THE CONTRACTUAL FRAMEWORK
On 11 November 1993, a contract of affreightment ("the Charter Contract") was entered into between Hi-Fert and WBC in Melbourne. Under clause 44 of the Charter Contract, the contract period was to be from 1 December 1993 to 31 October 1995 with an extension, in Hi-Fert's option, from 1 November 1995 to 31 October 1996. That option was to be declared during August 1995. For each 12 month period, the Charter Contract was to cover four full cargoes. In addition, Hi-Fert was to have the option for a fifth cargo and the option for a sixth cargo in each year.
Clause 46 of the Charter Contract specified intended lay days for each of the four definite cargoes in each year, together with intended lay days for the two optional cargoes. The optional cargoes for each year were to be declared by 1 and 30 March respectively. Under clause 47, Hi-Fert was to nominate the lay days within 6 weeks prior to the opening lay day. WBC was then to nominate a performing vessel, including details as set out in clause 35, within five working days thereafter. The vessel nominated was to be subject to the approval of Hi-Fert and the shipper. That approval was to be declared within 24 hours of receipt of the vessel nomination. The details called for by clause 35 included particulars of the vessel and its capacity together with particulars of its previous five cargoes. Under clause 29, bills of lading were to be signed as soon as the cargo was shipped.
Clause 34 of the Charter Contract, entitled "Arbitration", relevantly provided as follows:
Any dispute arising from this charter or any Bill of Lading issued hereunder shall be settled in accordance with the provisions of the Arbitration Act, 1950, and any subsequent Acts, in London…
This Charter Party shall be governed by and construed in accordance with English law.
The Arbitrators and Umpire shall be commercial men normally engaged in the Shipping Industry.
………………………………
The Kiukiang Career has effectively been on continuous charter from KMC to WBC since 27 June 1991. On 19 August 1995, a new time charter ("the Time Charter") was entered into between KMC and WBC in relation to the Kiukiang Career. On 12 March 1996, addendum number 15 ("the Addendum") to the Charter Contract was entered into between Hi-Fert and WBC. By the Addendum, it was agreed between Hi-Fert and KMC that the Kiukiang Career had been nominated and accepted to load the first optional cargo of the third optional year under the Charter Contract.
Hi-Fert alleged that prior to entry into the Addendum, Mr Ian Cole, the chartering controller of Hi-Fert, had a discussion with Mr Don McNeil, the operations manager of WBC, concerning the need to ensure that the holds of the Kiukiang Career were clean and free of any residue of prior cargoes. The discussion took place by telephone between Mr Cole in Adelaide and Mr McNeil in Melbourne. Hi-Fert alleges that Mr McNeil assured Mr Cole that WBC would put in place certain procedures and regimes to ensure hold cleanliness of any vessel provided pursuant to the Charter Contract. Subsequently, a facsimile was sent by WBC in Melbourne to Hi-Fert in Adelaide confirming that WBC had implemented a stringent inspection procedure for all vessels at the load port prior to proceeding towards Australia. A copy of guidelines for inspectors was attached to the facsimile.
Particulars of the Kiukiang Career as contemplated by clause 35 of the Charter Contract, were set out in the Addendum. The previous five cargoes of the Kiukiang Career were nominated as follows:
· sulphur,
· coal,
· wheat,
· bauxite,
· sulphur.
(emphasis added)
Under clause 46 of the Charter Contract, the first optional cargo in the third optional year should have been declared by Hi-Fert by 1 March 1996. The date of the Addendum might suggest that that did not occur. Nevertheless, it is clear that the parties treated the nomination and acceptance of the Kiukiang Career as governed by the Charter Contract.
Pursuant to the nomination and acceptance provided for in the Addendum, the Kiukiang Career presented for loading at Tampa, Florida, USA and a cargo comprising three different kinds of fertiliser was loaded. Three separate bills of lading dated 24 March 1996 were issued on behalf of the Kiukiang Career at Tampa. Each bill of lading contained, inter alia, the following:
SUBJECT TO ALL TERMS, CONDITIONS AND EXCEPTIONS OF THE GOVERNING CHARTER PARTY, INCLUDING ARBITRATION CLAUSES, ARE DEEMED TO BE INCORPORATED HEREIN.
The cargo was carried from Tampa to Newcastle in the Kiukiang Career. On arrival at Newcastle on 26 April 1996, the Kiukiang Career was boarded by inspectors from the Australian Quarantine and Inspection Service ("AQIS") who found that the Kiukiang Career and its cargo were contaminated by the residue of a prior cargo of wheat. The Kiukiang Career was ordered into quarantine on 26 April 1996 and on 2 May 1996 AQIS ordered that the cargo was not to be discharged at any Australian port.
Wheat is a prohibited import into Australia. AQIS was apparently concerned that the wheat found in the Kiukiang Career might have carried microscopic spores of a grain disease known as "karnal bunt" which exists in the United States. The United States was a source of the prior cargo of wheat carried in the Kiukiang Career. The possible importation of karnal bunt is apparently a matter of major concern to AQIS since its effect on the Australian wheat industry could be profoundly detrimental.
As a result of the refusal of AQIS to allow the cargo to be discharged in Australia, Hi-Fert was obliged to sell the cargo outside Australia and allegedly suffered loss. The loss claimed in the proceeding was particularised as follows:
Value the cargo would have had,
if it had arrived in sound condition: $A14,688,382
Less net salvage from sale: $A6,870,470
Amount of Loss $A7,870,965
THE ISSUES
KMC's stay application is dependent on the outcome of WBC's stay application. It is convenient, therefore, to deal first with the latter application. WBC's application for a stay was based on section 7 of the International Arbitration Act 1974 (Cth). Such a stay would be mandatory if section 7(2) is applicable.
Section 7 of the International Arbitration Act relevantly provides as follows:
7 (1) Where:
(a) the procedure in relation to arbitration under an arbitration agreement is governed, whether by virtue of the express terms of the agreement or otherwise, by the law of a Convention country;
………………………………
this section applies to the agreement.
(2) Subject to this part, where:
(a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and
(b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settling by arbitration.
on the application of a party to the agreement, the Court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.
………………………………
(5) A Court shall not make an order under subsection (2) if the Court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.
The United Kingdom is a Convention country for the purposes of section 7(1). Accordingly, section 7 applies to the arbitration agreement contained in clause 34 by reason of section 7(1) since, under clause 34, the Charter Contract is to be governed by English law.
The questions which arise in relation to the stay granted to WBC are as follows:
1. Whether section 7 of the International Arbitration Act is valid.
2. Whether all of the claims made by Hi-Fert against WBC can be characterised as disputes "arising from this charter" within the meaning of clause 34.
3. Whether claims based on the Trade Practices Act are "capable of settlement by arbitration" within the meaning of section 7(2) of the International Arbitration Act.
