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Inghams Enterprises Pty Ltd v Southern Cross Farms Australia Pty Ltd and ANOR [2022] SASCA 7

Inghams Enterprises Pty Ltd v Southern Cross Farms Australia Pty Ltd and ANOR [2022] SASCA 7

SUPREME COURT OF SOUTH AUSTRALIA

(Court of Appeal: Civil)

DISCLAIMER – Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment.  The onus remains on any person using material in the judgment to ensure that the intended use of that material does not breach any such order or provision.  Further enquiries may be directed to the Registry of the Court in which it was generated.

INGHAMS ENTERPRISES PTY LTD v SOUTHERN CROSS FARMS AUSTRALIA PTY LTD & ANOR

[2022] SASCA 7

Judgment of the Court of Appeal  

(The Honourable Justice Doyle, the Honourable Justice Livesey and the Honourable Justice Bleby)

10 February 2022

ARBITRATION – RECOURSE AGAINST AWARD – PROCEDURE – APPEALS AND LEAVE TO APPEAL – LEAVE TO APPEAL FROM DECISION OF ARBITRATOR – QUESTION OR ERROR OF LAW

ARBITRATION – RECOURSE AGAINST AWARD – POWERS OF COURT – POWER TO SET ASIDE OR REMIT

ARBITRATION – ARBITRATION AGREEMENT – DISPUTE OR DIFFERENCE – DISPUTE AS TO MEANING OF CONTRACT

Application for leave to appeal against arbitral awards on questions of law.

In July 2014, the applicant, Inghams Enterprises Pty Ltd (Inghams) and the respondents, Southern Cross Farms Australia Pty Ltd and Southern Cross Farms SA Pty Ltd (collectively, SCF) entered into four separate agreements under which SCF would grow Inghams free-range chickens on each of its four farms (SCF Growing Agreements).

The SCF Growing Agreements provided that Inghams would pay SCF a fee of 93.5 cents per bird, comprised of two fee components: a variable component of 90 cents per bird and a bonus component of 3.5 cents per bird on account of the conversion of SCF’s four farms to allow SCF to grow free-range chickens. The SCF Growing Agreements contemplated an annual review of the fee payable.

In March 2016, SCF, together with several other growers, negotiated an agreement with Inghams which increased the fee payable by Inghams to each grower to 95.5 cents per bird, to be reviewed annually (the March 2016 Agreement).

A dispute subsequently arose between Inghams and SCF over the amount payable per bird as a result of the March 2016 Agreement. SCF contends that the amount payable was 99 cents per bird, being the variable component of 95.5 cents per bird together with the bonus component of 3.5 cents per bird. Inghams contends that the effect of the March 2016 Agreement was to increase the total fee (inclusive of both the variable and bonus components) to 95.5 cents per bird.

In August 2019, the dispute was submitted to arbitration pursuant to the SCF Growing Agreements’ dispute resolution mechanism.

The Arbitrator determined the dispute in favour of SCF across two arbitral awards: first, a partial award issued on 10 January 2021; and second, a final award issued on 19 March 2021. The Arbitrator held that, for the 2015-16 year, SCF were entitled to be paid 95.5 cents per bird for the variable component on account of the March 2016 Agreement as well as 3.5 cents per bird for the bonus component. For the years 2016-17 to 2019-20, the Arbitrator concluded that Inghams had breached the SCF Growing Agreements by failing to pay the bonus component. The first and second respondent were awarded $528,601.21 and $545,800.69 (including pre-award interest) respectively, together with costs fixed in the sum of $294,531.

Inghams seeks leave to appeal the arbitral awards on two questions of law: first, whether the effect of the March 2016 Agreement was that, for the 2015-16 year, SCF were entitled to receive payments from Inghams of 99 cents per bird rather than 95.5 cents per bird; and second, whether SCF were entitled to receive payments from Inghams for the growing years 2016-17 to 2019-20 in an amount of 3.5 cents per bird more than already paid. SCF opposes the grant of leave to appeal on the threshold basis that the parties have not agreed that an appeal may be made under s 34A of the Commercial Arbitration Act 2011 (SA) (the CAA).

Held, per Doyle JA (Livesey and Bleby JJA agreeing), refusing the application for leave to appeal:

1. Section 34A of the CAA requires that the parties agree “that an appeal may be made under this section”. Despite the contemplation of curial intervention in cl 23 of the SCF Growing Agreements, the parties did not make the requisite agreement.

2. Further, while the first question posed by Inghams is a question of law as required by s 34A of the CAA, the second question is not.

3. Further, and in any event, Inghams has not established that the Arbitrator’s decision was “obviously wrong”, this being a criterion of a grant of leave to appeal under s 34A(3)(c)(i) of the CAA.

4.      The application for leave to appeal is refused.

Commercial Arbitration Act 2011 (SA) ss 1C, 33, 34, 34A; Commercial Arbitration and Industrial Referral Agreements Act 1986 (SA) s 38; International Arbitration Act 1974 (Cth); Commercial Arbitration Act 1984 (Vic); Arbitration Act 1979 (UK), referred to.
ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122; Ashjal v Elders [2012] NSWSC 545; BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122; Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2017] SASC 69; Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia [2020] VSC 127; The Nuance Group (Australia) Pty Ltd v Shape Australia Pty Ltd [2021] NSWSC 1498; Clone Pty Ltd v Players Pty Ltd (2018) 264 CLR 165; Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724; Westport Insurance Corporation v Gordian Runoff Limited (2011) 244 CLR 239; Western Australian Rugby Union v Australian Rugby Union [2017] NSWSC 1174; Zafir v Papaefstathiou (unreported, Supreme Court of Victoria, Nathan J, 30 October 1986); Costain Australia Ltd v Frederick W Nielson Pty Ltd (unreported, Supreme Court of Victoria, O’Bryan J, 21 May 1987); Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327; Abignano Ltd v Electricity Commission of New South Wales (1986) 3 BCL 290; Thompson v Community Park Developments Pty Ltd) (unreported, Supreme Court of Victoria, Vincent J, 4 March 1987; Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203; Natoli v Walker (1994) 217 ALR 201; Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust (1994) 63 SASR 444; Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74; Limin James Chen v Kevin McNamara & Son Pty Ltd [2013] VSC 539; D & Z Constructions Pty Ltd v IHI Corporation [2013] WASC 265; Alvaro v Amaral (No 2) [2013] WASCA 232, considered.

INGHAMS ENTERPRISES PTY LTD v SOUTHERN CROSS FARMS AUSTRALIA PTY LTD & ANOR
[2022] SASCA 7

Court of Appeal – Civil:    Doyle, Livesey and Bleby JJA

  1. DOYLE JA:     The applicant (Inghams Enterprises Pty Ltd (Inghams)) and the respondents (Southern Cross Farms Australia Pty Ltd (SCF(Aust)) and Southern Cross Farms SA Pty Ltd (SCF(SA)) are parties to an arbitration agreement.
  2. Inghams seeks leave to appeal, pursuant to s 34A of the Commercial Arbitration Act 2011 (SA) (the CAA), on questions of law arising out of two arbitral awards, being a first partial final award issued on 10 January 2021 (the Partial Award) and a final award issued on 19 March 2021 (the Final Award).

Overview

  1. Since 2014, SCF(Aust) and SCF(SA) have operated four farms growing free-range chickens in South Australia.  They have done so pursuant to four separate agreements – one for each farm – that they entered into with Inghams dated 25 July 2014.  Under those agreements, SCF(Aust) and SCF(SA) agreed that they would grow Inghams free-range chickens.  As those agreements are relevantly identical, it is not generally necessary to distinguish between the respondents or their agreements, and so for the purposes of these reasons I will refer to SCF (Aust) and SCF (SA) collectively as SCF, and to their agreements as the SCF Growing Agreements.
  2. As elaborated upon below, the SCF Growing Agreements provided for Inghams to pay SCF a fee of 93.5 cents per bird, comprising a variable component of 90 cents per bird and a bonus component of 3.5 cents per bird.  The SCF Growing Agreements contemplated an annual review of the fee payable by Inghams.
  3. In March 2016, after a period of negotiations, an agreement was reached between Inghams and several growers including SCF (the March 2016 Agreement).  That agreement referred to an annual review of the fee payable to the growers, and provided that the fee per bird will be 95.5 cents per bird.
  4. The parties fell into dispute about the payments that Inghams was required to make following the 2016 Agreement.  SCF contended that the effect of the March 2016 Agreement was to increase the variable component of the fee to 95.5 cents, with the result that, once this was added to the bonus component of 3.5 cents, it was entitled to be paid 99 cents per bird.  Inghams, on the other hand, contended that the effect of the March 2016 Agreement was to agree an increased fee (inclusive of both the variable and bonus components) of 95.5 cents per bird.
  5. On 23 August 2019, SCF notified Inghams of the dispute, which was then submitted to arbitration pursuant to clause 23 of the SCF Growing Agreements.  The Honourable David Byrne QC was appointed arbitrator (the Arbitrator).  The Arbitrator determined the dispute in favour of SCF.
  6. Inghams now seeks leave to appeal in relation to two questions of law, namely:

1.           whether the effect of the March 2016 Agreement was that SCF was entitled to receive payments from Inghams for the 2015-16 growing year totalling 99 cents per bird, rather than the 95.5 cents per bird referred to in that agreement; and

2.           whether SCF was entitled to receive payments from Inghams for each of the 2016-17 to 2019-20 growing years in an amount of 3.5 cents per bird more than the amounts in fact paid by Inghams.

  1. Inghams’ application for leave to appeal raises several issues for consideration. It requires consideration of the threshold issue of whether, pursuant to s 34A(1)(a) of the CAA, and through clause 23 of the SCF Growing Agreements, the parties have agreed that an appeal may be made to this Court. If this is resolved in Inghams’ favour, it will then be necessary to consider whether it is appropriate that this Court grant leave to appeal on the questions identified in Inghams’ application. This will require consideration of, amongst other things, whether the questions posed by Inghams are questions of law, and, if so, whether the Arbitrator’s decisions on those questions were “obviously wrong”.
  2. However, before addressing these issues, it is appropriate to commence by setting out in some more detail the nature of the dispute between the parties, and the Arbitrator’s resolution of that dispute.

Background

  1. By way of background to the SCF Growing Agreements, there are two classes of grown chickens:  commercial chickens and free-range chickens.  To qualify for accreditation to grow free-range chickens, the birds, their accommodation and the circumstances of their growing must meet certain standards established by the RSPCA and the Free-Range Egg & Poultry Association (FREPA). 
  2. The SCF Growing Agreements provided for SCF to grow free-range chickens for Inghams for a period 10 years, commencing 1 March 2014.  When entering into the SCF Growing Agreements, the parties agreed that SCF would convert its existing farms to comply with the accreditation standards of the RSPCA and FREPA, and that Inghams would pay SCF both for growing its birds and for the costs of converting their farms.  As will be seen, it was contemplated that the payment or compensation of SCF for the conversion of its farms would occur through the payment of the bonus component of the fee payable under the SCF Growing Agreements.
  3. In general terms, the SCF Growing Agreements provided that Inghams would deliver batches of one-day old chickens to SCF, which SCF would then raise until they reached a certain stage of maturity.  The chickens would then be collected by Inghams for processing and ultimate sale.  Inghams was to pay for the feed and technical services for the chickens, but, otherwise, the expenses of growing them, including the provision and maintenance of adequate facilities, were to be borne by SCF.  For this, Inghams would pay SCF an amount calculated by applying a rate per bird to the number of satisfactorily grown chickens collected by Inghams.
  4. The basic payment obligation under the SCF Growing Agreements is in clause 9.1:

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 10.1 provides:

At the commencement of this agreement Inghams will make Payments to the Grower [which] will be calculated in accordance with Annexure 1 and Annexure 2.

  1. Both “Payment” and “Fee” are defined terms.  “Payment” is defined in clause 30.2.30 to mean:

[T]he amount (subject to any adjustments approved by Inghams and the Grower) Inghams will pay to the Grower for the Birds collected by Inghams from the Grower in accordance with this Agreement;

  1. “Fee” is defined in clause 30.2.15 to mean:

[T]he amount per Bird determined in accordance with Annexure 1 to be the standard growing Fee used as the basis for calculation of the Payment;

  1. Annexure 1 provides:

1.     Fee

The Free-Range Growing Fee for all Birds picked up and settled on or after commencement of the Agreement will be:

i.     a fee of 90 cents ($0.90) per bird, which will be amended throughout the course of this agreement in accordance with the conditions below “review of Fee” (“the Fee”); plus

ii.    a 3.5 cents ($0.035) per bird additional payment for free range conversion costs (“Bonus”).  This additional 3.5 cents bonus will apply throughout the life of the agreement and will not be subject to any increase or change.  For the avoidance of doubt this Bonus payment will only be paid during the Initial Term of this Agreement and does not apply to any extension or new term under clause 1 of the Agreement.

2.           Accreditation

The Grower acknowledges the Fee includes both FREPA & RSPCA Accreditation of the farm should Inghams want to use the Farm as either a Free Range facility or RSPCA accredited facility.

3.     Review of Fee

Subject to the Grower at all times being compliant with the applicable accreditation requirements of Inghams (which may include accreditation by the Free Range Egg and Poultry Association (FREPA) or RSPCA Minimum Standards – it could include both) and Inghams minimum standards the Fee will be reviewed on the anniversary date of the first placement of the farm and annually thereafter.

Inghams intends that negotiations regarding the Fee will commence not later than three (3) months prior to each annual review.  These negotiations will be undertaken in good faith and each party will use its best endeavours to reach agreement on the outcome of the review and the resulting Fee prior to the relevant annual renewal date.  Any varied Fee so agreed will apply from the anniversary date first placement of the farm.

The parties intend that the Fee will ensure a fair and reasonable minimum return to the Grower whilst encouraging industry efficiency having regard to relevant matters including growing costs, occupancy levels, methods of farming, performance, age of shedding, productivity, costs including power, gas, water and labour (wages and owners salary) costs, and the needs of the industry, and market conditions.  In relation to Free Range farms the Fee will include the cost of accreditation.

The Fee determined as above will be further adjusted on each Variation Date by the application of productivity criteria as follows, using for the purposes of the calculation the actual productivity data for the year preceding the Variation Date:

[Description of the various productivity criteria omitted from quote.]

4.           Farm Facility Use

Ingham agree that if the Ingham minimum standards change or the Australian or South Australian welfare body Accreditation Code(s) or Regulation requirements change over time regarding shed separation / farm layouts, and that Ingham request the Grower to grow RSPCA Barn Raised chickens (or non-welfare commercially raised chickens), the Grower will be paid the collectively agreed Fee applicable to growing that class of poultry similar to all other SA Collective Growers (plus the Bonus of 3.5 cents per bird) for the duration of the period of growing that class of poultry for the remaining period Initial Term of this agreement.  …

5.           Expansion

In accordance with Annexure 4 and Annexure 6, Ingham has agreed to allow the Grower to expand the existing sheds …  The Grower will advise Inghams before this expansion proceeds.

  1. The above provisions of the SCF Growing Agreements are not well drafted; in particular, their references to the “Fee” payable by Inghams to SCF are lacking in clarity and precision. 
  2. The clauses in the body of the agreement (that is, clauses 9.1 and 30.2.15) use the term “Fee” to describe the entirety of the payment to be made by Inghams to SCF for each bird.  However, those same clauses provide for the Fee to be calculated in accordance with Annexure 1.  When one then turns to Annexure 1, the word “Fee” is used in differing senses.  In the heading[1] and introduction to paragraph 1 of the Annexure, the word is used in the same sense it is used in the body of the agreement; that is, to describe the entirety of the sum payable by Inghams to SCF.  However, the balance of the paragraph then divides that Fee into two components.

[1]     Although noting that under clause 30.1.6 headings are for reference only and shall not affect the construction or interpretation of the SCF Growing Agreements.

  1. The first component (90 cents per bird), which I shall refer to as the variable component of the Fee, is then, rather confusingly, itself defined as “the Fee”.  The description of the variable component makes it plain that it will be amended throughout the course of the agreement in accordance with the “Review of Fee” process set out in paragraph 3 of the Annexure.
  2. The second component (3.5 cents per bird), which I shall refer to as the bonus component, is described as a “per bird additional payment for free range conversion costs”.  The description of the bonus component makes it plain that it will apply throughout the life of the agreement and will not be subject to any change or increase.
  3. Paragraph 2 of the Annexure contains an acknowledgement by SCF that payment of the Fee covers the costs of it obtaining both FREPA and RSPCA accreditation.  It would seem that the reference to “the Fee” in this paragraph is a reference to the entirety of the Fee, and not just the variable component.
  4. Paragraph 3 of the Annexure (“Review of the Fee”) provides for “the Fee” to be reviewed on the anniversary date of the first placement of the farm and annually thereafter.  It would seem from the terms of paragraph 1 of the Annexure, and in particular the terms in which the variable component was described, that the review process related only to that component of the Fee.  The review process was described as involving negotiations during the three month period preceding each annual review, with any agreed Fee to apply from the anniversary of the first placement of the relevant farm.
  5. In addition to SCF, four other free-range growers agreed to grow free-range chickens for Inghams in South Australia.[2]  These other free-range growers also entered into growing agreements with Inghams.  The evidence before the Arbitrator included a typical growing agreement for each of the other free-range growers.  The boilerplate provisions of these growing agreements were in relevantly identical terms (with nothing turning on the differences).

[2]     Murbko Poultry Pty Ltd, Riverland Free Range Pty Ltd, Big Bird Investments Pty Ltd and Hunter Poultry Pty Ltd.

  1. The amount payable to the other free-range growers was set out in clauses 9.1 and 30.2.15 of the other growing agreements, which were in relevantly identical terms to those of the SCF Growing Agreements.  As such, the payment obligation under the other growing agreements, like the SCF Growing Agreements, was articulated by reference to “the Fee” determined in accordance with Annexure 1.  However, Annexure 1 to the other growing agreements differed from Annexure 1 to the SCF Growing Agreements in that “the Fee” set out in Annexure 1 comprised only one component and did not refer to any payment on account of “free range conversion costs”.[3]  In all but one case the amount of the Fee was 93.5 cents per bird.[4]  Annexure 1 of the other growing agreements contained identical provisions for an annual review of “the Fee” by the parties, and any varied amount “so agreed” by the parties was to apply from the relevant anniversary date.

[3]     This being the terminology used in the SCF Growing Agreements in relation to the bonus component.

[4]     In the case of Murbko Poultry Pty Ltd, the Fee was 93.0 cents per bird.

  1. During late 2015 and early 2016, the free-range growers (including SCF) negotiated collectively with Inghams to vary the amount payable under their respective growing agreements for chickens grown in the year 2015-2016.  Inghams was represented by Mr Hindson and Mr Etherington, and the free-range growers were represented by Mr Reed and Mr Trevanion (acting as their agents).  Mr Reed and Mr Trevanion were each, through their respective entities, free-range growers for Inghams in South Australia and had growing agreements containing the payment terms referred to above.  Their entities were receiving 93.5 cents per bird under their respective growing agreements with Inghams.
  2. The negotiations culminated in the March 2016 agreement, which was in the following terms:

The SA Free Range Growers propose that the fee for the purposes of the 2014-2015 annual review will be $0.955 for all free range growers first placed prior to 1 July 2015, with that fee back dated for all birds placed after 1 July 2015.

For growers that received their first placement of birds after 1 July 2015, the fee per bird will be $0.955 from the actual date of their first placement.

  1. It was common ground that the negotiation, and the revised fee that was agreed, related to the chickens grown by the free-range growers, including SCF, for the growing year 2015-16.
  2. SCF and Inghams fell into dispute in relation to not only the fee payable under the SCF Growing Agreements during not only the 2015-16 growing year, but also the fee payable during the subsequent growing years.

The Arbitration

  1. The dispute the subject of the Arbitration proceeded by way of a statement of contentions by SCF dated 5 October 2020 and a statement of contentions by Inghams dated 20 October 2020.
  2. On 9 December 2020, the Arbitrator (over the objection of Inghams) decided to hive off aspects of the dispute, and to proceed with the claims made by SCF in its statement of contentions except those contained in certain identified paragraphs.  In essence, the Arbitrator hived off claims made by SCF pertaining to the growing years 2016-17 to 2019-20 that involved an alternative claim that in the absence of any agreement to vary the amount payable per bird between the parties in those years, SCF was entitled to be paid an amount per bird that represented a fair and reasonable return on their investment.
  3. The two legal issues for determination by the Arbitrator, as identified in SCF’s statement of contentions, were:

(a)          whether for each of the financial years 2015-16 to 2019-20 (the relevant years), Inghams breached its payment obligations to SCF under clause 9.1; and

(b)          whether by reason of the alleged breaches, Inghams was indebted to SCF in each of the relevant years.

  1. As the Arbitrator recognised, central to both issues was the proper construction of the March 2016 Agreement and its effect upon Inghams’ payment obligation under clause 9.1 of the SCF Growing Agreements in each of the relevant years.  
  2. After an oral hearing, at which one witness (Mr Shepherd for SCF) gave evidence, and documentary evidence was tendered, the Arbitrator determined the issues in favour of SCF.
  3. In particular, the Arbitrator held that the March 2016 Agreement, properly construed, had the effect that SCF was entitled to be paid 95.5 cents per bird for the variable component.  As SCF was also entitled to 3.5 cents per bird for the bonus component, it was entitled to a total fee of 99 cents per bird.  The Arbitrator also held that, in respect of the 2015-16 year, Inghams had breached clause 9.1 of the SCF Growing Agreements because Inghams had only paid SCF 95.5 cents per bird.  Inghams had not paid SCF the bonus component of the fee.
  4. Having reached that conclusion in respect of the 2015-16 year, the Arbitrator went on to hold that in each of the subsequent years (2016-17 to 2019-20) Inghams breached clause 9.1 of the SCF Growing Agreements by failing to pay the bonus component of the fee.
  5. The Arbitrator ultimately awarded SCF (Aust) $528,601.21 (including pre-award interest) and SCF (SA) $545,800.69 (including pre-award interest).  The Arbitrator also made an award of costs in SCF’s favour, with those costs fixed in the sum of $294,531.

The Partial Award

  1. In his reasons for the partial award, the Arbitrator commenced by setting out the background to the dispute between the parties, and the relevant terms of the SCF Growing Agreements, in similar terms to the above. 
  2. In so doing the Arbitrator emphasised the discussions that occurred between representatives of SCF and Inghams prior to entry into the SCF Growing Agreements.  Those discussions included statements on behalf of Inghams that SCF would be paid for the cost of the conversion of its farms to appropriately accredited free-range farms.  Those costs were estimated to be $1,275,390, which it was agreed would be paid on a per bird basis over 10 years.  It was in this context that Annexure 1 to the SCF Growing Agreements came to include a fee that included both a reviewable variable component of 90 cents per bird and a bonus component of 3.5 cents per bird for the conversion costs, with the latter fixed for the 10 year duration of the Agreement.
  3. In reviewing the terms of the SCF Growing Agreements, the Arbitrator observed that those agreements, as well as the other free-range growers’ agreements, each comprised “a boilerplate agreement, apparently used by Inghams in other locations, together with a series of annexures that were tailored to meet the circumstances of individual farms.”[5] 

[5] Partial Award at [22].

  1. Focusing upon the SCF Growing Agreements, the Arbitrator noted the differing senses in which the term “the Fee” had been used.  Having considered it appropriate to ignore the reference to the Fee in the heading to paragraph 1 of Annexure 1,[6] the Arbitrator preferred the contentions of SCF over Inghams, concluding that:

As a matter of construction of the document, however, I am satisfied that the expression, “the Fee” (with an initial capital), is used to refer to the Variable Fee Component only, at least in the annexures.

[6]     On the basis that clause 30.1.6 directed the reader that headings were for reference only and shall not affect the construction or interpretation of the Agreement.

