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FITZPATRICK V EMERALD GRAIN PTY LTD  WASC 206
CORAM: Martin CJ
HEARD: 28 March 2017
DELIVERED: 31 July 2017
FILE NUMBER: CIV 2437 of 2016
- Mark Fitzpatrick t/a JD & PM Fitzpatrick & Sons & Others (Plaintiffs)
- Emerald Grain Pty Ltd (Defendant)
- Proceedings stayed
- Matter referred to arbitration
- Arbitration – Arbitration clauses – Proper approach to construction
- Arbitration – Stay of proceedings – Reference to arbitration – Effect of Commercial Arbitration Act 2002 (WA)
- Commercial Arbitration Act 2012 (WA)
- Trustees Act 1962 (WA)
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- Forty-seven grain growers (the Growers) have commenced proceedings in this court against Emerald Grain Pty Ltd (Emerald) relating to disputes arising from separate contracts between each of the Growers and Emerald (the proceedings). The contracts were entered into at various times during 2011 and related to the placement of grain produced by the Growers into a pool of grain which was sold by Emerald to various purchasers. The precise characterisation of the contracts, and in particular, whether they are simply contracts for the sale of grain by each grower to Emerald, containing terms and conditions by which the price for that grain will be calculated by reference to the proceeds of its sale by Emerald, or whether they give rise to a trust relationship whereby Emerald holds funds received from the sale of grain on trust for each grower, is one of the matters in dispute.
- Each of the contracts contains a provision requiring disputes arising out of, relating to or in connection with its terms to be resolved by arbitration. Before submitting any statement on the substance of the dispute to the court, Emerald has applied for orders referring the disputes to arbitration pursuant to s 8 of the Commercial Arbitration Act 2012 (WA) (the Act) and staying the proceedings. For the reasons which follow, orders should be made in those terms.
- The facts relevant to Emerald’s application for a stay of proceedings and referral to arbitration are not contentious. They were established by affidavits which were read without substantive objection or cross‑examination of their deponents.
- Each of the plaintiffs was, at the relevant time, a wheat producer in Western Australia. Emerald carries on business as the operator of grain commodity pools, including pools for wheat and various other grains.
Grain pooling generally
- One marketing option available to Australian wheat growers is to combine or pool their wheat with wheat grown by others in order to form larger exportable parcels. Growers exercising this option commit a certain tonnage of wheat to a pool to be marketed by the relevant pool trader over a period of time. Growers take this option in the expectation that the relevant trader will use their skill, access to markets and financing resources to provide favourable returns to the grower.
- A wheat grower in Western Australia who decides to participate in such a pool will deliver their wheat to a receival site operated by CBH Group Pty Ltd (CBH). After grading and measurement, CBH will store the wheat with other wheat of the same grade. If a grower elects to exercise the pooling option which I have described, wheat of equivalent weight and grade to that delivered by the grower will be delivered by CBH to the pooling trader (such as Emerald). Payments made by pooling traders (such as Emerald) to growers contributing grain to their pools are usually made by instalments, as and when grain in the relevant pool is sold, under terms which result in the final payment to each grower being calculated by reference to the total receipts of the pooled grain sold less costs applicable to the pool.
- As I have noted, the Growers entered into contracts with Emerald at various times during 2011. All contracts related to grain pools conducted by Emerald over the period 2011/12. The contracts take the form of a single page document entitled ‘Contract Confirmation’ which contains details provided by the Grower as to the quantity of grain to be provided, place and time of delivery and so on. The contracts expressly incorporate the ‘Emerald Pool Terms and Conditions’ which are said to be available on request or at Emerald’s website. The contracts are signed by each Grower and a representative of Emerald.
The Emerald Grain Pools Terms and Conditions
- The Grain Pools Terms and Conditions published by Emerald were amended in March 2011. Contracts entered into prior to that time incorporated the Terms and Conditions published in October 2010 (2010 Conditions), whereas contracts entered into after that time incorporated the Terms and Conditions published in March 2011 (2011 Conditions). Although the two sets of Terms and Conditions differ in some respects, neither the Growers nor Emerald contend that the differences are material to the outcome of Emerald’s application for a stay and referral to arbitration.
The trust issue
- During argument the court’s attention was drawn to various provisions in each of the Conditions which are relevant only to the question of whether the contracts give rise to a trust pursuant to which Emerald holds the proceeds derived from the sale of grain on trust for the growers who caused grain to be delivered into that pool.
- However, in the final result, each of the Growers and Emerald were content for the court to determine Emerald’s application for a stay and referral to arbitration on the basis that the trust issue was arguable and need not be resolved by the court for the purpose of resolving Emerald’s application. It is therefore unnecessary to refer to provisions in each of the Conditions which go only to the trust issue in these reasons.
- The first clause of each of the 2010 and 2011 Conditions describes the nature of the pooling services provided by Emerald in the following terms:
Pools involve the acquisition by Emerald of a Commodity from multiple suppliers. Emerald arranges sale of the Commodity over time, and, after adjustments, returns the net average sale proceeds to all suppliers.
- The second clause of each of the Conditions provides that the terms and conditions which follow are incorporated into a contract made between Emerald and the grower for the supply of a commodity into a pool (Pool Contract). The second clause of the 2011 Conditions also provides that if there any inconsistency in wording or meaning between the Pool Contract and the Conditions to which I am referring, the Pool Contract will prevail. However, neither the Growers nor Emerald have pointed to any possible inconsistency between any Pool Contract and the 2011 Conditions.
- Later provisions of each set of Conditions describe the agreement between the grower and Emerald and the incorporation of the relevant terms and conditions into that agreement. The Conditions include various provisions relating to delivery requirements, pool returns, buy-back options provided to growers, fees to be deducted by Emerald from the proceeds of sale of the pools, rights of set-off, force majeure, indemnities and limitation of liability.
- The 2010 Conditions contain provisions in the following terms:
31. These terms and conditions expressly incorporate the Trade Rules of Grain Trade Australia (GTA) in effect at the time You enter into a Pool Contract or deliver Commodities to a Pool, except to the extent of any inconsistency, in which case these Terms and Conditions will prevail. The Trade Rules form an integral part of these Terms and Conditions and both parties agree to be bound by them.
32. Any dispute or claim arising out of, relating to or in connection with these Terms and Conditions, a Pool Contract or delivery of Commodities to a Pool, including any question regarding the existence of a contract, the validity or its termination, and which cannot be resolved between the parties, shall be resolved by arbitration in accordance with the GTA Dispute Resolution Rules in force at the commencement of any arbitration.
- The 2011 Conditions contain provisions in identical terms, except that the words ‘the Pool Contract and’ have been inserted before the words ‘these Terms and Conditions’ on the second occasion they appear in cl 31.
- Clause 47 of the 2010 Conditions provides:
The law of Victoria applies to these Terms and Conditions, unless the Commodity is barley to be exported from South Australia, in which case the law of South Australia will apply. The parties submit to the non‑exclusive jurisdiction of the courts of Victoria.
- Clause 47 of the 2011 Conditions is in the following terms:
The law of Victoria applies to these Terms and Conditions except to the extent that the parties have agreed either expressly or by incorporation to apply another law for a particular purpose (for example arbitration). The parties submit to the non-exclusive jurisdiction of the courts of Victoria.
