Degroma Trading Inc v Viva Energy Australia Pty Ltd

Degroma's case 46 Degroma brings its application for a stay pursuant to s 7 of the International Arbitration Act. 47 Sub section 7(2) provides: 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 settlement 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. 48 The term "court" in s 7(2) is defined in s 3 to include the Federal Court of Australia. 49 The provisions of s 7(2) apply to arbitration agreements which fall within one of prescribed criteria of s 7(1). 50 Section 7 applies in these circumstances, because pursuant to s 7(1)(d), s 7(2) applies where "a party to an arbitration agreement is a person who was, at the time when the agreement was made, domiciled or ordinarily resident in a country that is a Convention country". A "Convention country" is defined in s 3 to mean a country (other than Australia) that is a Contracting State within the meaning of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Degroma is incorporated in Panama, which is a Convention Contracting State. It is therefore a Convention country. 51 Section 3 of the International Arbitration Act provides that an "arbitration agreement" means an agreement in writing of the kind referred to in Art II(1) of the Convention, which provides: Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. 52 Further, Art II(2) of the Convention provides that the term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. 53 Degroma says that cl 10(B) of the bill of lading constitutes a separable, concluded arbitration agreement between Viva and Degroma for the purposes of Art II of the Convention, irrespective of whether the whole of the bill of lading is binding on the parties. 54 Degroma relies principally on the judgment of Allsop J, as the Chief Justice then was, in Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 84-86, [147]-[156] (Finkelstein J agreeing), and the judgment of the Full Court in Hancock Prospecting Pty Ltd v Reinhart (2017) 257 FCR 442, especially at 526-539, [341]-[394] (Allsop CJ, Besanko J and myself). 55 As for Comandate Marine Corp v Pan Australia Shipping Pty Ltd, Degroma says that it stands for the proposition that Art II requires bilateral recognition of an arbitration agreement, whereby the terms of the agreement and assent to those terms are in exchanged documents, rather than a unilateral communication and tacit acceptance. It relies in particular on the following passage (at [149] - [151]): 149. Article II does not say that the only agreement to which it refers is one which was formed or concluded by the act of signing or by the despatch or receipt of a letter or telegram. What is required is that there be more than a unilateral statement in writing of the arbitration clause or arbitration agreement. The bilateral recognition of the clause or arbitration agreement will be achieved if the arbitral clause is in a contract, or if the arbitration agreement is, signed by the parties or if the arbitral clause is in a contract, or if the arbitration agreement is, contained in an exchange of letters or telegrams. Here, there was no signing of any such document. Rather there was an exchange of letters or telegrams in which were contained the arbitral clause and the whole time charter. Even assuming that the contract did not spring into life with the act of despatch or receipt of a letter or telegram, but with some conduct of one of the parties, once the contract exists or once there is a binding arbitration agreement, the arbitral clause in the contract or the arbitration agreement can be said to be contained in the exchange of letters or telegrams. 150. Each of the cases relied on by the primary judge in dealing with this issue was directed to the circumstance where the arbitral clause in a contract or the arbitration agreement was only found in writing emanating from one side. That was inadequate. Nowhere in these cases was there an arbitral clause in a contract or an arbitration agreement in a signed document or contained in an exchange of letters or telegrams. The requirement that the arbitral clause in a contract or an arbitration agreement be contained in an exchange of letters or telegrams is not a requirement that the contract be formed by the act of signing or the exchange of letters or telegrams. The clause in a contract or the arbitration agreement can be contained in an exchange of letters and telegrams even if the act of formation was some conduct … 151. This is not a requirement that the contract be formed by such a document being signed or sent or received but that the terms and the assent to such terms are in a signed document or in exchanged documents. Thus, as here, where one finds clear and unambiguous exchanges of letters or telegrams setting out the arbitral clause and indeed the whole of the agreement, and the assent thereto, the fact that the contract springs into life upon the provision of the bank guarantee (pursuant to the consensus to be found in the already exchanged letters or telegrams) does not gainsay the proposition that the arbitral clause in the contract or the arbitration agreement was contained in the exchange of relevant documents … (Bold emphasis added; italics in original). 56 Degroma says that the requirement referred to in [150] of Comandate above is satisfied, because both Viva and Degroma, acting through their respective agents, engaged in an unambiguous exchange of correspondence attaching drafts of the bill of lading, each of which contained the arbitration agreement contained in cl 10(B). 57 Degroma submits that it is significant that the arbitration agreement in cl 10(B) was first proffered by Viva as part of the standard terms of its template bill of lading. It says that it was accepted by Transal, acting on behalf of Degroma, and that although the parties exchanged comments on aspects of the draft bill of lading, they did not seek to negotiate the terms of cl 10(B). 58 Degroma relies on Hancock v Reinhart (2017) 257 FCR 442, in particular in relation to the question of separability. (That case dealt with a stay application under s 8(1) of the Commercial Arbitration Act 2010 (NSW), but s 8(1) is in analogous terms to s 7 of the International Arbitration Act.) 59 In Hancock v Rinehart, the Full Court allowed the appeal and granted the stay sought. Degroma submits that there is an even stronger basis to refer the question of whether there is an arbitration agreement to the arbitrator in this case because Viva makes no separate attack on the arbitration agreement. Degroma says, on the contrary, that Viva's challenge: is wholly bound up in its broader contention that an agreement between the applicant and the respondent (the bill of lading) was not finalised and therefore has no contractual significance. For example, at [20] of its outline of submissions dated 12 February 2019 Viva asserts that 'the Draft Bill of Lading lacks the necessary element of bilateral recognition'. To the extent that this is a challenge to the arbitration agreement contained in cl 10(B), it is parasitical to the challenge to the bill of lading and involves an examination of the same transactional context as the assessment of liability. The evidence on this application demonstrates this because it covers the bill of lading itself in the circumstances of its negotiation as evidence of a contract of carriage or the terms of bailment, and the commencement of loading … (Italics in original). 60 For those reasons, Degroma submits that I should proceed as the Full Court did in Hancock v Rinehart and permit the London arbitrator to determine whether there is a concluded arbitration agreement between the parties - that is, to determine whether or not Viva and Degroma each assented in an exchange of documents to the terms of cl 10(B) such that there is an agreement in writing for the purposes of Art II and thus an arbitration agreement for ss 3 and 7 of the International Arbitration Act.