  1. In explaining this conclusion, the Arbitrator said that he relied upon several indications in the SCF Growing Agreements, being essentially that:

·            as a matter of construction, the general boilerplate definition of “the Fee” should give way to the more specific definition in the annexures;

·            the fixed bonus component of what is described in the annexures as the Free Range Growing Fee is not reviewable or adjustable, with the provisions for review and adjustment only referable to the variable component;

·            the description of the bonus component in Annexure 1 makes it clear that this component does not apply to any extension of the Agreement, with the result that only the variable component would be payable in that event;

·            it was apparent that the bonus component would not be payable in the event of any assignment of SCF’s interest in its growing agreements;

·            paragraph 4 of Annexure 1 made it clear that, if production standards should fall, SCF is to receive both “the collectively agreed Fee applicable to growing that class of poultry similar to all other SA Collective Growers (plus the Bonus of 3.5 cents per bird) for the duration of the period of growing that class of poultry for the remaining period Initial Term of this Agreement”; and

·            the introduction by clause 10.1 of Annexure 2 and, through it, to Annexure 3, demonstrates that the variable fee payable to SCF was independent of the bonus component.

  1. The Arbitrator also set out the conclusions that he drew from his consideration of the SCF Growing Agreements, and the evidence as to the commercial intent of the parties (from the pre-contract correspondence and from Mr Shepherd).  They included the following:

·            that the covenant to pay compensation for SCF’s conversion costs of $1.275 million was peculiar to the special arrangement made between the representatives of Inghams and SCF (as opposed to the other free-range growers in South Australia);

·            that the arrangement for the payment by Inghams of the bonus component was independent of, and collateral to, that for determining the variable fee component;

·            that the bonus component represented progressive payments by Inghams for the agreed conversion costs over ten years at a per bird rate (based upon the parties’ projections);

·            that the variable component of 90 cents per bird was offered by Inghams on the basis that it represented the equivalent of the then current growing fee of 77.4 cents per bird for commercial birds, but adjusted to allow for the extra costs of raising birds in a free-range environment;

·            that the bonus component was not paid for growing the birds, and was not referable to any work performed by the grower, but rather was described as “an additional payment for free range conversion costs”; and

·            that the growing agreements for the other free-range growers did not make any provision for conversion costs.

  1. The Arbitrator concluded that, upon a proper construction of the SCF Growing Agreements, “the obligation of Inghams to pay the Fixed Bonus was independent of and collateral to its obligation to pay the Variable Fee Component.”[7]

[7] Partial Award at [36].

  1. Against this background, the Arbitrator turned to consider the process leading to the March 2016 Agreement.  He explained that in the latter part of 2014, several other South Australian growers had agreed to grow Inghams free-range chickens, with the result that by mid-2015 there were five free-range growers in South Australia operating a total of 17 farms.  As mentioned earlier in these reasons, each had grower agreements with relevantly identical boilerplate provisions, but with the detail in the annexures varied to suit the particular farms.  Three of the other free-range growers had agreed initial fees of 93.5 cents per bird, and one of them had agreed an initial fee of 93.0 cents per bird.
  2. While the growing agreements provided for annual fee reviews in the months leading up to the anniversary of the first delivery of chickens, it was later agreed that there would be a collective negotiation to strike a consistent rate for payment.  This resulted in the negotiations that occurred during late 2015 and early 2016 in relation to the fee for the growing year 2015-2016 and culminated in the March 2016 Agreement.
  3. After setting out the terms of the (two paragraph) March 2016 Agreement, the Arbitrator noted that it was implicit that the parties had agreed to standardize the growing year to the twelve-month period commencing 1 July 2015, and that the fee of 95.5 cents per bird would be for all birds grown in the year 1 July 2015 to 30 June 2016.  The Arbitrator observed that the agreement was “brief, fairly informal and evidently prepared by commercial men, presumably with a commercial outcome in mind”.[8]  He accepted that “the intended outcome was a proposed growing fee increase of 2.0 cents per bird, as had been discussed in earlier correspondence and that it was to apply to all growers.”  However, as the Arbitrator pointed out, that was not so in relation to Murbko Poultry Pty Ltd (which received an increase of 2.5 cents per bird), and the very issue in relation to SCF was whether it received a 2.0 or 5.5 cents increase in its fee. [9]

[8] Partial Award at [48].

[9] Partial Award at [49].

  1. The Arbitrator noted SCF’s concession that the negotiators had authority to reach an agreement on its behalf, but said that the question remained what was agreed, and in particular, what was meant by the word “fee” in the March 2016 Agreement.[10]  Having regard to the context and commercial purpose of the agreement, the Arbitrator noted the desire of the negotiators to establish a standardised and readily identifiable basis for calculating what he referred to as a “growing fee” to be paid to all South Australian free-range growers.

[10] Partial Award at [50].

  1. The Arbitrator recited the reasons given by counsel for Inghams for its contention that the “fee” in the March 2016 Agreement should be construed as including both the variable and bonus components of the fee payable to SCF under the SCF Growing Agreements.  They included contentions to the effect that:[11]

·            if the bonus component was not included in the 95.5 cents per bird, then SCF would receive a fee of 99 cents per bird, which would be inconsistent with the basic objective of all growers being paid at the same rate;

·            negotiations were conducted on the basis of a 2 cent increase in the fee to all growers;

·            the prospect of SCF receiving a different fee, or an increase of 5.5 cents, was not raised in the negotiations leading to the March 2016 Agreement;

·            the capital cost to all growers of providing sheds suitable for free-range birds was included in the calculation of the fee payable to them all; and

·            there was no commercial sense in the growers bargaining collectively when one of the growers had a different fee arrangement.

[11] Partial Award at [53].

  1. The Arbitrator addressed these contentions as follows:[12]

There is much force in these arguments.  They proceed, however, on the basis of the proposition that the SCF growing fee payable under the SCF Growing Agreements comprised both the Variable Fee Component and the Fixed Bonus, so that SCF was receiving a growing fee of 93.5 cents per bird for the growing year 2014-15.  I have rejected this proposition.  If, as I have concluded, SCF’s entitlement to the payment of the Fixed Bonus instalment is pursuant to a collateral agreement, the acceptance of the Inghams submission would have the consequence that in each growing year from 2015-16, this entitlement would somehow have been absorbed in the Variable Fee Component – the collateral entitlement, as such, would no longer be operative.  Such an amendment to the SCF Growing Agreements was never accepted by SCF, nor asserted by any SCF agent.  Moreover, it must address the requirement that it be “by the written mutual agreement of the parties”.  I do not consider that the document initialled at the airport meeting satisfied that requirement.

[12] Partial Award at [54].

  1. After addressing some other matters, the Arbitrator concluded that, for the growing year 2015-16, and in addition to the 95.5 cents per bird growing fee already paid, SCF was entitled to the bonus component on account of its conversion costs at the rate of 3.5 cents per bird.[13]

[13] Partial Award at [57].

  1. The Arbitrator then turned to the 2016-17 growing year.  He found that there was no negotiation or agreement with SCF pursuant to the fee review procedure in paragraph 3 of Annexure 1.  However, the evidence revealed that Mr Etherington had advised that Inghams would pay all free-range growers at the rate of 96.8 cents per bird, this being an increase of 1.3 cents per bird over the previous year.  The Arbitrator found that Inghams paid SCF at this rate for the free-range chickens it grew in the year 2016-17, and that no bonus component was paid.[14]  After rejecting an alternative argument raised by Inghams during the course of the hearing, and emphasising the fact that the bonus component was payable irrespective of any review agreement, the Arbitrator found that, for the growing year 2016-17, and in addition to the 96.8 cents per bird growing fee already paid, SCF was entitled to be paid the bonus component at the rate of 3.5 cents per bird.[15]

[14]   Partial Award at [59]-[61].

[15] Partial Award at [66].

  1. The Arbitrator reasoned similarly in relation to the growing year 2017-18, noting Mr Etherington’s advice that Inghams would pay all South Australian free-range growers 100.07 cents per bird, and holding that, in addition to the 100.07 cents per bird growing fee already paid, SCF was entitled to be paid the bonus component at the rate of 3.5 cents per bird.[16]

[16] Partial Award at [70].

  1. In relation to the growing year 2018-19, the matter was complicated by some South Australian free-range growers moving on to different contracts.  However, the rate ultimately paid to SCF was 103.84 cents per bird.  On the Arbitrator’s findings, there was no review agreement and no bonus component was paid.  As a result, the Arbitrator held that, in addition to the 103.84 cents per bird growing fee already paid, SCF was entitled to be paid the bonus component at the rate of 3.5 cents per bird.[17]

[17] Partial Award at [74].

  1. The Arbitrator considered that the growing years 2019-20 and 2020-21 fell outside his jurisdiction, and so did not make any findings in respect of those years.  But he indicated an intention to hear counsel further on that issue.[18]

[18]   Partial Award at [75], [83].

  1. The Arbitrator concluded the Partial Award by summarising his conclusions in the following terms:[19]

[19]   Partial Award at [76]-[79] (omitting footnotes).

Conclusions

I conclude, therefore, that SCF is entitled to payment of the Fixed Bonus at the agreed rate of 3.5 cents per bird for each of the years up to and including the growing year 2018-19 and that this entitlement is in addition to the fee payable under the SCF Growing Agreements that I have called the Variable Fee Component.

SCF in its Statement of Contentions says in respect of each year that Inghams was in breach of the SCF Growing Agreements in that it failed to pay the Fixed Bonus of 3.5 cents, alternatively, inasmuch as Inghams says that this was included in the payments made, it short paid the amount of the Variable Fee Component in the same amount.  In its response Inghams merely denies these contentions.

Counsel for Inghams submitted that, given the form of these SCF pleas, it is not possible to identify which of the pleaded alternatives was established.  I do not agree for the following reasons:

a.   It is clear that after the date of the first review of the growing fee at the airport meeting on 23 March 2016 there existed a difference between the parties as to the continuing entitlement of SCF to receive the bonus under the collateral agreement for the payment of the conversion costs instalments.  The Inghams contention, that I have rejected, is that this was in some way absorbed in the standardised growing fee payable to all SA free-range growers.  Inghams has continued in each year to maintain that position and has, therefore, declined to make the further separate payment of 3.5 cents.

b.   The manner of calculation of the Variable Fee Component in each subsequent year shows that Inghams has sought to pay SCF and to all the SA free-range growers the same growing fee, arrived at after considering changes to their growing expenses.  If the Inghams submission presently under consideration were correct, it would mean that Inghams was in each year paying SCF in each year a growing fee, that was 3.5 cents less than the other growers, for this Variable Fee Component.  Moreover, the payment to SCF would be 3.5 cents less than Inghams has calculated to be a fair and reasonable growing fee for SA growers.  A finding of deliberate underpayment by Inghams of this kind is a conclusion that I would not lightly make.

c.   Mr Shepherd has not, in his correspondence or in his Notices of Dispute, alleged that the amounts paid to SCF were less than he considered to be such as would provide SCF with a fair and reasonable return.  Indeed, in the table that both parties provided to me at the commencement of this arbitration this was accepted.

d.   Mr Shepherd’s uncontradicted evidence is that the bonus payment was not made.

I conclude from the evidence before me that SCF has made out its primary claim in respect of each of the four growing years in question in this arbitration.  Inghams, in breach of the SCF Growing Agreements, has, for each of the growing years 2015-16, 2016-17, 2017-18 and 2018-19, failed to pay to SCF the amounts of the Fixed Bonus due calculated at the rate of 3.5 cents per bird collected.

  1. The Arbitrator then set out some figures for the number of birds involved, and hence the additional fees payable, but said that he would hear counsel further on these issues, together with the issues of interest and costs, any issues arising in relation to growing years 2019-20 and 2020-21, and any issues arising out of SCF’s alternative claims that had been hived off.

The Final Award

  1. In his reasons for the Final Award, the Arbitrator noted that SCF no longer pursued its alternative arguments.  He accepted SCF’s contention that the ambit of the arbitration had been impliedly extended to include the growing year 2019-20, but did not accept that it extended to the growing year 2020-21.  He then quantified SCF’s claims in respect of the bonus component (including an amount for the 2019-20 growing year), interest and costs, as set out earlier in these reasons.

The application for leave to appeal

  1. Under s 34A of the CAA, an appeal lies to the Supreme Court on a question of law arising out of an award if the parties agree that an appeal may be made under that section (s 34A(1)(a)), and the Court grants leave (s 34A(1)(b)). The Court must not grant leave unless it is satisfied of the various matters set out in ss 34(3)(a)-(d).
  2. Inghams seeks leave to appeal in relation to the two questions of law set out earlier in these reasons. SCF opposes any grant of leave to appeal on various bases, including on the threshold basis that the parties have not agreed that an appeal may be made under s 34A.
  3. By reason of s 34(5) of the CAA, the Court would ordinarily determine an application for leave to appeal without a hearing. It would also determine that application ahead of any hearing of full argument on the substantive merits of the matters sought to be raised on appeal.[20] However, in the present case, the parties sought, and the Court made, an order that the issue of leave to appeal be referred for hearing in conjunction with the appeal. In circumstances where the parties apparently regard this as the more efficient course, there is no obstacle to the Court proceeding in this manner. To do so is consistent with the consensual nature of the arbitration process, and the objectives of the CAA in promoting the efficient resolution of disputes.[21]

[20]   Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74 at [109]-[113] (Allsop P, Spigelman CJ and Macfarlan JA agreeing); Limin James Chen v Kevin McNamara & Son Pty Ltd [2013] VSC 539 at [89] (Croft J).

[21]   Yesodei Hatorah College Inc v Trustees of the Elwood Talmud Torah Congregation [2011] VSC 622 at [14] (Croft J).

Right of appeal

  1. It is appropriate to commence by considering the threshold issue of whether the parties have agreed that an appeal may be made under s 34A. Inghams contends that the parties reached such an agreement in clause 23 of the SCF Growing Agreements. SCF challenges this contention.
  2. In order to consider the parties’ competing submissions on this issue in their proper context, it is necessary to commence by summarising the appeal rights that existed under the predecessor to the CAA, before then setting out the relevant provisions of the CAA and addressing some of the authorities that have considered parties’ attempts to invoke the appeal regime under the CAA (or its interstate equivalents). I will then address the parties’ submissions as to whether clause 23 of the SCF Growing Agreements entitles Inghams to bring its application for leave to appeal.

The previous legislation

  1. Prior to the introduction of the CAA, commercial arbitrations in this State were governed by the Commercial Arbitration and Industrial Referral Agreements Act 1986 (SA) (the CAIRAA). The CAIRAA was part of a national scheme of relevantly identical legislation.
  2. Section 38 of the CAIRAA prescribed the circumstances in which an appeal from an arbitral award lay to the Supreme Court. Essentially, it conferred on a party to an arbitration agreement a right of appeal to the Court on a question of law arising out of the award (s 38(2)), subject to the parties consenting to an appeal (s 38(4)(a)) or the Court granting permission to appeal (s 38(4)(b)). The Court’s power to grant permission to appeal was itself subject to s 40, which prevented the Court granting permission in circumstances where there was in force an agreement in writing that excluded the right of appeal under s 38(2).
  3. Putting to one side appeals with the consent of the parties, the position under the CAIRAA may be described as an “opt out” appeal regime; the parties were entitled to appeal (with the permission of the Court) on a question of law, unless the parties had agreed in writing to exclude that entitlement.
  4. Further, it is noteworthy that the Court’s discretion to grant permission to appeal under the CAIRAA was further regulated by s 38(5). That subsection prevented the Court granting permission to appeal unless it considered that: having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement (s 38(5)(a)); and there was either a manifest error on the face of the award (s 38(5)(b)(i)), or strong evidence that the arbitrator made an error of law and that the determination of the question may add substantially to the certainty of commercial law (s 38(5)(b)(ii)). I shall return to the potential significance of this reference to “manifest error” later in these reasons.

The current legislation

  1. The CAIRAA was repealed and replaced by the CAA, which came into force on 1 January 2012. The CAA is again part of a national scheme of relevantly identical legislation. The scheme is intended to reform domestic arbitration law in a manner generally consistent with the UNCITRAL Model Law on International Commercial Arbitration[22] which the Federal Parliament has enacted into Australian law for international arbitrations through the International Arbitration Act 1974 (Cth).[23]

[22]   As adopted by the United Nations Commission on International Trade Law on 21 June 1985, with amendments adopted by that Commission in 2006.

[23] With substantive changes referenced in notes within the CAA.

  1. The objects of the CAA are set out in s 1C:

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.

(4)           Subsection (3) does not affect the application of section 22 of the Acts Interpretation Act 1915 for the purposes of interpreting this Act.

  1. Parts 1 to 6 of the CAA address various aspects of the arbitration process. In particular, Part 5 governs the conduct of arbitral proceedings and Part 6 governs the making of awards and the termination of arbitral proceedings.
  2. Part 5 includes scope for the parties to an arbitration agreement to apply to the Court to determine any question of law arising in the course of the arbitration.  In particular, s 27J provides:

27J—Determination of preliminary point of law by Court

(1)          Unless otherwise agreed by the parties, on an application to the Court made by any of the parties to an arbitration agreement the Court has jurisdiction to determine any question of law arising in the course of the arbitration.

(2)     An application under this section may be made by a party only with the consent of—

(a)     an arbitrator who has entered on the reference; or

(b)     all the other parties,

and with the leave of the Court.

Note—

There is no equivalent to this section in the Model Law.

  1. Part 6 includes provision in s 32 that the arbitral proceedings are terminated by the final award, or by an order of the arbitral tribunal under s 32(2). And under s 32(3), the mandate of the arbitral tribunal terminates with the termination of the arbitral proceedings, subject to ss 33 and 34(4).
  2. Section 33 provides the arbitrator with the power to correct and interpret awards made, and to make additional awards:

33—Correction and interpretation of award; additional award

(1)           Within 30 days of receipt of the award, unless another period of time has been agreed on by the parties—

(a)     a party, with notice to the other party, may request the arbitral tribunal to correct in the award any errors in computation, any clerical or typographical errors or any errors of similar nature; and

(b)     if so agreed by the parties, a party, with notice to the other party, may request the arbitral tribunal to give an interpretation of a specific point or part of the award.

(2)          If the arbitral tribunal considers a request under subsection (1) to be justified, it must make the correction or give the interpretation within 30 days of receipt of the request.

(3)     The interpretation forms part of the award.

(4)           The arbitral tribunal may correct any error of the type referred to in subsection (1)(a) on its own initiative within 30 days of the date of the award.

(5)           Unless otherwise agreed by the parties, a party, with notice to the other party, may request, within 30 days of receipt of the award, the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award.

(6)           If the arbitral tribunal considers the request to be justified, it must make the additional award within 60 days.

(7)           The arbitral tribunal may extend, if necessary, the period of time within which it may make a correction, interpretation or an additional award under subsection (2) or (5).

(8)           Section 31 applies to a correction or interpretation of the award or to an additional award.

  1. Part 7 of the CAA is entitled ‘Recourse against award’ and addresses the scope for the parties to an arbitration agreement to seek recourse against arbitral awards.
  2. Section 34 provides for applications to set aside arbitral awards.  It is in the following terms:

34—Application for setting aside as exclusive recourse against arbitral award

(1)           Recourse to the Court against an arbitral award may be made only by an application for setting aside in accordance with subsections (2) and (3) or by an appeal under section 34A.

Note—

The Model Law does not provide for appeals as under section 34A.

(2)     An arbitral award may be set aside by the Court only if—

(a)     the party making the application furnishes proof that—

(i)           a party to the arbitration agreement referred to in section 7 was under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication in it, under the law of this State; or

(ii)          the party making the application was not given proper notice of the appointment of an arbitral tribunal or of the arbitral proceedings or was otherwise unable to present the party’s case; or

(iii)         the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or

(iv)          the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Act; or

(b)     the Court finds that—

(i)           the subject matter of the dispute is not capable of settlement by arbitration under the law of this State; or

(ii)     the award is in conflict with the public policy of this State.

(3)           An application for setting aside may not be made after 3 months have elapsed from the date on which the party making that application had received the award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal.

(4)           The Court, when asked to set aside an award, may, if appropriate and so requested by a party, suspend the setting aside of proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.

  1. Appeals from the decision of an arbitral award are governed by s 34A of the CAA:

34A — Appeals against awards

(1)     An appeal lies to the Court on a question of law arising out of an award if—

(a)     the parties agree, before the end of the appeal period referred to in subsection (6), that an appeal may be made under this section; and

(b)     the Court grants leave.

(2)          An appeal under this section may be brought by any of the parties to an arbitration agreement.

(3)     The Court must not grant leave unless it is satisfied—

(a)     that the determination of the question will substantially affect the rights of 1 or more of the parties; and

(b)     that the question is one which the arbitral tribunal was asked to determine; and

(c)     that, on the basis of the findings of fact in the award—

(i)    the decision of the tribunal on the question is obviously wrong; or

(ii)         the question is one of general public importance and the decision of the tribunal is at least open to serious doubt; and

(d)     that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the Court to determine the question.

(4)          An application for leave to appeal must identify the question of law to be determined and state the grounds on which it is alleged that leave to appeal should be granted.

(5)          The Court is to determine an application for leave to appeal without a hearing unless it appears to the Court that a hearing is required.

(6)          An appeal may not be made under this section after 3 months have elapsed from the date on which the party making the appeal received the award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal (in this section referred to as the appeal period).

(7)     On the determination of an appeal under this section the Court may by order—

(a)     confirm the award; or

(b)     vary the award; or

(c)     remit the award, together with the Court’s opinion on the question of law which was the subject of the appeal, to the arbitrator for reconsideration or, if a new arbitrator has been appointed, to that arbitrator for consideration; or

(d)     set aside the award in whole or in part.

(8)          The Court must not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the arbitral tribunal for reconsideration.

(9)          If the award is remitted under subsection (7)(c) the arbitrator must, unless the order otherwise directs, make the award within 3 months after the date of the order.

(10)         The Court may make any leave which it grants under subsection (3)(c) subject to the applicant complying with any conditions it considers appropriate.

(11)         If the award of an arbitrator is varied on an appeal under this section, the award as varied has effect (except for the purposes of this section) as if it were the award of the arbitrator.

Note—

There is no equivalent to this section in the Model Law.

  1. It can thus be seen that the CAA provides for an “opt in” appeal regime, rather than the “opt out” appeal regime that applied under the CAIRAA. The parties may appeal on a question of law arising out of an arbitral award if the parties agree that an appeal may be made under that section (s 34A(1)(a)) and the Court grants leave (s 34A(1)(b)).
  2. Under s 34A(3) the Court must not grant leave to appeal unless satisfied of the various matters in ss 34A(3)(a)-(d). While the conditions of a grant of leave under ss 34A(3)(c)(i) and (ii) (namely that the arbitrator’s decision is “obviously wrong”, or involves a question of “general public importance and … is at least open to serious doubt”) are similar to those under ss 38(5)(b)(i) and (ii) of the CAIRAA, it is significant that, under the CAA, satisfaction of these matters must be “on the basis of the findings of fact in the award”.
  3. Bearing in mind the objects of the CAA, and the shift from an opt out appeal regime to an opt in appeal regime (with confirmation of the final status of the arbitrator’s findings of fact upon which the questions of law are to be determined), it is apparent that the CAA reflects a policy of enhancing the status and finality of domestic arbitral awards.
  4. Even under the CAIRAA the parties could agree not to permit any judicial challenge to an arbitrator’s award, meaning that the arbitrator’s decision on questions of law would be final. Under the CAA, that has become the default position. This reflects the reality that there is nothing uncommercial about parties, even sophisticated commercial parties in the context of complicated and valuable commercial arrangements, choosing to be bound in this way. That choice may simply reflect a preference for the efficient resolution of disputes, and the certainty of finality, over the spectre of delay and cost often associated with any ability to pursue potential errors on questions of law through the courts.
  5. Nor is there any common law impediment to the parties to a commercial arrangement agreeing to treat an arbitrator’s decision, even on questions of law, as final.[24]

[24]   TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533 at [36]-[37] (French CJ and Gageler J), [74], [76]-[79] (Hayne, Crennan, Kiefel and Bell JJ).