- Although the clauses differ in some respects, the portion of each clause upon which the Growers rely in opposition to Emerald’s application – namely, the parties’ submission to the non-exclusive jurisdiction of the courts of Victoria – is identical.
The GTA Trade Rules
- It will be noted that cl 31 of the Conditions incorporates the GTA Trade Rules in effect at the time the relevant grower and Emerald enter into their contract. The evidence establishes that the GTA Trade Rules in effect at the time all contracts were made were the trade rules as at March 2009. The first page of those rules is headed ‘Commerce Committee’. The first three paragraphs on that page provide:
The GTA Commerce Committee formulates and recommends Rule changes to the GTA Membership. Rules are proposed that reflect trade practice and facilitate trade between GTA Members specifically, as well as between all firms in the grain, feed, oilseeds and processing industry generally.
GTA Trade Rules shall govern all disputes of a mercantile, financial or commercial character connected with grain, feed, oilseeds or other agricultural commodities, as they exist now or as amended from time to time, arising between Members or Allied Members of GTA and related counter‑parties, and shall be the basis of arbitration on such controversies, unless otherwise and specifically agreed to at the time of trade, or some subsequent time.
All Members of GTA and related counter‑parties are free to agree upon contractual provisions that they deem appropriate. These GTA Trade Rules apply only to the extent that the parties to a contract have not altered the terms of these Rules or the contract is silent as to a matter dealt with by the pertinent Rule.
- The second page of the GTA Trade Rules is headed ‘Trade Rules’, under which the following provisions appear:
The Trade Rules shall govern all disputes of a mercantile, financial or commercial character connected with grain, feed, oilseeds or other agricultural commodities, as they exist now or as amended from time to time, arising between Members or Non Members of GTA and related counter‑parties, and shall be the basis of arbitration on such controversies, unless otherwise and specifically agreed to at the time of trade, or some subsequent time.
All Members or Non Members of GTA and related counter‑parties are free to agree upon any contractual provisions that they deem appropriate. The GTA Trade Rules apply only to the extent that the parties to a contract have not altered the terms of these Rules or the contract is silent as to a matter dealt with by the pertinent Rule.
- After the general provisions to which I have referred, the GTA Trade Rules contain specific provisions relating to matters such as the terms of trade, brokerage, quantities, weights, quality of grades, chemical and pesticide residues, time of delivery or shipment, ownership and passing of title, rejection, default, payment and so on.
- Rule 24 provides:
Any party or parties who have entered into Terms of Trade subject to these GTA Trade Rules shall be entitled to refer any disputes arising out of such contract and which cannot be resolved between the parties to GTA for Arbitration as per Rule 26 [Arbitration].
- Rule 26 provides:
(1) The GTA Dispute Resolution Rules form an integral part of these GTA Trade Rules of which all parties subject to these GTA Trade Rules shall be deemed to be cognisant.
(2) If any dispute arises out of or relates to any contract subject to these Trade Rules or the breach, termination or subject matter of a contract, the dispute shall be submitted to and settled by Arbitration in accordance with the GTA Dispute Resolution Rules in the edition current at the date of the establishment of the Terms of Trade in the contract, such rules forming an integral part of the contract and of which both parties to the contract shall be deemed to be cognisant.
(3) Neither party to a dispute, nor any persons claiming under either of them, shall bring any action or other legal proceedings against the other in respect to any such dispute until arbitrated in accordance with the GTA Dispute Resolution Rules.
(4) It is expressly agreed and declared within these GTA Trade Rules that the obtaining of an award through GTA Arbitration shall be a condition precedent to the right of either party or of any persons claiming under either of them to bring any action or other legal proceedings against the other of them in respect of any such dispute.
- It will be noted that although Rule 26 of the GTA Trade Rules purports to apply the GTA Dispute Resolution Rules (DR Rules) as in force at the date of the contract between the relevant grower and Emerald, cl 32 of each of the 2010 and 2011 Conditions provides that any dispute between the parties is to be resolved by arbitration in accordance with the DR Rules in force at the commencement of any arbitration. By cl 31 of each of the 2010 and 2011 Conditions, to the extent of any inconsistency between those Conditions and the GTA Trade Rules, the Conditions are to prevail. Accordingly, in the event of any arbitration between the Growers, or any of them, and Emerald, the arbitration will be conducted in accordance with the DR Rules in force at the commencement of that arbitration, rather than the DR Rules in force at the time of the contract between the Grower and Emerald.
The GTA Dispute Resolution Rules
- The DR Rules in force at the time of Emerald’s application are those amended in June 2014. Article 1 of those Rules provides, in part:
Purpose and Description
(1) Through its Dispute Resolution Process (‘Process’), Grain Trade Australia Ltd (GTA) works to avoid litigation and reduce friction among GTA Members and other industry participants by encouraging dispute resolution through peer review. The Process will be conducted in a manner that promotes the saving of time and expense while providing an efficient, fair and equitable means to settle disputes related to commercial transactions.
(2) These GTA Dispute Resolution Rules (‘Rules’) shall govern the resolution of any disputes falling within the jurisdiction of the GTA Process.
- Article 2 of the DR Rules contains provisions in the following terms:
(2) A Member or Non-Member, who incorporates the GTA Trade Rules or these Rules into its contract or agreement, agrees to resolve any disputes arising out of the inception, negotiation, formation, performance or any other aspect of the contract or contractual relationship, pursuant to these Rules.
(3) Members and Non-Members incorporating these Rules agree not to apply to any Court unless the dispute has been finalised pursuant to these Rules or the dispute falls outside the scope of these Rules.
- The DR Rules contain various provisions relating to such things as fees, confidentiality and different mechanisms for dispute resolution including expert determination, ‘Fast Track’ arbitration and ‘Full’ arbitration. Article 3 of the DR Rules provides that any of those processes must be commenced by lodging a request with GTA and paying the relevant filing fee
on or before twelve (12) months after the expiration date for performance of the contract(s) otherwise any claim is deemed to be waived and absolutely barred unless a GTA Arbitration Tribunal extends the time for commencing arbitration.
- Article 22 of the DR Rules empowers an arbitral tribunal to consolidate separate arbitrations. Article 25 provides that the jurisdiction of an arbitral tribunal is to include:
[T]he power to rule on its own jurisdiction, the validity and construction of the Arbitration Agreement, including any objection to the initial or continuing validity or effectiveness of the Arbitration Agreement, whether the Tribunal is properly constituted and what matters have been submitted to Arbitration in accordance with the Arbitration Agreement.
- Other provisions of the DR Rules deal with various procedural aspects of an arbitration including the powers of the arbitral tribunal, the provision of security for costs, witnesses, oral hearings, experts and publication of the arbitral award.
- The proceedings were commenced by a writ issued on 22 August 2016. A statement of claim was issued with the writ. In the statement of claim it is asserted that the effect of the contracts between each Grower and Emerald was that upon delivery of grain to Emerald, title would pass, after which Emerald would allocate the grain to a pool, effect the sale of grain within the pool, and hold all of the proceeds of sale of grain from that pool, after deduction of selling costs, for the benefit of all the suppliers whose grain was allocated to the pool. It is asserted that the net proceeds of sale would be held on trust for all suppliers to the pool, to be distributed to each supplier in accordance with the terms of the contract.
