The Agreement is null and void, inoperative or incapable of being performed
11The cross-claimants submitted that the obligation imposed on the Court to refer the parties to the cross-claim to arbitration does not arise under Article 8(1) because the Agreement is:
"null and void, inoperative or incapable of being performed."
12They submitted that:
(1)Clause 17 is incomplete and uncertain because it constitutes an agreement to agree and is unenforceable;
(2)Because clause 18 depends on compliance with clause 17 it, too, is incomplete and uncertain;
(3)Further, clause 18 is, of itself, incomplete and uncertain because it does not specify the process of arbitration with any degree of particularity and it makes no provision for costs.
13They submitted that clause 17 is incomplete and uncertain because of the mechanism set out in clause 17(4) which is, in substance, "an agreement to agree to another agreement" since it requires the parties to reach an agreement to resolve the dispute in some unspecified way. They relied on Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709, in which a clause which required the parties to mediate the dispute prior to litigation did not set out a procedure for the mediation process other than the parties' presence or presentation, the mediator's discretion to hold private sessions and the requirement that the parties provide a short statement of issues. The clause was said by Giles J at 715 to be so open-ended to be unworkable, as the:
"...process to which the parties had committed themselves would come to an early stop when, prior to the mediation, it was asked what the parties had to sign and the question could not be answered."
14The cross-claimants also relied on Aiton Australia Pty Ltd v Transfield Pty Ltd [1999] NSWSC 996; 153 FLR 236 in which Einstein J held, at [69]-[70], that a clause requiring the parties to mediate the dispute prior to litigation was unenforceable on the basis of uncertainty because the administrative processes for selecting a mediator and determining the mediator's remuneration were not provided for.
15They submitted that clause 17(4) was unenforceable because a court would neither order specific performance of the clause, nor would damages for its breach ever be awarded since they would be incapable of quantification.
16I do not accept the cross-claimants' submissions that clause 17 is unenforceable or that clause 18 is thereby rendered inoperative. Although clause 17(4) imposes an obligation on the parties to "seek to agree on a process for resolving the whole or part of the dispute through means other than litigation or arbitration", clause 17(6) provides for a certain end to this process which then triggers a right in each party to refer the dispute to arbitration pursuant to clause 18. This is sufficient to distinguish the clauses from those considered in Aiton . In Aiton Einstein J said, at [74]:
"To my mind, where parties agree to follow a dispute resolution procedure as a condition precedent to either party commencing proceedings, it is important that the parties be able to determine when that procedure has come to an end."
17In my view, clause 17 fulfils that criterion. In United Group Rail Services Limited v Rail Corp New South Wales [2009] NSWCA 177; 74 NSWLR 618, the Court of Appeal held that a contractual promise to engage in genuine and good faith legal obligations as part of a contractual procedure for dispute resolution was a binding obligation. It was neither incomplete nor void for uncertainty.
18In my view, the clauses under consideration in United Group Rail were not relevantly dissimilar from clauses 17 and 18 in the Agreement. They provided, as set out at [15] of the judgment:
" [35.11] Negotiation
If:
(a) a notice of appeal is given in accordance with Clause 35.9; or
(b) the dispute or difference for which the notice under Clause 35.1 has been given does not relate to a Direction of the Principal's Representative under one of the Clauses referred to in Attachment 'A',
the dispute or difference is to be referred to a senior representative of each of the Principal and Contractor who must:
(c) meet and undertake genuine and good faith negotiations with a view to resolving the dispute or difference; and
(d) if they cannot resolve the dispute or difference within 14 days after the giving of the notice under Clause 35.1 or 35.9 (whichever is later), the matter at issue will be referred to the Australian Dispute Centre for mediation.
[35.12] Arbitration
If the senior representatives referred to in Clause 35.11 cannot resolve the dispute or difference or, where the matter is referred to mediation under Clause 35.11(d), the matter is not settled within 42 days after the giving of the notice under Clause 35.1 or Clause 35.9 (whichever is the later), or within such longer period of time as these representatives may agree in writing, the dispute or difference will be referred to arbitration..."
19After a detailed review of the authorities Allsop P (with whom Ipp and Macfarlan JJA agreed), said, at [74]:
"With respect to those who assert to the contrary, a promise to negotiate (that is to treat and discuss) genuinely and in good faith with a view to resolving claims to entitlement by reference to a known body of rights and obligations, in a manner that respects the respective contractual rights of the parties, giving due allowance for honest and genuinely held views about those pre-existing rights is not vague, illusory or uncertain. It may be comprised of wide notions difficult to falsify. However, a business person, an arbitrator or a judge may well be able to identify some conduct (if it exists) which departs from the contractual norm that the parties have agreed, even if doubt may attend other conduct. If business people are prepared in the exercise of their commercial judgement to constrain themselves by reference to express words that are broad and general, but which have sensible and ascribable meaning, the task of the Court is to give effect to, and not to impede, such solemn express contractual provisions. It may well be that it will be difficult, in any given case, to conclude that a party has not undertaken an honest and genuine attempt to settle a dispute exhibiting a fidelity to the existing bargain. In other cases, however, such a conclusion might be blindingly obvious. Uncertainty of proof, however, does not mean that this is not a real obligation with real content."