The appellants formulated the following questions for determination by the primary judge in relation to the validity of section 7 of the International Arbitration Act:
1.1 Is the International Arbitration Act 1974 s 7 invalid, or should it be read down so as not to oust the exercise by the Federal Court of Australia sitting in admiralty of the judicial power of the Commonwealth in respect of the several causes of action in the proceedings?
1.2 Are the commercial arbitrators in London incapable, by reason of the forum, the procedures applicable to the arbitration, the nature of their appointment, qualification and tenure and lack of any appeal process, of accepting the nomination or appointment of the First Plaintiff and Second Defendant to determine any question requiring in substance or at all, the exercise of the judicial power of the Commonwealth?
1.3 Is the appointment or nomination of arbitrators under clause 34 of the Charterparty by the First Plaintiff and Second Defendant effective with respect to the causes of action in par 14-19 of the Statement of Claim?"
The Attorneys-General of the Commonwealth and the States were notified of the challenge to the constitutional validity of section 7 as required by s 78B of the Judiciary Act 1903 (Cth). Only the Attorney-General of the Commonwealth intervened pursuant to that notification.
The appellants contended that WBC's application should fail in toto as it was put only on the basis provided for in the International Arbitration Act. However, that is not how the relief sought was framed in WBC's notice of motion of 25 October 1996. In that notice of motion WBC sought orders that the proceeding be stayed on the following grounds:
"(a) the parties have agreed to submit disputes arising out of their charterparty dated 11 November 1993 to arbitration in London;
(b) the proceedings are vexatious or oppressive; and
(c) Australia is an inappropriate forum for this proceeding."
Accordingly, if question 1.1 were answered affirmatively, it would be necessary to consider discretionary grounds for the grant of a stay in respect of the claims against WBC. Questions 1.2 and 1.3 raise much the same issues as are raised by questions 2 and 3 formulated above. Accordingly, I shall deal with questions 1.2 and 1.3 in conjunction with questions 2 and 3 although some aspects of question 1.2 will, of necessity, be answered by the answer to question 1.1.
The appellants contended that if question 1.2 is answered affirmatively, the International Arbitration Act would be invalid in relation to the causes of action arising under the Trade Practices Act which would then remain to be determined by the Federal Court. A favourable answer to either question 1.1 or question 1.2 could have consequences so far as the stay granted to KMC is concerned because the basis for that stay would disappear. That is to say, the basis for the stay granted in respect of the claims against KMC is that all of the claims against WBC will be determined by arbitration in London. If some of the claims against WBC remain to be determined in the Federal Court, much of the basis for the stay in respect of the claims against KMC falls away.
KMC sought the following order in its notice of motion:
[T]hat the proceedings herein be permanently stayed as against [KMC] and in favour of arbitration in London alternatively on the grounds that the Court is an inappropriate forum.
Section 7(5) of the International Arbitration Act would preclude the making of an order under section 7(2), if section 11(2) of the Carriage of Goods by Sea Act applies. Section 11(2) of the Carriage of Goods by Sea Act relevantly provides as follows:
(2) An agreement (whether made in Australia or elsewhere) has no effect so far as it purports to:
………………………………
(c) preclude or limit the jurisdiction of a court of the Commonwealth…in respect of:
(i) a bill of lading… relating to the carriage of goods from any place outside Australia to any place in Australia;
………………………………
KMC accepted that section 11(2) of the Carriage of Goods by Sea Act strikes down clause 34 of the Charter Contract such that section 7(2) of the International Arbitration Act has no application in respect of that clause. Nevertheless, KMC sought to rely on the arbitration clause as the basis for a stay on discretionary grounds. KMC contended that, notwithstanding the effect of section 11(2), if the claim against WBC must be referred to arbitration in London, it would be oppressive and vexatious for Hi-Fert to continue the proceedings against KMC in Australia.
POSITION OF WBC
I shall deal separately with the three issues which arise in relation to WBC.
Validity of Section 7 of the International Arbitration Act
The issue raised by question 1.1 is whether section 7(2) of the International Arbitration Act "constitutes an impermissible intrusion into the judicial power which Chapter III of the Constitution vests exclusively in the Courts which it designates" - Chu Kheng Lam v Minister for Immigration (1992) 176 CLR 1 (at 36-37). The appellants contended that since the Federal Court is one of the courts vested exclusively by Chapter III of the Constitution with jurisdiction and power to determine all of the causes of action in the amended statement of claim, section 7(2) is an intrusion upon that judicial power because it prescribes the manner and outcome of WBC's application to the Federal Court. It intrudes because, upon certain facts being shown, namely the facts set out in section 7(2)(a) and (b) of the International Arbitration Act, it directly intervenes in the controversy in two ways. First, the Court was required to make an order and secondly the proceedings were required to be brought to an end. The Court had no discretion in relation to the matter.
It was contended that such a consequence would be impermissible because it would confer on third parties the power to invoke the International Arbitration Act directing the Federal Court to enforce an arbitration clause. It was said that an inflexible mandatory rule proscribing the exercise of the Court's jurisdiction, having the result of placing the matter in the hands of a foreign lay tribunal immune from the supervisory jurisdiction of the Court, is contrary to the policy of the common law with respect to ouster of jurisdiction.
Alternatively, it was contended that, because clause 34 contains both a negative and positive obligation arising from one stipulation, and each as a matter of proper construction purports to preclude the Court from exercising jurisdiction, the International Arbitration Act, by giving effect to that stipulation, gives effect to an impermissible express exclusion of judicial power. The appellants also formulated a further argument that the Parliament cannot, by direction to the Federal Court, give statutory force to an agreement between the parties having the effect of denying the Court power to supervise an arbitration.
The Attorney-General argued that there is no constitutional limitation or restriction which prevents the Commonwealth Parliament from requiring courts to order a stay of proceedings in the circumstances specified in the legislation. It would be permissible for the Parliament to provide that the Federal Court's jurisdiction did not extend to the determination of disputes under contracts which contain an arbitration agreement. In other words, because the Federal Court of Australia is created by statute, it possesses only such original and appellate jurisdiction as is vested in it by the Commonwealth Parliament. Thus, it would also be permissible for the Parliament to require the Court to order a stay of proceedings in favour of arbitration in accordance with such an agreement.
Such an argument, however, may not have much force in relation to a State court which would be equally affected by section 7(2) of the International Arbitration Act. That is to say, section 7 of the International Arbitration Act does not purport to be a statute limiting or prescribing the jurisdiction of the Federal Court. It is a provision which operates on all Australian courts and not simply on federal courts. If the legislation is effective, it is based on the foreign affairs power. No attack was made on the constitutional basis for the legislation.
Section 7(2), while it is expressed to impose a duty on the relevant court, does no more than create an entitlement for the parties to an arbitration agreement. Section 7(2) provides:
…on the application of a party to the agreement, the Court shall, by order … stay the proceedings.
