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S ECI 2019 05245
JACOBS GROUP (AUSTRALIA) PTY LIMITED (ACN 001 024 095)
– and –
THE COMMONWEALTH OF AUSTRALIA (AS REPRESENTEDBY THE DEPARTMENT OF DEFENCE)
DATE OF HEARING:
12 February 2020
DATE OF JUDGMENT:
20 March 2020
CASE MAY BE CITED AS:
Jacobs Group (Australia) v Commonwealth of Australia
MEDIUM NEUTRAL CITATION:
 VSC 127
ARBITRATION – Application for leave to appeal under s 34A of the Commercial Arbitration Act 2011 (Vic) – Whether agreement not to modify rights of appeal under prior Act constituted agreement to appeal under s 34A – No agreement to appeal.
STATUTORY INTERPRETATION – Whether agreement to appeal under s 34A of the Commercial Arbitration Act 2011 (Vic) must expressly or implicitly refer to the section – Principles of statutory interpretation considered – Not necessary for agreement to reference s 34A.
TABLE OF CONTENTS
1 By originating application for leave to appeal against award filed 20 November 2019, the applicant applies under s 34A of the Commercial Arbitration Act 2011 (Vic) (‘2011 Act’) for leave to appeal on a question of law in respect of a Partial Award dated 21 August 2019 made against the applicant in the sum of $3,424,970.35.
Pursuant to r 47.04 of the Supreme Court (General Civil Procedure) Rules 2015, the question of whether having regard to the terms of s 34A(1) of the Commercial Arbitration Act 2011 (Vic) the Court has jurisdiction to hear the application for leave to appeal, is to be tried before the trial of the proceeding.
3 On 28 April 2011, the applicant and the respondent entered into a Design Services Contract (DSC-1 2003) (‘the Contract’) under which the applicant agreed to provide the respondent with services for the AIR 9000 Phase 5C Facilities Project at the Townsville Royal Australian Air Force Base. The Contract included the following provisions in cl 12.13 by which disputes could be referred to arbitration:
(a) Arbitration pursuant to this clause will be conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce (‘ICC Rules’) current at the time of the reference to arbitration and as otherwise set out in this clause….
(c) Nothing in this clause is intended to modify or vary the rights of appeal contained in the Commercial Arbitration Act 1984 (Vic). For the avoidance of doubt, the second sentence of Article 28(6) of the ICC Rules (in force from 1 January 1998) or its equivalent in any subsequent version of the ICC Rules shall not apply.
In this Contract, unless the context otherwise indicates:…
(h) references to any legislation or to any section or provision of any legislation include any:
(i) statutory modification or re-enactment of or any statutory provision substituted for that legislation, section or provision; …
Every Award shall be binding on the parties. By submitting the dispute to arbitration under these Rules, the parties undertake to carry out any Award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made.
(1) Without prejudice to the right of appeal conferred by subsection (2), the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award.(2) Subject to subsection (4), an appeal shall lie to the Supreme Court on any question of law arising out of an award.
(3) On the determination of an appeal under subsection (2) the Supreme Court may by order—
(a) confirm, vary or set aside the award; or
(b) remit the award, together with the Supreme Court’s opinion on the question of law which was the subject of the appeal, to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration—and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make the award within three months after the date of the order.
(a) with the consent of all the other parties to the arbitration agreement; or
(b) subject to section 40, with the leave of the Supreme Court.
(5) The Supreme Court shall not grant leave under subsection (4)(b) unless it considers that—
(a) having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement; and
(b) there is—
(i) a manifest error of law on the face of the award; or
(ii) strong evidence that the arbitrator or umpire 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.
(6) The Supreme Court may make any leave which it grants under subsection (4)(b) subject to the applicant complying with any conditions it considers appropriate.
(b) no application may be made under section 39(1)(a) with respect to a question of law—
if there is in force an agreement in writing (in this section and section 41 referred to as an exclusion agreement) between the parties to the arbitration agreement which excludes the right of appeal under section 38(2) in relation to the award or, in a case falling within paragraph (b), in relation to an award to which the determination of the question of law is material.
10 On 17 November 2011, the 2011 Act came into operation. Section 34A provides for what has been described as an opt-in regime for judicial review of awards. With respect to appeals to the Court against awards, s 34A relevantly provides:
(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 one or more 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.
