AWB (International) Ltd v Tradesmen International

Monahan + Rowell as agents for Norman Waterhouse Lawyers

1 On 1 September 2005 the Judge in Admiralty dismissed the application of AWB (International) Ltd ("AWB") in proceeding No. 5253 of 2005 for leave to appeal pursuant to s.38(4)(b) of the Commercial Arbitration Act 1984 ("the Act") against the interim award of three arbitrators, made on 1 March 2005, to the effect that the purported notice of arbitration of the claimant, Tradesmen International (PVT) Ltd ("Tradesmen"), was not time-barred under the agreement between them. His Honour also dismissed Tradesmen's cross claim in proceeding No. 7161 of 2005 and awarded costs in Tradesmen's favour in both actions. AWB now appeals with leave against his Honour's orders.

2 Before considering the issues raised on appeal it is necessary to set out briefly the background circumstances. By a contract in writing ("the agreement") dated 14 January 2004 between AWB and Tradesmen, the parties agreed that AWB would sell to Tradesmen, on Cost and Freight (C.F.R.) terms, 150,000 tonnes +/- 5 per cent of bulk Australian Standard White Wheat as specified in the agreement for the price of US$218 per tonne for delivery, at the option of Tradesmen, at Port Qasim or Karachi Port, Pakistan. Under the agreement it was for AWB to pay for and charter a vessel for the ocean transportation of the wheat to its nominated port of discharge.

3 It is common ground that the wheat was progressively despatched in four ships, each of which arrived at the discharge port in Pakistan. The last of the vessels, "Sea Swan", arrived on 2 March 2004 at Port Qasim where the wheat was rejected by the Pakistan Quarantine Authority on the ground of deficient quality. As a consequence, on 10 March 2004 Tradesmen wrote to AWB requesting AWB's assistance to act as its agent in arranging for the resale of wheat. In the result, the wheat was shipped to Jakarta, Indonesia, where it was discharged on 7 April 2004.

4 The agreement contains an arbitration clause that is in the following terms:

"15. ARBITRATION

(i) Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the UNCITRAL Arbitration Rules for the time being in force. The administering authority shall be the Australian Centre for International Commercial Arbitration, Melbourne. Each party shall appoint an arbitrator, the two arbitrators thus appointed shall choose a third arbitrator who shall act as the presiding arbitrator of the tribunal.

The language of the arbitration shall be English and the place of arbitration shall be Melbourne. The arbitration shall be governed by the Commercial Arbitration Act 1984 of the State of Victoria.

(ii) Any notice of arbitration or other claim alleging a dispute must be made in writing and the claimants arbitrator appointed within six (6) months of the vessels [sic] arrival at the final port of discharge, otherwise the claim shall be deemed to be waived and no proceedings whatsoever whether by way of arbitration or litigation shall be commenced."

As will become apparent, the dispute between the parties in this proceeding concerned primarily the meaning and operation of clause (ii), more particularly, whether Tradesmen's right to claim against AWB in relation to the wheat that was rejected on 2 March 2004 was lost because of its alleged failure to comply with the time bar in clause (ii).

5 It seems that the first two wheat shipments had also been rejected by the Pakistan authorities. On 26 February 2004 Tradesmen wrote to AWB advising it of those rejections, stating that although Tradesmen will challenge the rejection of the wheat, "... in case of any deviation found in the results of joint sampling and testing or otherwise from the specification mentioned in your certificates then the liability of such variation will be entirely on you and we shall reserve all the rights to recover all the losses and damages what so ever." The letter concluded: "The above is without Prejudice." In that context Tradesmen sought to commence an arbitration. On 2 September 2004, it sent, by facsimile transmission, a letter ("the first notice") to AWB that was in the following terms:

"This is further to our letter dated: 26-02-2004, we hereby give notice of arbitration under the terms of the above contract.

We have appointed Mr Bruce Harris ... as arbitrator to represent us in the arbitration proceedings."

