal abandonment in or by reason of the 2017 proceedings of any right to arbitrate the question of damages for breach of contract at some time in the future. Further, cl 23.11 of the Agreement authorised court proceedings to be pursued for urgent declaratory relief, and the relief sought in the 2017 proceedings could be so characterised: [109]-[112].

Judgment

  1. BELL P: This is an application for leave to appeal from the decision of Slattery J (the primary judge) of 16 September 2019, concerning the proper forum for the determination of a claim for damages for breach of contract, the relevant contract being a standard form chicken growing contract (the Agreement) between Mr Francis Gregory Hannigan (Mr Hannigan) and Inghams Enterprises Pty Limited (Inghams).
  2. Mr Hannigan sought to have his claim referred to arbitration, pursuant to cl 23.6 of the Agreement but Inghams resisted, initiating proceedings in this Court to restrain the commencement or continuation of any arbitration and seeking declarations as to the proper construction of the Agreement.
  3. As shall be seen, the dispute resolution clause in the Agreement contemplates the litigation of some disputes in court proceedings and the arbitration of other disputes, following a preliminary mediation requirement. At first instance, the primary judge held that the claim for damages fell within the scope of the arbitration sub-clause and, accordingly, declined to restrain the commencement or continuation of the arbitration and dismissed Inghams’ proceedings: [2019] NSWSC 1186.
  4. Inghams seeks leave to appeal because of the fact that it was considered that the value of the outcome of the real issue in dispute, namely the question of forum, did not exceed $100,000 with the consequence that s 101(2)(r)of the Supreme Court Act 1970 (NSW) applied: see, generally, Gaynor v Attorney General of New South Wales [2020] NSWCA 48 at [13]-[20].
  5. Inghams raised two main issues on the prospective appeal:
  6. whether the primary judge erred in finding that the notified dispute between the parties must be referred to arbitration, pursuant to cl 23.6 of the Agreement; and
  7. whether the primary judge erred in not finding that Mr Hannigan had waived his right to refer the dispute to arbitration pursuant to cl 23.6 of the Agreement.
  8. In my opinion, leave to appeal should be granted in circumstances where final and injunctive declaratory relief was sought, the arguments were not free of complexity and called for a consideration of the principles applicable to the interpretation of a complex dispute resolution clause, and the ultimate commercial ramifications for the parties were significant.

The Agreement

  1. Under the Agreement entered into on 22 December 2015, Mr Hannigan receives batches of one day old chicks (referred to in the Agreement as “Birds”) from Inghams, grows them in sheds into chickens and returns them to Inghams. For this service, Inghams pays Mr Hannigan a “Fee”, as defined in the Agreement. The Agreement closely regulates the process of the supply of chicks and return of chickens, and the standard of care expected of Mr Hannigan whilst the chicks are in his custody.
  2. Inghams’ general obligations under the Agreement are defined in cl 3.1 and 3.2 of the Agreement, as follows:

“3.1    Subject to this Agreement, the availability of Chickens and the Grower’s capacity to raise those Chickens (in accordance with the terms and conditions of the Agreement), Inghams will supply Batches to the Grower and the Grower will accept and grow those Birds for Inghams in the Sheds.

3.2    Inghams will so far as is reasonably practicable supply the Grower with Batches at placement densities commensurate with the Commercial Growers or such other placement densities which may be agreed by Inghams with the Grower Representative from time to time but subject to variation:

3.2.1    in accordance with Annexure 3;

3.2.2    if the Grower requests that it receive a quantity of Birds for a particular Batch that is less than would be required pursuant to clause 3.2;

3.2.3    taking into consideration any relevant Animal Welfare Standards;

3.2.4    taking into consideration any broiler growing standards;

3.2.5    taking into consideration any other provision of this Agreement;    and/or

3.2.6    if Inghams’ farming standards change or if the breed or    genetics of the Chickens change.”

  1. One oddity of the Agreement which may present issues in the assessment of any claim for damages, irrespective of the forum in which that claim is determined, is that it does not appear to specify the number of Batches that Inghams will supply per year or during the life of the Agreement. The reference to “placement densities commensurate with the Commercial Growers” in cl 3.2 appears to reflect the fact that a grower such as Mr Hannigan is a member of a pool or collective and, by a complex series of formulae in Annexures 2 and 3 of the Agreement, the fee paid to and efficiency rating of any one grower in the pool is affected by his or her performance relative to other growers. It is not necessary to go into the complexity of such formulae, other than to note that they have implications for the calculation of the damages claimed in the present case and the potential complexity of that exercise.
  2. Mr Hannigan’s general obligations as Grower are provided for in cl 4, with cl 4.1 to 4.7 of the Agreement providing as follows:

“The Grower must:

4.1    accept each Batch delivered by Inghams to the Grower pursuant to this Agreement and raise the Birds in each Batch to the stage of maturity determined by Inghams;

4.2    raise the Birds in accordance with the Manual;

4.3    prepare the Sheds in readiness for each Batch;

4.4    be available or present on the Premises when each Batch is delivered;

4.5    place the Birds in the Sheds upon their delivery;

4.6    furnish all labour, utilities, water, electricity, litter, bedding and all other supplies (other than those Inghams agrees to supply under this Agreement) required to raise the Birds and comply with its obligations under this Agreement and the Manual;

4.7    provide adequate well-maintained Sheds for the Birds as required by the Manual …”

  1. Clause 9.1 of the Agreement provides that:

“For each Batch raised by the Grower and collected by Inghams from the Grower, Inghams will pay the Grower the Payment calculated on the basis of the Fee but varied as may be required by clauses 9, 10 and 11 and Annexure 1”.

  1. Clause 9.4 of the Agreement provides that:

“Inghams may deduct from the Payment:

9.4.1   any amount referable to the weight and/or number of Birds rejected as unfit for processing by Inghams; or

9.4.2   any amount referable to the weight of Birds that are unsuitable based on Animal Welfare Standards including but not limited to Paw Burns, Breast Blisters and Feed-in-Crop received from a Batch of Birds from the Growers premises (including the reasonable costs incurred to return the production process at Inghams’ processing plant to meet the relevant food safety standards). The Bird standards and relevant food safety standards are outlined in the Manual; and

9.4.3   any amount referable to Birds which are rejected by reason of the Grower failing to meet appropriate accreditation standards, meaning those Birds can only be processed as a non-accredited commercially grown Bird. In such cases the Fee paid to the Grower in respect of those Birds will be reduced to the current Collective Grower commercially grown Bird fee at that time;

if the number of Birds so rejected exceeds Inghams normal and reasonable expectations at such time”.

  1. Clause 10.1 of the Agreement provides that:

“From the commencement of this agreement Inghams will make Payments to the Grower calculated in accordance with Annexure 1 and Annexure 2”.

  1. Clause 7 of Annexure 1 highlights the complexity of the calculation of the Fee payable for chickens collected by Inghams from the growers, making provision for detailed adjustment by the application of productivity criteria. Again, it is not necessary to descend to further detail in relation to this calculation, other than to note that the calculation of a Fee payable (and thus the calculation of any damages for breach of contract) would not appear to be a straightforward exercise free from complexity.
  2. Clause 11 of the Agreement provides:

“11.1   Where the Payment to be paid to the Grower in respect of any Batch is less than 85% of the Fee in respect of that Batch as a consequence of a single event determined in writing by Inghams to be a disaster, then:

11.1.1   if the disaster is caused by any negligent or deliberate action by or on behalf of Inghams:

(a)   the Batch will not be assessed by reference to the Pool Payment System;

(b)   the Batch will not be considered during the determination of the Grower’s Efficiency Rating; and

(c)   the Grower shall be paid 100% of the Fee for the number of birds placed, reduced by the average mortality of the relevant period;

11.1.2   if the parties agree that Clause 11.1.1 does not apply and neither party is deemed to have caused the poor performance of the batch, the Grower shall be paid 100% of the group growing fee for all birds collected; or

11.1.3   if the parties agree that the Grower and Inghams have each partially contributed to the cause of the disaster, the Grower shall be paid a percentage between 65% and 100% of the group growing fee, as agreed between Inghams and the Grower Representative (or failing agreement, as determined in accordance with clause 23).

11.2    Where the Grower is not responsible for causing the disaster (as determined under Clause 11.1.1 or 11.1.2) the Batch shall be excluded from any determination of the Grower’s Efficiency Rating”.

  1. Clause 12 of the Agreement provides:

“12.1   The Grower will bear financial losses suffered by Inghams (limited to the cost of all goods supplied to the Grower in accordance with clause 3.2 and excluding all consequential and indirect losses) caused by the negligence of the Grower in raising the Birds, and Inghams may deduct such losses from any Payments due to the Grower subject to the Payment for the Batch in respect of which the losses were suffered being calculated on the basis of 100% of the Fee for all Birds collected.

12.2   Inghams will notify the Grower in writing if the Grower is to be held liable under Clause 12.1.

12.3   Inghams may collect from the Grower and/or raise (or arrange to be collected and/or raised) any Birds to which any losses under Clause 12.1 are referable, in which case:

12.3.1   Inghams will notify the Grower in writing of its intention to do so; and

12.3.2   Inghams may charge to and recover from the Grower the losses and all reasonable expenses incurred by Inghams in taking action under this Clause 12.3

12.4   Any dispute relating to the amount of any loss pursuant to this Clause 12 will be resolved in accordance with clauses 23.4 to 23.10 (inclusive), provided that Inghams will pay to the Grower within fourteen (14) days of the Friday of the week in which the last Birds in the Batch the subject of a notice under Clause 12.2 are collected by Inghams one half of the Payment determined by it to be due to the Grower in respect of the relevant Batch, with an adjustment to be made after the resolution of the Dispute”.