The issue

  1. At issue in the present case is whether the parties did opt in to the appeal regime under s 34A of the CAA; that is, whether the parties did agree “that an appeal may be made under this section”.
  2. In considering this issue, I accept that the parties’ agreement to permit appeals may be made either in the parties’ arbitration agreement (that is, in the agreement to which the dispute relates and that provides for dispute resolution by way of arbitration (here, the SCF Growing Agreements)), or in some ad hoc agreement reached after the parties have fallen into dispute.[25]

[25]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [45] (Nicholson J, Stanley J agreeing).

  1. Nonetheless, the agreement must arise expressly, or by necessary implication, from the words used by the parties. That said, the parties’ agreement need not be in any particular form, nor use any particular words. The parties need not mention s 34A of the CAA. But the parties must nevertheless have evinced an objective intention to agree “that an appeal may be made under this section [s 34A]”. Further, while I have acknowledged that the agreement might, in an appropriate case, be implied, as the cases reviewed below demonstrate, the implication of an appropriate term will often be problematic.
  2. In understanding how the courts will approach the issue of whether the parties to a particular dispute have evinced the requisite objective intention, it is instructive to consider four authorities that have considered this issue. The first three involve agreements which were drafted prior to the commencement of the CAA and its interstate equivalents (and hence while the opt out regime under the CAIRAA and its interstate equivalents was still in force), but which, by reason of the relevant transitional provisions, were nevertheless governed by the CAA. While this context was important to the outcome in those cases, and the first two involved attempts to imply terms rather than construe the words used in the relevant contract, the reasoning in those cases nevertheless serves as an indication of the importance of focusing upon the words used by the parties and the precise nature of any objective intention evinced by the parties.

The authorities

  1. In Ashjal v Elders,[26] the plaintiff and defendant were parties to two contracts for the supply of wheat, both dated 23 July 2010.  The terms of the contracts provided that disputes were to be resolved by arbitration in accordance with the Grain Trade Australia (GTA) Trade Rules, which in turn incorporated the GTA Dispute Resolution Rules.  The defendant was successful under an award dated 17 November 2011, and the plaintiff sought leave to appeal. 

[26]   Ashjal v Elders [2012] NSWSC 545.

  1. The parties’ contract had been drafted at a time when the New South Wales equivalent of the CAIRAA was in force. However, the New South Wales equivalent of the CAA was in force by the time of the award and so governed the parties’ ability to appeal. The contract was drafted on the basis of an assumption of a right of appeal by reason of the opt out regime under the equivalent of the CAIRAA, but did not contain any express agreement that there be a right of appeal. The plaintiff contended that such agreement could be implied.
  2. Hammerschlag J rejected the plaintiff’s contention.  His Honour applied the usual criteria for the implication of a term, as set out in BP Refinery Westernport Pty Ltd v Hastings Shire Council.[27]  His Honour reasoned that these criteria had to be met at the time of entering into the relevant contract, and that, at that time, the legislation in force gave a right of appeal with leave or by agreement.  In that circumstance, it could not be said that the implied term for which the plaintiff contended was necessary to give the contract business efficacy.  Nor could it be said that the term was obvious.  His Honour also considered that, because the GTA Dispute Resolution Rules adopted by the contract contemplated the possibility of amendment to the relevant legislation, the implied term would contradict the express terms of the contract.

[27]   BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266.

  1. In ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd,[28] the parties had, on 4 September 2009, entered into a commercial contract which provided that any dispute was to be referred to, and finally resolved by, arbitration in accordance with the Institute of Arbitrators and Mediators Australia Rules for the Conduct of Commercial Arbitrators. At the time of entry into the contract, commercial arbitrations in South Australia were governed by the opt out appeal regime under the CAIRAA. However, as the parties’ arbitration did not commence until after the commencement of the CAA, the parties’ right to appeal was governed by the opt in regime under s 34A of the CAA.

[28]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122.

  1. The opt out nature of the legislative framework that existed when the contract was entered into meant that, at the time of entry into that contract, there was a right of appeal (with the leave of the Court) even though the contract was silent on the point. The issue was whether there was a proper basis to imply a term to the effect that the parties agreed to an appeal under s 34A of the CAA. The primary judge (Blue J) held that such a term could be implied,[29] but this decision was overturned on appeal.[30]  Both Kourakis CJ and Nicholson J, in separate reasons, held that an implied term giving the parties a right of appeal was neither necessary to give business efficacy to the contract,[31] nor obvious;[32] and that there was nothing in the “express terms of the contract, its manifest purpose [or] the matrix in which it was made” which led irresistibly to an inference of the presumed intention.[33]  Stanley J agreed with the reasons of Kourakis CJ and Nicholson J.

[29]   Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2017] SASC 69, with Blue J expressing the term (at [24]) as one which provided that each party was to have a right of appeal under the governing statue from time to time; or (at [43]) as one which provided that the parties would have “the statutory right of appeal against an arbitration award.”

[30]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122.

[31]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [16] (Kourakis CJ), [72] (Nicholson J).

[32]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [26] (Kourakis CJ), [71] (Nicholson J).

[33]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [23] (Kourakis CJ).

  1. The crux of Kourakis CJ’s reasoning is contained in the following passage:[34]

The failure to reach an agreement on an exclusion of the rights of appeal under the 1986 Act gives no reason to presume that the parties intended each would facilitate an appeal against an award brought by the other if the facility of a unilateral application for permission to appeal was abrogated and replaced with an application for permission brought with the consent of the other party. ASC accepted that there is no basis from which to imply that the parties had agreed to give their consent to an appeal pursuant to s 38(4)(a) of the 1986 Act. It is difficult to justify the implication of a term to facilitate an application for permission to appeal in the event that the legislative regime was changed to require the consent of both parties.

It is one thing to recognise that the obvious effect of the contract’s silence on the question of appeals against awards was that either party was at liberty to seek permission to appeal if the statute so allowed and quite another to leap from that to a presumption that the parties intended to preserve that power for each other by contractually binding themselves to assist the other to appeal against an award made in their favour.  It may appeal to one person’s sense of fairness that there be such a term, but the removal of judicial review might be welcomed by another for its greater efficiency. 

There is no reason to presume that, objectively assessed, the parties made a deliberate choice that they would not opt out of a right of appeal. That the parties omitted a clause excluding the operation of the 1986 Act is consistent with an agreement not to make any provision excluding or affecting the operation of any statute from time to time governing appeals from arbitral awards. Alternatively, they may have decided to reserve to themselves the option of consenting, or not, to an appeal when and if the occasion arose. Finally, the parties may not have been of the same view on the question. One party may have wanted to exclude an appeal pursuant to s 40 and the other not. The making of the agreement with a clause submitting disputes to arbitration does not carry with it any implication or indicate as to what the parties intended should the 1986 Act be amended.

The justification for the implication of the term contended for must be found in the express terms of the contract, its manifest purpose and the matrix in which it was made.  There is nothing about those factors which irresistibly leads to such a presumed intention.

[34]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [20]-[23].

  1. Nicholson J commenced his operative reasoning by agreeing with the primary judge’s observation that the contractual intention of the parties governs both the construction and implication of terms of their contract, and that such intention is to be ascertained objectively by reference to the text, context and evident purpose of the contract, and the relevant surrounding circumstances known to the parties.[35]

[35]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [49].

  1. The parties in that case were both commercially sophisticated, and Nicholson J accepted that they should be taken to have been aware of the CAIRAA and to have recognised that, by reason of s 38 of that Act, there would be a right of appeal (to the extent provided for in ss 38 and 40).[36]  However, his Honour explained:[37]

[I]t cannot be said that the mere entry into the arbitration agreement necessarily indicated an objective presumed intention that there was to be a right of appeal, as opposed to a common understanding or acceptance that, whilst section 38 of the 1986 Act remained in force, a right to appeal in accordance with its terms would lie.

[36]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [62].

[37]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [65].

  1. Nicholson J later added:[38]

The parties had no choice in 2009 but to adopt the constraints imposed by sections 38 and 40 of the 1986 Act if they wished to include the arbitration agreement. If confronted with the possibility that the legislative regime governing appeals might be changed in the future so that they may not be bound by the 1986 Act constraints, it is not so obvious as to go without saying how they would have responded. In my view, the third BP Refinery requirement has not been made out.

I also take the view that an implied term securing a right of appeal to the parties, however formulated, is not necessary to give business efficacy to the contract.

[38]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [71]-[72].

  1. His Honour also added:[39]

In essence, the argument in support of an implied term comes down to this.  The existence of the opt out regime at the time the parties entered into the arbitration agreement and the fact that the parties did not, then or at any time before the repeal of the 1986 Act, agree to opt out, taken together, is tantamount to an agreement that there was to be a right of appeal.  However, the fact that the parties either did not or could not reach agreement to opt out does not necessarily imply the converse, that is, that they had reached agreement to have a right of appeal.  The fact that the third BP Refinery requirement (so obvious as to go without saying) has not been made out means that, even on a wider formulation of the business efficacy test, arguably discernible from the Lord Neuberger and Lord Hoffman dicta, the business efficacy requirement is not satisfied.

[39]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [81].

  1. These two cases were considered by Riordan J in Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia.[40] The parties in that case entered into a design services contract in April 2011. Pursuant to clause 12.13 of their contract, the parties agreed to refer disputes to arbitration, to be conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce (“the ICC Rules”) current at the time of the reference to arbitration. Clause 12.13(c) provided that nothing in that clause was intended to modify or vary the rights of appeal contained in the Commercial Arbitration Act 1984 (Vic) (being the Victorian equivalent of the CAIRAA); and that article 28(6) of the ICC Rules (which deemed the parties to have waived their right to any recourse against the enforcement of an arbitral award) did not apply.

[40]   Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia [2020] VSC 127.

  1. While the parties entered into their contract at a time when the earlier legislation was still in force, by the time their dispute was referred to an arbitrator (August 2017) and then became the subject of an award (August 2019), the Victorian equivalent of the CAA was in force and governed the parties’ right of appeal.
  2. The Court’s jurisdiction to entertain an appeal thus turned upon satisfaction that the parties had agreed “that an appeal may be made under this section” (being s 34A of the CAA). Riordan J said that this gave rise to two issues requiring determination:[41]

(a)          whether cl 12.13 of the Contract constitutes an agreement than an appeal could be made against an award (‘the first contention’); and

(b)          whether such an agreement must relate expressly or implicitly to an appeal “under this section”, being s 34A (‘the second contention’).

[41]   Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia [2020] VSC 127 at [14].

  1. Taking these in reverse order, when addressing the second contention, which dealt with the significance of the requirement in s 34A that the parties agree that an appeal may be made “under this section”, Riordan J noted that the respondent contended that the agreement must expressly or implicitly refer to an appeal under s 34A, whereas the applicant contended that it was only necessary that the agreement relate to the type of appeal provided for under s 34A (being an appeal on a question of law).
  2. Riordan J concluded that, although s 34A was capable of bearing both of the meanings for which the parties contended, it should be read as requiring merely an agreement by the parties that they have a right to appeal on a question of law; that it does not require the parties to expressly or implicitly recognise that the appeal is under s 34A, or even to be aware of that section at the time of the agreement.[42]

[42]   Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia [2020] VSC 127 at [42].

  1. As to the first issue, Riordan J commenced his analysis by summarising the principles governing the construction of commercial contracts, and the decisions to which I have already referred.  His Honour then concluded that clause 12.13 was not an agreement by the parties that they have a right to appeal any award on a question of law.  His Honour explained:[43]

[43]   Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia [2020] VSC 127 at [31].

I reject the applicant’s submission that cl 12.13 is an express agreement that the parties would have a right to appeal any award on a question of law for the following reasons:

(a)     On a plain reading, cl 12.13 does not confer on the parties any such right.

(b)          The effect of not excluding a party’s rights under s 38 of the 1984 Act was that a party could appeal on a question of law with:

(iii)    the consent of the other parties; or

(iv)    leave of the Court.

By including cl 12.13, the parties plainly intended not to exclude rights of appeal under the 1984 Act. However, the clause says nothing about:

(i) whether one party would consent to the other appealing pursuant to s 38(4)(a) of the 1984 Act; or

(ii)     the intention of the parties if the rights of appeal under the 1984 Act were amended.

(c)          The fact that the parties made it plain that they did not intend to exclude their appeal rights, as they could in an exclusion agreement under s 40(1) of the 1984 Act, does not lead to the conclusion that the parties were obliged to consent to an appeal under s 38(4)(a) of that Act. It is even clearer that cl 12.13 cannot be read as an agreement that each party would consent to the other having a right to appeal on a question of law under any amending Act.

(d)          Although, unlike the above authorities, the Contract was not silent on the question of appeals against awards, cl 12.13 said no more than that the parties did not intend to modify or vary the rights of appeals under the 1984 Act. Accordingly, I would adapt the words of Chief Justice Kourakis in ASC v Ottoway and say:

It is one thing to recognise that the obvious effect of the [contract expressly not excluding] the question of appeals against awards was that either party was at liberty to seek permission to appeal if the statute so allowed and quite another to leap from that to a presumption that the parties intended to preserve that power for each other by contractually binding themselves to assist the other to appeal against an award made in their favour. It may appeal to one person’s sense of fairness that there be such a term, but the removal of judicial review might be welcomed by another for its greater efficiency.

  1. The applicant did not contend for any implied term.  Thus, having rejected the applicant’s contention that there was any agreement to a right of appeal in relation to questions of law to be found in clause 12.13, his Honour dismissed the application for leave to appeal.
  2. Finally, I mention the recent decision of Rees J in The Nuance Group (Australia) Pty Ltd v Shape Australia Pty Ltd.[44] The parties had entered into a standard form contract[45] to carry out certain fit-out and refurbishment works. It included an arbitration clause, but did not include any agreement that an appeal to the Court lay on questions of law. The parties fell into dispute, and in the course of arranging an arbitration, the parties disagreed as to whether the arbitration should take place under the New South Wales or Victorian equivalent of the CAA (despite those Acts being in identical terms). It was in this context that the solicitor for the plaintiff sent the solicitor for the defendant an email dated 2 August 2018, which included:

Our understanding is that the rights of appeal under the Victorian version of the legislation are too narrow given the way it is currently being interpreted.  Our view is that both parties should have sufficient rights of appeal if the need arises.

[44]   The Nuance Group (Australia) Pty Ltd v Shape Australia Pty Ltd [2021] NSWSC 1498.

[45]   Australian Standard General Conditions of Contract (AS 2124-1992).

  1. After the adjudication was completed, the defendant contended that this email was an agreement that an appeal may be made under s 34A of the NSW equivalent of the CAA. Rees J rejected this argument. Referring to the authorities outlined above, her Honour reasoned:[46]

… It was entirely within the parties’ remit to agree upon the extent to which the arbitrator’s decision on legal questions was binding or subject to review by this Court. The Act respects the parties’ choice. Here, the correspondence does not evidence an express agreement. Nuance did not ask Shape to agree that an appeal lay to this Court on a question of law. Shape did not even reply.

Nor can an agreement to appeal on questions of law be implied as the contract was effective without such a term. …

I find that the parties did not, by Shape’s acceptance of the proposal in Nuance’s email of 2 August 2018, expressly or by implication, agree that an appeal lies to this Court on questions of law.

[46]   The Nuance Group Australia Pty Ltd v Shape Australia Pty Ltd [2021] NSWSC 1498 at [31]-[33].

  1. By way of summary, these authorities underscore the need to scrutinise closely the words used by the parties in order to determine whether they reveal the requisite objective intention, and hence agreement, that an appeal may be made under s 34A of the CAA.
  2. In this respect, it is important to identify both (i) an agreement that there will be a right of appeal; and (ii) an agreement that it will be a right of appeal of the type or character contemplated by s 34A.
  3. In respect of (i), the authorities have drawn a distinction between the absence of any agreement not to opt out of an appeal regime, and the existence of an agreement to opt in to an appeal regime. The authorities suggest that the availability of the right of appeal under s 34A of the CAA requires more than that the dispute resolution provisions within the parties’ agreement contemplate or assume that there may be an appeal against any arbitral award, in the sense that they seek to preserve whatever rights of appeal may exist, or contemplate and allow such appeals to occur. Rather, the availability of the right of appeal under s 34A of the CAA requires that the dispute resolution provisions evince an objective intention by the parties to opt, or choose, to subject any arbitral award to an appeal.
  4. The distinction to which I have referred is a subtle one. But the authorities suggest it is an important one. The drawing of this distinction is consistent with the policy underpinning the introduction of the CAA; namely, to prioritise efficiency and certainty in the resolution of commercial disputes by limiting the scope for curial intervention and correspondingly enhancing the status and finality of arbitral awards.

Segment #4

  1. Further, even if it were appropriate to read the words used by the parties as confined to manifest errors in relation to questions of law, the result would be to produce a narrower right of appeal than that contemplated by s 34A. Under s 34A(3)(c) a grant of leave to appeal is not confined to cases where the arbitrator’s decision on a question of law is obviously wrong (s 34A(3)(c)(i)). It extends to cases where the question is one of general public importance and the decision is at least open to serious doubt (s 34A(3)(c)(ii)).
  2. For all of these reasons, I am not satisfied that the parties have agreed, for the purposes of s 34A(1)(a), that “an appeal may be made under this section”. This conclusion requires that Inghams’ application for leave to appeal be dismissed.

Questions of law

  1. Even assuming the parties did agree that an appeal may be made under s 34A of the CAA, that right of appeal is confined to questions of law arising out of an award, and is subject to the Court granting leave.
  2. The first question in respect of which Inghams seeks leave to appeal involves a challenge to the Arbitrator’s conclusion that the agreed “fee” of 95.5 cents per bird in the March 2016 Agreement was confined to the variable component of the fee payable under the SCF Growing Agreement.
  3. This first question raised by Inghams relates primarily to the construction of the March 2016 Agreement.  As developed later in these reasons, it also involves consideration of the construction of the SCF Growing Agreements, and the interaction between the March 2016 Agreement and the payment obligations under the SCF Growing Agreements.  But even so, it remains a question that requires the construction of the contractual arrangements between the parties.
  4. Questions of construction are generally accepted to be questions of law.[52]  I am satisfied that the first question raised by Inghams is a question of law.

[52]   Westport Insurance Corp v Gordian Runoff Ltd (2011) 244 CLR 239 at [82] (Heydon J); Western Australian Rugby Union v Australian Rugby Union [2017] NSWSC 1174 at [1]-[3] and [13].

  1. In contending that the first question does not raise a question of law, SCF seeks to characterise the issue as one turning merely upon the identification of the subject matter of the March 2016 Agreement:  that is, whether its subject is the variable component of the fee payable under the SCF Growing Agreement, or the entirety of the fee payable under that Agreement.  Even accepting the validity of this characterisation of the issue, I do not think it alters the analysis significantly.  The determination of the subject matter of the March 2016 Agreement still involves an issue that turns upon the construction of the agreements between the parties.
  2. However, I am not persuaded that the second question in respect of which Inghams seeks leave to appeal is a question of law. It assumes the first question has been resolved in SCF’s favour, and that SCF was entitled to be paid the bonus payment of 3.5 cents per bird for each of the relevant growing years, and requires consideration of whether in fact the amounts owing had been paid. That is a question of fact. While the Arbitrator’s consideration of this question occurred in the context of the SCF Growing Agreements and the March 2016 Agreement, it ultimately turned upon an essentially factual issue bound up in the proper characterisation of the payments made. I do not think resolution of the second question posed by Inghams involves a question of law appealable under s 34A of the CAA.

Criteria for leave to appeal

  1. Even assuming that the parties had agreed to a right of appeal under s 34A of the CAA, and that both of the questions sought to be ventilated by Inghams are questions of law, a grant of leave to appeal would still require the Court’s satisfaction of each of the matters identified in ss 34A(3)(a) to (d). It is appropriate to address each of these matters.

Substantially affect rights

  1. Subsection 34A(3)(a) requires satisfaction that the determination of the relevant question will substantially affect the rights of one or more of the parties.  There was no dispute that this was satisfied in respect of both proposed questions.

Question the arbitral tribunal was asked to determine

  1. Subsection 34A(3)(b) requires satisfaction that the proposed question is one that the arbitral tribunal was asked to determine.  Whilst the issues before the Arbitrator in the present case were broader, and couched in different terms, I am satisfied that the questions proposed by Inghams in its application for permission to appeal were both questions that the Arbitrator was asked to determine.

Decision that is obviously wrong

  1. Subsection 34A(3)(c) requires satisfaction that, on the basis of the findings of fact in the award, either the decision on the relevant question was obviously wrong (s 34A(3)(c)(i)), or the question was one of general public importance and the decision of the tribunal was at least open to serious doubt (s 34A(3)(c)(ii)).
  2. Inghams did not contend that the questions posed in its proposed appeal were questions of general public importance.  Any such contention would have been without merit given that the questions raised are ones that are concerned with the construction and operation of the bespoke contractual arrangements between the parties to these proceedings.  They do not raise any issue likely to be of any general commercial significance beyond the parties to these proceedings, let alone any issue of general public importance.
  3. Rather, Inghams focused its attention upon a contention that the Arbitrator’s decisions on the two questions were “obviously wrong”. 
  4. In considering what the requirement that the decision sought to be challenged is “obviously wrong” entails, it is instructive to consider the background to the use of this term in the CAA.
  5. As initially enacted, the CAIRAA (and its interstate equivalents) did not include any condition of a grant of leave to appeal that there be manifest error on the face of the award. Rather, s 38(5) provided merely that the Court “shall not grant leave … unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement …”.
  6. This broad discretion with respect to leave to appeal under the CAIRAA reflected the position under the Arbitration Act 1979 (UK).  The exercise of this discretion was considered by the House of Lords in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema).[53]  The applicant in that case sought leave to appeal against an arbitrator’s construction of a “one-off” contractual clause, and finding that the contract had been frustrated by a lengthy strike in a charterparty dispute.  Lord Diplock referred to the parliamentary intention to ensure the finality of awards implicit in the removal of the case stated procedure that had developed to facilitate curial intervention and in the imposing of conditions upon the grant of leave to appeal.  In relation to when leave should be granted, Lord Diplock held that for a “one-off” clause “leave should not normally be given unless it is apparent to the judge upon a mere perusal of the reasoned award itself, without the benefit of adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong”.[54]  Where the question of law was of general application, such as the construction of standard form contractual clauses, Lord Diplock held that less strict criteria should apply.  In those cases, leave to appeal should be allowed if the judge considered that a “strong prima facie case” had been made out that the arbitrator was wrong.[55]  These two propositions came to be known in the authorities as the two limbs of The Nema guidelines.

[53]   Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724.

[54]   Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 at 742.

[55]   Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 at 743.

  1. While some authorities in relation to s 38(5), as originally enacted, applied The Nema guidelines,[56] the weight of Australian authority favoured a more flexible approach.[57]  For example, in Qantas Airways Ltd v Joseland & Gilling,[58] McHugh JA, who delivered the judgment of the Court, said:[59]

We are not convinced that the statements of Lord Diplock, based as they are on a different background, are applicable to s 38 of our Act. The matters to which Lord Diplock refers are important factors in determining whether leave should be given. But the exercise of the discretion conferred by s 38 does not depend on whether the claimant has made a strong prima facie case or fulfilled the other requirements to which his Lordship refers. It is a discretion to be exercised after considering all the circumstances of the case.