AWB responded by letter dated 8 September 2004 in which it pointed out what it said were the deficiencies in the first notice. Relevantly, it said: "... please clarify if you are initiating an Arbitration proceeding against AWB ... and the basis of your claim as your message is unclear. Please provide us with official arbitration notice and claim." On 13 September 2004 Tradesmen sent AWB a second, and more formal and comprehensive, notice of arbitration ("the second notice"). The covering letter stated: "In continuation of our letter dated 26 February 2004 and our Notice of Arbitration dated 2 September 2004, we submit this Further Notice of Arbitration, specifying such details as are required as the next requisite step." Annexed was a document of three pages headed "(Further) Notice of Arbitration." It was common ground before his Honour that, if the second notice had been given on time, it would have been effective to satisfy the time-bar in clause 15 (ii) of the agreement and would have constituted the commencement of the arbitration. On or about 6 October 2004, and without prejudice to its position generally, AWB appointed Mr Ron Salter as its arbitrator. Mr Harris and Mr Salter then appointed Mr Phillip Yang as presiding arbitrator.

6 At about the end of October 2004 the parties referred to the arbitral tribunal two preliminary issues that were described in the Interim Award in the following terms:

(a) whether there exists any valid or subsisting agreement to arbitrate between the parties, and

(b) whether, if there is a subsisting agreement to arbitrate, Tradesmen's purported notice of arbitration is time-barred.

Following a hearing, the arbitral tribunal published its reasoned interim award relevantly determining that "there exists a valid and subsisting agreement to arbitrate between the parties, and that Tradesmen's purported notices of arbitration are not time-barred." More particularly, the arbitrators concluded:

(a) On their proper construction, the words "final port of discharge" in clause 15(ii) meant the port in which the cargo was in fact discharged, namely, Jakarta, Indonesia. Accordingly, time began to run for the purposes of the clause on 7 April 2004 and expired six months later. Consequently, the first and second notices were within time.

(b) To be valid for the purposes of clause 15(ii) a notice of arbitration has to comply with the requirements of Article 3.3 of the UNCITRAL Arbitration Rules ("the Arbitration Rules").

(c) The first notice did not comply with the requirements of Article 3.3.

(d) If compliance with Article 3.3 was not required, the first notice satisfied the requirements of clause 15(ii).

(e) The second notice was sufficient on any basis.

7 Being dissatisfied with the arbitral decision, on 30 March 2005, AWB filed an originating motion in proceeding No. 5253 of 2005 seeking leave to appeal against the interim award pursuant to s.38(4)(b) of the Act. And, on 13 July 2005, Tradesmen also filed an originating motion - in proceeding No. 7161 of 2005 - seeking leave to cross appeal pursuant to the above provision in the event that AWB's appeal was successful. Essentially, the cross claim was made on the basis that, even if AWB established that the arbitrators were wrong as to the meaning of "final port of discharge" and the prescribed time commenced to run on 2 March 2004, the arbitrators erred in determining that, to be valid, a notice of arbitration had to comply with the requirements of Article 3.3 of the Arbitration Rules and that the first notice did not comply with such requirements.

8 Thus, the question before his Honour was whether the arbitrators erred in determining that:

(a) the "final port of discharge" for the purpose of clause 15(ii) of the agreement was Jakarta and not Port Qasim;

(b) to be valid, a notice of arbitration under clause 15(ii) had to comply with Article 3.3 of the Arbitration Rules;

(c) the first notice did not comply with Article 3.3;

(d) if, to be valid, the notice of arbitration did not have to comply with Article 3.3 the first notice was a valid notice for the purposes of clause 15(ii).

9 As I have noted, on 1 September 2005 his Honour refused AWB's application for leave to appeal, struck out the Tradesmen proceeding and ordered that the costs in both proceedings be paid by AWB. His Honour considered that the arbitral decision that the "final port of discharge" in clause 15(ii) was the port where the wheat was finally discharged was not manifestly wrong. Thus, his Honour concluded that, on that issue AWB failed to make out the requirements of s.38(5)(b)(i) of the Act. His Honour also considered that the determination of the question posed by AWB's application for leave to appeal was not likely to add substantially to the certainty of commercial law for the purposes of s.38(5)(b)(ii) and that, therefore, that requirement was also not made out. As to Tradesmen's cross claim, the judge said that the arbitral tribunal was correct in its conclusion that the notice of arbitration did not comply with Article 3.3, as it should have done. But his Honour concluded that the complaining party could nevertheless satisfy the relevant requirements of clause 15(ii) by taking two steps within the prescribed time: first, giving a notice of arbitration or an appropriate notice of its claim alleging a dispute and secondly, appointing an arbitrator. His Honour considered that since the arbitrators found that the first notice, taken in conjunction with the letter of 26 February 2004, sufficiently foreshadowed Tradesmen's claim, its notice satisfied the requirements of a "notice of ... other claim" for the purposes of clause 15(ii) and since Tradesmen had appointed an arbitrator, it was not barred from pursuing its claim by way of arbitration. In the circumstances, his Honour refused AWB's application and dismissed its proceeding and that of Tradesmen.