- The statement of claim further asserts that the Growers delivered a total of some 101,000 tonnes of wheat to Emerald, which was allocated to a pool designated Number 1 Pool, which also included wheat supplied by other Western Australian wheat producers. The statement of claim further asserts that Emerald wrongly included wheat within that pool which it had purchased for agreed prices, and that losses made upon the sale of wheat at prices below those agreed for its purchase had been wrongly debited to the proceeds of sale from that pool. The statement of claim further asserts that the amount wrongly deducted and withheld from the proceeds was held by Emerald on trust for the Growers and other producers who had contributed grain to the pool. The Growers assert their entitlement to be paid their portion of the amounts wrongly deducted and withheld, and further assert that by reason of the facts pleaded, Emerald committed a breach of trust, in respect of which relief was sought pursuant to s 93 and s 94 of the Trustees Act 1962 (WA).
- More specifically, the relief sought was an inquiry with respect to the identity and quantities of wheat supplied into the relevant pool by other suppliers; an inquiry into, and an account for, the total sums held in trust for the Growers and other suppliers into the pool; an order for payment to each of the Growers of their respective entitlements, together with interest; and such further or other relief as the court might think fit with respect to the due administration of the trust.
- On 28 September 2016, before taking any step other than entry of an appearance, Emerald applied for orders referring the parties to arbitration and staying the proceedings.
- On 23 December 2016, the Growers amended their statement of claim. The amendments include the introduction of an allegation that Emerald was obliged to make a genuine and reasonable determination of the amounts due to all suppliers of grain to the relevant pool, and allege breach of that obligation.
- The relief sought was also amended, by deleting a reference to relief pursuant to s 94 of the Trustees Act and including a claim for relief pursuant to s 77 and s 78 of that Act, including the appointment of a new trustee to administer the trust.
- In its written submissions Emerald submitted that the amendment to seek the appointment of a new trustee was ‘a claim without merit clearly made in an attempt to craft a claim that may be asserted to be inarbitrable’, whereas ‘the true gravamen of the [Growers’] claim [was] for monetary relief against Emerald’. In the course of oral submissions, counsel for Emerald submitted that the claim for the appointment of a new trustee and the due administration of the trust was a colourable attempt to avoid the operation of s 8 of the Act. For reasons which will appear, it is unnecessary to decide whether that proposition is correct.
The Trustees Act 1962 (WA)
- As the relief sought by the Growers pursuant to the Trustees Act is a significant aspect of their opposition to Emerald’s application for a stay and referral to arbitration, it is appropriate to set out the relevant provisions of that Act:
77. New trustees, Court may appoint
(1) The Court may, whenever it is expedient to appoint a new trustee or new trustees, and it is inexpedient, difficult or impracticable so to do without the assistance of the Court, make an order for the appointment of a new trustee or new trustees, either in substitution for, or in addition to, any existing trustee or trustees, or although there is no existing trustee.
(2) In particular, and without limiting the generality of the provisions of subsection (1), the Court may make an order appointing a new trustee in substitution for a trustee who –
(a) desires to be discharged; or
(b) has been held by the Court to have misconducted himself in the administration of the trust; or
(c) is convicted of an indictable offence; or
(d) is a person of unsound mind; or
(e) is bankrupt; or
(f) is a corporation that has ceased to carry on business, or is in liquidation, or has been dissolved.
(3) An order under this section, and any consequential vesting order or conveyance, does not operate further or otherwise as a discharge to any discharged, former or continuing trustee than an appointment of new trustees under any power for that purpose contained in any instrument would have operated.
(4) Nothing in this section confers power to appoint an executor or administrator.
(5) Every trustee appointed by the Court has, as well before as after the trust property becomes by law or by assurance or otherwise vested in him, the same powers, authorities, and discretions, and may in all respects act, as if he had been originally appointed a trustee by the instrument (if any) creating the trust.
78. Vesting orders, when Court may make
(1) The Court may make an order, in this Act called a vesting order, that has effect as provided in section 85.
(2) A vesting order may be made in any of the following cases, namely –
(a) where the Court appoints or has appointed a new trustee; or
(b) where a new trustee has been appointed out of Court under any statutory or express power; or
(c) where a trustee retires or has retired; or
(d) where a trustee is under a disability; or
(e) where a trustee is out of the jurisdiction of the Court; or
(f) where a trustee cannot be found; or
(g) where a trustee, being a corporation, has ceased to carry on business or is in liquidation or has been dissolved; or
(h) where a trustee neglects or refuses to convey any property, or to receive the dividends or income of any property, or to sue for or recover any property according to the direction of the person absolutely entitled to the same for 28 days next after a request in writing has been made to him by that person; or
(i) where it is uncertain who was the survivor of 2 or more trustees jointly entitled to or possessed of any property; or
(j) where it is uncertain whether the last trustee known to have been entitled to or possessed of any property is alive or dead; or
(k) where there is no personal representative of the last trustee who was entitled to or possessed of any property or where it is uncertain who is the personal representative of that trustee or where the personal representative of that trustee cannot be found; or
(l) where any person neglects or refuses to convey any property, or to receive the dividends or income of any property, or to sue for or recover any property in accordance with the terms of an order of the Court; or
(m) where a deceased person was entitled to or possessed of any property and his personal representative is under a disability; or
(n) where property is vested in a trustee and it appears to the Court to be expedient to make a vesting order.
(3) Where the provisions of subsection (2) are applicable, they extend to a trustee entitled to, or possessed of, any property either solely or jointly with any other person and whether by way of mortgage or otherwise.
93. Applications to Court, who may make
(1) An order under this Act for the appointment of a new trustee, or concerning any property subject to a trust, may be made on the application of any person beneficially interested in the property, whether under a disability or not, or on the application of any person duly appointed trustee of the property or intended to be so appointed.
(2) An order under this Act concerning any interest in any property subject to a mortgage may be made on the application of any person beneficially interested in the property, whether under a disability or not, or of any person interested in the money secured by the mortgage.
The Commercial Arbitration Act 2012 (WA)
- It is also appropriate to set out the relevant portions of the Act, under which relief is sought in these proceedings. Section 1C of the Act provides relevantly:
1C. Paramount object of Act
(1) The paramount object of this Act is to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense.
(2) This Act aims to achieve its paramount object by –
(a) enabling parties to agree about how their commercial disputes are to be resolved (subject to subsection (3) and such safeguards as are necessary in the public interest); and
(b) providing arbitration procedures that enable commercial disputes to be resolved in a cost effective manner, informally and quickly.
(3) This Act must be interpreted, and the functions of an arbitral tribunal must be exercised, so that (as far as practicable) the paramount object of this Act is achieved.
- The Act applies to domestic commercial arbitrations. It was common ground that if the contractual provisions to which I have referred apply to the disputes the subject of the proceedings, they would give rise to domestic commercial arbitrations between each Grower and Emerald. Some of the provisions of the Act only apply if the place of arbitration is in Western Australia. However, other provisions, including s 8, are not so limited.
- Section 8 of the Act provides:
8. Arbitration agreement and substantive claim before court (cf. Model Law Art 8)
(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.
(2) Where an action referred to in subsection (1) has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.
- It is clear that Emerald made its application to the court prior to submitting any statement on the substance of the dispute the subject of the proceedings. The issues which remain to be determined under s 8 are therefore:
(a) Is there an arbitration agreement between each Grower and Emerald, and, if so, what is the scope of that agreement?