11 Section 43 of the 2011 Act provides that the Act applies to all existing arbitration agreements, except where the arbitration commenced before the commencement of the Act. Specifically, it provides:
(1) Subject to subsection (2)—(a) this Act applies to an arbitration agreement (whether made before or after the commencement of this Act) and to an arbitration under such an agreement; and
(b) a reference in an arbitration agreement to the Commercial Arbitration Act 1984, or a provision of that Act, is to be construed as a reference to this Act or to the corresponding provision (if any) of this Act.
(2) If an arbitration was commenced before the commencement of this Act, the law governing the arbitration and the arbitration agreement is to be that which would have been applicable if this Act had not been enacted.
(3) For the purposes of this section, an arbitration is taken to have been commenced if—
(a) a dispute to which the relevant arbitration agreement applies has arisen; and
(b) the arbitral tribunal has been properly constituted.
(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 35 of the Interpretation of Legislation Act 1984 for the purposes of interpreting this Act.
s 34A of the 2011 Act.
(a) whether cl 12.13 of the Contract constitutes an agreement that 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’).
(a) At most, cl 12.13 of the Contract constituted an agreement to leave open appeal rights under the 1984 Act. It did not constitute an agreement to allow the parties a right of appeal. An agreement not to opt out of the appeal rights under the 1984 Act does not amount to a positive agreement to opt in to the appeal rights arising under the 2011 Act.
(b) Reference to the objects of the 2011 Act supports a strict reading of the parties’ rights to appeal arbitral awards.
(c) The 2011 Act was not a statutory modification or re-enactment of the 1984 Act. In any event, a reading of cl 12.13 which incorporates the 2011 Act does not change the requirement for an agreement.
(a) From the plain meaning of the text, any agreement to appeal only satisfies s 34A if it expressly or implicitly relates to an appeal ‘under this section’.(b) An agreement to appeal on a matter of law generally is not sufficient to satisfy the subsection because an appeal under s 34A is of a particular type and subject to the restraints on the grant of leave under subsection (3).
(a) By cl 12.13 of the Contract the parties agreed that, subject to leave of the Court, either could appeal against an award on a question of law.
(b) The requirement under s 34A of the 2011 Act that the agreement be for an appeal ‘under this section’ refers to an agreement for an appeal on a question of law.
(a) Section 38(4) of the 1984 Act provided two independent avenues for an appeal on a question of law arising from an award being:
(i) agreement of the parties (s 38(4)(a)); and/or
(ii) leave of the Court (s 38(4)(b)).
(b) Accordingly, cl 12.13(c) constituted an agreement by the parties that each had a right of appeal from an award on a question of law if the Court granted leave. By cl 12.13(c), the parties intended to commit themselves to preserving the right of appeal.
(c) This objective intention is supported by the fact that cl 12.13 excluded the operation of art 28(6) of the ICC Rules, which arguably could have been construed as an agreement to restrict the right of appeal.
(d) The decisions in ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd and Ashjal Pty Ltd v Elders Toepfer Grain Pty Ltd are distinguishable on the basis that none of the arbitration clauses in those cases contained a specific provision preserving the right of appeal such as cl 12.13.
(a) is unnecessarily formalistic;
(b) would have the consequence that all agreements to appeal on questions of law prior to the 2011 Act would be ineffective; and
(c) is not supported by the explanatory memorandum.
22 In ASC v Ottoway, the Full Court of the Supreme Court of South Australia considered whether a commercial contract incorporating an arbitration agreement contained an implied term that an appeal may be made under the South Australian equivalent of s 34A of the 2011 Act. The circumstances were as follows:
(a) On 4 September 2009 the parties 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 Arbitrations.
(b) At the time of entering into the contract, commercial arbitrations in South Australia were governed by the Commercial Arbitration and Industrial Referral Agreements Act 1986 (SA) (‘1986 SA Act’), which relevantly included s 38(4) in identical terms to the 1984 Act.
(c) By the Commercial Arbitration Act 2011 (SA) (‘2011 SA Act’), the 1986 SA Act was repealed and appeals from arbitral awards became regulated by s 34A, which is in identical terms to s 34A of the 2011 Act.
(d) The arbitration had commenced after the commencement of the 2011 SA Act and, in November 2016, the arbitrator made an award in favour of the appellant.
(a) an implied term giving the parties a right of appeal was not necessary to give business efficacy to the contract; and(b) there was nothing in the ‘express terms of the contract, its manifest purpose [or] the matrix in which it was made’, which irresistibly led to the necessary presumed intention.
(a) 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 incorporated the GTA Dispute Resolution Rules.(b) At the time the parties entered into the contracts, the Commercial Arbitration Act 1984 (NSW) (‘1984 NSW Act’) was in force, which included ss 38(2) and (4) in the same terms as the 1984 Act.