10 I now turn to deal with the parties' respective submissions concerning his Honour's decision.

Whether "final port of discharge" refers to contractual destination

11 The principal contention of AWB was that, on its proper construction, the words "final port of discharge" in clause 15(ii) refers to the actual, and not the contractual, final port of discharge and that his Honour erred in concluding that the arbitrator's decision to the contrary was not a manifest error of law. It was common ground that if the decisions below on this issue were to stand, the second notice was operative such as to preclude the argument that there was waiver on the part of Tradesmen as contemplated by clause 15(ii). On the other hand, if the true answer is that "final port of discharge" relates only to the contractual destination, there remained for determination the question whether his Honour erred in concluding that the first notice was a "notice of other claim" sufficient for the purposes of clause 15(ii).

12 It was accepted by Mr Austin, for AWB, correctly, I think, that there could be no "manifest error" if the construction of the agreement favoured by the arbitral tribunal was reasonably open.[1] Thus, as his Honour said, if the impugned construction of the agreement is fairly open, leave to appeal cannot be granted under s.38(5)(b)(i) of the Act.[2] It is plain enough that his Honour based his impugned conclusion on the wording of clause 15(ii) construed in the context of the agreement as a whole. Thus, his Honour noted that the term "port of discharge" in that clause differed from the words "discharge port" used elsewhere to refer to the contractual place of delivery and considered that the word "final" in the expression "final port of discharge" suggests the identification of a place other than the contractual place of delivery. Consequently, the judge concluded that he could find no manifest error in the arbitrator's reasons on this issue. "To my mind", said his Honour, "the construction which the arbitrators preferred is very persuasive, if not correct."

13 It was submitted by Mr Austin that, on a proper construction of the whole of the agreement, it is plain that the parties were relevantly concerned only with the contractual destination of the wheat - Pakistan - and not with such other destination as may in fact have occurred outside the contract. Thus, it was said that all the relevant obligations under the agreement were referable to Pakistan, including the two nominated ports. Counsel pointed to a number of clauses to that effect to which I will refer later. It was also said that there is no difference in substance between the term "port of discharge" in clause 15(ii) and "discharge port" in the other parts of the agreement such as to demonstrate that the parties intended the time-bar to commence running from the date of arrival of the wheat at the point where it was in fact discharged. Similarly, it was argued for AWB, that the word "final" is not supportive of such an intention; rather, it was claimed, it reflects the choice that was given to Tradesmen under the agreement to nominate the place of discharge as between Port Qasim and Karachi Port. Mr Thompson, for Tradesmen, on the other hand, submitted that his Honour was correct in his analysis and conclusion as to this issue and argued that the time-bar in clause 15(ii) operated perfectly well if the ordinary meaning was given to the term "final port of discharge" such that it was to be determined by looking where, in fact, the wheat was finally discharged. Thus, counsel argued, clause 15(ii) operates so that time runs from the arrival of the ship at the port where discharge in fact occurs and there is nothing astonishing about such a conclusion. It was said that this result accommodates the parties' clear intention to place the obligation on Tradesmen to give AWB notice of any claim it wishes to make in respect of the agreement relatively shortly after the actual discharge of the cargo so as to enable it to gather and preserve evidence while the matter is relatively fresh.

14 I consider that, on an ordinary reading of the agreement, notwithstanding the apparent inconsistency in the use of the relevant words that were highlighted by the learned primary judge, it is clear enough that the relevant part of clause 15(ii) reflects the parties' intention that the time-bar should begin to run from the arrival of the vessel for discharge at one or other of the ports in Pakistan. In other words, the clause is relevantly concerned, I think, with the intended discharge of the cargo at one or other of the contractual destinations and not at the port where it in fact discharged. The contrary construction, I consider, is plainly wrong. My reasons for this conclusion are these.