[56]   Zafir v Papaefstathiou (unreported, Supreme Court of Victoria, Nathan J, 30 October 1986); Costain Australia Ltd v Frederick W Nielson Pty Ltd (unreported, Supreme Court of Victoria, O’Bryan J, 21 May 1987).

[57]   Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327 at 333 (McHugh JA, Glass and Priestly JJA agreeing); Abignano Ltd v Electricity Commission of New South Wales (1986) 3 BCL 290 at 297 (Smart J); Thompson v Community Park Developments Pty Ltd (unreported, Supreme Court of Victoria, Vincent J, 4 March 1987).

[58]   Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327.

[59]   Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327 at 333 (McHugh JA, Glass and Priestly JJA agreeing).

  1. Between 1990 and 1998, the CAIRAA and its equivalents were amended to include the form of s 38(5) summarised earlier in these reasons; that is, with the discretion to grant leave to appeal conditioned upon satisfaction, amongst other things, that there is either a manifest error of law on the face of the award (s 38(5)(b)(i)) or strong evidence that the arbitrator made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law (s 38(5)(b)(ii)).
  2. The authorities considering these two limbs of s 38(5)(b) construed them as reflecting the substance of the two limbs of The Nema guidelines. This approach to their construction was consistent with the 1988 report of the Working Group commissioned by the Standing Committee of Attorneys-General to review the operation the CAIRAA and its equivalents, which had recommended that s 38(5) be amended to incorporate The Nema guidelines “with the effect that leave may only be given if an error of law is apparent on the face of an award, without hearing argument”.[60]

[60]   Report of the Working Group on the Operation of Uniform Commercial Arbitration Legislation in Australia (1988), p31.

  1. In Promenade Investments Pty Ltd v New South Wales,[61] Sheller JA explained:[62]

The added requirements of manifest error of law on the face of the award or strong evidence that the arbitrator made an error of law and that the determination of the question may add substantially to the certainty of the commercial law suggest that the draftsman was seeking to constrain the exercise of court control over arbitral awards in the manner described by the House of Lords in The Nema.  A manifest error of law on the face of the award may be an error which would be apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument.  A determination which adds substantially to the certainty of commercial law may be a determination of a question of the construction of a contract in standard terms rather than the construction of a one-off clause.  In such a situation, strong evidence that the arbitrator made an error of law may equate with a strong prima facie case that the arbitrator had been wrong in his construction.

[61]   Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203.

[62]   Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 at 222 (Sheller JA, Mahoney and Meagher JJA agreeing).

  1. After mentioning the reference by the judge below (Rogers CJ Comm D) to the 1988 report of the Working Group commissioned by the Standing Committee of Attorneys-General, Sheller JA agreed that the legislature had intended “to reject the broad discretionary approach prescribed by the judgment in Qantas.”[63]

[63]   Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 at 222.

  1. Sheller JA later expanded upon the meaning of manifest error:[64]

“Manifest error” is an expression sometimes used in reference to reasons given by judges or the approach taken by juries … It is used to indicate something evident or obvious rather than arguable: see generally per McHugh JA in Larkin v Parole Board (1987) 10 NSWLR 57 at 70-71. Nothing more is to be learnt from the language used but of course the discretion of the court as to whether or not it will grant leave remains and regard must be had to the requirement of subs 5(a). The matters referred to by Lord Diplock in The Nema remain important factors in determining whether leave should be given.

However I have difficulty in defining the significance of an error of law by reference to whether it is apparent to a judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument.  I understand the views expressed that decisions on questions of law should be left to the arbitrator with minimal interference by the courts unless the arbitrator may be establishing an erroneous precedent on a matter of law which may affect other cases between other parties as for example where the question concerns the construction of a contract in standard terms.  But the paragraph requires a determination as to whether or not there is a manifest error on the face of the award and I do not see why a judge should be required to do that without adversarial argument.  …

There is nothing, in my opinion, in the language of the subsection or in any other material, to which consideration can appropriately be given pursuant to the terms of the Interpretation Act which would allow the judge to proceed to determine the application without hearing argument.  However, as McHugh JA has pointed out “manifest”, in the context of the subsection, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law that is more than arguable.  There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law.

Assuming that there is not a manifest error of law on the face of the award it may be argued that there is strong evidence that the arbitrator made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.  The requirement that the question be one the determination of which may add substantially to the certainty of commercial law indicates that it should be one of wider and greater importance than, for example, the construction of a one-off clause in the context of a particular agreement between the parties.  One can discern here the sort of limitation which Lord Diplock had in mind.  The expression “commercial law” should be given no narrow construction. …

[64]   Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 at 225-226.

  1. Several subsequent decisions took a similar approach to the meaning of manifest error in the context of s 38(5)(b)(i). For example, in Natoli v Walker, Kirby P, while noting the difficulty with the word “manifest”, nevertheless accepted that, given the background to its inclusion within s 38(5)(b)(i), it connoted “swift and easy persuasion and rapid recognition of the suggested error.”[65]  And in Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust,[66] Debelle J followed Promenade Investments Pty Ltd v New South Wales, holding that, while the Court was entitled to the benefit of adversarial argument, nevertheless “manifest” denoted an error of law which was more than arguable; the applicant was required to point to “an obvious, if not compelling error”.  In other words, “[t]he question is not whether the point is fit for argument but whether an obvious error of law exists.”

[65]   Natoli v Walker (1994) 217 ALR 201 at 215 (Kirby P); see also at 223 (Mahoney JA).

[66]   Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust (1994) 63 SASR 444 at 447-448.

  1. In Gordian Runoff Ltd v Westport Insurance Corporation,[67] Allsop P (Spigelman CJ and Macfarlan JA agreeing) adopted an approach that was consistent with these authorities:

The proper approach can be taken from the reasons of Kirby P and Mahoney JA in Natoli at 212-215 and 223, respectively, and from the reasons of Sheller JA in Promenade Investments at 225-6. The error must be more than arguable; it must be evident or obvious; there must be powerful reasons leaving little or no doubt on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law. In using these accepted appellate authorities I should not be taken to have overlooked the similarly expressed and equally valid views of Rogers CJ Comm D in Promenade Investments at 192 that the argument for leave should be strong and apparently compelling after a fairly rapid examination of the matter.

[67]   Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74 at [116].

  1. Allsop P then provided a useful comparison between “manifest error” and the concept of declining to follow an intermediate appellate decision on the ground it is “plainly or clearly wrong”:[68]

It is important to distinguish the phrase “manifest error” in this context from a similarly worded phrase, with a quite different meaning, in another, quite different context: “plainly or clearly wrong” in the context of the decision of an intermediate appellate court as to whether to follow or depart from a previous Australian intermediate appellate court on a question of law.  In Gett v Tabet … this court discussed the meaning of “clearly” or “plainly” wrong in this precedential context.  The important matter to grasp about such phrases in that context is that a later court is not restricted to a preliminary examination to form its views.  The question of “plainly” or “clearly” wrong does not involve the speed or obviousness of the appreciation of error at a preliminary examination, but rather, among other things, the degree of conviction with which error is perceived …

The difference is not a product of some overly refined ascription of meaning to adjectives and adverbs that are otherwise, to a degree, synonymous. Rather, the difference is rooted in the different contexts which point to different meanings. The phrase “manifest error” in s 38 is in the context of review of arbitration awards in a section of a statute exhibiting a Parliamentary policy of restricted judicial review of and interference with arbitral awards. The phrase “plainly” or “clearly” wrong is in a wider constitutional context of intermediate courts disposing of cases according to law and giving proper weight and balance to the views of equivalent courts around Australia.

[68]   Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74 at [117]-[118].

  1. After making some observations as to the approach to the criterion in s 38(5)(b)(ii), Allsop P described the two limbs of s 38(5)(b) as reflecting the two limbs of The Nema guidelines:[69]

The positing of these two levels of strictness for the identification of legal error (“manifest error”: (b)(i) and “strong evidence”: (b)(ii) can be seen to be a reflection of aspects of Lord Diplock’s speech in Nema.  In Nema … Lord Diplock discussed the proper approach to the construction of “one-off” clauses and the “rather less strict criteria” that were appropriate for the construction of standard form contracts in respect of which a high degree of legal certainty for the relevant market was required.

[69]   Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74 at [126].

  1. However, on further appeal to the High Court in Westport Insurance Corporation v Gordian Runoff Ltd,[70] their Honours attributed a quite different meaning to the phrase “manifest error”.  The plurality (French CJ, Gummow, Crennan and Bell JJ) commenced their consideration of the phrase by noting the long history of the concept of an error of law appearing, or manifest, upon the face of an award.[71] Turning to the use of the phrase in the context of s 38(5), their Honours said:[72]

Paragraph (b)(i) of s 38(5) may be awkwardly expressed, but the words “a manifest error of law on the face of the award” comprise a phrase which is to be read and understood as expressing the one idea. An error of law either exists or does not exist; there is no twilight zone between the two possibilities. But what is required here is that the existence of error be manifest on the face of the award, including the reasons given by the arbitrator, in the sense of apparent to that understanding by the reader of the award. If that error is manifest and its determination could substantially affect the rights of at least one of the parties, as specified in para (a) of s 38(5), then the Supreme Court may go on and decide to grant or refuse leave in the exercise of the power conferred by s 38(4)(b).

If there be no such manifest error on the face of the award but there is presented to the Supreme Court on the leave application “strong evidence” that an error of law was made, and its determination may add, or be likely to add, substantially to the certainty of commercial law (para (b)(ii) of s 38(5)) and also may substantially affect the rights of at least one of the parties (para (a) of s 38(5)), then leave may be granted.

If either s 38(5)(b)(i) or s 38(5)(b)(ii) has been engaged to enliven the power to grant leave, then, upon the grant of leave, a “question of law arising out of an award” is presented to provide the subject matter of the appeal which lies to the Supreme Court under s 38(2).

Much difficulty in the operation of these provisions has been occasioned by the majority decision of the New South Wales Court of Appeal in Natoli v Walker (Kirby P and Mahoney JA, Meagher JA dissenting). The majority appear to have treated the use of “manifest” in para (b)(i) of s 38(5) not as directed to what is presented upon the face of the award but as requiring the error of law itself to have a particular quality or character so as to include within para (b)(i) facile errors and to exclude those of complexity. This would exclude from para (b)(i), for example, an error in the construction of a complex law such as s 18B of the Insurance Act.  Yet, as para (b)(ii) indicates, the policy of the statute is not to leave entirely to the operation of the arbitration agreement questions of law the determination of which may be likely to add to the certainty of commercial law.  In an age when much commercial activity is regulated by statute, such questions are likely to be matters of statutory interpretation.  It would be incongruous to favour judicial determination merely of egregious error apparent on the face of the award.

In the present case, counsel then appearing for the reinsurers in the Court of Appeal, no doubt aware of what had been said in Natoli by the Court of Appeal, conceded that he did not press a case of manifest error of law on the face of the award.  However, in his reasons, Allsop P said that he did not take the concession as going beyond the particular point of construction of s 18B upon which the primary judge had based his decision.  Nevertheless, his Honour applied Natoli to the construction of para (b)(i) of s 38(5), so that answers given by arbitrators upon difficult questions of law, which had been open to competing arguments, did not qualify as errors of law.

In this Court the reinsurers relied upon para (b)(i) as well as para (b)(ii) of s 38(5) and were at liberty to do so. Natoli should not be accepted in this Court as correctly construing s 38(5)(b)(i) of the Arbitration Act. The character or quality of the error of law falls for consideration, if relied upon, at the next stage, namely when the Supreme Court is considering under s 38(4)(b) whether to grant leave.

[70]   Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239.

[71]   Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239 at [32].

[72]   Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239 at [42]-[47] (omitting citations).

  1. Kiefel J reasoned similarly:[73]

I agree with French CJ, Gummow, Crennan and Bell JJ that manifest error of law requires that the error appear on the face of the Award, which includes the reasons for it, and that the error be apparent to the understanding of the reader.  Such is the case here.  It does not require that the error be of a particular quality or that errors involving complex questions be disqualified.

[73]   Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239 at [163].

  1. There have been subsequent decisions in relation to s 38(5)(b)(i) that have continued to suggest that manifest error connotes an error which is obvious rather than merely arguable.[74]  However, as Martin CJ observed in D & Z Constructions Pty Ltd v IHI Corporation,[75] there must be considerable doubt whether the observations to this effect in earlier cases such as Promenade Investments Pty Ltd v New South Wales and Natoli v Walker survive the decision of the High Court in Westport Insurance Corporation v Gordian Runoff Ltd.  Indeed, in Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd,[76] Blue J described this High Court decision as having disapproved of these earlier articulations of manifest error.

[74]   For example, Limin James Chen v Kevin McNamara & Son Pty Ltd [2013] VSC 539 at [97] (Croft J).

[75]   D & Z Constructions Pty Ltd v IHI Corporation [2013] WASC 265 at [3]; applied in Alvaro v Amaral (No 2) [2013] WASCA 232 at [25] (Martin CJ, Pullin and Newnes JJA).

[76]   Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2017] SASC 69 at [119] (fn 54).

  1. While the obviousness or otherwise of the error might nevertheless have remained a relevant consideration under the Court’s general discretion to grant or refuse leave to appeal even after satisfaction of one or other of the limbs of s 38(5)(b),[77] the issue is now moot given the repeal of the CAIRAA and its replacement with the CAA. Through the introduction of s 34A of the CAA, the legislature has done away with any difficulty associated with the meaning of manifest error and has quite plainly opted for an approach which, through the two limbs of s 34A(3)(c), reflects the two limbs of The Nema guidelines. As such, the Australian authorities to which I have referred that have applied this approach in the context of s 38(5) of the CAIRAA and its equivalents will be of some assistance in applying the criterion of “obviously wrong” under s 34A(3)(c)(i) of the CAA. Conversely, it will no longer be necessary to ensure that the alleged error on the relevant question of law be identifiable “on the face of the award”.[78]

[77]   Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239 at [47] (French CJ, Gummow, Crennan and Bell JJ); D & Z Constructions Pty Ltd v IHI Corporation [2013] WASC 263 at [2] (Martin CJ).

[78]   Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2017] SASC 69 at [119]-[120].

  1. It remains then to consider whether the Arbitrator’s decisions in respect of the questions sought to be raised on appeal by Inghams were obviously wrong.  Based upon the authorities reviewed above, this requires something more than arguable error.  It connotes an error that is apparent from a perusal of the arbitrator’s reasons for the award, without the need for any prolonged adversarial argument.  Put another way, the Court must be able to readily identify error rather than merely allowing for the possibility of error, or for the existence of doubt based upon the complexity of the relevant issue(s).

Question 1

  1. Question 1 asks whether the effect of the March 2016 Agreement was that SCF was entitled to receive payments from Inghams for the 2015-16 growing year totalling 99 cents per bird, rather than the 95.5 cents per bird referred to in that agreement.  Inghams contends that the Arbitrator made an obvious error in concluding that the fee of 95.5 cents per bird agreed in the March 2016 Agreement related only to the variable component of the fee payable by Inghams to SCF under the SCF Growing Agreements, with Inghams being required to pay SCF an additional 3.5 cents per bird on account of the bonus component referred to in Annexure 1 to the SCF Growing Agreements.  Inghams contends that the Arbitrator ought to have concluded that the figure of 95.5 cents per bird agreed in the March 2016 Agreement related to the entirety of the fee payable by Inghams to SCF, and hence was inclusive of the bonus component.
  2. In contending that the Arbitrator’s decision was affected by obvious error, Inghams, in its grounds of appeal and submissions, relied largely upon submissions made before the Arbitrator and rejected by the Arbitrator.  I have set out the substance of those submissions, and the Arbitrator’s reasons for rejecting them, in my earlier summary of the Arbitrator’s reasons.  While I accept, as the Arbitrator did, that there was some force in the submissions put by Inghams, and that the question of construction was not straightforward, I am not persuaded that there was any obvious error in the Arbitrator’s conclusion.  In my view, there were sound reasons for the Arbitrator’s conclusion that the March 2016 Agreement related only to the variable component of the fee payable under the SCF Growing Agreements.  Not only was this the only component of the fee described in Annexure 1 of the SCF Growing Agreements that was subject to review, but also this was the only component of the fee that the SCF Growing Agreements had in common with the growing agreements that Inghams had with the other growers and hence which might have been the subject of a collective negotiation.
  3. There was a sound textual and contextual basis for treating the bonus component of the fee payable under Annexure 1 of the SCF Growing Agreements as a separate component of the overall fee payable to SCF by Inghams, and a component which was fixed and not subject to review.  While the Arbitrator referred to a collateral agreement in respect of the fixed bonus component, I do not understand him to have meant that the arrangement in respect of the bonus component was collateral in the sense of it being outside of the SCF Growing Agreements.  Rather, I understand him to have meant simply that the fixed bonus component was separate and independent from – and in that sense, collateral to – the variable component of the fee.  It was a component of the fee that had been the subject of separate negotiations, and was intended to enable SCF to recoup the cost of its capital investment in converting its farms over the initial 10 year term of the SCF Growing Agreements.  It was to be separate from, and in addition to, the variable component of the fee in respect of SCF’s growing costs.
  4. It is true that the Arbitrator’s construction of the March 2016 Agreement resulted in SCF receiving an increase of 5.5 cents per bird rather than the 2 cents per bird increase received by the other growers.[79]  While the March 2016 Agreement does appear to have been negotiated in a context that suggested an intention to achieve consistency between the various growers, this intention can be reconciled with the Arbitrator’s construction on the basis that his construction did achieve consistency between the variable component of the fee payable to each of the growers (which the Arbitrator referred to as the growing fee[80]). To the extent that there was an intention to achieve a uniform increase of 2 cents per bird, this was not achieved in the case of one of the other growers,[81] and whether this was achieved in the case of SCF was the very issue. It would not have been achieved if, as the Arbitrator held, SCF was entitled to be paid a bonus component in addition to the amount agreed by way of the variable growing fee component.

[79]   Other than Murkbo Poultry Pty Ltd, which had agreed a slightly lower rate than the rest of the other growers.

[80]   Inghams complains that ‘growing fee’ is not a term used in the SCF Growing Agreements.  However, it seems to me that this was an appropriate way of referring to the variable component of the fee, being a fee payable to each of the growers to reflect the variable costs associated with growing the birds supplied by Inghams.

[81]   Namely Murkbo Poultry Pty Ltd, which had previously only been entitled to 93.0 cents per bird on account of its variable growing costs, and so stood to receive an increase of 2.5 cents.

  1. I am not satisfied that it was wrong (let alone obviously wrong) for the Arbitrator to treat the bonus fee as an additional fee that SCF had managed to negotiate with Inghams (in the circumstances I have summarised earlier in these reasons).  While the other growers apparently also incurred significant costs in converting their farms so as to make them suitable for free-range chickens, I see nothing incongruous in the conclusion that only SCF managed to secure a contractual entitlement to a fixed bonus fee to enable it to recoup its capital costs.
  2. Inghams also put some submissions directed towards what it contended were specific errors in the Arbitrator’s reasons.
  3. It contended that the Arbitrator erred in using provisions of the SCF Growing Agreements (in particular, the references to “the fee” in Annexure 1 to those agreements) in construing the March 2016 Agreement in circumstances where the terms of those agreements were not mutually known to the persons who negotiated the March 2016 Agreement.  I do not agree with this characterisation of the Arbitrator’s reasoning.  The ultimate issue before the Arbitrator concerned Inghams’ payment obligations under the SCF Growing Agreements in light of the March 2016 Agreement.  As such, the Arbitrator’s task involved him construing, or addressing the interaction between, both the March 2016 Agreement and the SCF Growing Agreements.  His references to the latter must be seen in this way, rather than as a direct use of the terms of the SCF Growing Agreements in construing the March 2016 Agreement.
  4. Inghams also contended that the Arbitrator erred in wrongly suggesting that it had attempted to rely upon an (inadmissible) email of 26 February 2016, when in fact it had sought to rely upon an earlier email dated 9 November 2015 from Mr Etherington (on behalf of Inghams) to Mr Trevanion (who was authorised to conduct the collective negotiation on behalf of the growers).  The 9 November 2015 email referred to the starting point for the negotiations being a fee of 93.5 cents per bird.  Inghams contended that this email supported its contention that the negotiation that ultimately occurred related to the entirety of the fee payable to SCF and hence included the bonus component.
  5. The Arbitrator did err in suggesting that Inghams had sought to rely upon the 26 February 2016 email.  However, it is not correct to suggest that the Arbitrator overlooked Inghams’ reliance upon the 9 November 2015 email.  The Arbitrator made express reference to that email, but was not persuaded that it drove a different construction of the March 2016 Agreement.  This conclusion was unsurprising given that the email preceded that agreement by some four months, and was in any event somewhat equivocal in its terms.  To the extent that the terms of the email were capable of bearing directly upon the construction of the March 2016 Agreement, they are consistent with an understanding that the starting point for the variable component in the negotiations would be 93.5 cents per bird.  While the email can be read as suggesting that SCF had made its initial investment on the basis that it was entitled to 93.5 cents on account of its variable growing costs, this was contrary to the findings of fact made by the Arbitrator.  It does not provide a basis for construing the March 2016 Agreement in the manner contended for by Inghams.
  6. In summary, while I accept that the construction issue the subject of Question 1 was finely balanced, I am satisfied that the Arbitrator’s reasoning exposed a sound basis for the conclusion he reached.  I am not satisfied that Inghams has established any obvious error in the Arbitrator’s reasoning or conclusion in relation to this issue of construction.

Question 2

  1. Question 2 asks whether SCF was entitled to receive payments from Inghams for each of the 2016-17 to 2019-20 growing years in an amount of 3.5 cents per bird more than the amounts in fact paid by Inghams.  It in effect assumes that the first question was answered correctly by the Arbitrator (and hence against Inghams), and then asks whether, upon the Arbitrator’s construction of the March 2016 Agreement, Inghams breached its payment obligation under the SCF Growing Agreements during the relevant growing years
  2. Given my conclusion that this question turns upon a question of fact, rather than a question of law, there is no need for me to reach any conclusion as to whether the Arbitrator’s decision on this question was obviously wrong.  I have earlier set out the key steps in the Arbitrator’s reasoning in relation to this issue.  In my view, it is sufficient in the circumstances for me to observe that I consider the Arbitrator’s reasoning and conclusion in relation to this issue to be sound.  I am not satisfied that Inghams has established any obvious error.

Just and proper

  1. Subsection 34A(3)(d) requires satisfaction that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the Court to determine the question.
  2. If all of the other criteria for a grant of leave had been made out, then it may well have been just and proper for this Court to determine one or both of the questions posed by Inghams’ proposed appeal.  Consistently with this, the parties tended to approach this matter on the basis that the Court’s conclusion as to whether it would be just and proper to determine the questions posed would stand or fall with the Court’s conclusion as to the other criteria for leave.  They did not make any detailed submissions in relation to the ‘just and proper’ criterion. 
  3. In these circumstances, and given that I have concluded that there are other obstacles to Inghams’ application for leave to appeal, there is no occasion or need for me to express a view as to whether it would otherwise have been just and proper to entertain one or both of the questions posed by Inghams.

Conclusion

  1. In summary, for the reasons set out, I have concluded that the parties did not make the requisite agreement that an appeal may be made under s 34A of the CAA; that while the first question proposed by Inghams involves a question of law arising out of the impugned award, the second does not; and that Inghams has not established that the Arbitrator’s decision on the first question was obviously wrong.
  2. For the reasons given, I would refuse Inghams’ application for a grant of leave to appeal.
  3. LIVESEY JA: I agree with Doyle JA. For the reasons he gives, these parties did not by clause 23 of the SCF Growing Agreements agree that they could pursue an appeal of the kind recognised by s 34A of the Commercial Arbitration Act 2011 (SA). Leave to appeal pursuant to s 34A(5) should be refused for the reasons given by Doyle JA.
  4. BLEBY JA:     I would refuse leave to appeal for the reasons given by Doyle JA.

