13.8 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the State of Texas, in the United States of America, in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.
13 It is agreed by the parties that clause 13.7 renders the contract governed by the law of Texas in the United States of America and that clause 13.8 is an "arbitration agreement" as described in Article II of the Convention and s3 of the IA Act. The issues raised in this case are complicated somewhat by the fact that the respondent, in its application under s106, also sought orders that clause 13.7 and 13.8 be declared void in whole or in part. It should be noted that the application also attacks the arbitration clause itself as being unfair, harsh or unconscionable or contrary to the public interest.
The Judgment of Schmidt J
14 Schmidt J handed down her decision on the notice of motion on 19 July 1999 determining that the orders sought on the motion must be rejected and the motion dismissed.
15 Her Honour first rejected the submission that the Commission lacked jurisdiction to hear or determine the application as a result of the operation of s109 of the Australian Constitution . The appellant submitted that the institution of proceedings under s106 of the IR Act was inconsistent with the provisions of the IA Act, which therefore prevailed by virtue of s109 of the Constitution. Her Honour observed that s7 of the IA Act contemplated that the court in question has jurisdiction in connection with the proceedings sought to be stayed. Her Honour stated that "if there was no jurisdiction, there would be nothing to stay in accordance with the requirements of the provision." As a result, no inconsistency under s109 of the Constitution arose.
16 The judgment then considered whether the proceedings should be stayed and referred to arbitration pursuant to s7 of the IA Act. Whilst Schmidt J recognised the breadth of clause 13.8 of the agreement, her Honour expressed some doubt as to whether a claim of this kind was envisaged by the parties as being subject to the arbitration clause (see, by analogy, Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No.5) (1998) 90 FCR 1). Her Honour observed that "it seems odd … to infer an intention to parties, even from the wide terms of their arbitration agreement, that an arbitrator applying the laws of Texas was to exercise the jurisdiction of this Court under s106 of the Act". Her Honour did not consider it necessary to decide the questions raised as to the construction of the arbitration provisions.
17 Her Honour ultimately approached the issue of whether the Commission was obliged to stay the proceedings by considering whether the claims advanced by the respondent were "capable of settlement by arbitration" pursuant to s7 of the IA Act. In relation to this question, her Honour arrived at a number of conclusions. Firstly, her Honour observed that the respondent sought to challenge the choice of law and arbitration clauses themselves. Following the decision of the Full Federal Court in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No.5) , her Honour determined that any stay which was granted should be subject to a condition that the proceedings should not be referred to arbitration until the claims made in relation to those clauses had been determined.
18 Secondly, her Honour emphasised the peculiar nature of the Court's jurisdiction under s106. Under that provision, the Commission has a discretion to intervene in the contractual arrangements of certain parties and make monetary orders as it "considers just in the circumstances of the case" (see s106(5)). The remedy and the relief granted by s106 are inextricably linked with the jurisdiction of the Court. This power must be exercised in accordance with s146(2) of the IR Act which requires the Court to take into account the public interest and must have regard to the objects of the IR Act in s3, and the state of the New South Wales economy. Her Honour also noted that under s169 of the IR Act the Court is required to have regard to the principles in the Anti-Discrimination Act 1977.
19 Her Honour concluded:
It follows, in my view, that it is not open to parties to an agreement which comes within the definition of 'contract' in s105 of the Act, to agree with each other that the jurisdiction of the Court under s106, is to be exercised as between them, by anyone other than a member of the Court. For it is not only the position of the direct parties which must be considered in such proceedings. In every case the objects of the Act and the public interest must be taken into account, as must the principles contained in the Anti-Discrimination Act 1977. In my view, no parties to a contract within the Court's jurisdiction under s106, could clothe an arbitrator with the power and duty to exercise that function. It follows that those aspects of the jurisdiction take the 'matter for determination' in these proceeding beyond matters 'which are capable of settlement by arbitration'.
20 It was not, in her Honour's view, open to parties to a contract to agree that such questions may be decided privately by an arbitrator.
21 Her Honour stated that the peculiar nature of the Commission's jurisdiction under s106 distinguished these proceedings from cases dealing with the Trade Practices Act 1974 (Cth): see particularly IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 and Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160. The Trade Practices Act (particularly s52) imposes statutory obligations upon corporations and the only question for determination was whether those obligations had been breached. This was a matter which could be decided by an arbitrator. In contrast, s106 creates no existing obligations, but grants a right to various persons to seek relief from the Commission. The Commission is clothed with a power to recreate the contractual terms on a basis which could not be contemplated by the parties.