15 It is clear enough that, in construing a contract such as the present, the court seeks to ascertain what reasonable business people in the position of the parties, had they applied their minds to the matter at the time of contracting, would have regarded the clause to mean. As McGarvie, J. explained in Schenker & Co. (Aust) Pty Ltd v. Maplas Equipment and Services Pty Ltd,[3] initially by reference to what Mason, J. said in Codelfa Construction Pty Ltd v. State Rail Authority of NSW,[4] "[i]n construing the words of a contractual provision a court does more than 'merely assigning to them their plain and ordinary meaning'", it seeks to give the words the meaning that was intended by the parties as is apparent from the terms of the agreement and the surrounding circumstances. More particularly, McGarvie, J. said:

"The construction which a court will place upon particular language in a contract may vary considerably according to the context and circumstances.

A contract is to be construed in the light of the surrounding circumstances existing and known to the parties when the contract was made: Butt v. Long.... This includes the genesis of the transaction, the objective framework of facts within which the contract came into existence and the commercial purpose of the parties, in the objective sense of what reasonable persons would have in mind in their situation: Codelfa.... In a passage quoted by the learned primary judge, Donaldson J. said: '... a contract is not made in a vacuum, but against a background of present and past facts and future expectations and ... its terms, and indeed the consensus itself are to be gathered not only from expressed words, but also from conduct viewed against that background '...

The nature of the document and contract in which words appear is always a relevant consideration in their construction..."

"In its construction of cl. 3 [in a freight forwarding contract] the court is seeking to ascertain what reasonable business people in the positions of [the parties], if they had applied their minds to it at the time of contracting, would have regarded the clause as meaning. The approach suggested by Shaw L.J. in Nea Agrex S.A. v. Baltic Shipping Co Ltd ... is a useful one to apply to this case. First, ask what in the circumstances a person in the position of [one of the parties] would have supposed [the other] meant by the clause, then ask what a person in the position of [the latter] would have supposed [the first to have] understood the clause to mean. This approach emphasises that the essential question is what would reasonable business people in the position of the parties have taken the clause to mean.

The cases give guidance on the approach to the construction of commercial contracts. Isaacs J. said in Cohen & Co v. Ockerby & Co Ltd: '... the expressions, and particularly any elliptical expressions, in a mercantile contract are to be read in no narrow spirit of construction, but as the Court would suppose two honest business men would understand the words they have actually used with reference to their subject matter and the surrounding circumstances.' See also Hillas & Co Ltd v. Arcos Ltd.... In Council of the Upper Hunter County District v. Australian Chilling and Freezing Co Ltd, in speaking of the ascertainment of the parties' contractual intention, Barwick C.J. observed that: 'In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements.'

In Antaios Compania Naviera S.A. v. Salen Rederierna A.B...., Lord Diplock, with whom all other members of the House of Lords agreed, said: '... if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense'.

Clause 3 is to be construed in the light of the features of the modern market within which the contract was made. There was evidence which the learned judge accepted that carriers today commonly put out printed terms and conditions that seek to exempt them from liability. In my opinion it is so much a matter of common knowledge that carriers in the market for the carriage of goods today commonly rely on printed terms and conditions to distribute to others loss from liabilities the carriers would otherwise bear themselves, that judicial notice could be taken of the practice..."

16 Similarly, in Darlington Futures Ltd v. Delco Australia Pty Ltd[6] the High Court said, in the context of the construction of exclusion and limitation clauses:[7]

"These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. Notwithstanding the comments of Lord Fraser in Ailsa Craig..., the same principle applies to the construction of limitation clauses .... And the principle, in the form in which we have expressed it, does no more than express the general approach to the interpretation of contracts and it is of sufficient generality to accommodate the different considerations that may arise in the interpretation of a wide variety of exclusion and limitation clauses in formal commercial contracts between business people where no question of the reasonableness or fairness of the clause arises."

See also Toll (FGCT) Pty Ltd v. Alphafarm Pty Ltd[8] where the court emphasised that the rights and liabilities of parties to a written contract are determined by an objective analysis of its terms.