Viva's case 61 If I may say so, with great respect to him, Mr DJ Batt QC, who appeared with Mr MNC Harvey for Viva, put his client's case most succinctly during the course of his oral submissions on 6 March, as follows: The pertinent question, your Honour, is, is it or is it not the case, as our learned friend submits, that clause 10B is an arbitration agreement that has come into existence between the parties. We don't resile from the proposition that that is ultimately the question and, in part, that's the question because of the doctrine of separability, and it's a question because that's how Mr Scott puts it. What we say is that to determine that question, properly understanding the course of events the documents had passed and the terms of clause 10B itself, one will inevitably have to determine whether the bill of lading acquired a contractual effect between the parties or not. Perhaps, to put it in a different fashion, what we really say is, unless it did, you couldn't have - you couldn't conclude that clause 10B had acquired contractual effect. Not because clause 10B or such a provision could never be a freestanding agreement because separability shows it can be, but rather than analysing the facts here and the terms of the document, it's only going to be if there's contractual effect in a bill of lading. … … [W]e say … that when you look at the facts, the bill of lading was passing as a document itself. There were no separate dealings about 10B. It's a bit like - if I can take another example, perhaps a bit rashly because I don't say they're on all fours, but if two parties are negotiating a design and construct contract and clause 52 is an arbitration provision, yes, it's true that that exchanges of documents about that potential clause could ultimately result in it having contractual force regardless of what happened to the rest of the document. But, most likely, when there's a general set of dealings about a - why the draft document, it's going to be if and only if - and we say it's the proper analysis here, if and only if there's a meeting of the minds on the document more generally that you could say that the parties have agreed to arbitrate any disputes. 62 Part of that case is put on a textual basis. Clause 10(B) commences with the words "[a]ny dispute arising out of this Bill of Lading etc". Mr Batt submits that for such a dispute to "arise out of" the bill of lading, the bill of lading must come into existence. Viva's case, of course, is that the exchanges detailed above do not constitute a binding agreement. Viva says that it is entitled to bring and press a bailment, negligence and ACL claim in this court, therefore, because there is no valid arbitration agreement, because there can be no such valid agreement without a binding bill of lading.

consideration 63 It is not necessary to burden these reasons with a repetition of what the Full Court said in Hancock v Reinhart (2017) 257 FCR 442 about separability. There was no dispute between the parties about the principles summarised in that case. 64 For reasons we explained in Hancock v Rinehart, and which, as I say, need not be repeated here, the court is not required to decide whether the arbitration agreement exists, because the competence principle is wide enough to permit the arbitral tribunal to decide any question of jurisdiction, including whether the arbitration agreement came into existence. The real issue in a case such as this is the practical question of whether the court should hear a separate attack on the arbitration agreement (here, whether it was ever brought into existence in the first place) or permit the arbitrator to hear it, by staying its own proceeding. That will depend on the nature of the attack and all the circumstances (including that the decision by the arbitral tribunal is not final and that the International Arbitration Act should be construed to facilitate, not impede, the process of arbitration). See Hancock v Reinhart (2017) 257 FCR 442 at 536, [377]-[378]. 65 It seems to me that, because of Viva's submission that it will "inevitably" be necessary to determine whether the bill of lading acquired a contractual effect between the parties in order to determine whether an arbitration came into effect, there is little prospect that the question of whether the arbitrator has jurisdiction can be determined separately from the question of whether the main agreement (the bill of lading) binds the parties and, if so, what are its terms. 66 It is true that Viva's pleaded case in this court has nothing to do with the bill of lading - the causes of action instead include bailment, negligence and contravention of s 18 of the ACL. 67 Nonetheless, if this court heard the question of whether an arbitration agreement exists, bound up as it is, on Viva's own case, with the broader question of whether the parties are bound by a bill of lading, and if so, by what terms, it would run the risk of embracing, rather than avoiding, "the vice of a de facto determination of the substantive claims under the guise of a preliminary determination of the validity of the arbitration agreement". See Hancock v Reinhart (2017) 257 FCR 442 at 537, [383]. 68 Further, it seems to me that Viva's argument that the arbitration cannot exist independently of the bill of lading is exactly the kind of argument which the doctrine of separability is intended to prevent. As Lord Hoffmann said in Fiona Trust & Holding Corporation v Privalow [2008] 1 Lloyd's Rep 254, in a passage cited with approval in Hancock v Reinhart (2017) 257 FCR 442 at 530, [357]: It amounts to saying that because the main agreement and the arbitration agreement were bound up with each other, the invalidity of the main agreement should result in the invalidity of the arbitration agreement. The one should fall with the other because they would never have been separately concluded. But section 7 [of the Arbitration Act 1996 (UK)] [which is the UK statutory recognition of separability] in my opinion means that they must be treated as having been separately concluded and the arbitration agreement can be invalidated only on a ground which relates to the arbitration agreement and is not merely a consequence of the invalidity of the main agreement. 69 For those reasons, I will make orders staying the proceeding and remitting to the matter to the arbitrator. I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Callaghan.