  1. Clause 15.3.3 of the Agreement provides:

“if any amendments to the Manual are likely to cause a material increase in the cost to the Grower of performing its obligations under this Agreement, the parties will re-negotiate the Fee having regard to the effect of the relevant amendments and in the absence of agreement the matter will be resolved in accordance with clauses 23.4 to 23.10 inclusive”.

  1. The Agreement contains a dispute resolution clause which is the central clause at issue in the present proceedings. Clause 23 relevantly provides:

“23.1   A party must not commence court proceedings in respect of a dispute arising out of this Agreement (“Dispute”) (including without limitation any Dispute regarding any breach or purported breach of this Agreement, the interpretation of any of its provisions, any matters concerning a party’s performance or observance of its obligations under this Agreement, or the termination or the right of a party to terminate this Agreement) until it has complied with this clause 23.

23.2   A party claiming that a Dispute has arisen must notify the other party to the Dispute in writing and set out details of the Dispute.

23.3   Each party must use its best efforts to resolve the dispute during the period of thirty (30) days (or such longer period not exceeding ninety (90) days as the parties may mutually agree) after a notice is given under clause 23.2 (“Initial Period”).

23.4   If the parties are unable to resolve the Dispute within the Initial Period (or any extension of that period which may be agreed in writing) then:

23.4.1   they must within a further seven (7) days appoint a mediator to mediate the Dispute; or

23.4.2   if the parties fail to agree on a mediator within that time, either of them may refer the Dispute for mediation to a mediator nominated by the then Chairman for the time being of the State Branch of the Institute of Arbitrators and Mediators Australia,

and the parties must thereafter mediate the Dispute.

23.5   The terms on which the mediation is conducted and the procedure for the mediation will unless otherwise agreed in writing between the parties and the mediator be in accordance with and subject to the Institute of Arbitrators and Mediators Australian (IAMA) Rules for the conduct of Commercial Mediation (or any rules substituted for those Rules by the Institute) applicable at that date.

23.6    If:

23.6.1   the Dispute concerns any monetary amount payable and/or owed by either party to the other under this Agreement, including without limitation matters relating to determination, adjustment or renegotiation of the Fee under Annexure 1 or under clauses 9.4, 10, 11, 12, 13 and 15.3.3; and

23.6.2   the parties fail to resolve the Dispute in accordance with Clause 23.4 within twenty eight (28) days of the appointment of the mediator

then the parties must (unless otherwise agreed) submit the Dispute to arbitration using an external arbitrator (who must not be the same person as the mediator) agreed by the parties or, in the absence of agreement, appointed by the Institute Chairman.

23.7   The parties agree that the arbitration of any matter referred for arbitration will be undertaken by the arbitrator in accordance with and will be governed by the IAMA Arbitration Rules.

23.8   The parties must use their reasonable endeavours to enable the arbitrator to make a determination as quickly as possible and the arbitrator must (unless otherwise agreed in writing) make that determination within 2 (two) months of accepting the appointment. For that purpose the parties agree to co-operate with the arbitrator and each other in fixing a timetable and taking such steps as are required under that timetable or as may otherwise be reasonably directed by the arbitrator in order to enable the arbitrator to complete the arbitration with[in] that period.

23.9   The written determination of the arbitrator of any matter referred is final and binding on the parties (except for manifest error or fraud).

23.10    Each party must (as applicable):

23.10.1   unless otherwise agreed bear its own costs of resolving a Dispute in accordance with this Clause 23 (other than the costs of an arbitration) and bear equally the fees and proper out of pocket expenses of the mediator and any other third party expenses (including venue hire) related to the mediation; and/or

23.10.2   bear in the proportions and to the extent determined by the arbitrator the costs of the arbitration and any related costs.

23.11   Nothing in this Clause 23 shall prevent the making of an application to the court by any party to the dispute for urgent injunctive or declaratory relief”.

The 2017 proceedings and the proceedings at first instance

  1. Before considering the proceedings at first instance, an earlier set of proceedings between the parties should be noted.
  2. On 8 August 2017, Inghams purported to terminate the Agreement and refused to supply chicks for growing to Mr Hannigan, who maintained in response that the Agreement was still on foot. Inghams contended that there was a chicken growing relationship between the two parties which was not governed by the Agreement because of Mr Hannigan’s failure to sign and return the Agreement document. Alternatively, Inghams contended that even if it were bound by the terms of the Agreement, it was entitled to terminate it on account of Mr Hannigan’s breach, due to his alleged failure to feed thousands of chickens in contravention of animal welfare standards, and because of his alleged failure to provide Inghams, from time to time, with certain documents relating to the weight of the chickens.
  3. Mr Hannigan commenced proceedings in the Supreme Court on 30 August 2017 (the 2017 proceedings), seeking a declaration that Inghams’ purported termination of the Agreement was wrongful. He did not, however, seek damages in those proceedings and did not (and has never) terminated the Agreement. The speed with which proceedings were commenced reflected their urgency from Mr Hannigan’s perspective. His business and livelihood were under threat and he wanted the Agreement to continue, seeking a declaration in effect that it remained on foot. At [29]-[30] of his judgment, the primary judge observed that:

“Mr Hannigan’s decision not to include a claim for consequential loss was a deliberate one, constrained as it was, he says, by the commercial circumstances he faced. Mr Henry SC, who also appeared for Mr Hannigan in the 2017 proceedings, explained this to Robb J at a directions hearing on 10 May 2018, in the following terms:

‘HENRY:   There’s no claim for damages presently, and I’m not suggesting it would arise in these proceedings. The position on that front is that the plaintiff has reserved its position. Whether it at a later point in time brings a claim for damages is obviously yet to be seen. Frankly, the reason for that approach was to try to have this resolved as soon as possible, because the position is that there’s a farm with substantial chicken sheds on it which are empty and have been empty since – I can’t recall the date in particular, but it would be late August last year.

So the proceedings were brought in the hope to have the question of termination resolved as expeditiously as possible without being delayed by complicating things with further claims for damages and the associated time and cost associated with it. So the plaintiff won’t be claiming damages in these proceedings, but that shouldn’t be taken as – that’s why it’s confined in the way it is.’

The commercial reasoning behind this approach is understandable. Mr Henry SC’s then statement to the Court is consistent with Mr Hannigan’s evidence adduced in these proceedings about his state of mind at the time. He was not cross-examined in these proceedings and his affidavit evidence is accepted. Mr Hannigan explained, ‘I wanted to have that dispute determined as quickly as possible’. He has six chicken sheds on his property, which collectively housed approximately 210,000 chickens. The logistics and costs of running those sheds are substantial. For that reason he said, ‘I wanted certainty as to whether the Contract remained on foot as soon as possible’. His belief was that ‘the quickest way in which I was likely to obtain that certainty, by a judgment of the Court, was to confine the matters in dispute in the [2017] proceedings’. He not unreasonably believed that bringing a claim for damages in the 2017 proceedings would delay, complicate and increase the costs of the 2017 proceedings. Consistently with the position, his counsel stated to the Court, he certainly thought, as he said, that, ‘throughout the course of the [2017] proceedings I believed that I had reserved my position to claim damages at a later point if I had such a claim’.”

  • The 2017 proceedings were heard by Robb J who entered judgment for Mr Hannigan on 29 March 2019, declaring in effect that Inghams had wrongfully terminated the Agreement: Francis Gregory Hannigan v Inghams Enterprises Pty Limited [2019] NSWSC 321. Inghams resumed supplying chicks to Mr Hannigan on or about 17 June 2019.

Subsequent claim for damages and jurisdictional dispute

  • Mr Hannigan issued a Notice of Dispute to Inghams dated 29 May 2019, seeking damages from Inghams for loss of profits, based on Inghams’ failure to supply chicks to Mr Hannigan from 8 August 2017 (the purported termination date by Inghams) to 17 June 2019 (the resumed date of supply).
  1. The “Details of Dispute” were relevantly outlined as follows:

“1.    Inghams Enterprises Pty Ltd have failed to supply chickens to Francis Hannigan (Avoca Vale Farm) from 8th August 2017 to 17th June 2019 (date estimated)[.] Inghams Enterprises Pty Ltd are in breach of the Contract for not supplying chickens.

  1.    Francis Hannigan has suffered financial loss as a result of Inghams Enterprises Pty Ltd not supplying chickens being 661 days x $3,031.70 per day being $1,992,055.70.
  2.    Francis Hannigan claims:-

(i)   $1,992,055.70

(ii)   Damage to sheds – from lack of use (estimated $150,000.00);

(iii)   Electricity – locked into Contract with supplier (details to be    supplied);

(iv)   Interest (Estimated $100,000.00);

(v)   Legal fees (estimated $50,000.00 plus legal fees on Supreme Court proceedings).

(vi)   Miscellaneous $20,000.00

  1.    The Initial Period (Clause 23.3) commences on Thursday 30 May 2019 and ceases 30 days thereafter – 29 June 2019.
  2.    For your ease of reference Clause 23 is attached.”
  3. A mediation was unsuccessfully undertaken by the parties on 28-29 August 2019 and thus Mr Hannigan contended that cl 23 of the Agreement entitled him to refer the dispute to arbitration (see at [18]above).
  4. Inghams commenced proceedings in the Supreme Court to restrain the referral to arbitration, and for declarations that (a) Mr Hannigan’s damages claim did not fall within cl 23 of the Agreement and that (b) even if it did, Mr Hannigan had waived any entitlement to arbitrate the dispute under cl 23 because his commencement of the 2017 proceedings meant that he had abandoned reliance upon cl 23 at that time.