17 Construing clause 15(ii) in accordance with these principles, it seems to me from the language of the agreement that the parties were concerned to define their respective rights and liabilities as to the performance of the agreement essentially by reference to Pakistan. Thus, for example, the contract price was plainly fixed by reference to AWB's obligation to bear the cost of freight, but only to Pakistan. Consistently with this, the agreement provided, in terms, that the discharge of the cargo was restricted to one or other of the two ports in Pakistan, at the option of Tradesmen,[9] and the quarantine requirements that had to be satisfied in relation to the wheat were those of the Pakistan authorities. And, as has been noted,[10] the agreement contained an express prohibition on wheat being milled or sold anywhere other than in Pakistan without AWB's agreement. Further, a number of the terms of the agreement were concerned with timely delivery of the wheat to Pakistan and, although many of them would be performed by the shipping company, it was AWB that was to be held responsible to Tradesmen for any non-performance of those provisions. Thus, AWB had the obligation to arrange ocean transport of wheat "to PQA (Port Qasim/Karachi Port for each lot offered" and, if there was failure to meet the nominated arrival date of the cargo in Pakistan, AWB was liable to a penalty that was payable to the Pakistan Agricultural Storage and Service Office. Moreover, it was for AWB to ensure that the vessel that it procured to transport the wheat to Pakistan conformed, in respect of a number of physical requirements, with the specification of the Pakistan Port authorities. And, critically, I think, any relevant rejection of the goods would take place in the Pakistan port.

18 It was said by Mr Thompson, however, that any reliance on the provisions which imposed obligations on AWB in respect of the shipping of the wheat were unhelpful to the construction of clause 15(ii). Counsel argued, as I understand it, that those provisions were inserted in the agreement to make clear to AWB the terms on which it was to procure a charter party so that the reliance on them for the purpose of construing clause 15(ii) would be misleading. Mr Thompson went on to point out that the sale was effectively executed and complete by AWB once it entered into the required charter party and placed the wheat on the vessel. Thus, it was said, although AWB may have had liability under the agreement if the carrier relevantly defaulted, such default was, in the first instance at least, that of the carrier and not of AWB.

19 It is plain enough, I think, that the agreement cannot be properly construed by reference to the terms of the charter party, and the contrary was not sought to be put by Mr Austin. But the fact remains that there were terms of the agreement that made AWB liable for failure to meet a number of requirements, the performance of which was to be carried out in Pakistan, albeit by the shipping company. What is of relevance is that these requirements, the performance of which AWB effectively "guaranteed", were directed to the performance of the agreement only in Pakistan and, I think, evinced the parties' intention that the discharge of the wheat and all relevant acts pertaining to it would be performed in Pakistan.

20 In the circumstances, I consider that it is plain enough that the parties intended the term "final port of discharge" to be a reference to one or other of the ports in Pakistan that was specified in the agreement. Such a construction of the clause would be consistent with the underlying rationale of it, namely, to provide the seller with notice of claim arising out of the rejection of the goods at the place, and by the authorities, contemplated by the agreement. On the other hand, the construction preferred by the arbitrators would lead to the uncommercial consequence that the "final port of discharge" might be determined many months after the vessel had arrived at the Pakistan port for discharge but, because the cargo was rejected there by the authorities, it was taken, sequentially, at the behest of Tradesmen, to a number of ports around the world where the cargo was similarly rejected until, finally, it was discharged many months after it was first rejected by the Pakistan authorities. On Tradesmen's argument, the time-bar would only operate from the date of actual discharge notwithstanding that the claim would be referrable to alleged failure by AWB to provide wheat acceptable to the Pakistan authorities. Such a result, I think, would fly in the face of the commercial and commonsense purposes of the requirements of clause 15(ii) to give AWB relevant notice of claim within a relatively short period of the rejection of the goods in Pakistan.

21 Thus, it would be commercially unworkable, I think, as Mr Austin submitted, to treat the event that triggers the time-bar as being related to the actual discharge of the bulk cargo given that the event would never occur under the agreement for reasons already explained. The delivery of the wheat to Jakarta in this case, for instance, was not performed under the agreement. The only exception may be where the point discharge that has been nominated in the agreement was varied by the parties, in which case the time-bar would operate from the time of the vessel's arrival at the new destination for discharge. And as Mr Austin pointed out, correctly, I think, if the vessel never arrived at the contract destination, any claim that Tradesmen may have against AWB under the agreement would not be affected by the time-bar in clause 15(ii).

22 That clause 15(ii) uses the term "port of discharge" whereas the other parts of the agreement use "discharge port" to refer to the point of discharge under the contract does not, as I have noted, detract from my above conclusion. There is no difference in substance between the two expressions and I consider that such difference in language does not cast serious doubt on the primary aim of clause 15(ii), namely, that AWB be informed of any claim under the agreement within six months of the arrival of the vessel for discharge at one of the nominated Pakistan ports where the goods have been rejected.