It could equally have provided:
A party to the agreement shall be entitled to a stay of the proceedings.
Where a statute confers an entitlement on one party as against another party, a court having jurisdiction in relation to such an entitlement would be bound to exercise that jurisdiction, whether or not the statute is framed in terms which purport to impose a duty on the court or in terms which purport to create an entitlement in one of the parties. In other words, section 7 does not purport to direct the manner and outcome of the exercise by the Federal Court of its jurisdiction. The section merely lays down a general rule under which a party to an arbitration agreement is entitled to have that arbitration agreement given effect by the relevant court.
Section 7 lays down a substantive rule of law that an arbitration clause in a contract is to be given priority over all other clauses to the extent that it is to be enforced in substitution for any other clause. A statute providing that particular contractual terms may not be enforced would be valid. The effect of section 7 is simply that all contractual terms in a contract which contains an arbitration clause are not to be enforced in proceedings in a court. Nor are secondary delegations arising from breach of such a contract.
In the present case, the Court must consider and determine whether or not the pre-requisites for the granting of a stay have been established. The Court must also determine whether the arbitration agreement comprised in clause 34 is null and void, inoperative or incapable of being performed and must consider whether conditions should be imposed on the stay. All of those determinations involve the exercise of the judicial power of the Commonwealth.
However, in determining a dispute between the parties to an arbitration agreement, an arbitrator does not exercise the judicial power of the Commonwealth or of a State for that matter. An arbitrator exercises powers conferred by the agreement between the parties to the arbitration agreement. A distinction exists between the powers exercised by an arbitrator to whom the parties have agreed to refer a dispute and powers exercised by a court. Thus, an arbitrator does not have power to make a determination which is directly enforceable in the manner in which an order by a court is enforceable. Where a court makes a determination and a judgment is entered or an order is made, that judgment or order will be enforced by the court.
An award by an arbitrator, however, gives rise only to contractual rights and obligations which are enforceable by or against the parties who have agreed to abide by that award. An award is binding on the parties only by force of the agreement since they have agreed that their rights and obligations are to be as stated in the arbitrator's award. If one of the parties fails to comply with or give effect to the award, it is necessary for proceedings to be brought in an appropriate court to enforce the award.
I consider that section 7 is not an ouster of the exercise by the Federal Court of the judicial power of the Commonwealth in respect of the several causes of action in these proceedings. Nor does the operation of section 7 or clause 34 confer on an arbitrator the judicial power of the Commonwealth. Accordingly, sction 7 is not invalid by reason of those matters.
"Arising from this Charter"
WBC contended that the term "charter" should be taken to refer to the transaction rather than the Charter Contract of which clause 34 forms part. While, within clause 34, there is use of both the term "this charter" and the term "this charter party", an examination of other parts of the instrument constituting the Charter Contract indicates that the drafter used the terms indiscriminately and that no significance can be attached to the use of those different terms within clause 34.
Thus, clause 39 of the Charter Contract contains an indemnity by KMC of WBC in respect of any liability for pollution of navigable waters. There is a proviso that: "such contraventions shall not have been caused or contributed to by the parties seeking to be indemnified under this charter". That use of the term "charter" in that context clearly signifies the instrument.
In addition, the Time Charter (between KMC and WBC) uses the expressions "this charter party" and "this charter" indiscriminately as meaning the same thing. Thus:
· Clause 38 - "notwithstanding anything to the contrary contained in this charter…".
· Clause 49 - "throughout the currency of this charterparty…".
· Clause 50 - "during the currency of this charterparty".
· Clause 52 - "during the currency of this charter…".
· Clause 56 - "… in accordance with the terms of the charterparty…".
· Clause 60 - "incurred during the currency of this charter…".
Those usages indicated that both expressions are commonly used both for the instrument and for the transaction.
That a narrow construction should be given to the term "this charter" in clause 34 is supported by the inclusion of the expression "or any bill of lading". The whole expression is "any dispute arising from this charter or any bill of lading issued hereunder". The primary judge held that the words "arising from" should be construed to convey a meaning equivalent to the expressions "arising out of" or "arising in connection with". If that construction were correct, the words "or any bill of lading hereunder" would be surplusage. That is to say, a dispute arising from a bill of lading issued under the Charter Contract would clearly be a dispute arising out of or in connection with the Charter Contract. The inclusion of those additional words indicates a limited effect was intended by the expression "arising from this charter".
Hi-Fert contended that the acceptance of the nomination of the Kiukiang Career was by way of variation of the Charter Contract. For the reasons which I have indicated briefly above, the Addendum may not have been a nomination and acceptance strictly within the framework of the Charter Contract because the time frame contemplated by clause 46 had expired. Even so, it is clear that clause 34 must be taken to be incorporated into the contract ("the Addendum Contract") which came into existence by reason of the Addendum. Accordingly, the term "this charter", when it applies in relation to the claim concerning the Kiukiang Career, must be taken to refer to the Addendum Contract as incorporating the provisions of the Charter Contract.
The claims against WBC of negligence and breach of duty as carrier and for breach of the Charter Contract relating to the carriage of the cargo, as gleaned from the amended statement of claim filed in the proceedings, may be stated as follows:
1. By reason of the negligence of WBC and in breach of duty as carrier and bailee for reward the cargo was contaminated or otherwise damaged.
(a) Failing to give any or any adequate instructions to its surveyor or inspector in Tampa prior to loading the "Kiukiang Career".
(b) Failing to establish a system for rigorous supervision of and inspection of holds for cleanliness at Tamp.
(c) Failing to ensure inspection of holds in daylight hours or with adequate lighting and equipment.
(d) Failing to inspect holds with ladders or lifting devices to enable access to all areas of the holds.
(e) Failing to give any or any adequate instructions to the Master and the inspector as to inspection of hatch covers and holds.
(f) Failing to check that a sufficient system of inspection to Australian standards was in place.
(g) Res ipsa loquitur.
2. WBC agreed to be responsible for loss of or damage to the cargo or for delay in delivery of the cargo in case of loss, damage or delay caused by the improper or negligent stowage of the cargo or by personal want of due diligence on the part of WBC or its manager to make the vessel in all respects seaworthy. In breach thereof WBC improperly and negligently stowed the cargo and in relation thereto failed to act with due diligence.
3. It was an express or implied term of the Charter Contract that the vessel's holds would be clean, dry and free from residue of any previous cargoes before commencement of loading and shall be ready in all respects to load the cargo upon issue of notice of readiness. In breach thereof the vessels holds were not clean, dry and free from residue of any previous cargoes and the vessel was not ready in all respects to load the cargo upon issue of notice of readiness.
All of those claims ("the Contractual Claims") fall within clause 34. The claims based on breach of the Charter Contract clearly arise from that contract. In relation to claims in negligence, the disputes relating to any breach of a duty arising by reason of the contractual relationship which existed because of the Charter Contract, also arise from the Charter Contract.