The primary judgment

  1. The primary judge held that Mr Hannigan was entitled to refer his damages claim to arbitration under cl 23 of the Agreement, and that he had not waived that entitlement by commencing the 2017 proceedings.
  2. After referring to the familiar principles concerning the interpretation of commercial contracts articulated by the High Court in cases such as Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation (2014) 251 CLR 640; [2014] HCA 7 (Woodside) and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd(2015) 256 CLR 104; [2015] HCA 37 (Mount Bruce), the primary judge observed (at [56]) that “[w]ithin the broad canons of construction laid down by cases such as Woodside and Wright Prospecting, arbitration clauses draw specific considerations into focus.” In this respect, his Honour referred to the well-known decision of Gleeson CJ in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165 (Francis Travel), where the Chief Justice observed that:

“An extensive examination of the many cases dealing with the meaning and effect of various common arbitration clauses in contracts was undertaken by Hirst J in Ethiopian Oilseeds v Rio del Mar [1990] 1 Lloyd’s Rep 86. As his Lordship demonstrated, the expression ‘arising out of’ has usually been given a wide meaning. Some older cases, such as Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68 and Printing Machinery Co Ltd v Linotype & Machinery Ltd [1912] 1 Ch 566, which held that arbitration agreements expressed in a certain manner or entered into in certain circumstances did not permit an arbitrator to deal with a claim for rectification, have been confined by later authorities to their special facts, and should not now be regarded as indicating the correct general approach to problems of this kind.

When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument.”

The primary judge noted that these principles were further discussed by Bathurst CJ in Rinehart v Welker (2012) 95 NSWLR 221; [2012] NSWCA 95 (Welker), and by the Full Court of the Federal Court of Australia in Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170 (Hancock Prospecting). He referred in particular to Bathurst CJ’s observation in Welker at [121] that, irrespective of the language of the clause, the Court should not apply a presumption that parties are likely to have intended all of their disputes to be decided by the one tribunal.

  1. The essence of the primary judge’s reasoning is contained in [59]-[66] of the primary judgment. His Honour began by noting the breadth of the word “concerns” in cl 23.6 of the Agreement, stressing that it was not confined to claims in debt or amounts payable or that may be calculated as payable arising under express terms of the Agreement: at [59]. His Honour then observed (at [60]) that:

“Giving appropriate emphasis to the word ‘concerns’ in clause 23.6 readily accommodates within the words of the Contract the considerations that Gleeson CJ emphasised in Francis Travel about the approach to be considered in construing arbitration clauses.”

  1. His Honour then accepted the submission by senior counsel for Mr Hannigan that the reference to cl 12 in cl 23.6 provided a telling answer to Inghams’ submission that the Agreement contemplated that arbitration was to be used solely for monetary disputes, such as in relation to the calculation of a Fee under the various formulae contained in the Agreement.
  2. The submission accepted by the primary judge was that “clause 12.1 defies that proposition.” As the primary judge held (at [62]), “[n]o monetary amount is able to be directly calculated from clause 12, as being payable under the Contract. Rather, clause 12 in substance describes no more than a claim for damages that Inghams may have, as its words bear out: ‘the Grower will bear financial lossessuffered by Inghams’.” (emphasis in original).
  • The significance of this submission lay in the fact that no genus of dispute could be derived from the specific clauses referred to in cl 23.6.1 to suggest what did and did not fall within the scope of the arbitration agreement constituted by that sub-clause. This was only emphasised, in the primary judge’s opinion, by the fact that that clause used the words “including without limitation”: at [63].
  • The primary judge then observed (at [64]) that:

“…Inghams’ construction of clause 23 introduces a degree of arbitrariness to the operation of the clause that does not seem consonant with the predictable operation of a clause designed to provide rapid certainty in a commercial contract. As Mr Henry SC points out, if Mr Hannigan received chicks and performed his part of the bargain by growing them and they were in turn collected by Inghams, ordinarily the Fee calculated in accordance with clause 9 would become due to Mr Hannigan. Mr Hannigan could attempt to recover the fee by suing on clause 9 as an action in debt. In that case, clause 23.6.1 would operate to allow the dispute to be referred to arbitration. Alternatively, Mr Hannigan could sue to recover the money as damages for breach of contract, that is, a breach of the obligation to pay the Fee. In these circumstances, clause 23.6.1 would, on Inghams’ construction, not operate to allow referral of the dispute to arbitration. Such inconsistency in outcome between two modes of suing for non-payment of the same fee could hardly have been intended by the contracting parties.”

His Honour continued (at [65]):

“… it does no violence to the words of clause 23.6.1 to see that in an action for breach of contract the calculation of the quantum of the ‘monetary amount payable and/or owed by either party to the other under this agreement’ is the measure of the ultimate damages that may be awarded for breach of this Contract. What is actually payable as a Fee under the Contract would be a critical integer in any damages calculation at the suit of Mr Hannigan. At least in that sense, it can be said without difficulty that the dispute ‘concerns’ such ‘money amounts’.

  • On the question of waiver, the primary judge held that the bringing of the 2017 proceedings was not an abandonment of a right to seek damages in a subsequent arbitration, that Mr Hannigan had reserved his right to do so and that this was apparent from the terms of [24] of the earlier decision in the 2017 proceedings, in which Robb J had said:

“Thirdly, it is notable that, by his prayers for relief, Mr Hannigan only seeks declarations that the parties are bound by a particular agreement, and that Inghams’ 8 August 2017 letter did not terminate the agreement. Mr Hannigan has not sought any consequential relief, either in the nature of orders obliging Inghams to implement the agreement, or ordering Inghams to pay damages to Mr Hannigan for breach of the agreement. As Inghams ceased to deliver chickens to Mr Hannigan after it purported to terminate the agreement, it may be imagined that Mr Hannigan may have suffered some damage. The Court does not know what Mr Hannigan’s aspirations are concerning the possible continuity of the performance of the agreement, if it is found by the Court to be valid and to continue in effect. The Court does not know what course Inghams proposes to take in that event. If Mr Hannigan succeeds in these proceedings, the only result will be that he will establish that he has an agreement in terms of the Inghams Agreement, and that the agreement has not been terminated. Mr Hannigan will apparently be satisfied with that outcome, and Inghams has not suggested that Mr Hannigan’s claims are incomplete as he has not sought in these proceedings all of the relief to which he may be entitled. As the parties have been content to proceed on that basis, so will the Court.”

  1. Further, the primary judge characterised the 2017 proceedings as falling within cl 23.11 of the Agreement, concluding that Mr Hannigan’s “election to take the course of commencing proceedings in the Court comes within an exception to clause 23 in the Contract and is not incompatible with his present attempts to use of [sic] clause 23”: at [82].

Submissions on appeal

  • As noted at [5]above, Inghams raised two issues which may conveniently be labelled “the construction issue” and “the waiver issue”.

The construction issue

  1. In relation to the construction issue, Inghams contended that the primary judge erred in his construction of cl 23.6 of the Agreement, submitting that the correct construction of cl 23.6 is as follows:

“a.    it applies only where the dispute concerns the monetary amount – the monetary amount must itself be the subject matter of the dispute;

  1.    the phrase payable and/or owed means that the monetary amount must be a liquidated amount due for payment (which the amount claimed in the dispute notice is not, because it is not a payment actually earned by Mr Hannigan for raising chickens); and
  2.    it must arise “under the agreement” such that the obligation to pay is found in a clause of the agreement (rather than as a secondary obligation to pay damages).” (emphasis in original).
  3. In written submissions, Inghams raised the following textual considerations as to why its construction of the clause should be preferred:
  4. As a matter of ordinary language, a dispute “concerns” a monetary amount payable under an agreement if it is a dispute about the monetary amount. It is not sufficient that one integer in the calculation of a disputed claim is a monetary amount that would have been payable under the Agreement had different circumstances come to pass.
  5. The scope of cl 23.6 is to be construed by reference to the differently and more broadly drafted cl 23.1, with such difference in drafting weighing heavily against a broad reading of cl 23.6. In this respect, it was submitted that the primary judge’s construction of cl 23.6 tended to remove that distinction.
  6. The “list” of matters referred to in cl 23.6.1 includes matters relating to “determination, adjustment or renegotiation of the Fee” or a number of other specified clauses, all of which concern the manner of calculation or adjustment of various monetary amounts payable under the Agreement. It was submitted that, although the list was obviously not intended to be exhaustive, using as it did the phrase “including without limitation”, it was nonetheless relatively narrow in its scope.
  7. The use of the phrase “payable and/or owed” suggests that damages claims were not intended to be covered, as the word “payable” connotes a legally enforceable obligation to pay. In this respect, reference was made to Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190 at [118ff]. It was submitted that there was no legally enforceable obligation to pay damages for breach of the Agreement pending the judicial determination of Mr Hannigan’s claim and that no money could be “owed” until determination of the claim. Thus, it was submitted that the dispute in the present case did not concern any amount “payable and/or owed” by Inghams.
  8. The need for amounts payable to be payable “under the agreement” maintained a distinction between primary obligations to pay money (which might be owed or payable under the Agreement) and secondary obligations arising upon breach (which might become payable upon judgment being given by reason of the judgment, but which are not ever payable “under the agreement”).
  • In oral submissions, Mr Braham SC who appeared on behalf of Inghams attacked the primary judge’s reliance on Francis Travelto justify a broad interpretation of the language used in cl 23.6. He submitted that Gleeson CJ’s observations in that case proceeded on the basis, to use the Chief Justice’s language at 165,that the parties were “unlikely to have intended that different disputes should be resolved before different tribunals”. In the present case, however, Mr Braham suggested that the parties had contemplated this very outcome, drawing a distinction in this regard between the language of cl 23.1 and 23.6.1. As such, it was submitted, there was no justification for construing cl 23.6 broadly.
  1. Mr Braham also submitted in oral argument that “[t]he Agreement clearly needed a rapid dispute resolution procedure for fee calculation and it was provided by [cl] 23.6.1”.
  2. Mr Hannigan submitted that Inghams’ submissions should be rejected for the following reasons:
  3. Inghams’ submissions involved form prevailing over substance. For example, if Mr Hannigan fulfilled his contractual obligations by growing chicks and, in breach of its obligations, Inghams refused to pay him, he could recover the outstanding money by an action in debt or an action for damages for breach of contract. Although both actions would seek recovery of the same unpaid amount, on Inghams’ construction of c 23.6.1 of the Agreement, the former action would have to be determined by arbitration, whereas the latter action would have to be determined by a court.
  4. The dispute the subject of Mr Hannigan’s damages claim need not be confinedto an amount payable and/or owed under the Agreement. As specified under cl 23.6.1 of the Agreement, provided it “concerns” such an amount, the dispute will fall within the relevant clause. In view of the primary judge’s finding at [65] that the Fee payable to Mr Hannigan under the Agreement would be a “critical integer in any damages calculation at the suit of [the respondent]”, the dispute the subject of that claim relates to or is connected with the amount payable and/or owed under the Agreement.
  5. Inghams’ submission that the monetary amount must be a liquidated amount due for payment was at odds with the terms of cl 23.6.1, and its submission that cl 23.6.1 applies only to primary obligations, but not secondary obligations, is misplaced.
  6. Inghams’ submission that no monetary amount was payable within the meaning of cl 23.6.1 of the Agreement because there “is no legally enforceable obligation to pay damages for breach of the agreement pending the judicial determination of Mr Hannigan’s claim” was incorrect. Referring to Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd (1995) 58 FCR 365 at 375,it was submitted that an entitlement to damages accrues upon breach of contract. Further, it was submitted that it did not follow from the fact that the quantum of damages may not be ascertained at the date of breach that there is no legally enforceable obligation to pay damages.