23 Similarly, the word "final" does not alter the situation notwithstanding that, on the face of it, it could be argued that it points to the port of actual, and not contractual, discharge. The term is consistent with the operation of the agreement where the contract point of discharge would be one or other of the two ports in Pakistan. And the mere use of that word, taken by itself, or in conjunction with the different use of the words "discharge port", does not detract from the underlying object of clause 15(ii) to which I have referred.

24 Thus, as I have said, I consider that, on a proper construction of clause 15(ii), the term "final port of discharge" is a reference to the contractual point of discharge, in the present case, Port Qasim. In my view, a contrary construction is plainly wrong. I mention for completeness that, although the respondent submitted that it need not rely on the contra proferentem rule, it nevertheless claimed, but faintly, that it would apply to AWB's disadvantage if it was considered that there was ambiguity as to the meaning of "final port of discharge" in clause 15(ii). I agree with Mr Austin's submission, however, that this is a rule of last resort in the sense that the words of the contract should, in the first instance, be given their ordinary meaning and the rule applied where there is, nevertheless, ambiguity.[11] For the reasons I have given, however, I consider that, upon a proper construction of clause 15(ii) no relevant ambiguity arises such as to justify the invocation of the contra proferentem rule.

Remaining issues

25 It follows that the next matters to be considered are whether, if the first notice purported to be a notice of arbitration, it had to comply with Article 3.3 of the Arbitration Rules and, if so, whether it did so comply and, if not, whether it is an effective "notice of ... other claim for the purposes of clause 15(ii).

Whether notice is valid notice of arbitration

26 I agree, with respect, with his Honour's determination that there was no error in the arbitrators' conclusion that, to be a valid notice of arbitration, the document must comply with the provisions of Article 3.3 of the Arbitration Rules and that the first notice did not satisfy that requirement. It seems plain enough that the Arbitration Rules are incorporated, by reference, into the agreement given that clause 15(i) relevantly provides that "[a]ny dispute arising out of or in connection with this contract shall be referred to and finally resolved by arbitration under the ... Arbitration Rules for the time being in force." Article 1 provides that the arbitration is to be governed by the Arbitration Rules and Article 3 prescribes:

"1. The party initiating recourse to arbitration ... shall give the other party ... a notice of arbitration.

2. Arbitral proceedings shall be deemed to commence on the date on which the notice of arbitration is received by the respondent.

3. The notice of arbitration shall include the following: ... ."

Thus, it is plain enough that the Arbitration Rules provide that an arbitration under them is to be instituted by a notice of arbitration in the form prescribed by Article 3.3. It is also apparent that the first notice does not comply with those requirements. It follows that the first notice cannot be treated as an effective notice of arbitration for the purposes of clause 15(ii) so as to stop the time bar running against Tradesmen.

Whether notice was that of a "claim"

27 The remaining question, therefore, is whether his Honour erred in treating the first notice as a sufficient notice of claim for the purposes of clause 15(ii) such as to stop the time bar operating against Tradesmen. His Honour considered that, on the proper construction of clause 15(ii), its requirement as to the giving of notice was expressed in alternatives, namely, the claimant had the choice of giving notice by way of a notice of arbitration or by way of an "other [written] claim alleging a dispute". The judge said that the words "or" and "other" demonstrated that a notice of claim was something different from a notice of arbitration. Otherwise, the learned judge said, there would be no work to be done for the words "or other claim alleging a dispute". Thus, his Honour considered that, notwithstanding that an arbitration had to be commenced by the giving of a notice of arbitration by reason of the operation of Articles 3.1 and 3.3 of the Arbitration Rules and an arbitrator appointed within the prescribed time, the requirement as to notice in clause 15(ii) was not so confined. His Honour concluded, as I have indicated**,** that the first notice, taken together with the letter of 26 February 2004, gave sufficient notice to AWB of the claim that was being made against it and, therefore, satisfied the relevant requirement of clause 15(ii).

28 It was argued for AWB that such a construction of clause 15(ii) effectively contradicts its underlying purpose, namely, that proper notice of the claim be given and the arbitration process be commenced, all within the time stipulated in the clause. It was pointed out that the notice required under the clause was not simply a mechanism for preventing the claim from becoming time-barred, but governed the referral of a dispute to arbitration and the appointment of the arbitrator by the claimant. Thus, it was said, the interpretation adopted by his Honour is productive of multiple notices with inconsistent requirements, characteristics and functions - one to stop the time-bar from running, the other to commence the arbitration. Moreover, Mr Austin contended, such an interpretation also has the consequence that there would be no time limit on the commencement of the arbitration which is plainly not what the parties intended. Rather, it was said, the scheme of clause 15(ii) is for the arbitral process to be constituted and progressed within the prescribed time.