SUPREME COURT OF SOUTH AUSTRALIA

(Court of Appeal: Civil)

DISCLAIMER – Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment.  The onus remains on any person using material in the judgment to ensure that the intended use of that material does not breach any such order or provision.  Further enquiries may be directed to the Registry of the Court in which it was generated.

INGHAMS ENTERPRISES PTY LTD v SOUTHERN CROSS FARMS AUSTRALIA PTY LTD & ANOR

[2022] SASCA 7

Judgment of the Court of Appeal  

(The Honourable Justice Doyle, the Honourable Justice Livesey and the Honourable Justice Bleby)

10 February 2022

ARBITRATION – RECOURSE AGAINST AWARD – PROCEDURE – APPEALS AND LEAVE TO APPEAL – LEAVE TO APPEAL FROM DECISION OF ARBITRATOR – QUESTION OR ERROR OF LAW

ARBITRATION – RECOURSE AGAINST AWARD – POWERS OF COURT – POWER TO SET ASIDE OR REMIT

ARBITRATION – ARBITRATION AGREEMENT – DISPUTE OR DIFFERENCE – DISPUTE AS TO MEANING OF CONTRACT

Application for leave to appeal against arbitral awards on questions of law.

In July 2014, the applicant, Inghams Enterprises Pty Ltd (Inghams) and the respondents, Southern Cross Farms Australia Pty Ltd and Southern Cross Farms SA Pty Ltd (collectively, SCF) entered into four separate agreements under which SCF would grow Inghams free-range chickens on each of its four farms (SCF Growing Agreements).

The SCF Growing Agreements provided that Inghams would pay SCF a fee of 93.5 cents per bird, comprised of two fee components: a variable component of 90 cents per bird and a bonus component of 3.5 cents per bird on account of the conversion of SCF’s four farms to allow SCF to grow free-range chickens. The SCF Growing Agreements contemplated an annual review of the fee payable.

In March 2016, SCF, together with several other growers, negotiated an agreement with Inghams which increased the fee payable by Inghams to each grower to 95.5 cents per bird, to be reviewed annually (the March 2016 Agreement).

A dispute subsequently arose between Inghams and SCF over the amount payable per bird as a result of the March 2016 Agreement. SCF contends that the amount payable was 99 cents per bird, being the variable component of 95.5 cents per bird together with the bonus component of 3.5 cents per bird. Inghams contends that the effect of the March 2016 Agreement was to increase the total fee (inclusive of both the variable and bonus components) to 95.5 cents per bird.

In August 2019, the dispute was submitted to arbitration pursuant to the SCF Growing Agreements’ dispute resolution mechanism.

The Arbitrator determined the dispute in favour of SCF across two arbitral awards: first, a partial award issued on 10 January 2021; and second, a final award issued on 19 March 2021. The Arbitrator held that, for the 2015-16 year, SCF were entitled to be paid 95.5 cents per bird for the variable component on account of the March 2016 Agreement as well as 3.5 cents per bird for the bonus component. For the years 2016-17 to 2019-20, the Arbitrator concluded that Inghams had breached the SCF Growing Agreements by failing to pay the bonus component. The first and second respondent were awarded $528,601.21 and $545,800.69 (including pre-award interest) respectively, together with costs fixed in the sum of $294,531.

Inghams seeks leave to appeal the arbitral awards on two questions of law: first, whether the effect of the March 2016 Agreement was that, for the 2015-16 year, SCF were entitled to receive payments from Inghams of 99 cents per bird rather than 95.5 cents per bird; and second, whether SCF were entitled to receive payments from Inghams for the growing years 2016-17 to 2019-20 in an amount of 3.5 cents per bird more than already paid. SCF opposes the grant of leave to appeal on the threshold basis that the parties have not agreed that an appeal may be made under s 34A of the Commercial Arbitration Act 2011 (SA) (the CAA).

Held, per Doyle JA (Livesey and Bleby JJA agreeing), refusing the application for leave to appeal:

1. Section 34A of the CAA requires that the parties agree “that an appeal may be made under this section”. Despite the contemplation of curial intervention in cl 23 of the SCF Growing Agreements, the parties did not make the requisite agreement.

2. Further, while the first question posed by Inghams is a question of law as required by s 34A of the CAA, the second question is not.

3. Further, and in any event, Inghams has not established that the Arbitrator’s decision was “obviously wrong”, this being a criterion of a grant of leave to appeal under s 34A(3)(c)(i) of the CAA.

4.      The application for leave to appeal is refused.

Commercial Arbitration Act 2011 (SA) ss 1C, 33, 34, 34A; Commercial Arbitration and Industrial Referral Agreements Act 1986 (SA) s 38; International Arbitration Act 1974 (Cth); Commercial Arbitration Act 1984 (Vic); Arbitration Act 1979 (UK), referred to.
ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122; Ashjal v Elders [2012] NSWSC 545; BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122; Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2017] SASC 69; Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia [2020] VSC 127; The Nuance Group (Australia) Pty Ltd v Shape Australia Pty Ltd [2021] NSWSC 1498; Clone Pty Ltd v Players Pty Ltd (2018) 264 CLR 165; Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724; Westport Insurance Corporation v Gordian Runoff Limited (2011) 244 CLR 239; Western Australian Rugby Union v Australian Rugby Union [2017] NSWSC 1174; Zafir v Papaefstathiou (unreported, Supreme Court of Victoria, Nathan J, 30 October 1986); Costain Australia Ltd v Frederick W Nielson Pty Ltd (unreported, Supreme Court of Victoria, O’Bryan J, 21 May 1987); Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327; Abignano Ltd v Electricity Commission of New South Wales (1986) 3 BCL 290; Thompson v Community Park Developments Pty Ltd) (unreported, Supreme Court of Victoria, Vincent J, 4 March 1987; Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203; Natoli v Walker (1994) 217 ALR 201; Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust (1994) 63 SASR 444; Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74; Limin James Chen v Kevin McNamara & Son Pty Ltd [2013] VSC 539; D & Z Constructions Pty Ltd v IHI Corporation [2013] WASC 265; Alvaro v Amaral (No 2) [2013] WASCA 232, considered.

INGHAMS ENTERPRISES PTY LTD v SOUTHERN CROSS FARMS AUSTRALIA PTY LTD & ANOR
[2022] SASCA 7

Court of Appeal – Civil:    Doyle, Livesey and Bleby JJA

  1. DOYLE JA:     The applicant (Inghams Enterprises Pty Ltd (Inghams)) and the respondents (Southern Cross Farms Australia Pty Ltd (SCF(Aust)) and Southern Cross Farms SA Pty Ltd (SCF(SA)) are parties to an arbitration agreement.
  2. Inghams seeks leave to appeal, pursuant to s 34A of the Commercial Arbitration Act 2011 (SA) (the CAA), on questions of law arising out of two arbitral awards, being a first partial final award issued on 10 January 2021 (the Partial Award) and a final award issued on 19 March 2021 (the Final Award).

Overview

  1. Since 2014, SCF(Aust) and SCF(SA) have operated four farms growing free-range chickens in South Australia.  They have done so pursuant to four separate agreements – one for each farm – that they entered into with Inghams dated 25 July 2014.  Under those agreements, SCF(Aust) and SCF(SA) agreed that they would grow Inghams free-range chickens.  As those agreements are relevantly identical, it is not generally necessary to distinguish between the respondents or their agreements, and so for the purposes of these reasons I will refer to SCF (Aust) and SCF (SA) collectively as SCF, and to their agreements as the SCF Growing Agreements.
  2. As elaborated upon below, the SCF Growing Agreements provided for Inghams to pay SCF a fee of 93.5 cents per bird, comprising a variable component of 90 cents per bird and a bonus component of 3.5 cents per bird.  The SCF Growing Agreements contemplated an annual review of the fee payable by Inghams.
  3. In March 2016, after a period of negotiations, an agreement was reached between Inghams and several growers including SCF (the March 2016 Agreement).  That agreement referred to an annual review of the fee payable to the growers, and provided that the fee per bird will be 95.5 cents per bird.
  4. The parties fell into dispute about the payments that Inghams was required to make following the 2016 Agreement.  SCF contended that the effect of the March 2016 Agreement was to increase the variable component of the fee to 95.5 cents, with the result that, once this was added to the bonus component of 3.5 cents, it was entitled to be paid 99 cents per bird.  Inghams, on the other hand, contended that the effect of the March 2016 Agreement was to agree an increased fee (inclusive of both the variable and bonus components) of 95.5 cents per bird.
  5. On 23 August 2019, SCF notified Inghams of the dispute, which was then submitted to arbitration pursuant to clause 23 of the SCF Growing Agreements.  The Honourable David Byrne QC was appointed arbitrator (the Arbitrator).  The Arbitrator determined the dispute in favour of SCF.
  6. Inghams now seeks leave to appeal in relation to two questions of law, namely:

1.           whether the effect of the March 2016 Agreement was that SCF was entitled to receive payments from Inghams for the 2015-16 growing year totalling 99 cents per bird, rather than the 95.5 cents per bird referred to in that agreement; and

2.           whether SCF was entitled to receive payments from Inghams for each of the 2016-17 to 2019-20 growing years in an amount of 3.5 cents per bird more than the amounts in fact paid by Inghams.

  1. Inghams’ application for leave to appeal raises several issues for consideration. It requires consideration of the threshold issue of whether, pursuant to s 34A(1)(a) of the CAA, and through clause 23 of the SCF Growing Agreements, the parties have agreed that an appeal may be made to this Court. If this is resolved in Inghams’ favour, it will then be necessary to consider whether it is appropriate that this Court grant leave to appeal on the questions identified in Inghams’ application. This will require consideration of, amongst other things, whether the questions posed by Inghams are questions of law, and, if so, whether the Arbitrator’s decisions on those questions were “obviously wrong”.
  2. However, before addressing these issues, it is appropriate to commence by setting out in some more detail the nature of the dispute between the parties, and the Arbitrator’s resolution of that dispute.

Background

  1. By way of background to the SCF Growing Agreements, there are two classes of grown chickens:  commercial chickens and free-range chickens.  To qualify for accreditation to grow free-range chickens, the birds, their accommodation and the circumstances of their growing must meet certain standards established by the RSPCA and the Free-Range Egg & Poultry Association (FREPA). 
  2. The SCF Growing Agreements provided for SCF to grow free-range chickens for Inghams for a period 10 years, commencing 1 March 2014.  When entering into the SCF Growing Agreements, the parties agreed that SCF would convert its existing farms to comply with the accreditation standards of the RSPCA and FREPA, and that Inghams would pay SCF both for growing its birds and for the costs of converting their farms.  As will be seen, it was contemplated that the payment or compensation of SCF for the conversion of its farms would occur through the payment of the bonus component of the fee payable under the SCF Growing Agreements.
  3. In general terms, the SCF Growing Agreements provided that Inghams would deliver batches of one-day old chickens to SCF, which SCF would then raise until they reached a certain stage of maturity.  The chickens would then be collected by Inghams for processing and ultimate sale.  Inghams was to pay for the feed and technical services for the chickens, but, otherwise, the expenses of growing them, including the provision and maintenance of adequate facilities, were to be borne by SCF.  For this, Inghams would pay SCF an amount calculated by applying a rate per bird to the number of satisfactorily grown chickens collected by Inghams.
  4. The basic payment obligation under the SCF Growing Agreements is in clause 9.1:

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 10.1 provides:

At the commencement of this agreement Inghams will make Payments to the Grower [which] will be calculated in accordance with Annexure 1 and Annexure 2.

  1. Both “Payment” and “Fee” are defined terms.  “Payment” is defined in clause 30.2.30 to mean:

[T]he amount (subject to any adjustments approved by Inghams and the Grower) Inghams will pay to the Grower for the Birds collected by Inghams from the Grower in accordance with this Agreement;

  1. “Fee” is defined in clause 30.2.15 to mean:

[T]he amount per Bird determined in accordance with Annexure 1 to be the standard growing Fee used as the basis for calculation of the Payment;

  1. Annexure 1 provides:

1.     Fee

The Free-Range Growing Fee for all Birds picked up and settled on or after commencement of the Agreement will be:

i.     a fee of 90 cents ($0.90) per bird, which will be amended throughout the course of this agreement in accordance with the conditions below “review of Fee” (“the Fee”); plus

ii.    a 3.5 cents ($0.035) per bird additional payment for free range conversion costs (“Bonus”).  This additional 3.5 cents bonus will apply throughout the life of the agreement and will not be subject to any increase or change.  For the avoidance of doubt this Bonus payment will only be paid during the Initial Term of this Agreement and does not apply to any extension or new term under clause 1 of the Agreement.

2.           Accreditation

The Grower acknowledges the Fee includes both FREPA & RSPCA Accreditation of the farm should Inghams want to use the Farm as either a Free Range facility or RSPCA accredited facility.

3.     Review of Fee

Subject to the Grower at all times being compliant with the applicable accreditation requirements of Inghams (which may include accreditation by the Free Range Egg and Poultry Association (FREPA) or RSPCA Minimum Standards – it could include both) and Inghams minimum standards the Fee will be reviewed on the anniversary date of the first placement of the farm and annually thereafter.

Inghams intends that negotiations regarding the Fee will commence not later than three (3) months prior to each annual review.  These negotiations will be undertaken in good faith and each party will use its best endeavours to reach agreement on the outcome of the review and the resulting Fee prior to the relevant annual renewal date.  Any varied Fee so agreed will apply from the anniversary date first placement of the farm.

The parties intend that the Fee will ensure a fair and reasonable minimum return to the Grower whilst encouraging industry efficiency having regard to relevant matters including growing costs, occupancy levels, methods of farming, performance, age of shedding, productivity, costs including power, gas, water and labour (wages and owners salary) costs, and the needs of the industry, and market conditions.  In relation to Free Range farms the Fee will include the cost of accreditation.

The Fee determined as above will be further adjusted on each Variation Date by the application of productivity criteria as follows, using for the purposes of the calculation the actual productivity data for the year preceding the Variation Date:

[Description of the various productivity criteria omitted from quote.]

4.           Farm Facility Use

Ingham agree that if the Ingham minimum standards change or the Australian or South Australian welfare body Accreditation Code(s) or Regulation requirements change over time regarding shed separation / farm layouts, and that Ingham request the Grower to grow RSPCA Barn Raised chickens (or non-welfare commercially raised chickens), the Grower will be paid the collectively agreed Fee applicable to growing that class of poultry similar to all other SA Collective Growers (plus the Bonus of 3.5 cents per bird) for the duration of the period of growing that class of poultry for the remaining period Initial Term of this agreement.  …

5.           Expansion

In accordance with Annexure 4 and Annexure 6, Ingham has agreed to allow the Grower to expand the existing sheds …  The Grower will advise Inghams before this expansion proceeds.

  1. The above provisions of the SCF Growing Agreements are not well drafted; in particular, their references to the “Fee” payable by Inghams to SCF are lacking in clarity and precision. 
  2. The clauses in the body of the agreement (that is, clauses 9.1 and 30.2.15) use the term “Fee” to describe the entirety of the payment to be made by Inghams to SCF for each bird.  However, those same clauses provide for the Fee to be calculated in accordance with Annexure 1.  When one then turns to Annexure 1, the word “Fee” is used in differing senses.  In the heading[1] and introduction to paragraph 1 of the Annexure, the word is used in the same sense it is used in the body of the agreement; that is, to describe the entirety of the sum payable by Inghams to SCF.  However, the balance of the paragraph then divides that Fee into two components.

[1]     Although noting that under clause 30.1.6 headings are for reference only and shall not affect the construction or interpretation of the SCF Growing Agreements.

  1. The first component (90 cents per bird), which I shall refer to as the variable component of the Fee, is then, rather confusingly, itself defined as “the Fee”.  The description of the variable component makes it plain that it will be amended throughout the course of the agreement in accordance with the “Review of Fee” process set out in paragraph 3 of the Annexure.
  2. The second component (3.5 cents per bird), which I shall refer to as the bonus component, is described as a “per bird additional payment for free range conversion costs”.  The description of the bonus component makes it plain that it will apply throughout the life of the agreement and will not be subject to any change or increase.
  3. Paragraph 2 of the Annexure contains an acknowledgement by SCF that payment of the Fee covers the costs of it obtaining both FREPA and RSPCA accreditation.  It would seem that the reference to “the Fee” in this paragraph is a reference to the entirety of the Fee, and not just the variable component.
  4. Paragraph 3 of the Annexure (“Review of the Fee”) provides for “the Fee” to be reviewed on the anniversary date of the first placement of the farm and annually thereafter.  It would seem from the terms of paragraph 1 of the Annexure, and in particular the terms in which the variable component was described, that the review process related only to that component of the Fee.  The review process was described as involving negotiations during the three month period preceding each annual review, with any agreed Fee to apply from the anniversary of the first placement of the relevant farm.
  5. In addition to SCF, four other free-range growers agreed to grow free-range chickens for Inghams in South Australia.[2]  These other free-range growers also entered into growing agreements with Inghams.  The evidence before the Arbitrator included a typical growing agreement for each of the other free-range growers.  The boilerplate provisions of these growing agreements were in relevantly identical terms (with nothing turning on the differences).

[2]     Murbko Poultry Pty Ltd, Riverland Free Range Pty Ltd, Big Bird Investments Pty Ltd and Hunter Poultry Pty Ltd.

  1. The amount payable to the other free-range growers was set out in clauses 9.1 and 30.2.15 of the other growing agreements, which were in relevantly identical terms to those of the SCF Growing Agreements.  As such, the payment obligation under the other growing agreements, like the SCF Growing Agreements, was articulated by reference to “the Fee” determined in accordance with Annexure 1.  However, Annexure 1 to the other growing agreements differed from Annexure 1 to the SCF Growing Agreements in that “the Fee” set out in Annexure 1 comprised only one component and did not refer to any payment on account of “free range conversion costs”.[3]  In all but one case the amount of the Fee was 93.5 cents per bird.[4]  Annexure 1 of the other growing agreements contained identical provisions for an annual review of “the Fee” by the parties, and any varied amount “so agreed” by the parties was to apply from the relevant anniversary date.

[3]     This being the terminology used in the SCF Growing Agreements in relation to the bonus component.

[4]     In the case of Murbko Poultry Pty Ltd, the Fee was 93.0 cents per bird.

  1. During late 2015 and early 2016, the free-range growers (including SCF) negotiated collectively with Inghams to vary the amount payable under their respective growing agreements for chickens grown in the year 2015-2016.  Inghams was represented by Mr Hindson and Mr Etherington, and the free-range growers were represented by Mr Reed and Mr Trevanion (acting as their agents).  Mr Reed and Mr Trevanion were each, through their respective entities, free-range growers for Inghams in South Australia and had growing agreements containing the payment terms referred to above.  Their entities were receiving 93.5 cents per bird under their respective growing agreements with Inghams.
  2. The negotiations culminated in the March 2016 agreement, which was in the following terms:

The SA Free Range Growers propose that the fee for the purposes of the 2014-2015 annual review will be $0.955 for all free range growers first placed prior to 1 July 2015, with that fee back dated for all birds placed after 1 July 2015.

For growers that received their first placement of birds after 1 July 2015, the fee per bird will be $0.955 from the actual date of their first placement.

  1. It was common ground that the negotiation, and the revised fee that was agreed, related to the chickens grown by the free-range growers, including SCF, for the growing year 2015-16.
  2. SCF and Inghams fell into dispute in relation to not only the fee payable under the SCF Growing Agreements during not only the 2015-16 growing year, but also the fee payable during the subsequent growing years.

The Arbitration

  1. The dispute the subject of the Arbitration proceeded by way of a statement of contentions by SCF dated 5 October 2020 and a statement of contentions by Inghams dated 20 October 2020.
  2. On 9 December 2020, the Arbitrator (over the objection of Inghams) decided to hive off aspects of the dispute, and to proceed with the claims made by SCF in its statement of contentions except those contained in certain identified paragraphs.  In essence, the Arbitrator hived off claims made by SCF pertaining to the growing years 2016-17 to 2019-20 that involved an alternative claim that in the absence of any agreement to vary the amount payable per bird between the parties in those years, SCF was entitled to be paid an amount per bird that represented a fair and reasonable return on their investment.
  3. The two legal issues for determination by the Arbitrator, as identified in SCF’s statement of contentions, were:

(a)          whether for each of the financial years 2015-16 to 2019-20 (the relevant years), Inghams breached its payment obligations to SCF under clause 9.1; and

(b)          whether by reason of the alleged breaches, Inghams was indebted to SCF in each of the relevant years.

  1. As the Arbitrator recognised, central to both issues was the proper construction of the March 2016 Agreement and its effect upon Inghams’ payment obligation under clause 9.1 of the SCF Growing Agreements in each of the relevant years.  
  2. After an oral hearing, at which one witness (Mr Shepherd for SCF) gave evidence, and documentary evidence was tendered, the Arbitrator determined the issues in favour of SCF.
  3. In particular, the Arbitrator held that the March 2016 Agreement, properly construed, had the effect that SCF was entitled to be paid 95.5 cents per bird for the variable component.  As SCF was also entitled to 3.5 cents per bird for the bonus component, it was entitled to a total fee of 99 cents per bird.  The Arbitrator also held that, in respect of the 2015-16 year, Inghams had breached clause 9.1 of the SCF Growing Agreements because Inghams had only paid SCF 95.5 cents per bird.  Inghams had not paid SCF the bonus component of the fee.
  4. Having reached that conclusion in respect of the 2015-16 year, the Arbitrator went on to hold that in each of the subsequent years (2016-17 to 2019-20) Inghams breached clause 9.1 of the SCF Growing Agreements by failing to pay the bonus component of the fee.
  5. The Arbitrator ultimately awarded SCF (Aust) $528,601.21 (including pre-award interest) and SCF (SA) $545,800.69 (including pre-award interest).  The Arbitrator also made an award of costs in SCF’s favour, with those costs fixed in the sum of $294,531.

The Partial Award

  1. In his reasons for the partial award, the Arbitrator commenced by setting out the background to the dispute between the parties, and the relevant terms of the SCF Growing Agreements, in similar terms to the above. 
  2. In so doing the Arbitrator emphasised the discussions that occurred between representatives of SCF and Inghams prior to entry into the SCF Growing Agreements.  Those discussions included statements on behalf of Inghams that SCF would be paid for the cost of the conversion of its farms to appropriately accredited free-range farms.  Those costs were estimated to be $1,275,390, which it was agreed would be paid on a per bird basis over 10 years.  It was in this context that Annexure 1 to the SCF Growing Agreements came to include a fee that included both a reviewable variable component of 90 cents per bird and a bonus component of 3.5 cents per bird for the conversion costs, with the latter fixed for the 10 year duration of the Agreement.
  3. In reviewing the terms of the SCF Growing Agreements, the Arbitrator observed that those agreements, as well as the other free-range growers’ agreements, each comprised “a boilerplate agreement, apparently used by Inghams in other locations, together with a series of annexures that were tailored to meet the circumstances of individual farms.”[5] 

[5] Partial Award at [22].

  1. Focusing upon the SCF Growing Agreements, the Arbitrator noted the differing senses in which the term “the Fee” had been used.  Having considered it appropriate to ignore the reference to the Fee in the heading to paragraph 1 of Annexure 1,[6] the Arbitrator preferred the contentions of SCF over Inghams, concluding that:

As a matter of construction of the document, however, I am satisfied that the expression, “the Fee” (with an initial capital), is used to refer to the Variable Fee Component only, at least in the annexures.

[6]     On the basis that clause 30.1.6 directed the reader that headings were for reference only and shall not affect the construction or interpretation of the Agreement.