The waiver issue

  1. On the waiver issue, which arises only if its submissions in relation to the construction issue are not accepted, Inghams submitted that the primary judge erred in finding that Mr Hannigan had not waived his right to refer the dispute to arbitration.
  • Inghams submitted that Mr Hannigan did not follow cl 23 of the Agreement in commencing the 2017 proceedings in court. Consequently, it was submitted that Mr Hannigan was now prevented from asserting any right to have the current dispute referred to arbitration for two reasons:

“First, by commencing and conducting the Earlier Proceedings in this Court, Mr Hannigan acted in a manner inconsistent with his right to have the questions in those proceedings determined in an arbitration, thereby waiving that right: Expense Reduction Analysts Group Pty Ltd v Boulder Proprietary Gold Mines Limited (1937) 59 CLR 641… the waiver now extends to the damages claim.

Secondly, if Mr Hannigan’s construction of clause 23.6 is accepted, then it was open to Inghams to resist the Earlier Proceedings on the basis that the subject matter of the case was required to be submitted to arbitration. Inghams did not do so. The conduct of the parties in conducting the Earlier Proceedings to final judgment indicates an agreement between them not to submit the dispute to arbitration. The present dispute is just a continuation of the dispute the subject of the Earlier Proceedings. It is not open to Mr Hannigan to now act inconsistently with the agreement that the dispute would be resolved in Court.”

  1. Mr Hannigan responded on the basis that the question whether Inghams lawfully terminated the Agreement on 8 August 2017 (being the subject of the 2017 proceedings) and whether he was entitled to damages for breach of the Agreement post 8 August 2017 were disparate matters. As the primary judge held at [81], the 2017 proceedings primarily concerned events leading up to and including Inghams’ invalid letter of termination dated 8 August 2017. The current proceedings, on the other hand, concerned Inghams’ failure to supply chicks after 8 August 2017.
  2. It was submitted that, as held by the primary judge at [79], “there was a sound reason” for Mr Hannigan not claiming damages for breach of the Agreement in the 2017 proceedings. The issue in the 2017 proceedings was whether Inghams’ purported termination of the Agreement was valid. Mr Hannigan’s position was that it was invalid, that he did not accept the repudiation constituted by the invalid notice of termination, and that the Agreement remained on foot. Accordingly, unlike the position that would have occurred had the repudiation been accepted and the Agreement terminated with the accrual of a right to loss of bargain damages, Mr Hannigan could not have claimed the damages the subject of his current claim at the time of the 2017 proceedings.
  3. Further, Mr Hannigan submitted that cl 23.11 of the Agreement provided that nothing in cl 23 shall prevent the making of an application to the court by any party for urgent injunctive or declaratory relief. As the primary judge held at [82], this “is exactly what Mr Hannigan sought in the 2017 proceedings”. Mr Hannigan thus submitted that there was no inconsistency between, or waiver consequent upon, his approaching the Court for declaratory relief in 2017 and subsequently seeking to have a damages claim referred to arbitration.
  4. Additionally, Mr Hannigan submitted that the 2017 proceedings did not fall within cl 23.6.1, and therefore could not have been submitted to arbitration, as they did not concern any monetary amount payable or owed under the Agreement.

Consideration – the construction issue

  1. Dispute resolution clauses may be crafted and drafted in an almost infinite variety of ways and styles. The range and diversity of such clauses may be seen in the non-exhaustive digest of dispute resolution clauses considered by Australian courts over the last thirty years, which is appended to these reasons.
  2. Dispute resolution clauses may be short form or far more elaborate, as illustrated by the cases referred to in the Appendix. They may be expressed as service of suit clauses: see, for example, HIH Casualty & General Insurance Ltd (in liq) v RJ Wallace (2006) 68 NSWLR 603; [2006] NSWSC 1150 (HIH Casualty). They may provide for arbitration: see, for example, TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia(2013) 251 CLR 533; [2013] HCA 5 (TCL Air Conditioner). They may be standard form: see, for example, Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192 (Comandate). They may be bespoke: see, for example, Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; (2019) 366 ALR 635 (Rinehart). They may be exclusive or non-exclusive: see, for example, FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association (1997) 41 NSWLR 117 at 120-124 (FAI). They may be asymmetric: see, for example, Continental Bank NA v Aeakos Compania Naviera SA [1994] 1 WLR 588. They may be optional: see, for example, Paharpur Cooling Towers Ltd v Paramount (WA) Ltd [2008] WASCA 110 (Paharpur); HIH Casualty. They may and often will be coupled with choice of law clauses: see, for example, Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418; [1996] HCA 39. They may be multi-tiered, providing first for a process of mediation, whether informal or formal, or informal and then formal, before providing for arbitral or judicial dispute resolution: see, for example, Electra Air Conditioning BV v Seeley International Pty Ltd [2008] FCAFC 169; Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; (2013) 298 ALR 666.
  3. Dispute resolution clauses are just as capable of generating litigation as any other contractual clause, and the law reports are replete with cases concerned with the construction of such clauses. The cases referred to in the Appendix supply a sample.
  4. Such clauses have also spawned specialist texts and monographs (eg. D Joseph, Jurisdiction and Arbitration Agreements and their Enforcement (3rd ed, 2015, Sweet & Maxwell); A Briggs, Agreements on Jurisdiction and Choice of Law(2007, Oxford University Press) (Briggs); M Davies (ed), Jurisdiction and Forum Selection Clauses in International Maritime Law (2005, Kluwer Law International)) and journal articles too numerous to list. It is not without significance to note in this context that, in his fifth edition of The Interpretation of Contracts (2011, Sweet & Maxwell) (Lewison), Sir Kim Lewison added a chapter devoted to the interpretation of dispute resolution clauses. This chapter is expanded in the most recent, sixth, edition of Lewison, published in 2015. See also M Davies, A S Bell, P L G Brereton and M Douglas, Nygh’s Conflict of Laws in Australia (10th ed, 2019, LexisNexis Butterworths) at 7.59 – 7.78.
  5. The question raised by this appeal is purely one of construction. It is accordingly desirable to begin by identifying the principles applicable to the construction of a dispute resolution clause.

Legal principles applicable to the construction of dispute resolution clauses

  1. It has been rightly observed that “the starting point is that the clause should be construed, just as any other contract term should be construed, to seek to discover what the parties actually wanted and intended to agree to”: Briggsat 4.58; Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936at [30]-[33]. In Australia, of course, the search is for the parties’ intention, objectively ascertained: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52.
  2. In short, the orthodox process of construction is to be followed: Hancock Prospecting at [167]; Rinehartat [18]. Thus, a dispute resolution clause, like any other clause of a commercial contract, must be construed by reference to the language used by the parties, the circumstances known to them and the commercial purpose or objects to be secured by the contract: see Woodside at [35]; Mount Bruce at [47].
  3. Further, as the plurality observed in Woodside at [35], citing Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56 at [82], a commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
  4. Contextual considerations are also important, as the High Court’s decision in Rinehart (at [26]ff) illustrates. The context in which the dispute resolution clauses had been entered into in the two deeds under consideration in Rinehart bore heavily upon the interpretation in that case of the expression “dispute under this deed”. The plurality (at [26]) cited with approval the observations of the Full Court of the Federal Court of Australia in Hancock Prospecting(the decision under appeal in the High Court), that “[c]ontext will almost always tell one more about the objectively intended reach of such phrases than textual comparison of words of a general relational character”: see Hancock Prospecting at [193]. In his separate judgment in Rinehart, in agreement with that of the plurality on the question of construction, Edelman J observed at [83] that:

“Every clause in a contract, no less arbitration clauses, must be construed in context. No meaningful words, whether in a contract, a statute, a will, a trust, or a conversation, are ever acontextual. ”

  1. It is also axiomatic that, in the construction of a contract including an arbitration agreement or an arbitration clause in a commercial agreement, as with the interpretation of a statute, a particular contractual clause or sub-clause must not be construed in isolation but as part of the contract as a whole: Australian Broadcasting Commission v Australasian Performing Right Association Ltd(1973) 129 CLR 99 at 109; [1973] HCA 36; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [16]; Mastrobuono v Shearson Lehman Hutton Inc.514 U.S. 52 (1995). In the former case, Gibbs J (as he then was) famously said (at 109):

“It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another.”