(b) Do the proceedings include a matter or matters which are within the scope of the arbitration agreement?
(c) Is the arbitration agreement incapable of being performed?
The arbitration agreements
- There is no doubt that there is an arbitration agreement (within the meaning of that expression in s 8 of the Act) between each Grower and Emerald, and the Growers did not contend otherwise. Clause 48 of each of the two versions of the Conditions defines the capitalised terms used in cl 32 of each version. Predictably enough, ‘Terms and Conditions’ is defined to mean the terms and conditions in the document; ‘Pool Contract’ is defined to mean ‘the contract between Emerald and You for the delivery of a Commodity into a Pool’; and ‘You’ is defined to mean the seller – an expression which corresponds to the terminology used in the Contract Confirmation document. ‘Commodity’ is defined to mean wheat, barley or canola; and ‘Pool’ is defined to mean ‘the Emerald Grain Pool managed by Emerald that You have delivered the Commodity to’.
- Applying the definitions contained within cl 48 of each version of the Conditions, it is clear that cl 32 of each version gives rise to an arbitration agreement between each Grower and Emerald. It is appropriate to now consider the ambit of those agreements by looking firstly at general principles relating to the construction of such agreements, and then the specific terms of the agreement between each Grower and Emerald.
The construction of arbitration agreements
- Arbitration agreements, as a species of commercial contract, are to be construed by reference to the general principles which apply to the construction of all commercial contracts. Those principles require that the words used by the parties must be construed objectively by ascertaining what a reasonable businessperson would have understood the words of the contract to mean ‘by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose’.
- However, the commercial objectives ordinarily attributed, objectively, to rational businesspeople will generally require the court to adopt a broad, liberal and flexible approach to the construction of an arbitration agreement, to the extent that such an approach is consistent with the words used by the parties.
- In Australia, many judges have described this approach as arising from a profound change in the relationship between the courts and arbitration which occurred during the last quarter of the twentieth century. The approach now taken in Australia is consistent with the approach taken in other comparable jurisdictions, although the cases in different jurisdictions reflect different degrees of emphasis upon the significance of the language used by the parties. In Western Australia it is well established that the ‘broad, liberal and flexible’ approach to construction can only be adopted to the extent that it is consistent with the language used by the parties in their agreement, and does not authorise the court to disregard or depart from the clear meaning of that language. Courts in other Australian jurisdictions have also recognised that due and appropriate regard to the language used by the parties in their arbitration agreement, consistently with general principles of contractual construction, is not inconsistent with the broad, liberal and flexible approach to the construction of that language endorsed by the many authorities in this area.
- Consistently with the general approach to contractual construction taken in Australia, it is now appropriate to turn to the language used by the parties in their arbitration agreements in this case, bearing in mind the ‘broad, liberal and flexible’ approach to the construction of that language endorsed by the authorities to which I have referred, and which is consistent with the legislative objectives specified in s 1C of the Act.
‘Arising out of’
- The term ‘arising out of’ is commonly used in arbitration agreements to describe the requisite degree of connection between the contract to which the arbitration agreement relates and the relevant dispute, and it is used in this way in cl 32 of each version of the Conditions. The cases dealing with arbitration agreements containing such a provision establish that the agreement should be construed as covering every dispute having a close connection with the contract so that, for example, a claim for rectification of a contract gives rise to a dispute ‘arising out of’ the relevant contract, as does a dispute arising from a representation as to the manner in which powers to terminate a contract would be exercised. Prior to the decision in the Harbour Assurance case, it was at least arguable that a dispute as to whether there was ever a contract at all was not a dispute ‘arising out of’ the relevant contract. That contention may well explain the express inclusion within cl 32 of each version of the Conditions of ‘any question regarding the existence of a contract, the validity or its termination’, perhaps out of an abundance of caution. However, the more recent cases to which I have referred establish that the ambit of the expression ‘arising out of’ is sufficiently broad to include disputes with respect to the existence of the relevant contract.
- Clause 32 of each version of the Conditions also uses the expression ‘relating to’ to describe the requisite degree of connection between a dispute or claim coming within the arbitration agreement and the substantive agreement. The cases dealing with the use of that expression in an arbitration agreement establish that it is properly construed as a term of the widest import which should not, in the absence of compelling reasons, be read down.
‘In connection with’
- Clause 32 of each version of the Conditions also uses the expression ‘in connection with’ to describe the requisite degree of connection between a dispute falling within the arbitration agreement and the substantive agreement. Cases dealing with the use of that expression in an arbitration agreement establish that it should be construed widely so as to include claims which do not arise out of or pursuant to the relevant contract, but nevertheless have a sufficient degree of connection with that contract.
The language of the arbitration agreements – summary
- Clause 32 of each version of the Conditions uses three expressions to describe the requisite degree of connection between ‘any dispute or claim’ and the Conditions themselves, the contract of which they form part, or the delivery of commodities to a pool. Each of those expressions – namely ‘arising out of’, ‘relating to’ and ‘in connection with’ – have repeatedly been held to be words of the widest import. Further, perhaps out of an abundance of caution, the parties have expressly included within the disputes or claims which can be resolved by arbitration ‘any question regarding the existence of a contract, the validity or its termination’. The language used by the parties in their arbitration agreements compels the conclusion that an ordinary businessperson would understand the arbitration agreement to extend to, and embrace, a very wide ambit of disputes or claims having at least some degree of connection with, or relationship to, the substantive agreement between the parties for the delivery and sale of grain or its performance.
Do the proceedings involve ‘a matter’ which is the subject of the arbitration agreement?
- The next question to be addressed is the question of whether the proceedings involve a matter or matters which fall within the scope of the arbitration agreements construed in the manner described above. Some years ago I reviewed some of the authorities in this area in the following terms:
In Tanning Research Laboratories Inc v O’Brien  HCA 8; (1990) 169 CLR 332, Deane and Gaudron JJ observed that in order for a dispute to be capable of settlement by arbitration:
‘[T]he controversy must be one falling within the scope of the arbitration agreement and, perhaps, one relating to rights which are not required to be determined exclusively by the exercise of judicial power (351).’
In Hancock v Rinehart  NSWSC 1352, Bergin CJ in Eq, referred to various decisions concerning the meaning to be given to the word ‘matter’ in the context of applications for the stay of proceedings under various legislative regimes, including the observations made in Tanning Research Laboratories v O’Brien, in which it was held that the word ‘matter’ could but does not necessarily mean the whole matter in controversy in the court proceedings, or the claims within the scope of the court proceedings . In that case what was required for the purposes of s 7(2) of the International Arbitration Act 1974 (Cth) (which corresponds with s 8 of the 2012 Act) was some subject matter, right or liability in controversy falling within the scope of the arbitration agreement which need not be coextensive with the subject matter in controversy in the court proceedings.
In Comandate Marine Corp v Pan Australia Shipping, Allsop J observed that the expression ‘matter’ when used in s 7 of the International Arbitration Act should be understood at a level of generality, without necessarily connoting exact correspondence between the ambit of the court proceedings and the ambit of the arbitration agreement . In Carter Holt Harvey Ltd v Genesis Power Ltd  NZHC 114;  3 NZLR 794, Randerson J, when considering a provision analogous to s 8 of the 2012 Act, observed that the requirement imposed was for a ‘direct relationship’ between the matter before the court and that which is the subject of the arbitration agreement .