22 Finally, her Honour noted that the obligation imposed by s109 of the IR Act that the Commission endeavour, by all means it considers proper and necessary, to settle a matter by conciliation further militates against the conclusion that matters raised under s106 are capable of settlement by arbitration. The parties cannot, by their agreement, confer upon an arbitrator the role of conciliation so as to remove the statutory obligation from the Commission.
Submissions on Appeal
23 The appellant initially submitted that her Honour erred in finding that the IA Act contemplated that a court has jurisdiction in connection with the proceedings sought to be stayed and, on that basis, erred in rejecting the submission that there was inconsistency under s109 of the Constitution as between s106 of the IR Act and s7 of the IA Act. However, during submissions, Mr D F Jackson QC, who appeared with Mr J V Murphy of counsel for the appellant, conceded that constitutional inconsistency arose only if the proceedings were proceedings to which s7 of the IA Act applied. That is, if the proceedings are instituted by a party to an arbitration agreement which involve the determination of a "matter that, in pursuance of the agreement, is capable of settlement by arbitration". Where the IA Act applies the Commission in Court Session is prevented from in any way altering, impairing or detracting from its operation.
24 Turning to the arbitration clause itself (clause 13.8), Mr Jackson submitted that the clause was extremely wide in its terms. He particularly emphasised that the clause purported to apply to any controversy or claim "arising out of or relating to" the agreement "or the breach thereof". The specific reference to the circumstance of "breach" in a context where one already has law relating to the agreement was said to support the view that the provision was intended to have a broad operation. Mr Jackson submitted that an examination of the summons for relief revealed that the relief sought referred directly to the contract itself. Mr Jackson argued that it was very difficult to take any view other than that the claim was one relating to the agreement.
25 It was submitted that her Honour erred in considering the nature of the substantive claims made by the respondent and whether they were capable of settlement by arbitration, against the background of the peculiar jurisdiction of the Commission under s106 of the IR Act. It was not the "peculiar" nature of the Commission in Court Session's jurisdiction under s106 that determined whether the claims were capable of settlement by arbitration, but the nature of the claims themselves. These claims are essentially in the nature of inter partes commercial litigation and could have been made pursuant to the Trade Practices Act , the Contracts Review Act 1980 or the common law.
26 Mr Jackson disputed the distinction drawn by her Honour between an application under s106 and claims brought under similar provisions contained in the Trade Practices Act . It was submitted that her Honour focused unduly on s52 of the Trade Practices Act . Mr Jackson particularly drew attention to s87 of that Act as requiring a similar determination to be made as that demanded by s106 of the IR Act.
27 Finally, reference was made to the aspect of the claim which sought orders that the arbitration clause itself be declared void. It was submitted that the attack on clauses 13.7 and 13.8 of the agreement was not a claim of substance but, rather a stepping stone towards having the Commission in Court Session determine the substantial claims. Mr Jackson also contended that s7(5) of the IA Act has no application to the present case. The term "null and void" in that section was referable to concepts in law of contracts which were void for reason of illegality, mistake or some other reason. Nothing of that nature was suggested in this case and the claim by the respondent that clause 13.7 and 13.8 be declared void under s106 was of no consequence to the determination of the question as to whether the agreement is null and void in the sense referred to in s7(5) of the IA Act.
28 If the claims in relation to clause 13.7 and clause 13.8 were considered to be matters of substance, it was submitted that they were, in any event, severable from the remainder of the agreement. Mr Jackson conceded that one possible view was that the Commission would be required to stay the proceedings in relation to the bulk of the matters and proceed to determine that claim under s106 in relation to the arbitration clause. If the arbitration clause was declared void, the Commission could proceed to determine the remainder of the claims. If the arbitration clause was not declared void, the Commission would be required to refer the remaining claims to arbitration as provided in the clause.
29 Mr S C Rothman SC, who appeared with Mr D D Knoll of counsel for the respondent, relied substantially upon the correctness of her Honour's judgment below. He rejected the argument that the operation of the IA Act gave rise to any inconsistency under s109 of the Constitution. Section 7(2) of the IA Act applied only if "the proceedings involve the determination of a matter that … is capable of settlement by arbitration"; referring to Flexible Manufacturing Systems Pty Ltd v Super Products Corporation 86 F 3d 96 (1996) (United States Court of Appeals, Seventh Circuit). If the section did not apply to the proceedings, no inconsistency would arise.