  1. One consequence of this is that the same clause, or the same phrase in a particular clause, may not bear an identical meaning from case to case: see FAI at 120-124for a discussion of cases where identically worded jurisdiction agreements have been given different constructions.
  2. In the context of dispute resolution clauses, whether they be arbitration or exclusive jurisdiction clauses, much authority can be found in support of affording such clauses a broad and liberal construction. A particularly well known statement in this area of discourse is that of Gleeson CJ in Francis Travelto which the primary judge referred and which has been reproduced at [28] In Francis Travel, Gleeson CJ referred to the decision of the United States Supreme Court in Mitsubishi Motors Corp v Soler-Chrysler Plymouth Inc473 US 614 (1985). In that case, at 626, the Supreme Court said that “as with any other contract, the parties’ intentions control, but those intentions are generously construed as to issues of arbitrability.” (The Court’s reference to “arbitrability” was, in context, a reference to the scope of the arbitration agreement.)
  3. In Welkerat [118], Bathurst CJ made reference not only to Francis Travel but also to the similarly well known observations of Allsop J (as he then was and with whom Finn and Finkelstein JJ agreed) in Comandate at [164], namely that:

“The authorities … are clear that a liberal approach should be taken. That is not to say that all clauses are the same or that the language used is not determinative. The court should, however, construe the contract giving meaning to the words chosen by the parties and giving liberal width and flexibility to elastic and general words of the contractual submission to arbitration.”

  1. See also Global Partners Fund Limited v Babcock & Brown Limited (in liq) [2010] NSWCA 196; (2010) 79 ACSR 383 at [60](Global Partners), per Spigelman CJ who identified the rationale for the broad construction of arbitration and exclusive jurisdiction clauses in the following passage (at [67]):

“A significant purpose of an exclusive jurisdiction clause is to ensure that all disputes are determined in a coherent manner by a single jurisdiction. There is a clear commercial interest in minimising the possibility of a dispute being determined by multiple tribunals, with the consequent prospect of divergent findings. Furthermore, the parties, in advance, have determined that a particular jurisdiction is acceptable to them, both in terms of the speed and efficacy of its civil dispute resolution procedures and for the competence and skill of its judges and lawyers.”

  1. A similar rationale had been identified by French J (as he then was) in Paper Products Pty Ltd v Tomlinsons (Rochdale) Limited (1993) 43 FCR 439 at 448; [1993] FCA 346, where his Honour noted that:

“When the language of the arbitration clause in question is sufficiently elastic, then the more liberal approach of the courts to which Kirby P and others have referred can have some purchase. A wide construction of such clauses can be supported on the basis advanced by Clarke JA that it is unlikely to have been the intention of the parties to artificially divide their disputes into contractual matters which could be dealt with by an arbitrator and non-contractual matters which would fall to be dealt with in the courts. When, as here, the parties have agreed upon a restricted form of words which in their terms, and as construed in the courts, limit the reference to matters arising ex contractu, there is little room for movement.”

  • In TCL Air Conditioner at [16], French CJ and Gageler J observed that “… parties who enter into an arbitration agreement for commercial reasons ordinarily intend all aspects of the defined relationship in respect of which they have agreed to submit disputes to arbitration to be determined by the same arbitral tribunal”.
  1. In Australia, unlike other jurisdictions, the process of contractual construction of dispute resolution clauses has not been overlaid by presumptions cf the jurisdictions surveyed in G B Born, International Commercial Arbitration(2nd ed, 2014, Wolters Kluwer) at 1325-1338. Thus, in Welker at [122], Bathurst CJ, although not eschewing the liberal approach that had been adumbrated in both Francis Travel and Comandate to the construction of arbitration clauses, rejected the adoption of a presumption that had arguably commended itself to the House of Lords in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2007] 4 All ER 951. To quote from Lord Hoffmann’s speech, the presumption was that the court should, in the construction of arbitration clauses, “start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal”, and that the clause should be construed in accordance with that presumption, “unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction”: at [13]. The Full Court of the Federal Court in Hancock Prospecting (at [193]) treated Fiona Trust as not saying anything different in substance from Francis Travel and Comandate (the latter case being itself referred to in Fiona Trust at [31]).
  2. In Rinehart, the plurality indicated that the appeals could be resolved with the application of orthodox principles of construction, which required consideration of the context and purpose of the Deeds there under consideration, without reference to Fiona Trust: at [18]. In his separate judgment, Edelman J described as a “usual consideration of context” the fact that “reasonable persons in the position of the parties would wish to minimise the fragmentation across different tribunals of their future disputes by establishing ‘one-stop adjudication’ as far as possible”: at [83]. This may have been to treat the considerations underpinning cases such as Francis TravelComandateand Fiona Trust as not necessarily giving rise to a presumption, but rather as stating a commercially commonsensical assumption. It may be observed that Lord Hoffmann’s speech in Fiona Trust(at [13]) slides from the language of “assumption” to that of “presumption”.
  3. The proper contemporary approach was eloquently articulated in the following passage in Hancock Prospecting(at [167]) which I would endorse:

“The existence of a ‘correct general approach to problems of this kind’ does not imply some legal rule outside the orthodox process of construction; nor does it deny the necessity to construe the words of any particular agreement. But part of the assumed legal context is this correct general approach which is to give expression to the rational assumption of reasonable people by giving liberal width and flexibility where possible to elastic and general words of the contractual submission to arbitration, unless the words in their context should be read more narrowly. One aspect of this is not to approach relational prepositions with fine shades of difference in the legal character of issues, or by ingenuity in legal argument (Gleeson CJ in Francis Travel at 165); another is not to choose or be constrained by narrow metaphor when giving meaning to words of relationship, such as ‘under’ or ‘arising out of’ or ‘arising from’. None of that, however, is to say that the process is rule-based rather than concerned with the construction of the words in question. Further, there is no particular reason to limit such a sensible assumption to international commerce. There is no reason why parties in domestic arrangements (subject to contextual circumstances) would not be taken to make the very same common-sense assumption. Thus, where one has relational phrases capable of liberal width, it is a mistake to ascribe to such words a narrow meaning, unless some aspect of the constructional process, such as context, requires it.”

  1. For completeness, it may be noted that principles of construction relevant to the question of the natureof a dispute resolution clause (that is, as to whether or not it is exclusive or non-exclusive, as opposed to its scope) have been valuably identified and discussed by Giles J (as he then was) in FAI at 126-127.

Clause 23

  1. Clause 23 of the Agreement, extracted at [18]above, is what might be styled a “multi-tiered” dispute resolution clause. Clause 23.1 contemplates, by implication, that court proceedings may be commenced by a party, but proscribes the commencement of court proceedings “until it has complied with this clause 23”. Clause 23 makes provision, in subclauses 3 and 4, for the initial informal and then formal mediation of disputes. It also provides in subclause 6 for arbitration of certain types of dispute if there is a failure to resolve the dispute at formal mediation. Clause 23.11 also preserves the ability of the parties to have recourse to the court for urgent injunctive or declaratory relief.
  2. It has been observed by the doyen of private international law scholars (see Briggsat 4.55-4.56) that:

“… sometimes a clause will be encountered in which the parties appear to have agreed that a court has jurisdiction, and that disputes may or will be arbitrated. One reaction may be that this is incoherent, and that it has been brought about by the thoughtless copying of precedents. The case-law approaches the interpretation of such clauses, or combinations of clause, however, in a more constructive way. One sensible interpretation, which a court may strive to reach, is that the parties have agreed to submit to arbitration, and that the role of the court is that of supervision of the arbitration, but if neither side refers the dispute to arbitration, the jurisdiction agreement takes effect as the unchallenged provision for dispute resolution. Or to put it another way, the parties agree to the jurisdiction of the court (to be mutually exclusive or not mutually exclusive, as the case may be), but if one party exercises the right to refer the dispute to arbitration, this is thereafter the agreed means of dispute resolution, and the role of the court is supervisory if it is also the seat of the arbitration.

More difficulty arises if the clause appears to make reference to arbitration mandatory, while also providing for the jurisdiction, exclusive or otherwise, of the courts. Where this happens, incoherence is avoided by interpreting the agreement as though the reference to arbitration were optional rather than mutually mandatory. And this may be the only plausible way to make sense of such an arrangement. For reference to arbitration is never fully mandatory: if neither party elects to refer the dispute to arbitration, no third party is going to do it for them.” (footnotes omitted).

  1. One of the decisions footnoted by Professor Briggs in the above passage was that of the Supreme Court of New South Wales in HIH Casualty. The relevant clauses under consideration in that case have been reproduced in the Appendix to these reasons.
  2. Although the Agreement in the present case meets the description in the first sentence of the passage from Briggsextracted at [69] above, cl 23 of the Agreement differs significantly from the articles of the reinsurance policy that were the subject of consideration in HIH Casualty, although those articles, like cl 23, appeared to contemplate both litigation of disputes arising under this Agreement in “any competent Court in the Commonwealth of Australia” and the arbitration of “[d]isputes arising out of this Agreement or concerning its validity…”. The challenge for the Court in HIH Casualty was to ascertain whether the proceedings that had been commenced in the Supreme Court should be stayed in favour of arbitration. In the present case, the situation is the converse, namely whether a foreshadowed arbitration should be restrained in favour of litigation.
  3. Articles XVIII and XIX in the reinsurance policy in HIH Casualty differed in their language in many respects, but most conspicuously, for present purposes, in the use of the prepositional phrase “dispute arising under this Agreement” in Article XVIII, on the one hand, and the different prepositional phrase “[d]isputes arising out of this Agreement” in Article XIX, on the other hand. The Court held (at [98]) that:

“where, as here, a dispute arises under the policies, provided that the dispute is not in effect a claim for a confirmed balance [in which case it cannot be the subject of a reference to arbitration], HIH has an option to require that dispute to be litigated pursuant to Article XVIII in a competent court in the Commonwealth of Australia of its choosing or, alternatively, to submit that dispute for determination by way of arbitration.”