- More recently, Mitchell J summarised the authorities in these terms:
There are a number of Australian authorities which consider the meaning of the term ‘matter’ used in the context of s 7 of the International Arbitration Act 1974 (Cth). That section empowers a court to grant a stay where proceedings involve the determination of a matter that, in pursuance of an arbitration agreement, is capable of settlement by arbitration. In that context the ‘matter’ to be determined in a proceeding is to be ascertained by reference to the subject matter of the dispute in the proceeding and the substantive, although not necessarily the ultimate, questions for determination in the proceeding. The scope of the matter is to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including the defence, are based.
The language of s 8 of the Act differs from that of s 7 of the International Arbitration Act, in that the former refers to a matter which is the subject of an arbitration agreement while the latter refers to a matter capable of settlement in pursuance of an arbitration agreement. However, the context in which the term ‘matter’ is used in s 8 of the Act is even more likely to invoke the concept of a controversy for determination in legal proceedings as opposed to the legal proceedings themselves.
Observations to similar effect have been made in the Court of Appeal of Victoria.
- So, in this case, the question of whether the proceedings involve a matter or matters which are the subject of an arbitration agreement depends upon whether there are controversies which are to be determined in the course of those proceedings which can be the subject of arbitration pursuant to the arbitration agreement. That question is to be ascertained by reference to the subject matter of the dispute or controversy in the proceedings and the questions that must be determined in the course of the proceedings. If one or more of those questions is a ‘matter’ which can be determined pursuant to the arbitration agreement, the opening words of s 8 of the Act are engaged irrespective of whether or not the proceedings also raise controversies which cannot be determined by arbitration pursuant to the arbitration agreement, and irrespective of whether the ultimate relief sought in the proceedings cannot be obtained by arbitration. The Growers’ submissions with respect to their inability to obtain relief in relation to the trust which they assert arises from the terms of their contracts with Emerald will be addressed below in the context of their submission that their arbitration agreements are, for that reason, incapable of being performed.
- However, it is appropriate in the present context to address the question of whether the existence of the trust which the Growers assert is a ‘matter’ which is the subject of the arbitration agreements between the Growers and Emerald which must be referred to arbitration for determination. That is because, in their written submissions, the Growers submitted that the question of the existence of a trust was so inextricably connected with the scope of the arbitration agreement that the jurisdiction of the court under s 8 of the Act could not be determined in isolation from the question of the existence of a trust. Although, in the result, that submission was not vigorously pressed by counsel for the Growers, it should be rejected. Essentially, that is because the existence of a trust is not an issue which determines whether or not there is an arbitration agreement between each Grower and Emerald, to which a matter or matters which arise for determination in the proceedings are subject.
The standard of proof under s 8 of the Act
- The cases in different jurisdictions reveal different views on the question of whether it is sufficient for a party seeking a stay and reference to arbitration to establish an arguable case or sustainable argument to the effect that there is a matter or matters in the court proceedings which are the subject of an arbitration agreement or, alternatively, whether a party seeking a stay must prove, on the balance of probabilities, that a matter or matters in the court proceedings are the subject of an arbitration agreement. The cases on the topic were thoroughly reviewed and analysed by Gleeson J in Rinehart v Rinehart [No 3]. Her Honour concluded that the weight of Australian authority favoured the view that an applicant for a stay and referral to arbitration must prove on the balance of probabilities that a matter or matters in the court proceedings are the subject of an arbitration agreement. However, her Honour observed that the burden would generally be discharged through a process of characterisation of the matter, without it being necessary to assess or resolve the merits of the dispute or controversy which comprise the relevant ‘matter’. Her Honour acknowledged that in some cases it may be necessary to consider the merits of a claim or defence said to be the subject of an arbitration agreement in order to be satisfied that there is a relevant matter. Her Honour gave as an example a case in which there was an issue as to whether a controversy falling within the scope of an arbitration agreement could have any bearing or effect upon the questions for determination in the court proceedings.
- The decision in Rinehart v Rinehart [No 3] has been followed in this court. In doing so, Le Miere J noted that the question which had to be determined on the balance of probabilities was whether there was an arbitration agreement to which a matter arising in the relevant court proceedings was subject. In the case before him, that was a matter which could be resolved on the proper construction of the relevant contracts, in a relatively summary fashion. However, he noted the decision of Aikens LJ in Berezovsky to the effect that in cases where that was not practicable, the court could either direct an issue to be tried by the court, or proceedings could be stayed under the inherent jurisdiction of the court so that the putative arbitral panel could decide the question of its own jurisdiction.
- For present purposes it is sufficient to note that questions of the kind addressed in Rinehart v Rinehart [No 3] and Samsung only arise where there is an issue which, if determined one way or another, will determine whether there is in fact a controversy arising for determination in the court proceedings which is the subject of an arbitration agreement. In the present case, the question of whether there is or is not a trust does not determine whether there is or is not a controversy which will arise for determination in the court proceedings which is the subject of the arbitration agreements between the Growers and Emerald. Rather, this case is an example of the usual case instanced by Gleeson J, in which the answer to the questions posed by s 8 of the Act can be determined by a process of characterisation of the relevant disputes or controversies, without requiring an assessment or determination of those disputes or controversies on their merits. The question of whether or not there is a trust has no bearing upon the existence or ambit of the arbitration agreements. The Growers’ submissions on the ambit of that arbitration agreement can and must be determined by reference to the character of the matter or matters arising in the court proceedings, including the trust issues, and not by the determination of those issues on their merits.
- Accordingly, in this case it is unnecessary, and indeed inappropriate, to make any assessment of the merits of the Growers’ assertion that Emerald holds the proceeds of sale of their grain on trust on their behalf. Rather, the question is whether that issue is a ‘matter’ which is the subject of the arbitration agreement between each grower and Emerald, which is the question to which I will now turn. If it is such a ‘matter’, the scheme of the Act, evident in s 8, is that it should be determined pursuant to the arbitration agreement, rather than by the court.
- For the same reason, it is unnecessary to address or resolve Emerald’s submission with respect to the true forensic purpose of the Growers’ claim for relief in the form of removal of Emerald as a trustee of the trust which they assert. Rather, the question to be resolved is whether the existence of that claim takes the proceedings beyond the scope of s 8 of the Act, for one or other of the reasons asserted by the Growers. This is not to say that the pursuit of a claim in bad faith or for a collateral purpose of a kind giving rise to an abuse of process could never be relevant to the determination of an application under s 8 of the Act, but it is to say that the application in this case can be determined without the need to resolve any such issue.
Is there a matter or matters falling within the scope of the arbitration agreements?
- It is necessary now to apply the conclusions I have drawn with respect to the existence and ambit of the arbitration agreements between each grower and Emerald, and the general principles relating to the identification of a ‘matter’ falling within the scope of such an agreement to determine whether, in this case, there is a matter or matters arising for determination in the proceedings which is the subject of the arbitration agreements.