Hi-Fert also claimed that, by reason of conduct of WBC which is alleged to have been misleading or deceptive, or by reason of alleged negligent misrepresentations, or by reason of collateral warranties, Hi-Fert was induced to accept the Kiukiang Career. The dispute as to those allegations does not allege a breach of the Charter Contract or a breach of the Addendum Contract. Rather, WBC alleged that there was conduct which induced Hi-Fert to enter into the Addendum Contract.
In relation to those claims ("the Non-Contractual Claims"), the application of clause 34 raises more difficult question. The Non-Contractual Claims, as gleaned from the amended statement of claim, may be stated as follows:
Trade Practices Act
1. In September 1995 WBC made certain representations to Hi-Fert ("the Alleged Representations") as follows:
(a) WBC has prepared a detailed list of instructions to masters to ensure water tightness and cleanliness of hatches and holds and would communicate these to masters prior to loading.
(b) WBC has in place a system of independent inspection of holds and ships prior to loading on ships in numerous ports to ensure a higher standard of cleanliness.
(c) The system referred to in (b) will operate as a check on the vessel so as to accord with Australian standards.
(d) WBC has a rigid regime of inspecting timber cargoes on its US west coast vessels and will ensure that the inspector appointed by it at Tampa adopts the same high standard of inspecting of holds for phosphate cargoes.
(e) A stringent hold inspection procedure has been implemented for all vessels at US load ports prior to proceeding to Australia.
(f) Everything has been done or will be done to ensure that the vessel is in a fit condition prior to loading and discharging charterer's cargo and there are no shortfalls on the ship's side of any nature.
(g) WBC has and would continue to have the intention to carry out the matters referred to in (a) to (f) above.
2. Induced by the Alleged Representations Hi-Fert continued to carry goods in vessels supplied by WBC and to carry fertiliser cargoes including optional cargoes after September 1995 and accepted the vessels notice of readiness to load at Tampa.
3. The Alleged Representations were erroneous.
4. Accordingly, WBC engaged in conduct in contravention of section 52 of the Trade Practices Act.
5. By that conduct Hi-Fert has suffered loss and damage.
Negligence
1. The Alleged Representations were made negligently.
2. As a consequence of the negligence of WBC Hi-Fert has suffered loss and damage.
Collateral Warranty
1. Each of the Alleged Representations was a warranty collateral to the Charter Contract agreed to in consideration of further carriage of goods by WBC for Hi-Fert.
2, In breach of each of the warranties WBC failed to comply with its undertakings to Hi-Fert.
3. By reason of that breach Hi-Fert has suffered loss and damage.
The Non-Contractual Claims are different in character from the Contractual Claims. The direct consequence of the Contractual Claims was the loss particularised above, namely, the loss in value of the cargo in consequence of not being permitted to unload the cargo at Newcastle. However, in relation to the Non-Contractual Claims, the direct damage is the detriment which Hi-Fert alleged it suffered by reason of entering into the Addendum Contract. All three of the Non-Contractual Claims depend upon the Alleged Representations. The Trade Practices and negligence claims are alleged to have induced Hi-Fert to enter into the Addendum Contract. Ultimately, that is said to have been a detriment because, if the Addendum Contract had not been entered into, the direct loss referred to above would not have been suffered.
However, questions may arise concerning assessment of damage which are different from those which would arise in relation to the Contractual Claims. Thus it is not self-evident that the diminution in value of the cargo would necessarily have been avoided if the Addendum Contract had not been entered into. For example, it may be necessary for the relevant tribunal, whether it be this Court or an arbitrator, to make an assessment of the likelihood that some different contract would have been entered into, if the Addendum Contract had not been entered into. Such a contract might equally have been the subject of some breach by the carrier which gave rise to the same loss or a different loss. They are contingencies with which a court would be required to grapple in assessing reliance loss. It is necessary for the Federal Court to take notice of that possible requirement because it emphasises the distinction between the Contractual Claims on the one hand and the Trade Practices and negligence claims on the other.
The collateral warranty claim may be in a different category. The alleged representations are said to be the consideration for Hi-Fert entering into the Addendum Contract. In so far as they gave rise to future promissory obligations, the measure of damage may be the loss flowing from the failure to perform such promises. That loss may be the direct loss referred to above. In any event, of course, that loss will be an element in assessing the damage for each of the Non-Contractual Claims.
Counsel were unable to refer the Court to any decision dealing with the expression "arising from" in a relevant context. The Court was referred to one decision involving the term "arising from" but not in the context of an arbitration clause. In Pizzino v Finance Brokers (WA) Pty Ltd (1982) 56 ALJR 843, the High Court was concerned with the following clause in a contract for sale of land:
any surplus arising from resale shall when received by the vendor be paid to the purchaser without interest.
The Court held that the words "when received" strongly suggest that the surplus is something which the vendor receives after he has exercised his right of resale. The words "surplus arising from resale shall when received" were therefore held to point to the conclusion that the surplus is something which the vendor receives as a result of the resale. That decision might suggest that the phrase in question in clause 34 of the Charter Contract could be construed as meaning "any dispute arising as a result of this charter".
The parties referred the Court to a number of authorities dealing with similar expressions used in arbitration clauses. In some cases, non-contractual claims were held to be within the relevant arbitration clause. In other cases they were held to be outside the relevant arbitration clause. Several of the cases to which the Court was referred were concerned with the application of arbitration clauses to causes of action arising under the Trade Practices Act. I shall deal specifically with each of those cases.
In Allergan Pharmaceuticals Inc. v Bausch & Lomb Inc. (1985) 7 ATPR 40-636 (to which the High Court referred with approval in Tanning Research Laboratories Inc v O'Brien (1990) 91 ALR 180 at page 188), the applicants sought relief which included relief based on alleged contravention of Part V of the Trade Practices Act. The respondents sought a stay on the basis of a provision of an agreement between the parties as follows:
Any controversy or claims arising out of or relating to this agreement shall be settled by arbitration…
The stay was sought under section 7 of the Arbitration (Foreign Awards and Agreements) Act 1974 (Cth) which applied in relation to a "matter that is capable of settlement by arbitration". Beaumont J held that an alleged contravention of Part V of the Trade Practices Act and alleged contravention of the Patents Act 1952 was not a "controversy or claim arising out of or relating to" the agreement in question. His Honour considered (at 47,173) that causes of action based on alleged contraventions of sections 52, 53(a), 53(d) and 53(g) of the Trade Practices Act arise exclusively from the statutory provisions themselves. On the other hand, causes of action under the general law, whether in contract or otherwise, arise independently of those provisions.