(c) The defendant was successful under an award dated 17 November 2011 and the plaintiff sought leave to appeal.
(d) At the time of the award, the Commercial Arbitration Act 2010 (NSW) was in force, which contained s 34A(1) in the same terms as the 2011 Act.
(a) The tests had to be met at the time of entering into the contracts and, at that time, the 1984 NSW Act gave a right of appeal with leave or by agreement. Therefore the implied terms were not necessary to give the contracts business efficacy.
(b) Given the state of the legislation at the time of entering into the contracts, the terms contended for were not obvious.
(c) Article 13 of the GTA Dispute Resolution Rules adopted by the contracts contemplated the possibility of amendment to the legislation and therefore the implied terms would contradict the express terms of the contracts.
28 The question is determined by whether, on a proper construction, the agreement of the parties not to modify or vary the rights of appeal contained in the 1984 Act was an agreement that an appeal could be made against an award.
29 To construe the terms of a commercial contract, the Court asks ‘what a reasonable businessperson would have understood those terms to mean’. To answer that question, ‘the reasonable businessperson [is] placed in the position of the parties’, and the Court applies the following principles:
These matters will ordinarily be identified by reference to the contract alone, but evidence of mutually known objective background circumstances relevant to the purpose is admissible ‘no matter how clear the “ordinary meaning” of the words’. Identification of purpose may allow admission of evidence of the genesis of the transaction, the background, the context and the market in which the parties are operating.
(c) Unless a contrary intention appears in the contract, the court is entitled to approach the task of interpretation on the assumption that the parties intended to produce a commercial result, and should construe it so as to avoid a commercial nonsense. However, the court does not weigh the commerciality of the agreement, and business commonsense is a topic on which reasonable minds may differ.(d) If, after completion of this process, the language used in the contract ‘is ambiguous or susceptible of more than one meaning’, then evidence of surrounding circumstances external to the contract (‘surrounding circumstances’) is admissible to assist with interpretation of the contract (‘the ambiguity requirement’).
events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating.
(f) However, ‘evidence of the parties’ statements and actions reflecting their actual intentions and expectations’ is inadmissible. Although evidence of prior negotiations is admissible to establish objective background facts known to both parties and the subject matter of the contract, evidence of negotiations reflective of actual intentions and expectations is not receivable.(g) Post contractual conduct is inadmissible to construe the terms of the contract. However, the parties’ subsequent communications may be relevant to determine whether the parties intended to enter into a binding contract.
(a) an expression has a particular meaning in business custom or usage;
(b) a particular interpretation was either rejected or accepted by the parties; or
(c) the contract should be rectified.
Further, at common law, a court may supply, omit or correct words to avoid absurdity or inconsistency.
(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:
(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.
(e) Neither do I consider that the interpretative provision, being cl 1.2 of the Contract, assists the applicant. It simply provides that references to any legislation includes references to any statutory modification or re-enactment. That has the effect that cl 12.13 can be read as follows:
Nothing in this clause is intended to modify or vary the rights of appeal contained in the Commercial Arbitration Act 1984 (Vic) or the Commercial Arbitration Act 2011 (Vic). For the avoidance of doubt, the second sentence of Article 28(6) of the ICC Rules (in force from 1 January 1998) or its equivalent in any subsequent version of the ICC Rules shall not apply.
(a) the agreement must expressly or implicitly refer to an appeal under s 34A (the respondent’s construction); or
(b) the agreement must be of the type of appeal provided under s 34A, being an appeal on a question of law (the applicant’s construction).
(a) the language of the relevant provision, being the text; and
(b) the legislative purpose of the statute.
(a) The primacy of the text has been emphasised by the High Court. It has been said that the process of statutory interpretation starts and ends with the text.
(b) To ascertain the legislative purpose, the Court first considers the text of the relevant provision in its context. The context means:
(i) the whole of the Act or other instrument;
(ii) the existing state of the law;
(iii) the mischief that the statute was intended to remedy; and
(iv) the history of the legislative scheme.
36 Section 35(b) of the Interpretation of Legislation Act 1984 (Vic) provides that ‘[i]n the interpretation of a provision of an Act … consideration may be given to’ extrinsic material to ascertain the purpose of the legislation, even if the language is clear and unambiguous. I emphasise the word ‘may’ because if the meaning of the text is plain ‘there is no occasion to look to the extrinsic material’. As the Court of Appeal has said in respect of this section:
(a) ‘it would be inappropriate to resort to parliamentary debates in order to seek to create an ambiguity in a section which is otherwise, at least in relative terms, clear’; and(b) ‘the court needs to be careful not to permit recourse to this section to undermine its primary function of seeking to ascertain the intention of the legislation from the content of the Act itself’.