- In the course of oral argument, counsel for the Growers conceded that viewed in isolation, the words used in cl 32 are words of the widest import which would, on their face, apply to at least some of the ‘matters’ arising for determination in the proceedings. However, he submitted that when the arbitration agreements were viewed and construed in their proper context, it should be concluded that there were no matters arising in the court proceedings which fell within their scope. He relied upon four matters which were said to provide this context, namely:
(a) cl 32 should be read in the context of the clause and heading which immediately precede it, and by reference to the Trade Rules which are incorporated by reference into the arbitration agreement;
(b) the conferral of non-exclusive jurisdiction on the courts of Victoria by cl 47 of the Conditions;
(c) the nature of the rights asserted in the proceedings, and in particular the trust issues asserted, the number of parties and the time limit to which arbitral proceedings were subject; and
(d) the terms of an exemption from the provisions relating to managed investment schemes issued by the Australian Securities and Investments Commission (ASIC) in respect of grain pooling operations (amongst other things).
- I will deal with each of these issues in turn, before turning, finally, to the Growers’ submission that the arbitration agreements are, in any event, incapable of being performed.
- The Growers rely upon the heading to the section of the Conditions in which the arbitration agreement is located, the preceding clause (cl 31), which expressly incorporates the GTA Trade Rules, and that part of the arbitration agreement which requires the arbitration to be conducted in accordance with the DR Rules. The Growers submit that when regard is paid to the general tenor of the GTA Trade Rules, the broad language of the arbitration agreement should be construed narrowly and as only applying to disputes of a ‘technical or mercantile nature’. The Growers submit that the dispute the subject of the proceedings is not of that character.
- In this context the Growers rely upon the references in the introduction and preamble to the GTA Trade Rules to ‘disputes of a mercantile, financial or commercial character’ and contend that those words should be used to read down the ambit of rules 24 and 26, relating to arbitration. They also draw attention to the fact that the rules refer to the resolution of disputes by peer review, which is said to provide another indication that arbitral disputes are limited to those of a technical or mercantile nature, as is the absence of legal representation without leave of the arbitral tribunal. A similar inference is said to be drawn from the provision of the DR Rules which requires claims to be brought within 12 months, unless time is extended by the arbitral tribunal, and from the fact that the parties to any arbitration will be only the individual grower and Emerald, and not all growers contributing grain to a relevant pool.
- The Growers submit that all these provisions of the Conditions and the Trade Rules and DR Rules incorporated into the Conditions support the conclusion that the arbitration agreement should be construed as limited to matters of a technical or mercantile nature arising only as between an individual grower and Emerald, with the consequence that disputes between a number of growers and Emerald with respect to the operation of a pool and the performance of Emerald’s duties as a trustee fall outside the scope of the agreement.
- There are a number of reasons why this proposition must be rejected.
- First, cl 31 expressly provides that in the event of inconsistency between the Conditions and the GTA Trade Rules, the Conditions are to prevail. Accordingly, it would be contrary to the hierarchy of contractual documents agreed by the parties to use the GTA Trade Rules to constrain or confine the unconstrained and unconfined language used in the arbitration agreement contained in the Conditions. The Growers’ submissions based on the GTA Trade Rules and the DR Rules are inconsistent with the breadth of the disputes included within the ambit of the arbitration agreement by cl 31 of the Conditions, and that clause must prevail to the extent of that inconsistency.
- Second and in any event, the reference in the GTA Trade Rules to disputes of a ‘mercantile, financial or commercial character’ does not support the Growers’ contention that the arbitration agreement should be construed as confined to disputes of a ‘technical or mercantile nature’. The GTA Trade Rules do not characterise the disputes by using the word ‘technical’, and the words which are used are of quite sufficient breadth to encompass the Growers’ claims against Emerald. In substance, the Growers claim that Emerald has not complied with the terms of commercial contracts for the sale of grain, with the result that Emerald is obliged to pay further sums to each Grower. Disputes of that character fall squarely within the natural and ordinary meaning given to the words ‘mercantile, financial or commercial character’. It follows that nothing in the language of the introduction or preamble to the GTA Trade Rules justifies reading down the arbitration provisions within those rules to disputes of a ‘technical’ nature, or so as to exclude disputes of the kind raised by the Growers in their proceedings against Emerald.
- Third, the Growers’ argument with respect to the character of the disputes which can be the subject of arbitration under their agreements with Emerald is inconsistent with the express terms of the arbitration agreements, which require ‘any question regarding the existence of a contract, the validity or its termination’ to be resolved by arbitration. Plainly, questions of that character are not questions of a ‘technical’ kind, but would ordinarily involve contested issues of law and fact.
- Fourth, it is not possible to read down the clear and unambiguous language of the arbitration agreements by reference to inferences which might (or might not) be drawn from such things as the composition of the arbitral tribunal and the requirement for leave to be granted before parties can be legally represented at a hearing. Rather, those provisions simply reflect choices which the parties have made with respect to the mechanisms by which their disputes will be resolved and suggest, if anything, a preference for industry expertise and informality. Those preferences shed no light on the proper meaning to be given to the words used in the arbitration agreement.
- Fifth, essentially for the same reasons, no inferences capable of confining the clear and unambiguous language of the arbitration agreements can be drawn from the provisions of the GTA Trade Rules with respect to the time within which claims are to be brought, or the fact that the parties to each arbitration will be the parties to the relevant contract – namely, each grower and Emerald. In relation to time, again, the provisions in the GTA Trade Rules suggest nothing more than a preference for expeditious resolution and, in any event, an arbitral tribunal is given the power to extend time in an appropriate case. In relation to parties, it is hardly surprising the arbitration agreement is limited to the parties to the relevant contract, and no inference can properly be drawn from that self‑evident fact. Further and in any event, as I have noted, the DR Rules expressly allow for consolidation of separation arbitrations, as does s 27C of the Act.
- For these various reasons, the Growers’ reliance upon the GTA Trade Rules is misplaced and their submissions must be rejected.
Submission to the non-exclusive jurisdiction of the courts of Victoria
- The Growers submit that by submitting to the non-exclusive jurisdiction of the courts of Victoria in each version of cl 47 of the Conditions, the parties have acknowledged the jurisdiction of the courts with respect to disputes falling outside the scope of the arbitration agreement, which supports a narrow construction of the arbitration agreements.
- There are a number of reasons why this submission must be rejected.
- First, even if an inference could be drawn from the parties’ agreement to confer non-exclusive jurisdiction upon the courts of Victoria that not all conceivable disputes were covered by their arbitration agreement, it does not follow that their arbitration agreement should be given a narrow construction. All that could properly follow from such an inference is that the parties have recognised that there may conceivably be disputes which do not fall within the terms of their arbitration agreement.
- Second, it is significant that the jurisdiction clause in the Conditions contains an agreement to submit to the non-exclusive jurisdiction of the courts of Victoria. While there is an obvious tension between an agreement to confer exclusive jurisdiction upon a court or courts and an arbitration agreement, there is no such tension between an arbitration agreement and an agreement to submit to the non-exclusive jurisdiction of the courts.
- Third, even in cases in which parties have agreed to submit to the exclusive jurisdiction of courts and have also entered into an arbitration agreement, the courts have shown a willingness to construe the relevant provisions in such a way as to give effect to the parties’ evident intention to arbitrate their disputes.
- Fourth, in the present case there is no tension at all between the parties’ agreement to confer non-exclusive jurisdiction upon the courts of Victoria and the broad construction which I would give to their arbitration agreement. By cl 47, the parties have acknowledged that the courts of Victoria have jurisdiction to supervise the performance of their arbitration agreement and enforce the terms of any award made in accordance with that agreement and, perhaps, have made provision for the possibility that there may be disputes which do not fall within the scope of their arbitration agreement. None of those things are inconsistent with the natural and ordinary meaning properly given to the words used by the parties in their arbitration agreements.