  1. In explaining this conclusion, the Arbitrator said that he relied upon several indications in the SCF Growing Agreements, being essentially that:

·            as a matter of construction, the general boilerplate definition of “the Fee” should give way to the more specific definition in the annexures;

·            the fixed bonus component of what is described in the annexures as the Free Range Growing Fee is not reviewable or adjustable, with the provisions for review and adjustment only referable to the variable component;

·            the description of the bonus component in Annexure 1 makes it clear that this component does not apply to any extension of the Agreement, with the result that only the variable component would be payable in that event;

·            it was apparent that the bonus component would not be payable in the event of any assignment of SCF’s interest in its growing agreements;

·            paragraph 4 of Annexure 1 made it clear that, if production standards should fall, SCF is to receive both “the collectively agreed Fee applicable to growing that class of poultry similar to all other SA Collective Growers (plus the Bonus of 3.5 cents per bird) for the duration of the period of growing that class of poultry for the remaining period Initial Term of this Agreement”; and

·            the introduction by clause 10.1 of Annexure 2 and, through it, to Annexure 3, demonstrates that the variable fee payable to SCF was independent of the bonus component.

  1. The Arbitrator also set out the conclusions that he drew from his consideration of the SCF Growing Agreements, and the evidence as to the commercial intent of the parties (from the pre-contract correspondence and from Mr Shepherd).  They included the following:

·            that the covenant to pay compensation for SCF’s conversion costs of $1.275 million was peculiar to the special arrangement made between the representatives of Inghams and SCF (as opposed to the other free-range growers in South Australia);

·            that the arrangement for the payment by Inghams of the bonus component was independent of, and collateral to, that for determining the variable fee component;

·            that the bonus component represented progressive payments by Inghams for the agreed conversion costs over ten years at a per bird rate (based upon the parties’ projections);

·            that the variable component of 90 cents per bird was offered by Inghams on the basis that it represented the equivalent of the then current growing fee of 77.4 cents per bird for commercial birds, but adjusted to allow for the extra costs of raising birds in a free-range environment;

·            that the bonus component was not paid for growing the birds, and was not referable to any work performed by the grower, but rather was described as “an additional payment for free range conversion costs”; and

·            that the growing agreements for the other free-range growers did not make any provision for conversion costs.

  1. The Arbitrator concluded that, upon a proper construction of the SCF Growing Agreements, “the obligation of Inghams to pay the Fixed Bonus was independent of and collateral to its obligation to pay the Variable Fee Component.”[7]

[7] Partial Award at [36].

  1. Against this background, the Arbitrator turned to consider the process leading to the March 2016 Agreement.  He explained that in the latter part of 2014, several other South Australian growers had agreed to grow Inghams free-range chickens, with the result that by mid-2015 there were five free-range growers in South Australia operating a total of 17 farms.  As mentioned earlier in these reasons, each had grower agreements with relevantly identical boilerplate provisions, but with the detail in the annexures varied to suit the particular farms.  Three of the other free-range growers had agreed initial fees of 93.5 cents per bird, and one of them had agreed an initial fee of 93.0 cents per bird.
  2. While the growing agreements provided for annual fee reviews in the months leading up to the anniversary of the first delivery of chickens, it was later agreed that there would be a collective negotiation to strike a consistent rate for payment.  This resulted in the negotiations that occurred during late 2015 and early 2016 in relation to the fee for the growing year 2015-2016 and culminated in the March 2016 Agreement.
  3. After setting out the terms of the (two paragraph) March 2016 Agreement, the Arbitrator noted that it was implicit that the parties had agreed to standardize the growing year to the twelve-month period commencing 1 July 2015, and that the fee of 95.5 cents per bird would be for all birds grown in the year 1 July 2015 to 30 June 2016.  The Arbitrator observed that the agreement was “brief, fairly informal and evidently prepared by commercial men, presumably with a commercial outcome in mind”.[8]  He accepted that “the intended outcome was a proposed growing fee increase of 2.0 cents per bird, as had been discussed in earlier correspondence and that it was to apply to all growers.”  However, as the Arbitrator pointed out, that was not so in relation to Murbko Poultry Pty Ltd (which received an increase of 2.5 cents per bird), and the very issue in relation to SCF was whether it received a 2.0 or 5.5 cents increase in its fee. [9]

[8] Partial Award at [48].

[9] Partial Award at [49].

  1. The Arbitrator noted SCF’s concession that the negotiators had authority to reach an agreement on its behalf, but said that the question remained what was agreed, and in particular, what was meant by the word “fee” in the March 2016 Agreement.[10]  Having regard to the context and commercial purpose of the agreement, the Arbitrator noted the desire of the negotiators to establish a standardised and readily identifiable basis for calculating what he referred to as a “growing fee” to be paid to all South Australian free-range growers.

[10] Partial Award at [50].

  1. The Arbitrator recited the reasons given by counsel for Inghams for its contention that the “fee” in the March 2016 Agreement should be construed as including both the variable and bonus components of the fee payable to SCF under the SCF Growing Agreements.  They included contentions to the effect that:[11]

·            if the bonus component was not included in the 95.5 cents per bird, then SCF would receive a fee of 99 cents per bird, which would be inconsistent with the basic objective of all growers being paid at the same rate;

·            negotiations were conducted on the basis of a 2 cent increase in the fee to all growers;

·            the prospect of SCF receiving a different fee, or an increase of 5.5 cents, was not raised in the negotiations leading to the March 2016 Agreement;

·            the capital cost to all growers of providing sheds suitable for free-range birds was included in the calculation of the fee payable to them all; and

·            there was no commercial sense in the growers bargaining collectively when one of the growers had a different fee arrangement.

[11] Partial Award at [53].

  1. The Arbitrator addressed these contentions as follows:[12]

There is much force in these arguments.  They proceed, however, on the basis of the proposition that the SCF growing fee payable under the SCF Growing Agreements comprised both the Variable Fee Component and the Fixed Bonus, so that SCF was receiving a growing fee of 93.5 cents per bird for the growing year 2014-15.  I have rejected this proposition.  If, as I have concluded, SCF’s entitlement to the payment of the Fixed Bonus instalment is pursuant to a collateral agreement, the acceptance of the Inghams submission would have the consequence that in each growing year from 2015-16, this entitlement would somehow have been absorbed in the Variable Fee Component – the collateral entitlement, as such, would no longer be operative.  Such an amendment to the SCF Growing Agreements was never accepted by SCF, nor asserted by any SCF agent.  Moreover, it must address the requirement that it be “by the written mutual agreement of the parties”.  I do not consider that the document initialled at the airport meeting satisfied that requirement.

[12] Partial Award at [54].

  1. After addressing some other matters, the Arbitrator concluded that, for the growing year 2015-16, and in addition to the 95.5 cents per bird growing fee already paid, SCF was entitled to the bonus component on account of its conversion costs at the rate of 3.5 cents per bird.[13]

[13] Partial Award at [57].

  1. The Arbitrator then turned to the 2016-17 growing year.  He found that there was no negotiation or agreement with SCF pursuant to the fee review procedure in paragraph 3 of Annexure 1.  However, the evidence revealed that Mr Etherington had advised that Inghams would pay all free-range growers at the rate of 96.8 cents per bird, this being an increase of 1.3 cents per bird over the previous year.  The Arbitrator found that Inghams paid SCF at this rate for the free-range chickens it grew in the year 2016-17, and that no bonus component was paid.[14]  After rejecting an alternative argument raised by Inghams during the course of the hearing, and emphasising the fact that the bonus component was payable irrespective of any review agreement, the Arbitrator found that, for the growing year 2016-17, and in addition to the 96.8 cents per bird growing fee already paid, SCF was entitled to be paid the bonus component at the rate of 3.5 cents per bird.[15]

[14]   Partial Award at [59]-[61].

[15] Partial Award at [66].

  1. The Arbitrator reasoned similarly in relation to the growing year 2017-18, noting Mr Etherington’s advice that Inghams would pay all South Australian free-range growers 100.07 cents per bird, and holding that, in addition to the 100.07 cents per bird growing fee already paid, SCF was entitled to be paid the bonus component at the rate of 3.5 cents per bird.[16]

[16] Partial Award at [70].

  1. In relation to the growing year 2018-19, the matter was complicated by some South Australian free-range growers moving on to different contracts.  However, the rate ultimately paid to SCF was 103.84 cents per bird.  On the Arbitrator’s findings, there was no review agreement and no bonus component was paid.  As a result, the Arbitrator held that, in addition to the 103.84 cents per bird growing fee already paid, SCF was entitled to be paid the bonus component at the rate of 3.5 cents per bird.[17]

[17] Partial Award at [74].

  1. The Arbitrator considered that the growing years 2019-20 and 2020-21 fell outside his jurisdiction, and so did not make any findings in respect of those years.  But he indicated an intention to hear counsel further on that issue.[18]

[18]   Partial Award at [75], [83].

  1. The Arbitrator concluded the Partial Award by summarising his conclusions in the following terms:[19]

[19]   Partial Award at [76]-[79] (omitting footnotes).

Conclusions

I conclude, therefore, that SCF is entitled to payment of the Fixed Bonus at the agreed rate of 3.5 cents per bird for each of the years up to and including the growing year 2018-19 and that this entitlement is in addition to the fee payable under the SCF Growing Agreements that I have called the Variable Fee Component.

SCF in its Statement of Contentions says in respect of each year that Inghams was in breach of the SCF Growing Agreements in that it failed to pay the Fixed Bonus of 3.5 cents, alternatively, inasmuch as Inghams says that this was included in the payments made, it short paid the amount of the Variable Fee Component in the same amount.  In its response Inghams merely denies these contentions.

Counsel for Inghams submitted that, given the form of these SCF pleas, it is not possible to identify which of the pleaded alternatives was established.  I do not agree for the following reasons:

a.   It is clear that after the date of the first review of the growing fee at the airport meeting on 23 March 2016 there existed a difference between the parties as to the continuing entitlement of SCF to receive the bonus under the collateral agreement for the payment of the conversion costs instalments.  The Inghams contention, that I have rejected, is that this was in some way absorbed in the standardised growing fee payable to all SA free-range growers.  Inghams has continued in each year to maintain that position and has, therefore, declined to make the further separate payment of 3.5 cents.

b.   The manner of calculation of the Variable Fee Component in each subsequent year shows that Inghams has sought to pay SCF and to all the SA free-range growers the same growing fee, arrived at after considering changes to their growing expenses.  If the Inghams submission presently under consideration were correct, it would mean that Inghams was in each year paying SCF in each year a growing fee, that was 3.5 cents less than the other growers, for this Variable Fee Component.  Moreover, the payment to SCF would be 3.5 cents less than Inghams has calculated to be a fair and reasonable growing fee for SA growers.  A finding of deliberate underpayment by Inghams of this kind is a conclusion that I would not lightly make.

c.   Mr Shepherd has not, in his correspondence or in his Notices of Dispute, alleged that the amounts paid to SCF were less than he considered to be such as would provide SCF with a fair and reasonable return.  Indeed, in the table that both parties provided to me at the commencement of this arbitration this was accepted.

d.   Mr Shepherd’s uncontradicted evidence is that the bonus payment was not made.

I conclude from the evidence before me that SCF has made out its primary claim in respect of each of the four growing years in question in this arbitration.  Inghams, in breach of the SCF Growing Agreements, has, for each of the growing years 2015-16, 2016-17, 2017-18 and 2018-19, failed to pay to SCF the amounts of the Fixed Bonus due calculated at the rate of 3.5 cents per bird collected.

  1. The Arbitrator then set out some figures for the number of birds involved, and hence the additional fees payable, but said that he would hear counsel further on these issues, together with the issues of interest and costs, any issues arising in relation to growing years 2019-20 and 2020-21, and any issues arising out of SCF’s alternative claims that had been hived off.

The Final Award

  1. In his reasons for the Final Award, the Arbitrator noted that SCF no longer pursued its alternative arguments.  He accepted SCF’s contention that the ambit of the arbitration had been impliedly extended to include the growing year 2019-20, but did not accept that it extended to the growing year 2020-21.  He then quantified SCF’s claims in respect of the bonus component (including an amount for the 2019-20 growing year), interest and costs, as set out earlier in these reasons.

The application for leave to appeal

  1. Under s 34A of the CAA, an appeal lies to the Supreme Court on a question of law arising out of an award if the parties agree that an appeal may be made under that section (s 34A(1)(a)), and the Court grants leave (s 34A(1)(b)). The Court must not grant leave unless it is satisfied of the various matters set out in ss 34(3)(a)-(d).
  2. Inghams seeks leave to appeal in relation to the two questions of law set out earlier in these reasons. SCF opposes any grant of leave to appeal on various bases, including on the threshold basis that the parties have not agreed that an appeal may be made under s 34A.
  3. By reason of s 34(5) of the CAA, the Court would ordinarily determine an application for leave to appeal without a hearing. It would also determine that application ahead of any hearing of full argument on the substantive merits of the matters sought to be raised on appeal.[20] However, in the present case, the parties sought, and the Court made, an order that the issue of leave to appeal be referred for hearing in conjunction with the appeal. In circumstances where the parties apparently regard this as the more efficient course, there is no obstacle to the Court proceeding in this manner. To do so is consistent with the consensual nature of the arbitration process, and the objectives of the CAA in promoting the efficient resolution of disputes.[21]

[20]   Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74 at [109]-[113] (Allsop P, Spigelman CJ and Macfarlan JA agreeing); Limin James Chen v Kevin McNamara & Son Pty Ltd [2013] VSC 539 at [89] (Croft J).

[21]   Yesodei Hatorah College Inc v Trustees of the Elwood Talmud Torah Congregation [2011] VSC 622 at [14] (Croft J).

Right of appeal

  1. It is appropriate to commence by considering the threshold issue of whether the parties have agreed that an appeal may be made under s 34A. Inghams contends that the parties reached such an agreement in clause 23 of the SCF Growing Agreements. SCF challenges this contention.
  2. In order to consider the parties’ competing submissions on this issue in their proper context, it is necessary to commence by summarising the appeal rights that existed under the predecessor to the CAA, before then setting out the relevant provisions of the CAA and addressing some of the authorities that have considered parties’ attempts to invoke the appeal regime under the CAA (or its interstate equivalents). I will then address the parties’ submissions as to whether clause 23 of the SCF Growing Agreements entitles Inghams to bring its application for leave to appeal.

The previous legislation

  1. Prior to the introduction of the CAA, commercial arbitrations in this State were governed by the Commercial Arbitration and Industrial Referral Agreements Act 1986 (SA) (the CAIRAA). The CAIRAA was part of a national scheme of relevantly identical legislation.
  2. Section 38 of the CAIRAA prescribed the circumstances in which an appeal from an arbitral award lay to the Supreme Court. Essentially, it conferred on a party to an arbitration agreement a right of appeal to the Court on a question of law arising out of the award (s 38(2)), subject to the parties consenting to an appeal (s 38(4)(a)) or the Court granting permission to appeal (s 38(4)(b)). The Court’s power to grant permission to appeal was itself subject to s 40, which prevented the Court granting permission in circumstances where there was in force an agreement in writing that excluded the right of appeal under s 38(2).
  3. Putting to one side appeals with the consent of the parties, the position under the CAIRAA may be described as an “opt out” appeal regime; the parties were entitled to appeal (with the permission of the Court) on a question of law, unless the parties had agreed in writing to exclude that entitlement.
  4. Further, it is noteworthy that the Court’s discretion to grant permission to appeal under the CAIRAA was further regulated by s 38(5). That subsection prevented the Court granting permission to appeal unless it considered that: having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement (s 38(5)(a)); and there was either a manifest error on the face of the award (s 38(5)(b)(i)), or strong evidence that the arbitrator made an error of law and that the determination of the question may add substantially to the certainty of commercial law (s 38(5)(b)(ii)). I shall return to the potential significance of this reference to “manifest error” later in these reasons.

The current legislation

  1. The CAIRAA was repealed and replaced by the CAA, which came into force on 1 January 2012. The CAA is again part of a national scheme of relevantly identical legislation. The scheme is intended to reform domestic arbitration law in a manner generally consistent with the UNCITRAL Model Law on International Commercial Arbitration[22] which the Federal Parliament has enacted into Australian law for international arbitrations through the International Arbitration Act 1974 (Cth).[23]

[22]   As adopted by the United Nations Commission on International Trade Law on 21 June 1985, with amendments adopted by that Commission in 2006.

[23] With substantive changes referenced in notes within the CAA.

  1. The objects of the CAA are set out in s 1C:

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.

(4)           Subsection (3) does not affect the application of section 22 of the Acts Interpretation Act 1915 for the purposes of interpreting this Act.

  1. Parts 1 to 6 of the CAA address various aspects of the arbitration process. In particular, Part 5 governs the conduct of arbitral proceedings and Part 6 governs the making of awards and the termination of arbitral proceedings.
  2. Part 5 includes scope for the parties to an arbitration agreement to apply to the Court to determine any question of law arising in the course of the arbitration.  In particular, s 27J provides:

27J—Determination of preliminary point of law by Court

(1)          Unless otherwise agreed by the parties, on an application to the Court made by any of the parties to an arbitration agreement the Court has jurisdiction to determine any question of law arising in the course of the arbitration.

(2)     An application under this section may be made by a party only with the consent of—

(a)     an arbitrator who has entered on the reference; or

(b)     all the other parties,

and with the leave of the Court.

Note—

There is no equivalent to this section in the Model Law.

  1. Part 6 includes provision in s 32 that the arbitral proceedings are terminated by the final award, or by an order of the arbitral tribunal under s 32(2). And under s 32(3), the mandate of the arbitral tribunal terminates with the termination of the arbitral proceedings, subject to ss 33 and 34(4).
  2. Section 33 provides the arbitrator with the power to correct and interpret awards made, and to make additional awards:

33—Correction and interpretation of award; additional award

(1)           Within 30 days of receipt of the award, unless another period of time has been agreed on by the parties—

(a)     a party, with notice to the other party, may request the arbitral tribunal to correct in the award any errors in computation, any clerical or typographical errors or any errors of similar nature; and

(b)     if so agreed by the parties, a party, with notice to the other party, may request the arbitral tribunal to give an interpretation of a specific point or part of the award.

(2)          If the arbitral tribunal considers a request under subsection (1) to be justified, it must make the correction or give the interpretation within 30 days of receipt of the request.

(3)     The interpretation forms part of the award.

(4)           The arbitral tribunal may correct any error of the type referred to in subsection (1)(a) on its own initiative within 30 days of the date of the award.

(5)           Unless otherwise agreed by the parties, a party, with notice to the other party, may request, within 30 days of receipt of the award, the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award.

(6)           If the arbitral tribunal considers the request to be justified, it must make the additional award within 60 days.

(7)           The arbitral tribunal may extend, if necessary, the period of time within which it may make a correction, interpretation or an additional award under subsection (2) or (5).

(8)           Section 31 applies to a correction or interpretation of the award or to an additional award.

  1. Part 7 of the CAA is entitled ‘Recourse against award’ and addresses the scope for the parties to an arbitration agreement to seek recourse against arbitral awards.
  2. Section 34 provides for applications to set aside arbitral awards.  It is in the following terms:

34—Application for setting aside as exclusive recourse against arbitral award

(1)           Recourse to the Court against an arbitral award may be made only by an application for setting aside in accordance with subsections (2) and (3) or by an appeal under section 34A.

Note—

The Model Law does not provide for appeals as under section 34A.

(2)     An arbitral award may be set aside by the Court only if—

(a)     the party making the application furnishes proof that—

(i)           a party to the arbitration agreement referred to in section 7 was under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication in it, under the law of this State; or

(ii)          the party making the application was not given proper notice of the appointment of an arbitral tribunal or of the arbitral proceedings or was otherwise unable to present the party’s case; or

(iii)         the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or

(iv)          the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Act; or

(b)     the Court finds that—

(i)           the subject matter of the dispute is not capable of settlement by arbitration under the law of this State; or

(ii)     the award is in conflict with the public policy of this State.

(3)           An application for setting aside may not be made after 3 months have elapsed from the date on which the party making that application had received the award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal.

(4)           The Court, when asked to set aside an award, may, if appropriate and so requested by a party, suspend the setting aside of proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.

  1. Appeals from the decision of an arbitral award are governed by s 34A of the CAA:

34A — Appeals against awards

(1)     An appeal lies to the Court on a question of law arising out of an award if—

(a)     the parties agree, before the end of the appeal period referred to in subsection (6), that an appeal may be made under this section; and

(b)     the Court grants leave.

(2)          An appeal under this section may be brought by any of the parties to an arbitration agreement.

(3)     The Court must not grant leave unless it is satisfied—

(a)     that the determination of the question will substantially affect the rights of 1 or more of the parties; and

(b)     that the question is one which the arbitral tribunal was asked to determine; and

(c)     that, on the basis of the findings of fact in the award—

(i)    the decision of the tribunal on the question is obviously wrong; or

(ii)         the question is one of general public importance and the decision of the tribunal is at least open to serious doubt; and

(d)     that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the Court to determine the question.

(4)          An application for leave to appeal must identify the question of law to be determined and state the grounds on which it is alleged that leave to appeal should be granted.

(5)          The Court is to determine an application for leave to appeal without a hearing unless it appears to the Court that a hearing is required.

(6)          An appeal may not be made under this section after 3 months have elapsed from the date on which the party making the appeal received the award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal (in this section referred to as the appeal period).

(7)     On the determination of an appeal under this section the Court may by order—

(a)     confirm the award; or

(b)     vary the award; or

(c)     remit the award, together with the Court’s opinion on the question of law which was the subject of the appeal, to the arbitrator for reconsideration or, if a new arbitrator has been appointed, to that arbitrator for consideration; or

(d)     set aside the award in whole or in part.

(8)          The Court must not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the arbitral tribunal for reconsideration.

(9)          If the award is remitted under subsection (7)(c) the arbitrator must, unless the order otherwise directs, make the award within 3 months after the date of the order.

(10)         The Court may make any leave which it grants under subsection (3)(c) subject to the applicant complying with any conditions it considers appropriate.

(11)         If the award of an arbitrator is varied on an appeal under this section, the award as varied has effect (except for the purposes of this section) as if it were the award of the arbitrator.

Note—

There is no equivalent to this section in the Model Law.

  1. It can thus be seen that the CAA provides for an “opt in” appeal regime, rather than the “opt out” appeal regime that applied under the CAIRAA. The parties may appeal on a question of law arising out of an arbitral award if the parties agree that an appeal may be made under that section (s 34A(1)(a)) and the Court grants leave (s 34A(1)(b)).
  2. Under s 34A(3) the Court must not grant leave to appeal unless satisfied of the various matters in ss 34A(3)(a)-(d). While the conditions of a grant of leave under ss 34A(3)(c)(i) and (ii) (namely that the arbitrator’s decision is “obviously wrong”, or involves a question of “general public importance and … is at least open to serious doubt”) are similar to those under ss 38(5)(b)(i) and (ii) of the CAIRAA, it is significant that, under the CAA, satisfaction of these matters must be “on the basis of the findings of fact in the award”.
  3. Bearing in mind the objects of the CAA, and the shift from an opt out appeal regime to an opt in appeal regime (with confirmation of the final status of the arbitrator’s findings of fact upon which the questions of law are to be determined), it is apparent that the CAA reflects a policy of enhancing the status and finality of domestic arbitral awards.
  4. Even under the CAIRAA the parties could agree not to permit any judicial challenge to an arbitrator’s award, meaning that the arbitrator’s decision on questions of law would be final. Under the CAA, that has become the default position. This reflects the reality that there is nothing uncommercial about parties, even sophisticated commercial parties in the context of complicated and valuable commercial arrangements, choosing to be bound in this way. That choice may simply reflect a preference for the efficient resolution of disputes, and the certainty of finality, over the spectre of delay and cost often associated with any ability to pursue potential errors on questions of law through the courts.
  5. Nor is there any common law impediment to the parties to a commercial arrangement agreeing to treat an arbitrator’s decision, even on questions of law, as final.[24]

[24]   TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533 at [36]-[37] (French CJ and Gageler J), [74], [76]-[79] (Hayne, Crennan, Kiefel and Bell JJ).