20I consider clause 17 to be enforceable. In my view, it is neither uncertain, nor incomplete. Clause 17(4) imposes an obligation to seek to agree and clause 17(6) provides an endpoint to the obligation to negotiate, thereby triggering the right to refer the dispute to arbitration. Although breach of the obligation to "seek to agree" may be difficult to prove, this does not, as the passage set out above establishes, deprive the clause of its legal force and content.
21The cross-claimants submitted further that the unenforceability of clause 17 infected clause 18 since, as was found in Aiton at [71], in respect of the mediation clause and the negotiation clause:
"The two are intended to walk together as a staged procedure, constituting the dispute resolution process as agreed between the parties."
22I accept that the two clauses must be read together and constitute a "staged procedure". However, in light of my findings on clause 17, clause 18 is not unenforceable by reason of any uncertainty in clause 17.
23The cross-claimants submitted that clause 18, although complete, was uncertain since it did not set out the process of arbitration to be followed. They submitted that Article 19 of UNCITRAL, which provides that the arbitral tribunal may conduct the arbitration in such manner as it thinks fit in the absence of agreement between the parties, did not fulfil the requirements articulated by Einstein J in Aiton at [69], that the rules "state with particularity the mediation model that will be used."
24I do not accept this submission. Article 19 confers ultimate power on the arbitral tribunal to determine matters of procedure. The Agreement is not void for uncertainty merely because such matters of procedure have not been determined in advance by the parties and expressed in the terms of the Agreement. As Wooten J said in Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840 at 843 :
"A number of different situations give rise to problems of uncertainty in contracts. Without attempting to be exhaustive, they include the following...
A fourth situation is where the parties deal with a matter, but instead of defining their obligations precisely or presently, use words which call for some inquiry. A matter may be left for determination by some nominated authority, even by one of the parties themselves; or for calculation by reference to future events or information not presently available; or for determination by reference to some standard. In all these cases the fundamental approach is id certum est quod certum reddi potest - the contract is good if the inquiry for which the words call is one which will lead to a sufficiently certain result."
25Because the procedure to apply in the arbitration is capable of being rendered certain, by the arbitral tribunal if the parties do not agree, clause 18 is not uncertain.
26The cross-claimants also submitted that clause 18 was unenforceable because it made no provision for the costs of the arbitration and that this was a matter which needed to be included to preserve the validity of the provision, which would otherwise be void for uncertainty. They relied on Einstein J in Aiton . They said that even though clause 18 provided that the arbitration was to be conducted in accordance with the arbitration rules of UNCITRAL, no express provision was made in those rules for costs.
27In response, the cross-defendant submitted that s 27 of the Act, which provides that the costs of the arbitration shall be in the discretion of the arbitral tribunal, would have a counterpart provision in the law of Singapore, such that costs could be determined.
28I do not consider that the absence of any provision for costs in the Agreement makes it any less enforceable, either because it lacks certainty or because it is incomplete. These clauses are distinguishable from those in Aiton . First, although the Model Law does not make provision for an award of costs, there are other potential sources of power for an award of costs, including the lex arbitri (the law of the seat). There may be provision for an award of costs under Singapore law (a matter about which no evidence was adduced) as there is under Australian law (see s 27 of the Act). Secondly, if the power to award costs is regarded as a matter of procedure, the arbitral tribunal would have power to determine it, in the absence of agreement between the parties, under Article 19 of UNCITRAL. According to Rana and Sanson, International Commercial Arbitration (2011) at [11.80], lawyers' fees are usually held to be procedural, except in the United States. Thirdly, even if there is no power to award costs, this does not make the Agreement unenforceable. It is neither uncertain nor incomplete on that ground, since the effect may be merely that no award of costs may be made.
29Since I do not find the Agreement to be "null and void, inoperative or incapable of being performed" I am obliged to refer the parties (the first cross-claimant and the cross-defendant) to arbitration. As Allsop J (as his Honour then was) said, in Comandate Marine v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45 at [197]:
"Through s 16(1) of the International Arbitration Act, Art 8 of the model law has the force of law in Australia. It has the effect of an Act of the Commonwealth Parliament. Its command is simple. The court should refer parties to arbitration, unless it finds the arbitration agreement to be null and void, inoperative or incapable of being performed."