- For these reasons, the Growers’ reliance upon the parties’ agreement to confer non‑exclusive jurisdiction upon the courts of Victoria is misplaced and does not support the proposition that the arbitration agreements do not apply to the matters raised in the proceedings.
The nature of the rights asserted
- The Growers submit that the arbitration agreement should not be construed in such a way as to attribute to the parties an intention that claims by numerous Growers based upon alleged breach of trust should be resolved by arbitration. This submission is advanced as a matter of the proper construction of the arbitration agreements, as distinct from the submissions which will be addressed below, to the effect that the arbitration agreements, if applicable, are incapable of being performed because of the character of the rights asserted and the relief sought in the proceedings.
- There are a number of reasons why the Growers’ submissions, advanced as a matter of construction of the arbitration agreements, must be rejected. First, there is nothing in the language of the agreements, or the contractual documents of which they form part, which would support the Growers’ contentions. To the contrary, as I have observed, and as the Growers concede, the arbitration agreements are expressed in the widest possible terms.
- Second, the proposition that disputes involving more than one grower fall outside the arbitration agreements must be rejected because:
(a) for the reasons already given, no inference can properly be drawn from the fact that the arbitration agreement only applies to the parties to the contract;
(b) the DR Rules expressly provide for consolidation of arbitrations; and
(c) as the cases which will be considered below in the context of the Growers’ submission that the arbitration agreements are incapable of being performed demonstrate, the fact that an arbitration agreement does not extend to and include all persons with an interest in the outcome of a dispute does not mean that it cannot or should not be enforced by the court.
- Third, there are no words in any of the contractual documents, nor any basis in commercial experience for supposing that the parties to the agreements being on the one hand grain growers, and on the other hand a grain dealer, would attach any significance to the legal characterisation of their relationship, nor any basis for attributing to those parties an intention that the mechanism by which their disputes are to be resolved should be determined by that legal characterisation.
- For these reasons, the Growers’ submission based upon the nature of the rights asserted in the proceedings must be rejected.
The managed investment scheme exemption
- In their written submissions the Growers also placed reliance upon the terms used in an instrument of exemption from the operation of certain provisions of the Corporations Act 2001 (Cth)relating to managed investment schemes issued by ASIC. However, when pressed by the court as to an explanation for the basis upon which documents produced by a third party could shed any light upon the proper construction and effect of the contracts between the Growers and Emerald, counsel for the Growers did not press this submission. As there is no basis upon which documents produced by ASIC could shed any light upon the proper construction and effect of the contracts between the Growers and Emerald, that concession was properly made.
Summary and conclusion – matter subject to an arbitration agreement
- For these reasons, all the arguments advanced by the Growers in an attempt to constrain the application and effect of the broad language used in their arbitration agreements with Emerald must be rejected. As their contention that Emerald is a trustee of the proceeds of sale of their grain derives from and indeed depends upon the terms of their contracts with Emerald, the dispute as to whether Emerald is in fact a trustee, and if so, as to whether Emerald is in breach of trust, is clearly a dispute arising out of, relating to or in connection with their agreements with Emerald. All the questions or controversies which arise for determination in the proceedings which they have commenced against Emerald are of that character, with the result that the parties must be referred to arbitration and a stay of the proceedings granted unless the court is satisfied that the arbitration agreements are incapable of being performed – a matter to which I will now turn.
Are the arbitration agreements incapable of being performed?
- Finally, the Growers submit that even if the proceedings which they have commenced give rise to matters falling within the scope of their arbitration agreements with Emerald, those matters are not arbitrable, and their arbitration agreements are therefore incapable of being performed within the meaning of s 8(1) of the Act. The Growers’ submission relies primarily upon the nature of the issues raised in their proceedings with respect to the proper administration of the trust which they assert, and the relief which they seek with respect to the removal of Emerald as trustee, and the appointment of another trustee in place of Emerald. The Growers also rely, although perhaps to a lesser extent, upon the fact that it is not possible to join all necessary and appropriate parties to the arbitral proceedings.
Does the court have a discretion with respect to arbitrability?
- In Rinehart v Rinehart [No 3], Gleeson J addressed the question of whether the court had a discretion to decide or not decide whether an arbitration agreement is null and void, inoperative, or incapable of being performed. The proposition that the court has such a discretion is said to be supported by the terminology of s 8, which provides that the court must refer to the parties to arbitration, unless it finds that the arbitration agreement has one or other of the specified characteristics. Gleeson J concluded that the court did have such a discretion. The issue was not addressed in argument in this case, and it is not necessary for me to express a view upon it, given that there is no reason why I should not proceed to determine whether the arbitration agreements between the Growers and Emerald are incapable of performance.
- It is well‑established that the doctrine of non‑arbitrability is recognised by Australian law and reflected in the provisions of s 8 of the Act and, in particular, that portion of s 8 which provides that the court is not required to refer the parties to arbitration if it finds that the arbitration agreement is incapable of being performed. As I noted in ATCO, the doctrine has been described as resting on the notion that ‘some matters so pervasively involve public rights, or interests of third parties, which are the subjects of the uniquely governmental authority, that agreements to resolve such disputes by “private” arbitration should not be given effect’.
- The proposition that disputes with respect to the administration of a trust are inherently of this character was considered and rejected by the majority in Rinehart v Welker. After reviewing the authorities, Bathurst CJ concluded that ‘it is only in extremely limited circumstances that a dispute which the parties have agreed to refer to arbitration will be held to be non‑arbitral’. In that context, Bathurst CJ addressed the question in these terms:
It is with this background that it falls to be determined whether a claim to remove a trustee is capable of settlement by arbitration. None of the parties were able to point to any authority on the question. It is correct, as the respondents submitted, that a trust is a creature of equity and the courts maintain an inherent supervisory jurisdiction over the administration of trusts: McLean v Burns Philp Trustee Co Ltd(1985) 2 NSWLR 623 at 633 and 637. This court in Rinehart v Welker  NSWCA 403 at expressed the view that the proper conduct of trustees was a matter which required close public scrutiny. Further, the approach of a court in evaluating all relevant circumstances in considering whether it is in the interests of the beneficiaries to remove a trustee (Miller v Cameron supra) is a matter which tends against such disputes being arbitrable.
In an article ‘The Arbitration of Trust Disputes’ Journal of International Trust and Corporate Planning (1999) Vol 7 No 4, Messrs Cohen QC and Staff expressed the view that the statutory jurisdiction of the court to appoint a new trustee could not be ousted by an arbitration provision. The only authority cited in support of that proposition was the decision of the United Kingdom Court of Appeal in Czarnikow v Roth Schmidt & Company  2 KB 478 which held void a provision in the rules of the Refined Sugar Association prohibiting an application by the arbitrator to the court for an opinion of the court on any question of law. The clause was held to be void for the reasons set out by Atkin LJ at 491:
‘The jurisdiction that is ousted in this case is not the common law jurisdiction of the Courts to give a remedy for breaches of contract, but the special statutory jurisdiction of the Court to intervene to compel arbitrators to submit a point of law for determination by the Courts. This appears to me to be a provision of paramount importance in the interests of the public.’