His Honour was of the view that, in the absence of a substantive nexus or connection between the contract sued upon and the contraventions of Part V, the causes of action arising from such contraventions did not give rise to controversy or claim "arising out of or relating to" the agreement. His Honour considered that the statutory causes of action sued upon existed independently of contract. Causes of action dependent upon Part V in no way depend on any private agreement for their source. Conduct of the kind proscribed by Part V will normally be established, if at all, irrespective of the contractual relations of the immediate parties. Further, no contract inter partes could constitute a defence to any alleged contravention of Part V.
In IBM Australia Limited v National Distribution Services Ltd (1991) 22 NSWLR 466, the New South Wales Court of Appeal considered a clause in the same terms as that considered by Beaumont J in Allergan Pharmecueticals Inc v Bausch & Lomb Inc. Kirby P, after acknowledging Beaumont J's decision, was of the view (at 478) that there was much force in the argument that the remedies under the Trade Practices Act, being provided by statute, are such as to be confined to their statutory application and are not available to an arbitrator receiving a dispute by contractual words expressed in very general language. His Honour referred to the argument that the very width of the relief available under the Trade Practices Act was an argument against imputing to the parties the intention to provide all the relief of the kind afforded to courts by that Act.
Kirby P considered, however, that the case was governed by the decision of the High Court in Government Insurance Office (NSW) v Atkinson-Leighton Joint Venture (1981) 146 CLR 206 and that the holding in that case was sufficient answer to those arguments. His Honour concluded, therefore, that the disputes arising out of the Trade Practices Act were within the arbitration clause.
Clarke JA reached the same conclusion. However, his Honour placed considerable weight on the expression "related to this agreement or any breach thereof" in the relevant arbitration clause, observing that the phrases "in relation to" or "related to" are of the widest import and should not, in the absence of compelling reasons to the contrary, be read down. His Honour would have understood the relevant clause, in its context, and in the absence of contrary indications in the contract, to be sufficiently wide to encompass claims that pre-contractual misrepresentations induced the complaining party to enter into the contract (at 483). Clarke JA did not refer to Allergan Pharmaceuticals Case but also considered that the matter was governed by Government Insurance Office (NSW) v Atkinson Leighton. Handley JA, who agreed generally with Kirby P and Clarke JA, also considered that the matter was governed by that case.
It is significant that the expression "or related to this agreement" was regarded as decisive by all members of the Court of Appeal in attracting the principle stated in GIO v Atkinson Leighton. Kirby P also relied on that part of the clause in order to distinguish an earlier decision of the Court of Appeal of Mir Brothers Developments Pty Ltd v Atlantic Constructions Pty Ltd (1984) 1 BCL 80 where the clause in question did not contain those words. Clause 34, of course, does not include that wider expression but is limited to the expression "arising from".
Government Insurance Office (NSW) v Atkinson-Leighton Joint Venture was concerned with the question of whether a reference to arbitration authorised the arbitrator to award interest to the successful party. Mason J, with whom Murphy and Wilson JJ agreed, considered that a term is to be implied that an arbitrator is to have the authority to give a claimant such relief as would be available in a court of law having jurisdiction with respect to the subject matter (at 246-247). That principle was applied by the Court of Appeal in the IBM Case as justifying the conclusion that, since the Court had general jurisdiction with respect to claims under Part V of the Trade Practices Act, the term to be implied from such an arbitration clause also included authority to give relief under that Act.
I consider that reliance on the reasoning in Government Insurance Office (NSW) v Atkinson-Leighton is unsound in the present context. A court may have a supervisory function with respect to arbitration in relation to a particular cause of action. Further, an award in respect of that cause of action may be enforceable as if it were a judgment of the court. The implication of power for an arbitrator to award interest under s 51A of the Federal Court Act, for example, could be characterised as an extension of a cause of action which falls within an arbitration clause. However, the right to interest on damages is not an independent cause of action. It is simply a mechanism to ensure that a claimant is not prejudiced by the inevitable delay between a cause of action arising and judgment of a court. That is not a justification for a conclusion that a completely independent cause of action is to be implied as having been referred to arbitration simply because it deals with a similar subject matter as those questions which are expressly referred to arbitration.
In QH Tours Ltd v Ship Design & Management (Aust) Pty Ltd (1991) 33 FCR 227, Foster J considered an arbitration clause which required arbitration in respect of:
Any dispute or difference… as to the construction of this agreement or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith.
His Honour referred to the IBM Case and Government Insurance Office (NSW) v Atkinson-Leighton and concluded that, having regard to the width of the clause in question, an arbitrator would have the necessary power to declare the contract void ab initio as a result of breaches of section 52 of the Trade Practices Act. It is significant that the clause there considered by his Honour again included a phrase absent from clause 34. That is to say, the arbitration clause extended to any matter or thing of whatsoever nature arising in connection with the relevant agreement. That, as a matter of construction, is wide enough to include a claim alleging contravention of Part V of the Trade Practices Act inducing the contract in question.
In Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd (1993) 43 FCR 439, French J considered a clause submitting to arbitration "any dispute… arising under this agreement". His Honour observed that there is little point in multiplying case citations and examples. When the language of an arbitration clause is sufficiently elastic, then the more liberal approach of the courts to which Kirby P referred may be appropriate. His Honour observed that a wide construction of such clauses can be supported on the basis that it is unlikely to have been the intention of the parties to divide artificially their disputes into contractual matters which could be dealt with by an arbitrator and non contractual matters which would fall to be dealt with in the courts.
However, French J considered that when the parties have agreed upon a restricted form of words which in terms limit the reference to matters arising ex contractu, there is little room for movement. His Honour was satisfied that neither the Trade Practices claim in that case nor claims for breach of warranty and negligent misstatement could be said to arise under the agreement in question. They all arose out of matters which were antecedent to the agreement even though they may have involved questions which also go to its performance. His Honour considered that none of the authorities supported the wide construction of the clause contended for. His Honour concluded that the natural meaning of the words in question did not support their extension to disputes arising out of matters antecedent to the agreement (at 448). The terms of the arbitration clause considered by French J were clearly not as wide as the clauses under consideration in the IBM Case and in the QH Tours Case. On the other hand the expression "arising under" is certainly not narrower than the expression "arising from".
In the Mir Brothers Developments Case, the New South Wales Court of Appeal was required to consider whether jurisdiction in respect of either rectification or a collateral contract was conferred upon an arbitrator by the following expression:
All disputes or differences arising out of the contract or concerning the performance or the non-performance by either party of his obligations under the contract …
Samuels JA, with whom Mahoney JA agreed, said (at page 83) that the difference there in question could not be regarded as one arising out of the contract. It was not generated by the contract but by the terms of the parties alleged common intention. His Honour observed that the question would be answered, not by examining the contract, but by considering and assessing evidence external to it. His Honour also could see no ground for concluding that a dispute about the existence of an agreement independent of and separate from the contract could satisfy either limb of the submission to arbitration. His Honour considered that such a dispute did not arise out of the contract nor did it concern the performance or non-performance of the parties' contractual obligations.