29 It was further submitted for AWB that the words "or other claim alleging a dispute" do not support his Honour's impugned construction of the clause given that they are general words which cannot derogate from the specific requirements of the clause. If it is necessary to discern a purpose in the inclusion of the general words, said Mr Austin, then the purpose is to cater for the possibility that the Arbitration Rules may be amended at some future time to describe the initiating document as something other than a notice of arbitration, for example, a notice of claim, a view that was said to be fortified by clause 15(i) referring to the Arbitration Rules "for the time being in force".

30 I consider that there is much force in Mr Austin's argument. It is understandable that the parties may well have intended that, for sound commercial and practical reasons, notice of claim and the arbitration process should be commenced within the prescribed time and that this aim would be achieved by requiring the claimant to give notice of its claim in the form of a notice of arbitration and appoint its arbitrator within that period. There is also considerable merit in the argument that there would be no point to requiring the claimant to appoint an arbitrator within the stipulated period yet leaving it at large as to when the arbitration is to commence. Such a splintering of the arbitration process, or its commencement, said Mr Austin, would make the clause unworkable.

31 Notwithstanding the force of these arguments, the questions remain whether the parties, by the words they have chosen to use in the written agreement, in terms or by implication, confined the requisite notice to a notice of arbitration. And if not, did they expressly or by implication require that a notice of claim comply with the requirements of Article 3.3. For the reasons I have given, it is the words of the agreement that the parties have chosen to use that must be construed and given effect. And although the words are to be construed in the relevant context and in a "realistic and practical way",[12] in accordance with what reasonable business people in the position of the parties would have regarded the clauses to mean, the question remains whether the term "or other claim" can be treated as being a synonym for "notice of arbitration" or as being surplusage, or whether those words were intended to refer to some other form of notice. It may be that the words in question have been inserted by oversight or inadvertence but the task of the court is to give them a meaning consistent with the intention of the parties as expressed by the document and having regard to the relevant surrounding circumstances. Thus, in Philpots (Woking) Ltd v Surrey Constructions Ltd,[13] Nourse, L.J. said a "court of construction" could only hold that the agreement in question in that case had the effect the parties believed it to have "if the intention appears from a fair interpretation of the words which they have used against the factual background known to them at or before the date of the [agreement], including its genesis and objective aim". And as Sir Jessel, M.R. said in Smith v. Lucas,[14] "one must consider the meaning of the words used, not what one may guess to be the intention of the parties". The task of the court in construing an agreement ordinarily does not permit it to ignore words used where a sensible meaning can be attributed to them. This situation is not unlike that which may occur in the context of statutory construction where the intention that may be gathered from the extrinsic material has not found its way into the language of the statute. See, for example, Mountford v. London City Council,[15] Re Bolton; Ex parte Beane,[16] Avel Pty Ltd v. Attorney-General (NSW)[17] and Black-Clawson International Ltd v. Papierwerke AG.[18]

32 In my view, essentially for the reasons given by his Honour, a fair reading of the words of clause 15(ii) makes it apparent that the claimant was given the option of stopping the operation of the time bar by giving, within the prescribed period, either a notice of arbitration (that complied with the requirements of Article 3.3) or a notice of claim that was sufficiently particularised (but that did not have to conform with the requirements of that article). It seems to me that the words of clause 15(ii) make it apparent that the parties' primary concern was to provide AWB with notice, at a relatively early stage, of the substance of the claim so that it could take steps forthwith to meet it by gathering and preserving evidence, and the like. Such a concern would be satisfied either by a notice of arbitration or a notice of claim of the kind described. Notice in either form would achieve the aim of giving the respondent appropriate notice of claim. I recognise that the requirement that the claimant also appoint its arbitrator within the prescribed period seems to be inconsistent with the conclusion that it is sufficient for the purposes of clause 15(ii) to give an adequate notice of claim rather than a notice of arbitration because that would mean that the commencement of the arbitration could languish, at the option of the claimant, well behind the giving of the notice of claim, and outside the prescribed period. Although there may be no satisfactory answer to this apparent inconsistency, the fact remains that the parties are bound by the words they have chosen, reasonably interpreted, which, as I have said, give the claimant the option of giving an appropriate notice of claim rather than a notice of arbitration. Moreover, the requirement that the claimant appoint its arbitrator may have been inserted to ensure that there was some obligation on it to commence the arbitration process. In any event, if the claimant who has resorted to giving a notice of claim rather than a notice of arbitration does not institute an arbitration within a period that the

respondent considers to be acceptable, it can take such a step by serving a notice of arbitration on the claimant and appointing its arbitrator.