Notwithstanding these matters, it is my opinion that at least in circumstances where the trustee and each beneficiary have expressly agreed to their disputes being referred to arbitration, a court should give effect to that agreement. The supervisory jurisdiction of the court is not ousted. It continues to have the supervisory role conferred upon it by the relevant legislation, in this case the Commercial Arbitration Act. There may be powerful commercial or domestic reasons for parties to have disputes between a trustee and beneficiary settled privately. It does not seem to me that the matters to which I have referred above should preclude a court from giving effect to such an agreement provided the jurisdiction of the court is not ousted entirely.
The fact that an arbitrator may not have power to remove a trustee or make a vesting order does not alter this position. An arbitrator could give effect to a claim for removal by ordering the trustee to resign, to appoint a new trustee and to convey the trust property to that person. Such an award could be enforced as a judgment under, in this case, the Commercial Arbitration Act s 33.
In these circumstances it does not seem to me to be contrary to public policy for the beneficiaries under the Trust and the trustee to agree to resolve their disputes by arbitration, provided the supervisory jurisdiction of the court contained in the relevant legislation is maintained. It is not necessary in the present case to deal with a more difficult question which would arise if the arbitration clause was contained in the Trust Deed and purported to bind all persons beneficially entitled under the Trust, including infants and unborn beneficiaries.
- McColl JA generally agreed with Bathurst CJ on this issue, while adding a number of observations of her own. In the course of those observations, her Honour noted that the mere fact that a power is conferred on a court by a statute does not mean that an arbitrator cannot exercise such a power – rather, the question turns upon the language of the arbitration clause, and, in particular, whether there is to be implied in the parties’ agreement to submit their disputes to arbitration a term to the effect that the arbitrator is to have the authority to give such relief as would be available in a court having jurisdiction with respect to that subject matter.
- McColl JA accepted the force of observations made by Young JA with respect to the potential practical difficulties of enforcing an arbitrator’s award relating to the removal of a trustee and appointment of another trustee, but concluded that they did not militate against the conclusion that the claims were arbitrable.
- Young JA disagreed with the other members of the court on the issue of arbitrability, largely because of the practical difficulties in the path of a court enforcing any decision of an arbitrator with respect to the removal of a trustee and the appointment of a new trustee.
- The Growers submit that the decision in Rinehart v Welker should be distinguished on two grounds:
1. in this case, not all beneficiaries support the reference of disputes to arbitration; and
2. the degree of curial supervision under the Act is not as extensive as was available to the court at the time Rinehart v Welker was decided, because the ambit of an appeal from an award is now much more constrained.
- The second proposition may be shortly disposed of. Any arbitration of the matters raised in the proceedings brought by each Grower will be supervised by a court, being this court if the arbitration takes place in Western Australia, or by the court in the jurisdiction in which the arbitrations take place, or by the Supreme Court of Victoria pursuant to cl 47 of the Conditions. The supervising court will have the capacity to ensure compliance with the provisions of the agreement and the proper and orderly conduct of the arbitration in accordance with law, and will have the capacity to set aside an award if the minimum standards specified in the governing law are not met. For these reasons, the distinction between the ambit of appeal available at the time Rinehart v Welker was decided and the narrower ambit presently available does not support the conclusion that a court will lack the power to supervise the proper conduct of an arbitration or arbitrations under the arbitration agreements.
- Turning now to the other point of distinction upon which the Growers rely, there is no doubt that, in Rinehart v Welker, all the beneficiaries of the trust, and the only third party identified as having an interest in the dispute, all supported the reference to arbitration. In the present case, the Growers are all opposed to the dispute being referred to arbitration, and the position of third parties whose interests might be affected (namely, other wheat producers supplying grain into the pool) is not known. The question is whether these factual distinctions lead to the conclusion that an allegation that the Growers’ contracts have given rise to a trust, which Emerald has failed to perform, has the consequence that those issues are not arbitrable.
- The circumstances of Rinehart v Welker are quite different to the circumstances of the present case. Rinehart v Welker was concerned with an express trust, created for the benefit of members of a family. The corporate entity described as the third party with an interest in the outcome of the dispute was under the control of members of the family. In the present case, the existence of the alleged trust is contested. If the trust does exist, as the Growers assert, it arises from the terms of a commercial contract entered into by parties at arm’s length. Further, if there is a trust, the beneficiaries of that trust have no common interest, other than their individual interest in the due execution of the trust. In the present case, the trust is not said to confer any discretion upon the trustee, and the entitlements asserted by each Grower are entitlements capable of measurement in exclusively pecuniary terms, and will result in a payment calculated in accordance with the terms of their contracts if, as they assert, the trust has not been fully performed.
- While I can understand, with respect, why Bathurst CJ would have placed significant weight upon the position adopted by the beneficiaries and the interested third party in the circumstances of Rinehart v Welker, in the quite different circumstances of the present case, I do not consider that the position adopted by the Growers renders the matters raised in their proceedings non‑arbitrable. Although they assert equitable rights, those rights are entirely commercial in character. Whether or not they have been denied the rights to which they are entitled will depend entirely upon the proper construction and effect of their contracts. In those circumstances, the possible legal characterisation of the rights which they assert as equitable does not lead to the conclusion that the disputes are not arbitrable.
- Turning now to the Growers’ contentions with respect to the limitations upon the relief which they might obtain in an arbitration, it is unnecessary and, in my view inappropriate, for the court to determine whether it would be open to an arbitrator or arbitrators to grant the Growers relief in the form of removal of Emerald as trustee of the trust which the Growers assert. Essentially, that is because it is now well‑established that the fact that an arbitrator cannot grant all the relief a court is empowered to grant does not mean that the dispute is incapable of arbitration. As I have noted, that question will turn upon the question of whether the arbitration agreement should be construed as implying that the arbitrator is empowered to grant all the relief which a court might have granted. That is a question best determined by the arbitral tribunal.
- It only remains to consider the submission to the effect that the matters raised in the proceedings are not arbitrable because it is not possible to join all wheat producers who may have an interest in the outcome of the proceedings in the arbitral process.
- In relation to that submission, it should first be noted that the Growers have not endeavoured to join all other producers who contributed grain to the relevant pool as parties to the proceedings. In any event, it is now well‑established that the fact that a ‘matter’ the subject of proceedings falling within s 8 of the Act may have an effect upon the interests of others who are not party to the arbitration agreement does not result in the ‘matter’ falling outside the scope of s 8. These decisions must place the decision in Paharpur in doubt. However, it is unnecessary in the present case to resolve that doubt because Paharpur can be distinguished on the basis that in that case, a party not a party to the arbitration agreement was a central and integral party to the relevant dispute. In the present case, the other wheat producers who contributed grain to the relevant pool cannot be described in those terms. If the Growers are successful in their claims against Emerald, it may well follow that other contributors to the relevant pool would also be successful in advancing such claims. However, the calculation of the amount due to each Grower can occur quite easily, taking into account the interests of other producers contributing grain into the pool, whether or not those producers participate in the arbitral proceedings.
- For these reasons, the Growers’ contention that their arbitration agreements with Emerald are not capable of performance must be rejected.
- For the reasons given, Emerald has established that s 8 of the Act applies to these proceedings. It follows that the court must refer the parties to arbitration and stay the proceedings for that purpose.