In Ethiopian Oilseeds v Rio del Mar Foods Inc [1990] 1 LloydsRep 86 at 97, Hirst J found it difficult to make any distinction between the words "arising out of" and "arising in connection with". His Lordship thought that it was clear that while "arising under" standing alone would probably not cover rectification, the expression "arising out of" should be given a wide interpretation covering disputes other than one as to the very existence of the contract itself so as to give effect to the parties' presumed intention not to have two sets of proceedings. His Lordship considered that the parties to the contract which he was considering must be presumed to have intended to refer to arbitration all the disputes arising out of the particular transaction, including a plea for rectification.
In Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, the New South Wales Court of Appeal considered an arbitration clause which referred to arbitration in London "any dispute or difference arising out of this agreement". The question was whether a purported termination of an agency agreement was wrongful by reason of what had been represented, during the course of the agreement, involving misleading conduct in contravention of the Trade Practices Act. Gleeson CJ, with whom Meagher and Sheller JJA agreed, concluded that the claim that the purported termination of the agency was wrongful, by reason of what had been represented during the course of the agreement, was a dispute arising out of the agency agreement (at 165F). Gleeson CJ referred to the judgment of Hirst J in Ethiopian Oil Seeds and observed that that decision and the reasoning underlying it reflected the current state of the law in New South Wales as stated by Kirby P in the IBM Case. Gleeson CJ observed that the expression "arising out of" has usually been given a wide meaning.
The conclusion in Francis Travel Marketing Pty Limited, however, is not decisive of the question now presently under consideration. Nor is it inconsistent with the decision of French J in Paper Products Pty Limited. That is to say, a claim arising out of contravention of the Trade Practices Act during the performance of an agreement could be a claim arising out of the agreement. Such a claim could also be said to arise from the agreement. In other words, but for the agreement, there would have been no basis for making the allegation of contravention of the Trade Practices Act. Such a claim would be dependent upon there being a contractual relationship between the parties.
However, where there is a dispute as to a claim in respect of conduct which is antecedent to the making of a contract, I do not consider that such a dispute can be said to arise from the contract in question. In relation to the Addendum Contract, for example, the conduct complained of by Hi-Fert was antecedent to and did not depend upon the contractual relationship that existed by reason of the Addendum Contract. That latter contractual relationship was induced by the conduct complained of. In the present case, the Non-Contractual Claims are not generated by the Charter Contract. They will not be resolved by examining the Charter Contract but by considering and assessing evidence external to it. They do not arise out of the Charter Contract nor do they arise from the Charter Contract.
WBC contended that the Non-Contractual Claims are claims which arise from the Charter Contract or the Addendum Contract in all practical senses. WBC contended that commercial commonsense requires that the inevitable negotiations which normally lead to agreements such as are in question would be intended by the parties to be governed by the same arbitration clause.
The primary judge in the present case held that the term "arising from" is equivalent to "arising in connection with" or "arising out of". After referring to Francis Travel, his Honour concluded that the expression "arising from" is at least as wide as the expression "arising out of". In reliance on the New Shorter Oxford Dictionary, his Honour was of the view that the words "out of" are commonly used in the sense of "from". For example, the expression "out of" may mean:
"from inside a containing space"
"from within the range or limit of"
"from (something) as a source or origin"
"from (something) as a cause or motive; as a result of effect of"
Those definitions rather confirm that the expression "arising in connection with" is wider than the expression "arising out of". For the reasons which I have indicated, the circumstances of Francis Travel were relevantly different from those presently under consideration because the agency agreement was an integral part of the cause of action relating to its termination. Even if the claim in that case arose out of or from the agency agreement, that does not govern this case.
The acceptance of the Kiukiang Career, as a vessel nominated pursuant to the Charter Contract, is alleged to have been induced by the conduct complained of by Hi-Fert. Certainly, that conduct has a connection with the Charter Contract. The conduct was not antecedent to the Charter Contract. Nor was it independent of the Charter Contract. The conduct occurred because of the contractual relationship which, by reason of the Charter Contract, existed between Hi-Fert and WBC.
However, the connection is different from the connection between the conduct in question in Francis Travel and the agency agreement under consideration in that case. There was no juridical connection between the conduct and the Charter Contract as there was between the agency agreement and the relevant conduct in Francis Travel. The question there was whether the agency agreement had come to an end as a result of the conduct. Here, the conduct alleged had no effect on the Charter Contract. The Charter Contract was no more than the background against which the conduct occurred.
In the present case, the parties have chosen restricted language to describe those disputes which are to be settled by arbitration. The question is whether the Non-Contractual Claims can fairly be said to arise "from" the Charter Contract. The Alleged Representations, which are the basis of the Non-Contractual Claims, had nothing to do with the performance of the Charter Contract by WBC. WBC did not own or operate the Kiukiang Career. The Alleged Representations were concerned only with the question of extending the Charter Contract for the purposes of fixing the Kiukiang Career. The Charter Contract was no more than background to the making of the Alleged Representations which, having been acted upon, led to its terms being attracted to the arrangement relating to the Kiukiang Career. Accordingly, I consider that none of the Non-Contractual Claims arise from the Charter Contract. Therefore, they are not subject to clause 34.
It is not strictly necessary, therefore, to consider whether they are matters that, in pursuance of the Charter Contract, are capable of settling by arbitration within the meaning of section 7(2) of the International Arbitration Act. However, since substantial argument has been directed to the question, I propose to say something on the matter.
Trade Practices Claims and Arbitration
The appellants contended that even if, on its proper construction, clause 34 applies to the dispute as to claims from alleged contravention of Part V of the Trade Practices Act, that matter is not capable of settlement by arbitration. It was said, contrary to the holding of the primary judge, that clause 34 does not clothe arbitrators with the powers conferred by the Trade Practices Act on Australian courts. The reference to English law in clause 34 was said to be significant. In addition, reliance was placed on the provision that the dispute is to be settled in London in accordance with the provisions of the Arbitration Act 1950 of the United Kingdom and any subsequent Acts.
The reference to English law in clause 34 is not decisive. The provision is that "the charter party shall be governed by and construed in accordance with English law". That provision, however, says nothing about the law to be applied by arbitrators in settling disputes arising from the Charter Contract which do not depend upon the construction of the Charter Contract. That is to say, if all of the claims made by the appellants were to be adjudicated in the Federal Court, the Charter Contract would still be governed by and construed in accordance with English law as provided by clause 34. That would not exclude the operation of the Trade Practices Act if it otherwise gave rise to claims.