33 In the circumstances, as I have said, I consider that his Honour correctly concluded that Tradesmen had the option of giving a notice of claim that did not have to comply with the requirements of Article 3.3. It is also clear enough, I think, that, for the reasons given by the arbitrators, and as accepted by his Honour, the first notice, combined with the letter of 26 February 2004, was sufficient to give AWB appropriate notice of its claim.

34 It follows that, in my view, his Honour did not relevantly err in refusing to grant leave to appeal.

Costs in No. 7161/2005

35 AWB has sought to appeal against his Honour's order for costs in the Tradesmen's proceeding, but only if its principal appeal in the AWB proceeding is successful. Given that this is not the case as I have said earlier, the proposed appeal in proceeding No. 7161 of 2005 can be treated as not being pressed.

Conclusion

36 For the reasons I have given, I would dismiss the appeal and cross appeal.

37 I have had the benefit of reading in draft the reasons of Chernov, J.A. I agree with his Honour that Tradesmen had the option of giving a notice of claim that did not have to comply with the requirements of Article 3.3. Accordingly, I agree that the appeal should be dismissed.

[1] Energy Brix Australia Corp Pty Ltd v. National Logistics Co-ordinators (Morwell) Pty Ltd [2002] VSCA 113; (2002) 5 V.R. 353 at 368 per Ormiston, J.A., Leighton Contractors Pty Ltd v. South Australian Superannuation Fund Investment Trust [1994] SASC 5197; (1994) 63 S.A.S.R. 444 at 449 per Debelle, J.

[2] I note for completeness that AWB did not contend that his Honour erred in concluding that the requirements of sub-paragraph (ii) of s.58(5)(b) have not been made out by AWB.

[3] [1990] VicRp 74; [1990] V.R. 834 at 837 (citations omitted).

[4] [1982] HCA 24; (1982) 149 C.L.R. 337 at 348.

[5] At 840-841 (citations omitted).

[6] [1986] HCA 82; (1986) 161 C.L.R. 500.

[7] At 510-511 per Mason, Wilson, Brennan, Deane and Dawson, JJ.

[8] [2004] HCA 52; (2004) 219 C.L.R. 165 at 179 per Gleeson, C.J., Gummow, Hayne, and Callinan and Heydon, JJ.

[9] In clause 3, under the heading "Destination" it was provided, amongst other matters:

"One safe port, one to two safe berth each, Port Qasim/Karachi Port, Pakistan.

Buyers to guarantee that if vessel is taken to Karachi, the berth to have minimum 10.5 metre draft.

This wheat is specifically for milling within Pakistan and cannot be resold or traded to other mills/traders outside Pakistan, without prior permission of the Seller."

[10] See footnote 10.

[11] See, for example_, Darlington Futures_ at 510. Cf Andar Transport Pty Ltd v. Brambles Ltd [2004] HCA 28; (2004) 217 C.L.R. 424 and Wilkie v. Gordian Runoff Ltd [2005] HCA 17; (2005) 221 C.L.R. 522.

[12] Behmer and Wright Pty Ltd v. Tsiros Constructions Pty Ltd, Unreported, Court of Appeal, 30 October 1997 per Ormiston, J.A.

[13] [1986] 1 E.G.L.R. 97 at 98.

[14] (1881) 18 Ch. D. 531 at 542.

[15] [1935] 2 K.B. 243 at 248 per Porter, J.

[16] [1987] HCA 12; (1987) 162 C.L.R. 514 at 518 227 per Mason, C.J., Wilson and Dawson, JJ.

[17] (1987) 11 N.S.W.L.R. 126 at 128 and 129 per Kirby, P.

[18] [1975] UKHL 2; [1975] A.C. 591 at 613 per Lord Reid and at 636-637 per Lord Diplock.