  1. Later in his reasons, Einstein J observed (at [116]) that:

“It is also true that construing the policy as a whole as providing HIH with an option to litigate or arbitrate also satisfies the injunction contained in Australian Broadcasting Corporation v Australasian Performing Right Association, namely to construe a contractual document as a whole with a view to insuring an harmonious reading of all the clauses.”

  1. The decision in HIH Casualty did not turn upon the difference in prepositional language between Article XVIII and XIX of the reinsurance policy. In the present case, however, Mr Braham sought to attribute much significance to the breadth of the prepositional phrase “arising out of this Agreement” in cl 23.1 by way of contrast to what he submitted was the narrower language in cl 23.6.1, viz“the Dispute concernsany monetary amount payable and/or owed by either party to the other under this Agreement” (emphasis added).
  2. It is true that the expression “arising under this agreement” has often been held to be narrower in compass than the phrase “arising out of this agreement” (see, for example, Welker at [123]per Bathurst CJ), but it has not always been narrowly construed, as the High Court’s recent decision in Rinehart  In some cases, it has been equated with the phrase “arising out of”: see Samick Lines Co Ltd v Owners of the “Antonis P Lemos” [1985] AC 711 at 727. The Full Court of the Federal Court described it in Hancock Prospecting as an “elastic relational phrase”: at [205].
  3. It must also be appreciated in the present case that cl 23.1 of the Agreement plays a very different role to that played by Article XVIII, for example, in the reinsurance policy considered in HIH Casualty. Unlike Article XVIII, cl 23.1 is not a service of suit or form of jurisdiction clause at all. Rather, it has two principal functions. First, it defines the term “Dispute” in unquestionably broad terms, and that term is then used in the balance of cl 23. Second, it proscribes the commencement of court proceedings by a party, until that party “has complied with this clause 23”. That, of course, includes cl 23.6.1 to the extent it is engaged.
  4. The broadly defined term “Dispute” is employed in cl 23.6.1. Thus, the Dispute in question, which may be the subject of arbitration, may be one arising out of the Agreement including, for example, a dispute “regarding any breach or purported breach of the Agreement”. This follows from the definition of “Dispute” in cl 23.1, and the use of that defined term in cl 23.6.1. The critical question then becomes, for the purpose of determining if the dispute in the present case was required to be submitted to arbitration, whether or not it “concerns any monetary amount payable and/or owed by either party to the other under this Agreement”. That is a question of construction and characterisation.
  • In answering that question, the principles of construction I have sought to identify and summarise at [53]-[67]above should be applied. Apart from the fact that the parties were in an ongoing commercial relationship, there was nothing of particular significance going to matters of context that was relied upon by the parties to inform the proper construction of cl 23 generally, and cl 23.6.1 in particular. The focus then necessarily must be on the language employed by the parties in the Agreement.
  1. I have already noted the broad definition of “Dispute” in cl 23.1, and the fact that that broadly defined term is carried into cl 23.6.1. The next key word to be considered in cl 23.6.1 is the word “concerns”. This is a relational term of indeterminate ambit. It, like any other connecting or prepositional phrase, will take its meaning from its context, which includes the manner in which dispute resolution clauses have been construed in contemporary case law: see Hancock Prospectingat [165]; Welker at [221]and compare, in the case of statutory interpretation, Attorney General for New South Wales v Melco Resorts & Entertainment Limited [2020] NSWCA 40 at [86].
  2. Whilst the usual caution is to be applied to consideration of the meaning of a term in other contracts or instruments, some recent examples of judicial consideration of the meaning of the term “concerns” may be given. In PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission[2011] FCAFC 52 at [197], the verb “concern”, in the context of “in so far as the proceeding concerns”, was giving the meanings “relate to; be about; affect or involve”. However, in the earlier decision of Australian Securities Commission v Lord (1991) 33 FCR 144; (1991) 105 ALR 347 at 352, the Federal Court held that the term “concerns” (in relation to the phrase “concerns the management or affairs of a body corporate”) had a narrower ambit than the phrase “relates to”.

Segment #4

Segment #5

  1. MEAGHER JA: I agree with Bell P that the applicant, Inghams, should have leave to appeal. The question in the appeal is whether Mr Hannigan’s contested claim against Inghams, for damages for breach of contract is a dispute which “concerns any monetary amount payable and/or owed by either party to the other under” the chicken growing agreement between them (cl 23.6.1). I agree also with the President’s conclusion that if that dispute is required to be referred to arbitration Mr Hannigan has not waived his right to insist that occur.
  2. As the President observes that question is “purely one of construction” and accordingly to be determined by the application of orthodox principles of construction. Those principles provide that the meaning of the terms in a commercial contract, such as here, is to be determined objectively and accordingly by reference to what a reasonable person in the circumstances of the parties would have understood those terms to mean: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [47](French CJ, Nettle and Gordon JJ). That inquiry requires attention to the language of the contract, the commercial context which it addresses and the objects which it is intended to secure: McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579; [2000] HCA 65 at [22] (Gleeson CJ). Those principles do not describe a process which is rule based, rather than concerned with the construction of the words in question in their context. Nor is that process overlaid by assumptions or presumptions which cannot be justified as informing what a reasonable person would have understood the words to mean in their commercial context: Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170 at [167] (Allsop CJ, Besanko and O’Callaghan JJ).
  3. For the reasons which follow it is my view that Mr Hannigan’s claim for breach of Inghams’ general obligation to supply chickens (cl 3.1) is not a dispute within cl 23.6.1 and accordingly not one which must, in the absence of any ad hoc agreement, be submitted to arbitration. The primary judge erred in concluding otherwise: Inghams Enterprises Pty Ltd v Francis Gregory Hannigan [2019] NSWSC 1186.

The chicken growing agreement

  1. The relevant terms of this agreement are extracted by the President at [7]-[18]. The “general obligations” of the parties (cll 3 and 4) describe their respective obligations in relation to the growing of the chickens. On Inghams’ part those obligations fundamentally include to supply one day old chicks, feed and the technical services required for Mr Hannigan to perform his primary obligation, which is to “raise” those chicks in his shed facilities in accordance with a detailed Manual supplied by Inghams. There follow a provision making clear that at all times the chickens remain the property of Inghams (cl 6), and provisions governing the collection of the chickens for processing (cl 7) and Inghams’ rights of access to the grower’s premises (cl 8).
  2. Clauses 9 to 13 address the payment obligations of the parties, principally Inghams’ obligation to make ongoing payments to the grower for the term of the agreement, initially a period of five years. In essence Inghams agrees, in relation to each batch of chickens raised and collected, to pay the grower a Fee calculated on a per chicken basis. That Fee is to be adjusted annually, following negotiations and after taking account of defined “productivity criteria”. In addition the grower may be entitled to an additional payment calculated in accordance with a “Pool Payment System”, which takes account of the productivity of the grower measured against the productivity of a pool of growers (cll 9.1, 10.1 and Annexures 1 and 2).
  3. There follow provisions which qualify the ordinary position that the grower receives payments determined in accordance with Annexures 1 and 2. First, where the payment to the grower in respect of a batch is less than 85 per cent of the Fee as a consequence of a single event determined by Inghams to be a “disaster”, a different regime applies for the determination of the Fee. It does so depending on whether the disaster has been caused by the action of Inghams, neither of the parties or is attributable partially to each of them (cl 11).
  4. Secondly, Inghams is entitled to deduct from any payment due to the grower financial losses suffered by it (limited to the cost of all goods supplied to the grower and excluding all consequential and indirect losses) as a result of the grower’s negligence in raising the chickens (cl 12.1). Inghams may also “charge to and recover from the grower” losses and expenses incurred in collecting and raising any chickens to which cl 12.1 losses are referrable (cl 12.3). Thirdly, in the event that the compulsory slaughter of chickens is required by any statutory authority Inghams is required to pay to the grower part of any financial compensation received by it in respect of that destruction (that part to be calculated in accordance with a specified formula) (cl 13).
  5. Finally, in addition to Annexures 1 and 2 providing for variations and adjustments to the annual Fee, cl 15.3.3 provides that in the event that the Manual with which the grower must comply (cl 4.2) is amended, the parties agree to “renegotiate the Fee having regard to the effect of [any] relevant amendments”.

The chicken supply dispute

  1. Mr Hannigan’s formulation and notification of the relevant dispute is extracted in the President’s judgment at [24]. It is constituted by Mr Hannigan’s contested claim to damages for breach of Inghams’ general obligation to supply, during the period 8 August 2017 to 17 June 2019, batches of chicks in accordance with the terms of the agreement. The ordinary measure of damages for loss sustained by such a breach is the amount required to place Mr Hannigan in the same position in money terms as he would have been in had the contract been performed: Robinson v Harman (1848) 1 Exch 850; 154 ER 363 at 855;365 (Parke B). Applying that measure, the matters to be taken into account will ordinarily include the payments to which Mr Hannigan would have been entitled, on the hypothesis that chicks had been supplied, raised and collected (in whole or in part) during the relevant period, as well as the variable and other costs which would have been, but were not in fact, incurred by him in so doing.

The dispute resolution clause

  1. The relevant provisions of the dispute resolution clause are extracted by the President at [18] It is convenient nevertheless to set out cll 23.1, 23.6, 23.8 and 23.11 in these reasons:

23.1 A party must not commence court proceedings in respect of a dispute arising out of this Agreement (“Dispute”) (including without limitation any Dispute regarding any breach or purported breach of this Agreement, the interpretation of any of its provisions, any matters concerning a party’s performance or observance of its obligations under this Agreement, or the termination or the right of a party to terminate this Agreement) until it has complied with this clause 23.