This section does permit ‘a court to consider the purposes of an Act in determining whether there is more than one possible construction’, but such material cannot displace the meaning of the statutory text.
38 However, if the literal meaning conflicts with the identified legislative purpose, a departure from the literal meaning may be justified. The resultant tension was described by Francis Bennion in Statutory Interpretation:
Consideration of the enactment in its context may raise factors that pull in different ways. For example the desirability of applying the clear literal meaning may conflict with the fact that this does not remedy the mischief that Parliament intended to deal with.
(a) The literal meaning would conflict with other provisions of the statute;
(b) The literal meaning is inconsistent with the purpose of the statute;
(c) The literal meaning is incapable of practical application; or
(d) Adoption of the literal meaning would lead to a result that is absurd, unreasonable or anomalous.
(a) First, if an alternative construction is to be adopted as the legal meaning, it is necessary that the alternative construction is ‘reasonably open’ and ‘consistent with the language in fact used by the legislature’. This is necessary because ‘the task remains the construction of the words the legislature has enacted’. ‘The purpose of legislation must be derived from what the legislation says, and not from any assumption about the desired or desirable reach or operation of the relevant provisions’.
(b) Section 35(a) of the Interpretation of Legislation Act 1984 (Vic) provides that ‘a construction that would promote the purpose or object underlying the Act … shall be preferred to a construction that would not promote that purpose or object’. The choice is only between a purpose that will promote the purpose and one that will not. The section is not directed to the choice ‘as to the construction which “will best achieve” the object of the Act’.
(c) If the inconsistency between the literal meaning and the legislative purpose is the result of ‘simple, grammatical, drafting errors which if uncorrected would defeat the object of the provision’, an alternative construction, which is consistent with the legislative purpose, may be more ‘readily’ adopted.
(d) After the identification of an alternative construction, the legal meaning will be determined by balancing:
(i) the strength of the literal meaning as against the alternative construction; and
(ii) the extent to which these meanings are consistent with the promotion of the legislative purpose.
(a) ‘If the choice is between two strongly competing interpretations, as we have said, the advantage may lie with that which produces the fairer and more convenient operation so long as it conforms to the legislative intention. If, however, one interpretation has a powerful advantage in ordinary meaning and grammatical sense, it will only be displaced if its operation is perceived to be unintended.’
(b) ‘[I]nconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which … is reasonably open and more closely conforms to the legislative intent’.
42 In my opinion, s 34A is capable of bearing both meanings for which the parties contend, but should be read as requiring an agreement for the parties to appeal on a question of law. It does not require the parties:
(a) I reject the respondent’s submission that an appeal under s 34A is effectively sui generis because it is subject to the restraints on the grant of leave under subsection (3). Section 34A(1) contains two independent requirements being:
The leave requirement is separate and distinct from the agreement to appeal ‘to the Court on a question of law’. The constraints on leave in subsection (3) are similarly distinct and it is not necessary for the agreement to make reference to the leave requirement or the constraints on leave.
(b) The paramount object of the Act is to facilitate resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense and to enable parties to agree about how their commercial disputes are to be resolved. If the parties agree that they may appeal on a question of law, leave is still a requirement and the purpose of the Act is not furthered by a technical need for the agreement to appeal on a question of law to reference the particular section of the 2011 Act under which it is brought.(c) The 2011 Act plainly contemplates regulating arbitration agreements from before and after its commencement. If the parties to an arbitration agreement entered into before the commencement of the 2011 Act were contractually bound to consent to an appeal on a question of law, the respondent’s interpretation would render the agreement unenforceable because it would not relate to an appeal ‘under this section’, being s 34A. I should only come to such a conclusion if I am reasonably certain that this was the legislative intention. As Dixon CJ explained in Maxwell v Murphy:
The general rule of the common law is that a statute changing the law ought not, unless the intention appears with reasonable certainty, to be understood as applying to facts or events that have already occurred in such a way as to confer or impose or otherwise affect rights or liabilities which the law had defined by reference to the past events.
Clause 34A enables an appeal to the Supreme Court (or another court agreed by the parties as referred to in clause 6) on a question of law, if the parties have agreed prior to the commencement of arbitration that such appeals may be made and the Court grants leave.