The issue

  1. At issue in the present case is whether the parties did opt in to the appeal regime under s 34A of the CAA; that is, whether the parties did agree “that an appeal may be made under this section”.
  2. In considering this issue, I accept that the parties’ agreement to permit appeals may be made either in the parties’ arbitration agreement (that is, in the agreement to which the dispute relates and that provides for dispute resolution by way of arbitration (here, the SCF Growing Agreements)), or in some ad hoc agreement reached after the parties have fallen into dispute.[25]

[25]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [45] (Nicholson J, Stanley J agreeing).

  1. Nonetheless, the agreement must arise expressly, or by necessary implication, from the words used by the parties. That said, the parties’ agreement need not be in any particular form, nor use any particular words. The parties need not mention s 34A of the CAA. But the parties must nevertheless have evinced an objective intention to agree “that an appeal may be made under this section [s 34A]”. Further, while I have acknowledged that the agreement might, in an appropriate case, be implied, as the cases reviewed below demonstrate, the implication of an appropriate term will often be problematic.
  2. In understanding how the courts will approach the issue of whether the parties to a particular dispute have evinced the requisite objective intention, it is instructive to consider four authorities that have considered this issue. The first three involve agreements which were drafted prior to the commencement of the CAA and its interstate equivalents (and hence while the opt out regime under the CAIRAA and its interstate equivalents was still in force), but which, by reason of the relevant transitional provisions, were nevertheless governed by the CAA. While this context was important to the outcome in those cases, and the first two involved attempts to imply terms rather than construe the words used in the relevant contract, the reasoning in those cases nevertheless serves as an indication of the importance of focusing upon the words used by the parties and the precise nature of any objective intention evinced by the parties.

The authorities

  1. In Ashjal v Elders,[26] the plaintiff and defendant were parties to two contracts for the supply of wheat, both dated 23 July 2010.  The terms of the contracts provided that disputes were to be resolved by arbitration in accordance with the Grain Trade Australia (GTA) Trade Rules, which in turn incorporated the GTA Dispute Resolution Rules.  The defendant was successful under an award dated 17 November 2011, and the plaintiff sought leave to appeal. 

[26]   Ashjal v Elders [2012] NSWSC 545.

  1. The parties’ contract had been drafted at a time when the New South Wales equivalent of the CAIRAA was in force. However, the New South Wales equivalent of the CAA was in force by the time of the award and so governed the parties’ ability to appeal. The contract was drafted on the basis of an assumption of a right of appeal by reason of the opt out regime under the equivalent of the CAIRAA, but did not contain any express agreement that there be a right of appeal. The plaintiff contended that such agreement could be implied.
  2. Hammerschlag J rejected the plaintiff’s contention.  His Honour applied the usual criteria for the implication of a term, as set out in BP Refinery Westernport Pty Ltd v Hastings Shire Council.[27]  His Honour reasoned that these criteria had to be met at the time of entering into the relevant contract, and that, at that time, the legislation in force gave a right of appeal with leave or by agreement.  In that circumstance, it could not be said that the implied term for which the plaintiff contended was necessary to give the contract business efficacy.  Nor could it be said that the term was obvious.  His Honour also considered that, because the GTA Dispute Resolution Rules adopted by the contract contemplated the possibility of amendment to the relevant legislation, the implied term would contradict the express terms of the contract.

[27]   BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266.

  1. In ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd,[28] the parties had, on 4 September 2009, entered into a commercial contract which provided that any dispute was to be referred to, and finally resolved by, arbitration in accordance with the Institute of Arbitrators and Mediators Australia Rules for the Conduct of Commercial Arbitrators. At the time of entry into the contract, commercial arbitrations in South Australia were governed by the opt out appeal regime under the CAIRAA. However, as the parties’ arbitration did not commence until after the commencement of the CAA, the parties’ right to appeal was governed by the opt in regime under s 34A of the CAA.

[28]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122.

  1. The opt out nature of the legislative framework that existed when the contract was entered into meant that, at the time of entry into that contract, there was a right of appeal (with the leave of the Court) even though the contract was silent on the point. The issue was whether there was a proper basis to imply a term to the effect that the parties agreed to an appeal under s 34A of the CAA. The primary judge (Blue J) held that such a term could be implied,[29] but this decision was overturned on appeal.[30]  Both Kourakis CJ and Nicholson J, in separate reasons, held that an implied term giving the parties a right of appeal was neither necessary to give business efficacy to the contract,[31] nor obvious;[32] and that there was nothing in the “express terms of the contract, its manifest purpose [or] the matrix in which it was made” which led irresistibly to an inference of the presumed intention.[33]  Stanley J agreed with the reasons of Kourakis CJ and Nicholson J.

[29]   Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2017] SASC 69, with Blue J expressing the term (at [24]) as one which provided that each party was to have a right of appeal under the governing statue from time to time; or (at [43]) as one which provided that the parties would have “the statutory right of appeal against an arbitration award.”

[30]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122.

[31]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [16] (Kourakis CJ), [72] (Nicholson J).

[32]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [26] (Kourakis CJ), [71] (Nicholson J).

[33]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [23] (Kourakis CJ).

  1. The crux of Kourakis CJ’s reasoning is contained in the following passage:[34]

The failure to reach an agreement on an exclusion of the rights of appeal under the 1986 Act gives no reason to presume that the parties intended each would facilitate an appeal against an award brought by the other if the facility of a unilateral application for permission to appeal was abrogated and replaced with an application for permission brought with the consent of the other party. ASC accepted that there is no basis from which to imply that the parties had agreed to give their consent to an appeal pursuant to s 38(4)(a) of the 1986 Act. It is difficult to justify the implication of a term to facilitate an application for permission to appeal in the event that the legislative regime was changed to require the consent of both parties.

It is one thing to recognise that the obvious effect of the contract’s silence on the question of appeals against awards was that either party was at liberty to seek permission to appeal if the statute so allowed and quite another to leap from that to a presumption that the parties intended to preserve that power for each other by contractually binding themselves to assist the other to appeal against an award made in their favour.  It may appeal to one person’s sense of fairness that there be such a term, but the removal of judicial review might be welcomed by another for its greater efficiency. 

There is no reason to presume that, objectively assessed, the parties made a deliberate choice that they would not opt out of a right of appeal. That the parties omitted a clause excluding the operation of the 1986 Act is consistent with an agreement not to make any provision excluding or affecting the operation of any statute from time to time governing appeals from arbitral awards. Alternatively, they may have decided to reserve to themselves the option of consenting, or not, to an appeal when and if the occasion arose. Finally, the parties may not have been of the same view on the question. One party may have wanted to exclude an appeal pursuant to s 40 and the other not. The making of the agreement with a clause submitting disputes to arbitration does not carry with it any implication or indicate as to what the parties intended should the 1986 Act be amended.

The justification for the implication of the term contended for must be found in the express terms of the contract, its manifest purpose and the matrix in which it was made.  There is nothing about those factors which irresistibly leads to such a presumed intention.

[34]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [20]-[23].

  1. Nicholson J commenced his operative reasoning by agreeing with the primary judge’s observation that the contractual intention of the parties governs both the construction and implication of terms of their contract, and that such intention is to be ascertained objectively by reference to the text, context and evident purpose of the contract, and the relevant surrounding circumstances known to the parties.[35]

[35]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [49].

  1. The parties in that case were both commercially sophisticated, and Nicholson J accepted that they should be taken to have been aware of the CAIRAA and to have recognised that, by reason of s 38 of that Act, there would be a right of appeal (to the extent provided for in ss 38 and 40).[36]  However, his Honour explained:[37]

[I]t cannot be said that the mere entry into the arbitration agreement necessarily indicated an objective presumed intention that there was to be a right of appeal, as opposed to a common understanding or acceptance that, whilst section 38 of the 1986 Act remained in force, a right to appeal in accordance with its terms would lie.

[36]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [62].

[37]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [65].

  1. Nicholson J later added:[38]

The parties had no choice in 2009 but to adopt the constraints imposed by sections 38 and 40 of the 1986 Act if they wished to include the arbitration agreement. If confronted with the possibility that the legislative regime governing appeals might be changed in the future so that they may not be bound by the 1986 Act constraints, it is not so obvious as to go without saying how they would have responded. In my view, the third BP Refinery requirement has not been made out.

I also take the view that an implied term securing a right of appeal to the parties, however formulated, is not necessary to give business efficacy to the contract.

[38]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [71]-[72].

  1. His Honour also added:[39]

In essence, the argument in support of an implied term comes down to this.  The existence of the opt out regime at the time the parties entered into the arbitration agreement and the fact that the parties did not, then or at any time before the repeal of the 1986 Act, agree to opt out, taken together, is tantamount to an agreement that there was to be a right of appeal.  However, the fact that the parties either did not or could not reach agreement to opt out does not necessarily imply the converse, that is, that they had reached agreement to have a right of appeal.  The fact that the third BP Refinery requirement (so obvious as to go without saying) has not been made out means that, even on a wider formulation of the business efficacy test, arguably discernible from the Lord Neuberger and Lord Hoffman dicta, the business efficacy requirement is not satisfied.

[39]   ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at [81].

  1. These two cases were considered by Riordan J in Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia.[40] The parties in that case entered into a design services contract in April 2011. Pursuant to clause 12.13 of their contract, the parties agreed to refer disputes to arbitration, to be conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce (“the ICC Rules”) current at the time of the reference to arbitration. Clause 12.13(c) provided that nothing in that clause was intended to modify or vary the rights of appeal contained in the Commercial Arbitration Act 1984 (Vic) (being the Victorian equivalent of the CAIRAA); and that article 28(6) of the ICC Rules (which deemed the parties to have waived their right to any recourse against the enforcement of an arbitral award) did not apply.

[40]   Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia [2020] VSC 127.

  1. While the parties entered into their contract at a time when the earlier legislation was still in force, by the time their dispute was referred to an arbitrator (August 2017) and then became the subject of an award (August 2019), the Victorian equivalent of the CAA was in force and governed the parties’ right of appeal.
  2. The Court’s jurisdiction to entertain an appeal thus turned upon satisfaction that the parties had agreed “that an appeal may be made under this section” (being s 34A of the CAA). Riordan J said that this gave rise to two issues requiring determination:[41]

(a)          whether cl 12.13 of the Contract constitutes an agreement than an appeal could be made against an award (‘the first contention’); and

(b)          whether such an agreement must relate expressly or implicitly to an appeal “under this section”, being s 34A (‘the second contention’).

[41]   Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia [2020] VSC 127 at [14].

  1. Taking these in reverse order, when addressing the second contention, which dealt with the significance of the requirement in s 34A that the parties agree that an appeal may be made “under this section”, Riordan J noted that the respondent contended that the agreement must expressly or implicitly refer to an appeal under s 34A, whereas the applicant contended that it was only necessary that the agreement relate to the type of appeal provided for under s 34A (being an appeal on a question of law).
  2. Riordan J concluded that, although s 34A was capable of bearing both of the meanings for which the parties contended, it should be read as requiring merely an agreement by the parties that they have a right to appeal on a question of law; that it does not require the parties to expressly or implicitly recognise that the appeal is under s 34A, or even to be aware of that section at the time of the agreement.[42]

[42]   Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia [2020] VSC 127 at [42].

  1. As to the first issue, Riordan J commenced his analysis by summarising the principles governing the construction of commercial contracts, and the decisions to which I have already referred.  His Honour then concluded that clause 12.13 was not an agreement by the parties that they have a right to appeal any award on a question of law.  His Honour explained:[43]

[43]   Jacobs Group (Australia) Pty Ltd v The Commonwealth of Australia [2020] VSC 127 at [31].

I reject the applicant’s submission that cl 12.13 is an express agreement that the parties would have a right to appeal any award on a question of law for the following reasons:

(a)     On a plain reading, cl 12.13 does not confer on the parties any such right.

(b)          The effect of not excluding a party’s rights under s 38 of the 1984 Act was that a party could appeal on a question of law with:

(iii)    the consent of the other parties; or

(iv)    leave of the Court.

By including cl 12.13, the parties plainly intended not to exclude rights of appeal under the 1984 Act. However, the clause says nothing about:

(i) whether one party would consent to the other appealing pursuant to s 38(4)(a) of the 1984 Act; or

(ii)     the intention of the parties if the rights of appeal under the 1984 Act were amended.

(c)          The fact that the parties made it plain that they did not intend to exclude their appeal rights, as they could in an exclusion agreement under s 40(1) of the 1984 Act, does not lead to the conclusion that the parties were obliged to consent to an appeal under s 38(4)(a) of that Act. It is even clearer that cl 12.13 cannot be read as an agreement that each party would consent to the other having a right to appeal on a question of law under any amending Act.

(d)          Although, unlike the above authorities, the Contract was not silent on the question of appeals against awards, cl 12.13 said no more than that the parties did not intend to modify or vary the rights of appeals under the 1984 Act. Accordingly, I would adapt the words of Chief Justice Kourakis in ASC v Ottoway and say:

It is one thing to recognise that the obvious effect of the [contract expressly not excluding] the question of appeals against awards was that either party was at liberty to seek permission to appeal if the statute so allowed and quite another to leap from that to a presumption that the parties intended to preserve that power for each other by contractually binding themselves to assist the other to appeal against an award made in their favour. It may appeal to one person’s sense of fairness that there be such a term, but the removal of judicial review might be welcomed by another for its greater efficiency.

  1. The applicant did not contend for any implied term.  Thus, having rejected the applicant’s contention that there was any agreement to a right of appeal in relation to questions of law to be found in clause 12.13, his Honour dismissed the application for leave to appeal.
  2. Finally, I mention the recent decision of Rees J in The Nuance Group (Australia) Pty Ltd v Shape Australia Pty Ltd.[44] The parties had entered into a standard form contract[45] to carry out certain fit-out and refurbishment works. It included an arbitration clause, but did not include any agreement that an appeal to the Court lay on questions of law. The parties fell into dispute, and in the course of arranging an arbitration, the parties disagreed as to whether the arbitration should take place under the New South Wales or Victorian equivalent of the CAA (despite those Acts being in identical terms). It was in this context that the solicitor for the plaintiff sent the solicitor for the defendant an email dated 2 August 2018, which included:

Our understanding is that the rights of appeal under the Victorian version of the legislation are too narrow given the way it is currently being interpreted.  Our view is that both parties should have sufficient rights of appeal if the need arises.

[44]   The Nuance Group (Australia) Pty Ltd v Shape Australia Pty Ltd [2021] NSWSC 1498.

[45]   Australian Standard General Conditions of Contract (AS 2124-1992).

  1. After the adjudication was completed, the defendant contended that this email was an agreement that an appeal may be made under s 34A of the NSW equivalent of the CAA. Rees J rejected this argument. Referring to the authorities outlined above, her Honour reasoned:[46]

… It was entirely within the parties’ remit to agree upon the extent to which the arbitrator’s decision on legal questions was binding or subject to review by this Court. The Act respects the parties’ choice. Here, the correspondence does not evidence an express agreement. Nuance did not ask Shape to agree that an appeal lay to this Court on a question of law. Shape did not even reply.

Nor can an agreement to appeal on questions of law be implied as the contract was effective without such a term. …

I find that the parties did not, by Shape’s acceptance of the proposal in Nuance’s email of 2 August 2018, expressly or by implication, agree that an appeal lies to this Court on questions of law.

[46]   The Nuance Group Australia Pty Ltd v Shape Australia Pty Ltd [2021] NSWSC 1498 at [31]-[33].

  1. By way of summary, these authorities underscore the need to scrutinise closely the words used by the parties in order to determine whether they reveal the requisite objective intention, and hence agreement, that an appeal may be made under s 34A of the CAA.
  2. In this respect, it is important to identify both (i) an agreement that there will be a right of appeal; and (ii) an agreement that it will be a right of appeal of the type or character contemplated by s 34A.
  3. In respect of (i), the authorities have drawn a distinction between the absence of any agreement not to opt out of an appeal regime, and the existence of an agreement to opt in to an appeal regime. The authorities suggest that the availability of the right of appeal under s 34A of the CAA requires more than that the dispute resolution provisions within the parties’ agreement contemplate or assume that there may be an appeal against any arbitral award, in the sense that they seek to preserve whatever rights of appeal may exist, or contemplate and allow such appeals to occur. Rather, the availability of the right of appeal under s 34A of the CAA requires that the dispute resolution provisions evince an objective intention by the parties to opt, or choose, to subject any arbitral award to an appeal.
  4. The distinction to which I have referred is a subtle one. But the authorities suggest it is an important one. The drawing of this distinction is consistent with the policy underpinning the introduction of the CAA; namely, to prioritise efficiency and certainty in the resolution of commercial disputes by limiting the scope for curial intervention and correspondingly enhancing the status and finality of arbitral awards.

Segment #4

  1. Further, even if it were appropriate to read the words used by the parties as confined to manifest errors in relation to questions of law, the result would be to produce a narrower right of appeal than that contemplated by s 34A. Under s 34A(3)(c) a grant of leave to appeal is not confined to cases where the arbitrator’s decision on a question of law is obviously wrong (s 34A(3)(c)(i)). It extends to cases where the question is one of general public importance and the decision is at least open to serious doubt (s 34A(3)(c)(ii)).
  2. For all of these reasons, I am not satisfied that the parties have agreed, for the purposes of s 34A(1)(a), that “an appeal may be made under this section”. This conclusion requires that Inghams’ application for leave to appeal be dismissed.

Questions of law

  1. Even assuming the parties did agree that an appeal may be made under s 34A of the CAA, that right of appeal is confined to questions of law arising out of an award, and is subject to the Court granting leave.
  2. The first question in respect of which Inghams seeks leave to appeal involves a challenge to the Arbitrator’s conclusion that the agreed “fee” of 95.5 cents per bird in the March 2016 Agreement was confined to the variable component of the fee payable under the SCF Growing Agreement.
  3. This first question raised by Inghams relates primarily to the construction of the March 2016 Agreement.  As developed later in these reasons, it also involves consideration of the construction of the SCF Growing Agreements, and the interaction between the March 2016 Agreement and the payment obligations under the SCF Growing Agreements.  But even so, it remains a question that requires the construction of the contractual arrangements between the parties.
  4. Questions of construction are generally accepted to be questions of law.[52]  I am satisfied that the first question raised by Inghams is a question of law.

[52]   Westport Insurance Corp v Gordian Runoff Ltd (2011) 244 CLR 239 at [82] (Heydon J); Western Australian Rugby Union v Australian Rugby Union [2017] NSWSC 1174 at [1]-[3] and [13].

  1. In contending that the first question does not raise a question of law, SCF seeks to characterise the issue as one turning merely upon the identification of the subject matter of the March 2016 Agreement:  that is, whether its subject is the variable component of the fee payable under the SCF Growing Agreement, or the entirety of the fee payable under that Agreement.  Even accepting the validity of this characterisation of the issue, I do not think it alters the analysis significantly.  The determination of the subject matter of the March 2016 Agreement still involves an issue that turns upon the construction of the agreements between the parties.
  2. However, I am not persuaded that the second question in respect of which Inghams seeks leave to appeal is a question of law. It assumes the first question has been resolved in SCF’s favour, and that SCF was entitled to be paid the bonus payment of 3.5 cents per bird for each of the relevant growing years, and requires consideration of whether in fact the amounts owing had been paid. That is a question of fact. While the Arbitrator’s consideration of this question occurred in the context of the SCF Growing Agreements and the March 2016 Agreement, it ultimately turned upon an essentially factual issue bound up in the proper characterisation of the payments made. I do not think resolution of the second question posed by Inghams involves a question of law appealable under s 34A of the CAA.

Criteria for leave to appeal

  1. Even assuming that the parties had agreed to a right of appeal under s 34A of the CAA, and that both of the questions sought to be ventilated by Inghams are questions of law, a grant of leave to appeal would still require the Court’s satisfaction of each of the matters identified in ss 34A(3)(a) to (d). It is appropriate to address each of these matters.

Substantially affect rights

  1. Subsection 34A(3)(a) requires satisfaction that the determination of the relevant question will substantially affect the rights of one or more of the parties.  There was no dispute that this was satisfied in respect of both proposed questions.

Question the arbitral tribunal was asked to determine

  1. Subsection 34A(3)(b) requires satisfaction that the proposed question is one that the arbitral tribunal was asked to determine.  Whilst the issues before the Arbitrator in the present case were broader, and couched in different terms, I am satisfied that the questions proposed by Inghams in its application for permission to appeal were both questions that the Arbitrator was asked to determine.

Decision that is obviously wrong

  1. Subsection 34A(3)(c) requires satisfaction that, on the basis of the findings of fact in the award, either the decision on the relevant question was obviously wrong (s 34A(3)(c)(i)), or the question was one of general public importance and the decision of the tribunal was at least open to serious doubt (s 34A(3)(c)(ii)).
  2. Inghams did not contend that the questions posed in its proposed appeal were questions of general public importance.  Any such contention would have been without merit given that the questions raised are ones that are concerned with the construction and operation of the bespoke contractual arrangements between the parties to these proceedings.  They do not raise any issue likely to be of any general commercial significance beyond the parties to these proceedings, let alone any issue of general public importance.
  3. Rather, Inghams focused its attention upon a contention that the Arbitrator’s decisions on the two questions were “obviously wrong”. 
  4. In considering what the requirement that the decision sought to be challenged is “obviously wrong” entails, it is instructive to consider the background to the use of this term in the CAA.
  5. As initially enacted, the CAIRAA (and its interstate equivalents) did not include any condition of a grant of leave to appeal that there be manifest error on the face of the award. Rather, s 38(5) provided merely that the Court “shall not grant leave … unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement …”.
  6. This broad discretion with respect to leave to appeal under the CAIRAA reflected the position under the Arbitration Act 1979 (UK).  The exercise of this discretion was considered by the House of Lords in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema).[53]  The applicant in that case sought leave to appeal against an arbitrator’s construction of a “one-off” contractual clause, and finding that the contract had been frustrated by a lengthy strike in a charterparty dispute.  Lord Diplock referred to the parliamentary intention to ensure the finality of awards implicit in the removal of the case stated procedure that had developed to facilitate curial intervention and in the imposing of conditions upon the grant of leave to appeal.  In relation to when leave should be granted, Lord Diplock held that for a “one-off” clause “leave should not normally be given unless it is apparent to the judge upon a mere perusal of the reasoned award itself, without the benefit of adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong”.[54]  Where the question of law was of general application, such as the construction of standard form contractual clauses, Lord Diplock held that less strict criteria should apply.  In those cases, leave to appeal should be allowed if the judge considered that a “strong prima facie case” had been made out that the arbitrator was wrong.[55]  These two propositions came to be known in the authorities as the two limbs of The Nema guidelines.

[53]   Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724.

[54]   Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 at 742.

[55]   Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 at 743.

  1. While some authorities in relation to s 38(5), as originally enacted, applied The Nema guidelines,[56] the weight of Australian authority favoured a more flexible approach.[57]  For example, in Qantas Airways Ltd v Joseland & Gilling,[58] McHugh JA, who delivered the judgment of the Court, said:[59]

We are not convinced that the statements of Lord Diplock, based as they are on a different background, are applicable to s 38 of our Act. The matters to which Lord Diplock refers are important factors in determining whether leave should be given. But the exercise of the discretion conferred by s 38 does not depend on whether the claimant has made a strong prima facie case or fulfilled the other requirements to which his Lordship refers. It is a discretion to be exercised after considering all the circumstances of the case.

[56]   Zafir v Papaefstathiou (unreported, Supreme Court of Victoria, Nathan J, 30 October 1986); Costain Australia Ltd v Frederick W Nielson Pty Ltd (unreported, Supreme Court of Victoria, O’Bryan J, 21 May 1987).