23.6 If:

23.6.1   the Dispute concerns any monetary amount payable and/or owed by either party to the other under this Agreement, including without limitation matters relating to determination, adjustment or renegotiation of the Fee under Annexure 1 or under clauses 9.4, 10, 11, 12, 13 and 15.3.3; and

23.6.2   the parties fail to resolve the Dispute in accordance with Clause 23.4 within twenty eight (28) days of the appointment of the mediator

then the parties must (unless otherwise agreed) submit the Dispute to arbitration using an external arbitrator (who must not be the same person as the mediator) agreed by the parties or, in the absence of agreement, appointed by the Institute Chairman.

23.8 The parties must use their reasonable endeavours to enable the arbitrator to make a determination as quickly as possible and the arbitrator must (unless otherwise agreed in writing) make that determination within 2 (two) months of accepting the appointment. For that purpose the parties agree to co-operate with the arbitrator and each other in fixing a timetable and taking such steps as are required under that timetable or as may otherwise be reasonably directed by the arbitrator in order to enable the arbitrator to complete the arbitration with[in] that period.

23.11 Nothing in this Clause 23 shall prevent the making of an application to the court by any party to the dispute for urgent injunctive or declaratory relief.

  1. Clause 23.1 prohibits each party from commencing court proceedings in respect of the universe of disputes “arising out of” their agreement and that prohibition applies until the relevant party “has complied with this clause 23”. There is no reason to construe this provision narrowly. The rational assumption of a reasonable person in the position of the parties would be that the provisions of this clause should apply to all of the disputes relating to their agreement. Approaching the construction of this overriding provision by reference to such an assumption is merely an application of the objective theory of contract.
  2. This clause also recognises the breadth of the types of dispute which may arise and, particularly, that they may arise before or after the time for performance or observance of an obligation, no distinction in that context being drawn between what the agreement describes as “general” obligations and those providing for the payment of money.
  3. The matters which must be complied with respect to all disputes “arising out of” the agreement are that any dispute be notified to the other party (cl 23.2), that the parties use “best endeavours” to resolve that dispute (cl 23.3), and that if the dispute cannot be resolved it must thereafter be mediated (cll 23.4, 23.5).

Clause 23.6.1

  1. Clause 23.6.1 provides that a subset of the universe of disputes arising out of the agreement must then be referred to arbitration. The necessary characteristic of disputes in that subset is that they “concern” “any monetary amount payable and/or owed by either party to the other under this Agreement”. This language does not suggest this characteristic has to be the defining or only characteristic which those disputes bear: Firebird Global Master Fund II Ltd v Republic of Nauru (2015) 258 CLR 31; [2015] HCA 43 at [187](Nettle and Gordon JJ).
  2. That composite description requires that subject matter be “any” “monetary amount” which is “payable and/or owed” by one party to the other where the attribute of being “payable and/or owed” is qualified by the words “under this Agreement”. There must then be a sufficient relationship between the dispute and that subject matter such that the former “concerns” the latter.
  3. What is immediately apparent is that cl 23.6.1 does not purport to refer to arbitration any dispute “arising out of this Agreement” or, for that matter, any dispute “under this agreement”. Here, subject to the qualification introduced by cl 23.11 in relation to “urgent injunctive or declaratory relief”, the parties clearly intended that only a subset of the disputes within the universe of disputes “arising out of” their agreement must be resolved by arbitration: cf Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd(1996) 39 NSWLR 160 at 165 (Gleeson CJ); Hancock Prospecting Pty Ltd v Rinehart at [167] (Allsop CJ, Besanko and O’Callaghan JJ); and Fiona Trust Holding Corporation v Privalov [2007] UKHL 40; [2007] 4 All ER 951 at [13] (Lord Hoffman).
  4. Furthermore, whilst cl 23.6.1 requires attention to the sense in which the expression “under this Agreement” is used, it does not do so in relation to its use in a clause referring all disputes answering that description to arbitration. Accordingly whether there is any distinction in that context between disputes “arising under” and disputes “arising out of” an agreement is a controversy which does not arise in this case: see Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; (2019) 93 ALJR 582 at [18]-[25](Kiefel CJ, Gageler, Nettle and Gordon JJ).
  5. The question as to the meaning of the expression “under this Agreement” used in relation to an amount “payable and/or owed” remains. As Lindgren J observed in Energy Resources of Australia Ltd v Commissioner of Taxation (2003) 52 ATR 120 at [37]the word “under” admits of “degrees of precision and exactness on the one hand, and of looseness and inexactness on the other” making it “necessary to have regard to the context in order to identify the meaning of the word intended in a particular case.” See more generally The Queen v Khazal (2012) 246 CLR 601; [2012] HCA 26 at [31] (French CJ); and Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 at [102] (Leeming JA) (There the guaranteed money in question was defined to mean “all amounts (including damages) that are payable, owing but not payable or that otherwise remain unpaid … on any account at any time under or in connection with” the relevant agreement).

“monetary amount payable”

  1. The expression “monetary amount payable” describes an amount of money that is or may become liable to be paid, and accordingly “payable”. Thus it can refer to an amount that will from time to time fall due for payment, as well as to an amount due for payment. These different senses in which the word “payable” may be used, are discussed by Hoffman J (as his Lordship then was) in Tea Trade Properties Ltd v CIN Properties Ltd (1990) 1 EGLR 155 at 158,in a passage cited in K Lewison, The Interpretation of Contracts (6th Ed, 2015, Sweet & Maxwell) at p 367. Thus an amount that will from time to time fall due as a fee, which is the subject of negotiation or variation or adjustment, will at that time nevertheless be a “monetary amount payable”. That expression is to be contrasted with the expression “monetary amount owed” which describes an amount liable to be paid, due for payment and unpaid. The use of the joining words “and/or” recognises that the money amounts which these expressions describe may overlap.

“under this Agreement”

  1. The description of such amounts as “payable and/or owed” “under” the agreement directs attention to the source of the underlying payment obligation and whether the agreement governs or controls its existence, as the following three cases demonstrate. In Chan v Cresdon Pty Ltd (1989) 168 CLR 242; [1989] HCA 63 a lease of land contained a provision by which a person, who was a party to the lease, guaranteed the performance by the lessee of its obligations “under this lease”. The majority (Mason CJ, Brennan, Deane and McHugh JJ) considered that the word “under” referred “to an obligation created by, in accordance with, pursuant to or under the authority of, the lease. The obligation which arose under the common law tenancy at will [did] not answer this description” (at 249).
  2. The appeal in Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35 concerned the “time of disposal” of assets for the purpose of determining the year of income in which a net capital gain accrued. Where the “asset was acquired or disposed of under a contract” Income Tax Assessment Act 1936 (Cth), s 160U(3)deemed the time of disposal to be “the time of the making of the contract” (at [33], [34], [37]). The plurality (Gleeson CJ, Gaudron, McHugh and Hayne JJ) held (at [42]) that “the words ‘under a contract’, in s 160U(3), direct attention to the source of the obligation which was performed by the transfer of assets which constituted the relevant disposal”. In that case an agreement of 31 May 1991 “was the source of the obligation which [Sara Lee] discharged” by performance of its obligation to transfer on 30 August 1991.
  3. Finally, in Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81; [2007] HCA 53 the question was whether the registration of a transfer of two Torrens title mortgages vested in the transferee a right to recover moneys owed under a loan agreement which was separate from, but secured by, one of the mortgages. Land Title Act 1994(Qld), s 62 defined the “rights” transferred as including the right “to recover a debt or enforce a liability under the mortgage”. The Court (Kiefel J, Gleeson CJ, Gummow, Kirby, Hayne, Heydon and Crennan JJ agreeing) held that the right to recover moneys under the loan agreement was not assigned, observing at [55] that this conclusion was confirmed by the words “under the mortgage” in s 62(4):

The word ‘under’ with respect to an obligation ‘under this lease’, has been held to refer to an obligation created by, in accordance with, pursuant to, or under the authority of the lease. Likewise the words ‘under a contract’ in a statute may direct attention to the source of the obligation in question; and a decision ‘under an enactment’ to the statute to which the decision sought to be reviewed owes, in an immediate sense, its existence. [citations omitted]

  1. Returning to the language in the growers’ agreement, the words “payable and/or owed” when used in relation to “a monetary amount” describe an obligation owed by one party to the other and the use of the phrase “under this Agreement” with respect to that obligation identifies their contract as its source. That is the natural and ordinary meaning of this language and there is nothing in the text or context which suggests that a reasonable person in the circumstances of the parties would have understood it to mean otherwise.

“including without limitation”

  1. The inclusion in cl 23.6.1 of the list of “matters relating to [the] determination, adjustment or renegotiation of the Fee under Annexure 1” is wholly consistent with the subject matter of the reference to arbitration being disputes concerning payment obligations under the agreement. The words introducing that list – “including without limitation” – convey that the listed matters are not intended either to restrict the matters which would otherwise fall within the language of the preceding description or to narrow the construction of that language by reason of any genus of the matters listed. As to that being the function of such an inclusive “definition” see Corporate Affairs Commission (SA) v Australian Central Credit Union(1985) 157 CLR 201 at 206-207 (Mason ACJ, Wilson, Deane and Dawson JJ); [1985] HCA 64.