Arbitrators, from that point of view, would not be in any different position from the Federal Court. The reference to English law, as being the law by which the Charter Contract was to be governed and in accordance with which it was to be construed, would not exclude the operation of the Trade Practices Act. However, it may be an indication, when coupled with the reference to arbitration under the English legislation, that the parties did not intend that claims arising out of the statute would be resolved by arbitrators in London. In other words, there is no basis for concluding that the parties to the Charter Contract intended the implication of a term that claims under the Trade Practices Act would be settled by arbitration.
Clearly, the Trade Practices Act confers no jurisdiction on arbitrators in London. On the other hand, it would certainly be open to the parties to a dispute as to whether or not a claim arises under the Trade Practices Act, to refer that dispute to arbitrators. That, of course, is not this case. Nevertheless, it would also be possible for two parties to agree, subject to the following proviso, that if a dispute arises between them in the future as to whether one is entitled to a remedy under the Trade Practices Act, they will refer that dispute to arbitration.
The proviso is that if such a dispute did arise, and one party wished to have the dispute resolved by a court with appropriate jurisdiction, that party could not be compelled to have the matter resolved by arbitration if the effect would be a contract excluding the application of the Trade Practices Act. If the effect of the agreement would be to exclude a claim under the Trade Practices Act and to deprive the parties of the remedies which a court may grant under the Trade Practices Act, in favour of a determination by an arbitrator, the provision may be void by the operation of the Trade Practices Act. If the effect of such a provision would be to exclude the jurisdiction of the court and enable the parties to contract out of the remedies conferred by the Trade Practices Act, the provision may be void.
POSITION OF KMC
A court will be an inappropriate forum if continuation of proceedings in that court would be oppressive, in the sense of "seriously and unfairly burdensome, prejudicial or damaging" or, vexatious, in the sense of "productive of serious and unjustified trouble and harassment". In determining whether the local court is a clearly inappropriate forum, legitimate personal or juridical advantage is a relevant but not decisive consideration. The fundamental question is where the case may be tried "suitably for the interests of all the parties and for the ends of justice" - Henry v Henry (1996) 185 CLR 571 at 587. Further, the fact that there are or, even that there may be, simultaneous proceedings in different countries with respect to the same controversy is highly relevant to the question of whether the local proceedings are oppressive in that sense. The courts should strive to avoid that situation - Henry v Henry (at 591).
KMC relied on clause 34 as still having some operation, notwithstanding the effect of section 11(2) of the Carriage of Goods by Sea Act. KMC contended that clause 34 continues to operate as an acceptance by Hi-Fert that arbitration in London is an appropriate venue for determining any dispute which arises from the bill of lading. Accordingly, so it was argued, it would be oppressive and vexatious for the proceedings to continue against KMC in the Federal Court in circumstances where the same issues were to be referred to arbitration in London and Hi-Fert had submitted to arbitration in London.
The appellants, on the other hand, contended that section 11(2) rendered the arbitration clause of no effect at all. They contended that it could not be relied on even for the purpose suggested by KMC. The appellants relied on the reasoning of the High Court in Compagnie des Messageries Maritimes v Wilson (1954) 94 CLR 577. In that case, the High Court considered the application of section 9(2) of the Sea Carriage of Goods Act 1924 ("the 1924 Act") to a bill of lading which provided that all legal actions arising out of the interpretation of performance of the bill of lading would be judged by a French commercial court.
Section 9(2) of Sea Carriage of Goods Act relevantly provided as follows:
(2) Any stipulation or agreement… purporting to oust or lessen the jurisdiction of the Courts of the Commonwealth… in respect of any bill of lading or document relating to the carriage of goods from any place outside Australia to any place in Australia shall be illegal, null and void, and of no effect.
Dixon CJ made the following observations in relation to the operation of section 9(2) (at 583):
…it can hardly be doubted that its object was to insure that Australian consignees of goods imported might enforce in Australian courts the contracts of sea-carriage evidenced by the bills of lading which they held. Section 9(2) is expressed in the strongest words and makes a stipulation or agreement falling within its terms illegal, null, void and of no effect.
The double aspect which no doubt the condition now under consideration exhibits is but the consequence of a single stipulation, and that stipulation clearly falls within the language of that section. It is therefore without any effect and can afford no foundation for the use of s. 6 of the Arbitration Act 1902.
His Honour referred to the positive and negative aspect of the arbitration provision but observed that those aspects were no more than aspects of the same stipulation and one could not be severed from the other.
The primary judge rejected the appellants' contention concerning section 11(2). His Honour considered that the differences between section 9(2) and section 11(2) rendered the reasoning in Wilson's Case inapplicable. In particular, the words "so far as" do not appear in the 1924 Act. Accordingly, his Honour concluded that the words "so far as" in section 11(2) leave room for severance of the obligation to arbitrate from the submission to a jurisdiction in which the arbitration must take place.
His Honour considered that the effect of section 11(2) was to render ineffective the requirement to arbitrate but to leave intact the submission to a London arbitration. Accordingly, his Honour appears to have held that the effect of clause 34, after section 11(2) operated, was that the submission to arbitration in London could be taken into account in the exercise of a discretionary power to stay the proceedings.
His Honour considered, therefore, that the Court had a discretion to stay the proceedings in favour of arbitration in London if the prosecution of the claim against KMC in the Federal Court was clearly inappropriate. His Honour considered that, in the circumstances, the Federal Court was clearly an inappropriate forum to consider the issues raised between the parties. The primary reason was the fragmentation of jurisdiction likely to result because of the stay which his Honour concluded should be granted in favour of WBC.
I do not agree that the changes in the language render the reasoning in Wilson's Case inapplicable. The words "so far as it purports to" do not mean anything different from "purporting to". An agreement "purporting" to bring about some consequence has no different operation from that same agreement "so far as it purports to" achieve the same consequence. The word "purports" refers to the purpose and object of the clause. An express obligation to refer a dispute to a non-judicial forum and the promise not to refer the dispute to a judicial forum are simply different aspects of a single stipulation. Both aspects have the same consequence, namely that access to the jurisdiction of a court is precluded or limited.
The literal effect of clause 34 is to preclude or limit the jurisdiction of any court. That is to say, clause 34 provides that any relevant dispute shall be settled in accordance with the provisions of the Arbitration Act 1950 in London. If that contractual stipulation is given effect, a relevant dispute must be settled under United Kingdom legislation in London. That must have the effect of limiting the jurisdiction of a court in Australia in respect of the bills of lading in question, assuming the disputes in these proceedings are disputes arising from the bills of lading within the meaning of clause 34. Accordingly, clause 34, in so far as it purports to preclude or limit this Court's jurisdiction in respect of the bills of lading, is of no effect.