30 Further, Mr Rothman contended that the proceedings are not a matter capable of settlement by arbitration pursuant to the agreement. This is because the operation of s106 was inconsistent with its exercise by anyone other than the Commission and because the statutory right of action under s106 existed independently of contract: The Rochester Communications Group Pty Ltd v Adler (1996) 65 FCR 572; Allergan Pharmaceuticals Ind v Bausch & Lomb Inc (1985) 7 ATPR 40-636 and Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No.5) . Section 106 is a provision which is peculiar to this Commission and in which a specialist court has been given jurisdiction in a manner which inextricably binds the grant of jurisdiction and the procedure for its enforcement. The operation of s106 differed from the operation of provisions of other legislation, particularly the Trade Practices Act . It is only the Commission in Court Session which is given jurisdiction to determine if a contract was an unfair contract and in order for a contract to be declared void or varied, the Commission must make such a finding.
31 In the alternative, Mr Rothman submitted that the claims before the Commission were not a "matter" for the purposes of s7 of the IA Act. A "matter" involved a justiciable controversy between parties and excluded controversies which were not the exercise of judicial power: see BP Australia Ltd v Amann Aviation Pty Ltd (1996) 62 FCR 451. The provisions of s106 created rights rather than enforced them and were arbitral rather than judicial in nature: see Minister for Youth and Community Services v Health and Research Employees' Association of Australia, NSW Branch (1987) 10 NSWLR 543 at 549, 560; Re Dingjan; Ex parte Wagner (1995) 183 CLR 323 at 360 - 361; Winron Pty Ltd v Shell Company of Australia Ltd (1996) 66 IR 64 at 65 - 66.
32 Dr A S Bell of counsel, who intervened for the Attorney-General for New South Wales, made essentially three points. Firstly, the decision in Ferris v Plaister (1994) 34 NSWLR 474 to the effect that an arbitration clause was to be regarded as severable from the main contract does not assist in the present case. The application under s106 directly attacked the arbitration clause itself by seeking orders that it be declared void. In such a situation, even if the remainder of the claim under s106 was capable of settlement by arbitration, the attack on the arbitration clause would have to be determined as a preliminary matter. Dr Bell referred by way of analogy to Conagra International Fertilizer Co v Lief Investments Pty Ltd (1997) 141 FLR 124 and FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association (1997) 41 NSWLR 117 and 41 NSWLR 559 to illustrate that it is possible to determine issues relating to the validity or existence of an arbitration clause as a separate issue.
33 Secondly, Dr Bell submitted that there was no inconsistency between the IA Act and s106 of the IR Act for the purposes of s109 of the Constitution. Dr Bell characterised the IA Act as a Commonwealth law which operated within the setting of other laws so that it was supplementary to or cumulative upon State law: Telstra Corporation Ltd v Worthing (1999) 197 CLR 61 at 76. The IA Act was only activated if a party applied for a stay. Furthermore, the IA Act presupposed jurisdiction in the court to deal with the application and had built into it the concept of severable arbitration. Dr Bell ultimately contended that this was not a case of inconsistency. The real question is whether the preconditions for a stay dictated by the IA Act are satisfied, that is, whether the matter raised by the proceedings is capable of settlement by arbitration.
34 Finally, Dr Bell addressed the question of whether the matter was "capable of settlement by arbitration". Dr Bell commenced with the proposition that whether a matter was capable of settlement by arbitration will depend upon whether the arbitrator has power to deal with it. The powers of an arbitrator are derived from the terms of the agreement between the parties. Dr Bell submitted that there were some powers which it is not possible for parties to an agreement to confer on an arbitrator or for an arbitrator to exercise. Dr Bell supported the conclusion reached by her Honour below that the powers under s106 were of this nature. It is not within the gift of the parties to empower an arbitrator to, for instance, determine what is in the public interest of New South Wales. This function is conferred exclusively upon the Commission in Court Session.
35 In reply, Mr Jackson emphasised that where parties have agreed that an arbitral body is to decide a defined set of claims, the tribunal is bound to decide that dispute in accordance with the national law giving rise to them: see Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd at 167. The fact that the arbitration is proposed to take place in Texas does not prevent the arbitrator from applying New South Wales law. In relation to the nature of the claim under s106, Mr Jackson submitted that an arbitrator may have authority to give the claimant such relief as would be available in a court of law: see IBM Australia Ltd v National Distribution Services Ltd at 487. If there is any qualification of this principle based on the nature of a jurisdiction, it should not operate as an exclusion merely by reference to the title of the court. The Commission is required to determine if the claims themselves are of a nature which can be decided by an arbitrator.