[57]   Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327 at 333 (McHugh JA, Glass and Priestly JJA agreeing); Abignano Ltd v Electricity Commission of New South Wales (1986) 3 BCL 290 at 297 (Smart J); Thompson v Community Park Developments Pty Ltd (unreported, Supreme Court of Victoria, Vincent J, 4 March 1987).

[58]   Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327.

[59]   Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327 at 333 (McHugh JA, Glass and Priestly JJA agreeing).

  1. Between 1990 and 1998, the CAIRAA and its equivalents were amended to include the form of s 38(5) summarised earlier in these reasons; that is, with the discretion to grant leave to appeal conditioned upon satisfaction, amongst other things, that there is either a manifest error of law on the face of the award (s 38(5)(b)(i)) or strong evidence that the arbitrator made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law (s 38(5)(b)(ii)).
  2. The authorities considering these two limbs of s 38(5)(b) construed them as reflecting the substance of the two limbs of The Nema guidelines. This approach to their construction was consistent with the 1988 report of the Working Group commissioned by the Standing Committee of Attorneys-General to review the operation the CAIRAA and its equivalents, which had recommended that s 38(5) be amended to incorporate The Nema guidelines “with the effect that leave may only be given if an error of law is apparent on the face of an award, without hearing argument”.[60]

[60]   Report of the Working Group on the Operation of Uniform Commercial Arbitration Legislation in Australia (1988), p31.

  1. In Promenade Investments Pty Ltd v New South Wales,[61] Sheller JA explained:[62]

The added requirements of manifest error of law on the face of the award or strong evidence that the arbitrator made an error of law and that the determination of the question may add substantially to the certainty of the commercial law suggest that the draftsman was seeking to constrain the exercise of court control over arbitral awards in the manner described by the House of Lords in The Nema.  A manifest error of law on the face of the award may be an error which would be apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument.  A determination which adds substantially to the certainty of commercial law may be a determination of a question of the construction of a contract in standard terms rather than the construction of a one-off clause.  In such a situation, strong evidence that the arbitrator made an error of law may equate with a strong prima facie case that the arbitrator had been wrong in his construction.

[61]   Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203.

[62]   Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 at 222 (Sheller JA, Mahoney and Meagher JJA agreeing).

  1. After mentioning the reference by the judge below (Rogers CJ Comm D) to the 1988 report of the Working Group commissioned by the Standing Committee of Attorneys-General, Sheller JA agreed that the legislature had intended “to reject the broad discretionary approach prescribed by the judgment in Qantas.”[63]

[63]   Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 at 222.

  1. Sheller JA later expanded upon the meaning of manifest error:[64]

“Manifest error” is an expression sometimes used in reference to reasons given by judges or the approach taken by juries … It is used to indicate something evident or obvious rather than arguable: see generally per McHugh JA in Larkin v Parole Board (1987) 10 NSWLR 57 at 70-71. Nothing more is to be learnt from the language used but of course the discretion of the court as to whether or not it will grant leave remains and regard must be had to the requirement of subs 5(a). The matters referred to by Lord Diplock in The Nema remain important factors in determining whether leave should be given.

However I have difficulty in defining the significance of an error of law by reference to whether it is apparent to a judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument.  I understand the views expressed that decisions on questions of law should be left to the arbitrator with minimal interference by the courts unless the arbitrator may be establishing an erroneous precedent on a matter of law which may affect other cases between other parties as for example where the question concerns the construction of a contract in standard terms.  But the paragraph requires a determination as to whether or not there is a manifest error on the face of the award and I do not see why a judge should be required to do that without adversarial argument.  …

There is nothing, in my opinion, in the language of the subsection or in any other material, to which consideration can appropriately be given pursuant to the terms of the Interpretation Act which would allow the judge to proceed to determine the application without hearing argument.  However, as McHugh JA has pointed out “manifest”, in the context of the subsection, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law that is more than arguable.  There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law.

Assuming that there is not a manifest error of law on the face of the award it may be argued that there is strong evidence that the arbitrator made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.  The requirement that the question be one the determination of which may add substantially to the certainty of commercial law indicates that it should be one of wider and greater importance than, for example, the construction of a one-off clause in the context of a particular agreement between the parties.  One can discern here the sort of limitation which Lord Diplock had in mind.  The expression “commercial law” should be given no narrow construction. …

[64]   Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 at 225-226.

  1. Several subsequent decisions took a similar approach to the meaning of manifest error in the context of s 38(5)(b)(i). For example, in Natoli v Walker, Kirby P, while noting the difficulty with the word “manifest”, nevertheless accepted that, given the background to its inclusion within s 38(5)(b)(i), it connoted “swift and easy persuasion and rapid recognition of the suggested error.”[65]  And in Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust,[66] Debelle J followed Promenade Investments Pty Ltd v New South Wales, holding that, while the Court was entitled to the benefit of adversarial argument, nevertheless “manifest” denoted an error of law which was more than arguable; the applicant was required to point to “an obvious, if not compelling error”.  In other words, “[t]he question is not whether the point is fit for argument but whether an obvious error of law exists.”

[65]   Natoli v Walker (1994) 217 ALR 201 at 215 (Kirby P); see also at 223 (Mahoney JA).

[66]   Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust (1994) 63 SASR 444 at 447-448.

  1. In Gordian Runoff Ltd v Westport Insurance Corporation,[67] Allsop P (Spigelman CJ and Macfarlan JA agreeing) adopted an approach that was consistent with these authorities:

The proper approach can be taken from the reasons of Kirby P and Mahoney JA in Natoli at 212-215 and 223, respectively, and from the reasons of Sheller JA in Promenade Investments at 225-6. The error must be more than arguable; it must be evident or obvious; there must be powerful reasons leaving little or no doubt on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law. In using these accepted appellate authorities I should not be taken to have overlooked the similarly expressed and equally valid views of Rogers CJ Comm D in Promenade Investments at 192 that the argument for leave should be strong and apparently compelling after a fairly rapid examination of the matter.

[67]   Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74 at [116].

  1. Allsop P then provided a useful comparison between “manifest error” and the concept of declining to follow an intermediate appellate decision on the ground it is “plainly or clearly wrong”:[68]

It is important to distinguish the phrase “manifest error” in this context from a similarly worded phrase, with a quite different meaning, in another, quite different context: “plainly or clearly wrong” in the context of the decision of an intermediate appellate court as to whether to follow or depart from a previous Australian intermediate appellate court on a question of law.  In Gett v Tabet … this court discussed the meaning of “clearly” or “plainly” wrong in this precedential context.  The important matter to grasp about such phrases in that context is that a later court is not restricted to a preliminary examination to form its views.  The question of “plainly” or “clearly” wrong does not involve the speed or obviousness of the appreciation of error at a preliminary examination, but rather, among other things, the degree of conviction with which error is perceived …

The difference is not a product of some overly refined ascription of meaning to adjectives and adverbs that are otherwise, to a degree, synonymous. Rather, the difference is rooted in the different contexts which point to different meanings. The phrase “manifest error” in s 38 is in the context of review of arbitration awards in a section of a statute exhibiting a Parliamentary policy of restricted judicial review of and interference with arbitral awards. The phrase “plainly” or “clearly” wrong is in a wider constitutional context of intermediate courts disposing of cases according to law and giving proper weight and balance to the views of equivalent courts around Australia.

[68]   Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74 at [117]-[118].

  1. After making some observations as to the approach to the criterion in s 38(5)(b)(ii), Allsop P described the two limbs of s 38(5)(b) as reflecting the two limbs of The Nema guidelines:[69]

The positing of these two levels of strictness for the identification of legal error (“manifest error”: (b)(i) and “strong evidence”: (b)(ii) can be seen to be a reflection of aspects of Lord Diplock’s speech in Nema.  In Nema … Lord Diplock discussed the proper approach to the construction of “one-off” clauses and the “rather less strict criteria” that were appropriate for the construction of standard form contracts in respect of which a high degree of legal certainty for the relevant market was required.

[69]   Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74 at [126].

  1. However, on further appeal to the High Court in Westport Insurance Corporation v Gordian Runoff Ltd,[70] their Honours attributed a quite different meaning to the phrase “manifest error”.  The plurality (French CJ, Gummow, Crennan and Bell JJ) commenced their consideration of the phrase by noting the long history of the concept of an error of law appearing, or manifest, upon the face of an award.[71] Turning to the use of the phrase in the context of s 38(5), their Honours said:[72]

Paragraph (b)(i) of s 38(5) may be awkwardly expressed, but the words “a manifest error of law on the face of the award” comprise a phrase which is to be read and understood as expressing the one idea. An error of law either exists or does not exist; there is no twilight zone between the two possibilities. But what is required here is that the existence of error be manifest on the face of the award, including the reasons given by the arbitrator, in the sense of apparent to that understanding by the reader of the award. If that error is manifest and its determination could substantially affect the rights of at least one of the parties, as specified in para (a) of s 38(5), then the Supreme Court may go on and decide to grant or refuse leave in the exercise of the power conferred by s 38(4)(b).

If there be no such manifest error on the face of the award but there is presented to the Supreme Court on the leave application “strong evidence” that an error of law was made, and its determination may add, or be likely to add, substantially to the certainty of commercial law (para (b)(ii) of s 38(5)) and also may substantially affect the rights of at least one of the parties (para (a) of s 38(5)), then leave may be granted.

If either s 38(5)(b)(i) or s 38(5)(b)(ii) has been engaged to enliven the power to grant leave, then, upon the grant of leave, a “question of law arising out of an award” is presented to provide the subject matter of the appeal which lies to the Supreme Court under s 38(2).

Much difficulty in the operation of these provisions has been occasioned by the majority decision of the New South Wales Court of Appeal in Natoli v Walker (Kirby P and Mahoney JA, Meagher JA dissenting). The majority appear to have treated the use of “manifest” in para (b)(i) of s 38(5) not as directed to what is presented upon the face of the award but as requiring the error of law itself to have a particular quality or character so as to include within para (b)(i) facile errors and to exclude those of complexity. This would exclude from para (b)(i), for example, an error in the construction of a complex law such as s 18B of the Insurance Act.  Yet, as para (b)(ii) indicates, the policy of the statute is not to leave entirely to the operation of the arbitration agreement questions of law the determination of which may be likely to add to the certainty of commercial law.  In an age when much commercial activity is regulated by statute, such questions are likely to be matters of statutory interpretation.  It would be incongruous to favour judicial determination merely of egregious error apparent on the face of the award.

In the present case, counsel then appearing for the reinsurers in the Court of Appeal, no doubt aware of what had been said in Natoli by the Court of Appeal, conceded that he did not press a case of manifest error of law on the face of the award.  However, in his reasons, Allsop P said that he did not take the concession as going beyond the particular point of construction of s 18B upon which the primary judge had based his decision.  Nevertheless, his Honour applied Natoli to the construction of para (b)(i) of s 38(5), so that answers given by arbitrators upon difficult questions of law, which had been open to competing arguments, did not qualify as errors of law.

In this Court the reinsurers relied upon para (b)(i) as well as para (b)(ii) of s 38(5) and were at liberty to do so. Natoli should not be accepted in this Court as correctly construing s 38(5)(b)(i) of the Arbitration Act. The character or quality of the error of law falls for consideration, if relied upon, at the next stage, namely when the Supreme Court is considering under s 38(4)(b) whether to grant leave.

[70]   Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239.

[71]   Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239 at [32].

[72]   Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239 at [42]-[47] (omitting citations).

  1. Kiefel J reasoned similarly:[73]

I agree with French CJ, Gummow, Crennan and Bell JJ that manifest error of law requires that the error appear on the face of the Award, which includes the reasons for it, and that the error be apparent to the understanding of the reader.  Such is the case here.  It does not require that the error be of a particular quality or that errors involving complex questions be disqualified.

[73]   Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239 at [163].

  1. There have been subsequent decisions in relation to s 38(5)(b)(i) that have continued to suggest that manifest error connotes an error which is obvious rather than merely arguable.[74]  However, as Martin CJ observed in D & Z Constructions Pty Ltd v IHI Corporation,[75] there must be considerable doubt whether the observations to this effect in earlier cases such as Promenade Investments Pty Ltd v New South Wales and Natoli v Walker survive the decision of the High Court in Westport Insurance Corporation v Gordian Runoff Ltd.  Indeed, in Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd,[76] Blue J described this High Court decision as having disapproved of these earlier articulations of manifest error.

[74]   For example, Limin James Chen v Kevin McNamara & Son Pty Ltd [2013] VSC 539 at [97] (Croft J).

[75]   D & Z Constructions Pty Ltd v IHI Corporation [2013] WASC 265 at [3]; applied in Alvaro v Amaral (No 2) [2013] WASCA 232 at [25] (Martin CJ, Pullin and Newnes JJA).

[76]   Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2017] SASC 69 at [119] (fn 54).

  1. While the obviousness or otherwise of the error might nevertheless have remained a relevant consideration under the Court’s general discretion to grant or refuse leave to appeal even after satisfaction of one or other of the limbs of s 38(5)(b),[77] the issue is now moot given the repeal of the CAIRAA and its replacement with the CAA. Through the introduction of s 34A of the CAA, the legislature has done away with any difficulty associated with the meaning of manifest error and has quite plainly opted for an approach which, through the two limbs of s 34A(3)(c), reflects the two limbs of The Nema guidelines. As such, the Australian authorities to which I have referred that have applied this approach in the context of s 38(5) of the CAIRAA and its equivalents will be of some assistance in applying the criterion of “obviously wrong” under s 34A(3)(c)(i) of the CAA. Conversely, it will no longer be necessary to ensure that the alleged error on the relevant question of law be identifiable “on the face of the award”.[78]

[77]   Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239 at [47] (French CJ, Gummow, Crennan and Bell JJ); D & Z Constructions Pty Ltd v IHI Corporation [2013] WASC 263 at [2] (Martin CJ).

[78]   Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2017] SASC 69 at [119]-[120].

  1. It remains then to consider whether the Arbitrator’s decisions in respect of the questions sought to be raised on appeal by Inghams were obviously wrong.  Based upon the authorities reviewed above, this requires something more than arguable error.  It connotes an error that is apparent from a perusal of the arbitrator’s reasons for the award, without the need for any prolonged adversarial argument.  Put another way, the Court must be able to readily identify error rather than merely allowing for the possibility of error, or for the existence of doubt based upon the complexity of the relevant issue(s).

Question 1

  1. Question 1 asks whether the effect of the March 2016 Agreement was that SCF was entitled to receive payments from Inghams for the 2015-16 growing year totalling 99 cents per bird, rather than the 95.5 cents per bird referred to in that agreement.  Inghams contends that the Arbitrator made an obvious error in concluding that the fee of 95.5 cents per bird agreed in the March 2016 Agreement related only to the variable component of the fee payable by Inghams to SCF under the SCF Growing Agreements, with Inghams being required to pay SCF an additional 3.5 cents per bird on account of the bonus component referred to in Annexure 1 to the SCF Growing Agreements.  Inghams contends that the Arbitrator ought to have concluded that the figure of 95.5 cents per bird agreed in the March 2016 Agreement related to the entirety of the fee payable by Inghams to SCF, and hence was inclusive of the bonus component.
  2. In contending that the Arbitrator’s decision was affected by obvious error, Inghams, in its grounds of appeal and submissions, relied largely upon submissions made before the Arbitrator and rejected by the Arbitrator.  I have set out the substance of those submissions, and the Arbitrator’s reasons for rejecting them, in my earlier summary of the Arbitrator’s reasons.  While I accept, as the Arbitrator did, that there was some force in the submissions put by Inghams, and that the question of construction was not straightforward, I am not persuaded that there was any obvious error in the Arbitrator’s conclusion.  In my view, there were sound reasons for the Arbitrator’s conclusion that the March 2016 Agreement related only to the variable component of the fee payable under the SCF Growing Agreements.  Not only was this the only component of the fee described in Annexure 1 of the SCF Growing Agreements that was subject to review, but also this was the only component of the fee that the SCF Growing Agreements had in common with the growing agreements that Inghams had with the other growers and hence which might have been the subject of a collective negotiation.
  3. There was a sound textual and contextual basis for treating the bonus component of the fee payable under Annexure 1 of the SCF Growing Agreements as a separate component of the overall fee payable to SCF by Inghams, and a component which was fixed and not subject to review.  While the Arbitrator referred to a collateral agreement in respect of the fixed bonus component, I do not understand him to have meant that the arrangement in respect of the bonus component was collateral in the sense of it being outside of the SCF Growing Agreements.  Rather, I understand him to have meant simply that the fixed bonus component was separate and independent from – and in that sense, collateral to – the variable component of the fee.  It was a component of the fee that had been the subject of separate negotiations, and was intended to enable SCF to recoup the cost of its capital investment in converting its farms over the initial 10 year term of the SCF Growing Agreements.  It was to be separate from, and in addition to, the variable component of the fee in respect of SCF’s growing costs.
  4. It is true that the Arbitrator’s construction of the March 2016 Agreement resulted in SCF receiving an increase of 5.5 cents per bird rather than the 2 cents per bird increase received by the other growers.[79]  While the March 2016 Agreement does appear to have been negotiated in a context that suggested an intention to achieve consistency between the various growers, this intention can be reconciled with the Arbitrator’s construction on the basis that his construction did achieve consistency between the variable component of the fee payable to each of the growers (which the Arbitrator referred to as the growing fee[80]). To the extent that there was an intention to achieve a uniform increase of 2 cents per bird, this was not achieved in the case of one of the other growers,[81] and whether this was achieved in the case of SCF was the very issue. It would not have been achieved if, as the Arbitrator held, SCF was entitled to be paid a bonus component in addition to the amount agreed by way of the variable growing fee component.

[79]   Other than Murkbo Poultry Pty Ltd, which had agreed a slightly lower rate than the rest of the other growers.

[80]   Inghams complains that ‘growing fee’ is not a term used in the SCF Growing Agreements.  However, it seems to me that this was an appropriate way of referring to the variable component of the fee, being a fee payable to each of the growers to reflect the variable costs associated with growing the birds supplied by Inghams.

[81]   Namely Murkbo Poultry Pty Ltd, which had previously only been entitled to 93.0 cents per bird on account of its variable growing costs, and so stood to receive an increase of 2.5 cents.

  1. I am not satisfied that it was wrong (let alone obviously wrong) for the Arbitrator to treat the bonus fee as an additional fee that SCF had managed to negotiate with Inghams (in the circumstances I have summarised earlier in these reasons).  While the other growers apparently also incurred significant costs in converting their farms so as to make them suitable for free-range chickens, I see nothing incongruous in the conclusion that only SCF managed to secure a contractual entitlement to a fixed bonus fee to enable it to recoup its capital costs.
  2. Inghams also put some submissions directed towards what it contended were specific errors in the Arbitrator’s reasons.
  3. It contended that the Arbitrator erred in using provisions of the SCF Growing Agreements (in particular, the references to “the fee” in Annexure 1 to those agreements) in construing the March 2016 Agreement in circumstances where the terms of those agreements were not mutually known to the persons who negotiated the March 2016 Agreement.  I do not agree with this characterisation of the Arbitrator’s reasoning.  The ultimate issue before the Arbitrator concerned Inghams’ payment obligations under the SCF Growing Agreements in light of the March 2016 Agreement.  As such, the Arbitrator’s task involved him construing, or addressing the interaction between, both the March 2016 Agreement and the SCF Growing Agreements.  His references to the latter must be seen in this way, rather than as a direct use of the terms of the SCF Growing Agreements in construing the March 2016 Agreement.
  4. Inghams also contended that the Arbitrator erred in wrongly suggesting that it had attempted to rely upon an (inadmissible) email of 26 February 2016, when in fact it had sought to rely upon an earlier email dated 9 November 2015 from Mr Etherington (on behalf of Inghams) to Mr Trevanion (who was authorised to conduct the collective negotiation on behalf of the growers).  The 9 November 2015 email referred to the starting point for the negotiations being a fee of 93.5 cents per bird.  Inghams contended that this email supported its contention that the negotiation that ultimately occurred related to the entirety of the fee payable to SCF and hence included the bonus component.
  5. The Arbitrator did err in suggesting that Inghams had sought to rely upon the 26 February 2016 email.  However, it is not correct to suggest that the Arbitrator overlooked Inghams’ reliance upon the 9 November 2015 email.  The Arbitrator made express reference to that email, but was not persuaded that it drove a different construction of the March 2016 Agreement.  This conclusion was unsurprising given that the email preceded that agreement by some four months, and was in any event somewhat equivocal in its terms.  To the extent that the terms of the email were capable of bearing directly upon the construction of the March 2016 Agreement, they are consistent with an understanding that the starting point for the variable component in the negotiations would be 93.5 cents per bird.  While the email can be read as suggesting that SCF had made its initial investment on the basis that it was entitled to 93.5 cents on account of its variable growing costs, this was contrary to the findings of fact made by the Arbitrator.  It does not provide a basis for construing the March 2016 Agreement in the manner contended for by Inghams.
  6. In summary, while I accept that the construction issue the subject of Question 1 was finely balanced, I am satisfied that the Arbitrator’s reasoning exposed a sound basis for the conclusion he reached.  I am not satisfied that Inghams has established any obvious error in the Arbitrator’s reasoning or conclusion in relation to this issue of construction.

Question 2

  1. Question 2 asks whether SCF was entitled to receive payments from Inghams for each of the 2016-17 to 2019-20 growing years in an amount of 3.5 cents per bird more than the amounts in fact paid by Inghams.  It in effect assumes that the first question was answered correctly by the Arbitrator (and hence against Inghams), and then asks whether, upon the Arbitrator’s construction of the March 2016 Agreement, Inghams breached its payment obligation under the SCF Growing Agreements during the relevant growing years
  2. Given my conclusion that this question turns upon a question of fact, rather than a question of law, there is no need for me to reach any conclusion as to whether the Arbitrator’s decision on this question was obviously wrong.  I have earlier set out the key steps in the Arbitrator’s reasoning in relation to this issue.  In my view, it is sufficient in the circumstances for me to observe that I consider the Arbitrator’s reasoning and conclusion in relation to this issue to be sound.  I am not satisfied that Inghams has established any obvious error.

Just and proper

  1. Subsection 34A(3)(d) requires satisfaction that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the Court to determine the question.
  2. If all of the other criteria for a grant of leave had been made out, then it may well have been just and proper for this Court to determine one or both of the questions posed by Inghams’ proposed appeal.  Consistently with this, the parties tended to approach this matter on the basis that the Court’s conclusion as to whether it would be just and proper to determine the questions posed would stand or fall with the Court’s conclusion as to the other criteria for leave.  They did not make any detailed submissions in relation to the ‘just and proper’ criterion. 
  3. In these circumstances, and given that I have concluded that there are other obstacles to Inghams’ application for leave to appeal, there is no occasion or need for me to express a view as to whether it would otherwise have been just and proper to entertain one or both of the questions posed by Inghams.

Conclusion

  1. In summary, for the reasons set out, I have concluded that the parties did not make the requisite agreement that an appeal may be made under s 34A of the CAA; that while the first question proposed by Inghams involves a question of law arising out of the impugned award, the second does not; and that Inghams has not established that the Arbitrator’s decision on the first question was obviously wrong.
  2. For the reasons given, I would refuse Inghams’ application for a grant of leave to appeal.
  3. LIVESEY JA: I agree with Doyle JA. For the reasons he gives, these parties did not by clause 23 of the SCF Growing Agreements agree that they could pursue an appeal of the kind recognised by s 34A of the Commercial Arbitration Act 2011 (SA). Leave to appeal pursuant to s 34A(5) should be refused for the reasons given by Doyle JA.
  4. BLEBY JA:     I would refuse leave to appeal for the reasons given by Doyle JA.
End
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