The circumstances which led his Honour to conclude that the Federal Court was a clearly inappropriate forum in which to decide the questions against KMC were as follows:
· Hi-Fert's claim against KMC raises questions common to the claims against WBC;
· As a result of the parties' agreement English law will apply in any event;
· Hi-Fert's claim against WBC must be stayed if WBC so requires insofar as it concerns breaches of the express or implied terms of the charter party;
· Hi-Fert's dispute with WBC as a whole, is covered by the construction of clause 34 and is clearly related in important respects to the claim against KMC;
· The only place in which the dispute can be resolved in its totality is London and it is appropriate that there should be a "one-stop" adjudication in the present proceeding;
· Failure to grant a stay as against KMC may result in duplication of proceedings with the consequent possibility of inconsistent findings, differing evidence elicited from witnesses in cross-examination, possible inconvenience to witnesses having to give evidence twice, and further expense and delay;
· Hi-Fert and the defendants entered into the arrangements which provide for a London arbitration. This is a relevant discretionary consideration which is to be weighed in the balance but does not dictate the outcome of the balancing process.
Thus, it was the likely fragmentation of jurisdiction in relation to the claims against WBC and KMC that persuaded his Honour that, in so far as he had a discretion to do so, there should be a stay of the claim against KMC.
However, if clause 34 has no effect as between Hi-Fert and KMC in relation to submission to arbitration, the only connection between the disputes concerning the claims made by Hi-Fert on the one hand and London or United Kingdom legislation on the other hand is the adoption of English law to govern the Charter Contract. Nevertheless, the disputes clearly have a significant connection with Australia. There was evidence from an experienced solicitor acting for Hi-Fert that it was likely that the parties would call the following witnesses:
(a) Officers of Hi-Fert with respect to title to sue, misrepresentations by WBC as to procedures in place to ensure cleanliness of the vessels, notices received from AQIS, the sale by way of salvage of the cargo and the quantum of the resulting loss.
(b) Officers of WBC with regard to negotiations of a contract of affreightment in representations.
(c) Officers of AQIS with regard to their inspection of the ship at Newcastle.
(d) Agricultural experts with regard to the karnal bunt problems.
(e) United States surveyors who inspected the ship in Tampa prior to loading.
(f) The Australian surveyor who inspected the ship in Newcastle.
(g) The master of the Kiukiang Career on the voyage from Tampa to Newcastle with regard to cleaning and inspection.
(h) Experts as to the proper ship practice for cleaning holds.
The witnesses referred to in paragraphs (a) to (d) and (f) are resident in Australia. Witnesses from Florida would be equally able to give evidence in Sydney as in London. The ship's master is likely to have to be taken off his ship and Sydney would be of equal convenience to London. The marine experts would come from Australia and Florida. In those circumstances, there is no basis for concluding that Australia was a forum non conveniens in relation to the allegations made by Hi-Fert against KMC.
KMC did not base its case for a stay on forum non conveniens. As I have indicated above, it relied upon the principle that it would be oppressive and vexatious for the proceedings to continue against KMC in Australia while significant parts of the dispute between the appellants and WBC, arising out of the same circumstances, are referred to arbitration in London.
The allegations made by the appellants against KMC, as gleaned from the statement of claim, may be stated as follows:
1. KMC was under a duty as carrier or alternatively contracted by the bills of lading to deliver the cargo in the same good order and condition as when shipped. In breach of duty and contract, KMC failed to carry and deliver the cargo in the same good order and condition as when shipped, whereby the appellant suffered loss and damage.
2. Alternatively, the loss and damage was caused by the negligence of KMC in breach of its duty as carrier and bailee for reward in the following respects:
(a) failure to clean the holds;
(b) failure to supervise the cleaning of the holds;
(c) failure to warn the appellants prior to loading that the holds were not clean;
(d) failure to instruct the crew as to the cleaning of the holds;
(e) failure to have on board any sufficient instructions as to hold cleaning;
(f) failure to have any sufficient system for ensuring that the holds were clean prior to loading;
(g) contaminated the cargo with wheat;
(h) exposing the cargo to the risk of contamination by karnal bunt.
3. Alternatively, the contracts evidenced by the bills of lading were subject to the Hague Rules and, accordingly, KMC was bound before and at the beginning of the voyage to exercise due diligence to:
(a) make the vessel seaworthy;
(b) make the holds fit and safe for the reception, carriage and/or preservation of the goods.
In breach of contract, KMC failed to make the ship seaworthy and to make the hold fit for reception, carriage and preservation of the cargo.
4. Alternatively, the contract evidenced by the bills of lading were subject to the Hague Rules which provided that the carrier should properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried and in breach of that obligation KMC failed properly and carefully to load, handle, stow, carry, keep, care for and discharge the cargo.
I have set out above the Contractual Claims made by the appellants against WBC. It is clear that there is a significant overlap between the claims made against KMC under the bills of lading and the Contractual Claims made against WBC. It would be undesirable for those claims to be adjudicated in different places by different tribunals. If they were, there would be the possibility of inconsistent determinations. That possibility should be avoided if possible.
Further, the Time Charter between KMC and WBC contains the following provision:
17. That should any dispute arise between [KMC] and [WBC], the matter in dispute shall be referred to three persons at London one to be appointed by each of the parties hereto, and the third by the two so chosen; their decision or that of any two of them, shall be final, and for the purpose of enforcing any award, this agreement may be made a rule of the Court. The arbitrators shall be commercial men.
Thus, the agreed venue as between KMC and WBC for any indemnity claims which WBC may wish to make on KMC as a result of the appellants' claims against WBC, is arbitration in London. Any such indemnity claim or cross-claim which WBC would make against KMC in these proceedings or in other proceedings in the Federal Court could, on one view, be subject to a mandatory stay under section 7(2) of the International Arbitration Act by reason of clause 17.
It was contended that arbitration in London would afford the opportunity of a single venue for resolution of all of the disputes arising out of the same circumstances. The evidence showed that, even if the appellants were to pursue their claims against WBC and KMC by arbitration in London, it may not be possible to make a formal consolidation of those arbitrations and any indemnity claim which WBC might make against KMC.
Apparently, London arbitrators are ready and willing to run such arbitrations in tandem where at least one arbitrator would be an arbitrator in both references notwithstanding that it may not be possible for a formal consolidation to be effected. On the other hand, by reason of the operation of section 7(2) of the International Arbitration Act, it was said that it was not possible for all disputes to be resolved in the Federal Court.
However, those contentions fail to take account of several matters. First, since the only effect of clause 34 is the adoption of English law, there is no agreement by Hi-Fert to submit to arbitration in London or elsewhere. Secondly, any stay of the proceedings against WBC is mandatory only in relation to some of the claims made by Hi-Fert. Thirdly, it would always be open to WBC to submit to the proceedings in the Federal Court. Section 7(2) is only invoked upon the application of a party. It is open to the parties not to invoke section 7(2) or the discretionary inherent jurisdiction of the Court. If a party choses to make no application, then there would be no occasion for the Court to consider ordering a stay under section 7(2). The Federal Court could then provide "one stop adjudication".