Constitutional Inconsistency
36 The initial argument advanced on behalf of the appellant is that her Honour erred in determining that the Commission has jurisdiction in connection with the proceedings to be stayed and, on that basis, her Honour erred in rejecting the submission that there was any inconsistency under s109 of the Constitution as between s106 of the IR Act and the IA Act.
37 Section 109 of the Constitution provides:
When a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid.
38 Where there is a valid State law and a valid Commonwealth law which are inconsistent, the State law becomes inoperative, to the extent of the inconsistency, but remains a valid law of the State which enacted it: see Carter v Egg and Egg Pulp Marketing Board (Vic) (1942) 66 CLR 557 at 573.
39 The High Court has generally formulated three broad approaches to determine the existence of inconsistency. Inconsistency is present where it is impossible to obey both laws, for example where one law requires X and the other forbids X (see for example, R v Brisbane Licensing Court ; Ex Parte Daniell (1920) 28 CLR 23) or where one law purports to confer a legal right, privilege or entitlement which the other law purports to take away or diminish (see, for example, Colvin v Bradley Brothers Pty Ltd (1943) 68 CLR 151). Inconsistency may also arise where the Commonwealth law evinces a legislative intention to "cover the field" or that its law shall be all the law there is on that topic, even where there is not a direct contradiction between the two enactments, the State law will be inoperative to the extent that it seeks to operate within that field. The intention to "cover the field" may be express or implied (see, for example, Viskauskas v Niland (1983) 153 CLR 280).
40 In Telstra Corporation Limited v Worthing, the High Court considered whether the operation of the Commonwealth Safety, Rehabilitation and Compensation Act 1988 (Cth) was inconsistent with the operation of the Workers Compensation Act 1987 (NSW). The Court affirmed the principle in Viskauskas v Niland that inconsistency may exist under s109 although it is possible to obey both the State and Commonwealth law, and that a "direct collision" (in the words of Barwick CJ) would exist where the State law would impose a greater obligation than that provided for in the federal law (referring to Blackley v Devondale Cream (Vic) Pty Ltd (1968) 117 CLR 253 at 258-259). The Court stated (at 76):
Thus, in Australian Mutual Provident Society v Goulden (1986) 179 CLR 388 at 398, in a joint judgment, the Court determined the issue before it by stating that the provision of the State law in question "would qualify, impair and, in a significant respect, negate the essential legislative scheme of the Life Insurance Act 1995 (Cth)". A different result obtains if the Commonwealth law operates within the setting of other laws so that it is supplementary to or cumulative upon the State law in question ...
41 The Court also affirmed the principles laid down by Dixon J in Victoria v The Commonwealth (1937) 58 CLR 618 that where a State law would "alter, impair or detract from the operation" of a Commonwealth law, then to that extent it is invalid, and, secondly, that if it appears from the nature of the Federal enactment that it is intended to be a "complete statement of the law governing a particular matter or a set of rights and duties, then for a State law to regulate or apply to the same matter or relation is regarded as a detraction from the full operation of the Commonwealth law and so is inconsistent."
42 We are satisfied that no inconsistency arises between the IA Act and s106 of the IR Act so as to deprive the Commission in Court Session of jurisdiction to hear the application. We agree with Schmidt J that s7 of the IA Act is to be construed as operating on the basis that the relevant court has jurisdiction as to the proceedings sought to be stayed. The IA Act does not purport to alter the jurisdiction of courts to entertain proceedings as to agreements to which it applies. It merely requires those courts to stay proceedings in the event that there is an arbitration agreement which applies to the matters raised in those proceedings. Even then, the court is only required to stay the proceedings on application by a party. The IA Act contemplates courts having jurisdiction to determine the existence of an arbitration clause, whether the proceedings involve a matter which is capable of settlement by arbitration (s7(2)), whether to make any interim or supplementary orders (s7(3)) and whether the arbitration clause is "null and void, inoperative or incapable of being performed" (s7(5)). These findings must be made by the court as a prerequisite to the granting of a stay of proceedings: see Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No.5) at 14. As Emmett J observed in that case, at 28:
Section 7(2) is only invoked upon the application of a party. It is open to the parties not to invoke s7(2) or the discretionary inherent jurisdiction of the Court. If a party chooses to make no application, then there will be no occasion for the Court to consider ordering a stay under s7(2).