“Dispute concerns”

  1. The purpose for the parties’ agreement that disputes which “concern” payment obligations should be referred to arbitration emerges in cl 23.8. By that provision the parties agree to “use their reasonable endeavours to enable the arbitrator to make a determination [of such disputes] as quickly as possible”. Their commercial reasons for doing so, particularly from the perspective of the grower, are obvious. In argument this Court was informed that a batch of chickens takes between 35 and 45 days to be raised and collected, thus allowing for the delivery of batches every two months or so. In Mr Hannigan’s case that meant that up to six batches a year might be raised, with the potential for over 200,000 chickens in each of those batches. In such a short cycle and high turnover business, an expeditious dispute resolution procedure directed to payment obligations under the agreement seeks to ensure continuity of cash flow, from the perspective of the grower, and ongoing certainty as to the costs of production, from the perspective of Inghams.
  2. It follows that the connecting word “concerns” should be given sufficient “width and flexibility” to ensure that any dispute which relates to the negotiation, adjustment, determination or performance of a payment obligation “under this Agreement” is submitted to arbitration. Doing so, a dispute will “concern” a payment obligation under the agreement if the dispute is about such an obligation, which will be the case where there is a claim to payment or for damages for breach of such an obligation; if the dispute affects or involves or relates to such a payment obligation which would be the case where there is an issue concerning the negotiation, adjustment or determination of any fee to be paid; or if there is a dispute as to an entitlement of a party to deduct any sum from a payment which it is otherwise liable to make. These examples are obviously not exhaustive. However they recognise that the relational word “concerns” will be satisfied if a dispute relates to or is about or affects or involves a money payment obligation under the agreement.

Is the chicken supply dispute one within cl 23.6.1?

  1. The subject matter of the notified dispute is a claim for unliquidated damages for breach of Inghams’ obligation under cl 3.1. It is not a claim to or about an amount “payable” or “owed” by Inghams to Mr Hannigan under an express or implied term of their agreement. Nor is it a dispute which affects or relates to the negotiation, adjustment or determination of any amount “payable” or “owed” under such a term. The argument that Mr Hannigan’s claim concerns a monetary amount payable under the agreement proceeds as follows. First, it is said that a claim to “compensatory damages” will result in a judgment or award for a monetary amount which, when determined, will be “payable”. For the purposes of argument, that much may be accepted.
  2. The second part of the argument addresses the qualification that the obligation which makes that amount “payable” is created by, or in accordance with the parties’ agreement. This part of the argument is put in two ways. First, it is said that the amount of damages once awarded is payable “under” the agreement because the measure of damages includes as an element an amount which would have been payable had the agreement been performed. To that extent the quantum of those damages is said to be “governed or controlled” by the agreement. It is not however contended that the source of the underlying obligation to pay damages is the agreement, or that the contract says anything about the amount recoverable and how it is to be calculated.
  3. The second way in which the argument is put is captured in the judgment of the President at [88]-[90]. It is that damages for breach of contract may be treated or described as an amount payable under a “secondary obligation” of the agreement following the breach of a primary obligation. In support of that analysis reference is made to the statements of Lord Diplock in Moschi v Lep Air Services Ltd [1973] AC 331 at 350and Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848-849, and the statement of Kiefel CJ, Bell and Keane JJ in Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 93 ALJR 1164 at [12] that:

the right to damages for loss of bargain that arises in such a case [a termination for wrongful dismissal] is, in this respect, no less a creature of the contract than the right to recover sums that become due before its termination.

  1. However, none of those statements suggest that the obligation to pay damages for breach of contract is created by or arises under the contract. On the contrary, Lord Diplock’s analysis in Lep Air Services and Photo Production acknowledges that the so-called “secondary obligation” arises “by operation of law” or by “implication of the common law”, which is the same thing. The description of the right to loss of bargain damages following a termination for wrongful dismissal as a “creature of the contract” does not take this analysis any further.
  2. The orthodox and uncontroversial position remains as stated by Nettle, Gordon and Edelman JJ in Mann v Paterson Constructions at [195]:

Traditionally, the remedial obligation to pay damages for breach of contract has been understood as an obligation “arising by operation of law”. Whether or not there is any role for the objective or manifested intention of the parties in ascertaining boundaries of liability in an award of damages, the proposition that the award of damages is somehow a product of the agreement of the parties as an alternative to performance is not easily reconciled with several established notions at law and in equity, including the normative principles which govern the quantification of damages and the grant of specific performance and injunctions on the basis that damages are an “inadequate” remedy. The parties contract for performance, not damages. In short, as Windeyer J said, “[i]t is … a faulty analysis of legal obligations to say that the law treats a promisor as having a right to elect either to perform his promise or to pay damages. Rather … the promisee has ‘a legal right to the performance of the contract’.” (citations omitted)

  1. It is equally wrong, as a matter of legal theory, to suggest that the assessment of unliquidated damages for breach of contract is “governed or controlled by” the contract simply because the measure of damages at common law takes account of benefits which would have been received as a result of performance. The position is as stated by Gageler J in Mann v Paterson Constructions at [83]:

Contracting parties are, of course, at liberty to determine by contract the “secondary” obligations, which are to arise in the event of breach or termination of the “primary” obligations they have chosen to bind them. Even where the parties have not so determined, it may for some purposes be appropriate to describe obligations that the common law imposes to pay damages for breach of contract as “secondary” obligations which, in the event of termination by acceptance of a repudiation, are “substituted” for the primary obligations. However, it would be artificial as a matter of commercial practice and wrong as a matter of legal theory to conceive of contracting parties who have not addressed the consequences of termination in the express or implied terms of their contract as having contracted to limit themselves to the contractual remedy of damages in that event.

  1. The distinction between monetary amounts which are payable or owed “under a contract” and remedies which arise by operation of law is a recognised and meaningful one. Whereas ‘liquidated damages’ are recoverable in satisfaction of a right of recovery created by the contract itself and accruing by reason of breach, unliquidated damages for breach of contract are compensation assessed by the court in accordance with common law principles for loss occasioned by breach: Rotheberger Australia Pty Ltd v Poulsen [2003] NSWSC 788 at [27](Barrett J); Galafassi v Kelly (2014) 87 NSWLR 119 at [178] (Gleeson JA, Bathurst CJ and Ward JA agreeing). That distinction has been endorsed as one which it is “essential” to maintain: Galafassi at [177].
  2. It follows that the notified dispute does not concern a monetary amount payable or owed by Inghams to Mr Hannigan under their agreement and accordingly it is not a dispute referred to arbitration by cl 23.6.1.

The reasoning of the primary judge

  1. It remains necessary to consider three aspects of the primary judge’s reasoning in support of his contrary conclusion that cl 23.6.1 includes a contested claim to unliquidated damages for breach of a non-money payment obligation under the agreement.
  2. The first is his Honour’s conclusion at [62] that the inclusion of the reference to cl 12 in the list in cl 23.6.1 is inconsistent with the description of the relevant subject matter of the clause as limited to claims to enforce payment obligations arising under the agreement because cl 12 describes no more than a claim for damages. As the President ventures at [32] the significance of the argument accepted by the primary judge may lie in the fact that no “genus of dispute could be derived from the specific clauses referred to in cl 23.6.1 to suggest what did and did not fall within the scope of the arbitration agreement”. However that observation does not take account of the words “without limitation” which indicate that no constructional inference regarding the meaning of the descriptive definition should be drawn from any shared features or lack of shared features of the matters included in the list.
  3. More significantly, the primary judge’s analysis gives a narrower meaning to the word “concerns” than is consistent with the purpose of cl 23.6 and overlooks the application of cl 12.1 which permits Inghams to deduct losses to be borne by the grower “from any Payments due to the Grower” for the relevant batch. Thus any dispute as to the fact or amount of such loss necessarily “concerns” a “monetary amount” “payable” “under” the agreement because of the entitlement by cl 12.1 of Inghams to deduct any amount to which it is entitled from that “monetary amount”.
  4. The second is that the primary judge considered at [64] that on the construction urged by Inghams, cl 23.6.1 would have the consequence that a claim in debt for non-payment of a fee due under cl 9.1 would be referred to arbitration whereas a claim to damages for the same breach would not. His Honour described that inconsistency in outcome as “hardly [to] have been intended by the contracting parties”. In this respect the primary judge’s analysis again depends on a narrower construction of the connecting term “concerns” than I consider it should be given, as appears above, particularly at [142]-[143]. If the notified dispute involves a claim for damages for breach of cl 9.1, that dispute bears a sufficient relationship to a “monetary amount payable” under the agreement because the claim is for breach of such an obligation. Accordingly, the dispute is about or involves that monetary obligation, and in that sense is a dispute which “concerns” it. Therefore no inconsistency in outcome arises.
  5. Thirdly, the primary judge at [65] considered that because one integer in the assessment of Mr Hannigan’s damages was the amount which would have been received under cl 9.1 had the supply obligation been performed, the relevant dispute could be said to “concern” “monetary amounts” payable under the agreement. The difficulty for this argument is identified above at [145]. Whilst the assessment of damages may involve attention to amounts which would have been paid or payable had the contract been performed, the dispute in this respect does not relate to or involve a monetary amount that is or may become liable to be paid so that it answers the description of an amount “payable” under the agreement. Rather that dispute concerns an amount which might have been payable in a hypothetical counterfactual adopted for the purpose of assessing damages under the common law.

Conclusion

  1. For these reasons I would make the following orders:
  2. Grant leave to appeal.
  3. Allow the appeal.
  4. Set aside orders (1) and (3) made by Slattery J on 16 September 2019.
  5. Declare that the dispute the subject of the respondent’s Notice of Dispute dated 29 May 2019 is not required to be submitted to arbitration pursuant to cl 23.6 of the Queensland Broiler Chicken Growing Agreement between the parties dated 22 September 2015.
  6. The respondent pay the appellant’s costs of the proceedings at first instance and on appeal.
  7. GLEESON JA: I agree with the orders proposed by Meagher JA and with his Honour’s reasons.

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Decision last updated: 04 May 2020