46 The arbitrator ultimately summarised his findings on paras 43 and 43A as follows. The consequential damage or loss was claimed to flow as damages from Mowby's alleged breach of contract. Thus they were claims that "arise under the Contract". Implicit in this conclusion was that the claim was not an independent cause of action.
47 I turn to consider Mowby's submissions as to why leave to appeal should be granted. Mowby must satisfy s 38(5)(a) and either para (i) or (ii) of sub-s (5)(b) to enliven the discretion to grant leave. Counsel primarily relied on para (i), that there was a manifest error of law on the face of the ruling.
48 The first question is whether s 38(5)(a) is satisfied. Mowby submitted that it was because the ruling exposed it to a claim for $1.8M which would require effort and expenditure to meet. Further, the claim was outside the arbitration agreement. Thus Mowby's rights "could" be substantially affected. Noting the difference between "could" and "would" counsel referred to Vodafone Pty Ltd v Supercall Pty Ltd[9] where Nicholas J[10] observed that the Court is not required to consider whether the determination would, as a matter of fact, substantially affect the rights of a party, and that the ordinary meaning of the words did not suggest that the Court's consideration should be narrowly confined.
49 What counsel said was correct but the position needs to be examined further. All that has happened so far is that the arbitrator has ruled that the consequential damages claim is before him as part of the disputes referred. If the arbitration proceeds the arbitrator will in due course make an award which deals with the claim. Doubtless extra costs will be occasioned in meeting the claim but there will be a determination on the merits. Thus regarded, Mowby's disadvantage is represented by the cost and effort that will be involved in meeting the claim. That is what Mowby relies on to establish that its rights could be substantially affected, but is that sufficient?
50 It was common ground between counsel that if the arbitrator's ruling is set aside with the result that he does not have power to determine the consequential damages claim in paras 43 and 43A, Moose could raise the claim in another arbitration initiated pursuant to the contract or in a proceeding in court. There is no reason to suppose that Moose would not take steps to do so. In that event the likelihood is that it would choose arbitration and with the present or another appropriate person being nominated to arbitrate the dispute. If the present arbitrator did not arbitrate the dispute the parties would have the cost and expense of a separate arbitral (or curial) proceeding with the attendant effort and cost. The ultimate result would be a determination of the claim which will happen in the present arbitration if the ruling stands.
51 Whether the rights of a party could be substantially affected is a question of fact in the particular circumstances. What Mowby seeks to achieve is not so much the protection of a right as a tactical advantage. Doubtless the hope is that Moose will not have the resources to initiate a further arbitration or court proceeding if the ruling is set aside. In that event Mowby will be saved the risk and cost of the consequential damages claim. But on no basis has it lost a "right". Its right to oppose the claim remains unaffected, substantially or otherwise, if the ruling is or is not set aside.
52 In these circumstances I am not satisfied that the determination of the question of law could substantially affect Mowby's rights. Having failed to satisfy s 38(5)(a) the application for leave must fail. In view however of the arguments, and because it may be helpful, I will say something about the case under s 38(5)(b).
53 It can be said at once that sub-s (5)(b)(ii) is not satisfied for the reason alone that the determination of the question of law would not add, or be likely to add, substantially to the certainty of commercial law. The case concerns the construction of a one-off arbitration clause and its application in light of the relevant facts and circumstances. Insofar as any principles of law are concerned in the determination of the question, the relevant law is well-established and not in doubt and could not be affected by the decision on an appeal in this case. Indeed, counsel for Mowby put it only that the determination of the question would confirm the application of existing law to an arbitration agreement. That is not sufficient to satisfy sub-s (5)(b)(ii). It is not necessary to consider the other requirement of para (ii).
54 That leaves the requirement in sub-s (5)(b)(i) of a manifest error of law on the face of the ruling.
55 I have already referred to the questions of law and the grounds stated in the draft notice of appeal. Mowby's submissions to me ran along the following lines.
56 First, in construing the arbitration agreement in order to determine what disputes had been referred, it is necessary to consider the entire expression "Certain disputes have arisen under the Contract" in light of the relevant facts and circumstances, and not to regard alone or with undue emphasis the words "under the Contract". The narrow language chosen by the parties confined the reference to particular aspects of disputes, with the result that other aspects of the disputes were excluded from the arbitration. Further, even if it could be said that the consequential damages claim arose under the contract because it flowed from non-payment in breach of the contract, it was not a dispute that had arisen within the meaning of the arbitration agreement, and it could not have been, because the entry into liquidation - being the event relied on to found the claim in paras 43 and 43A - occurred subsequent to entry into the agreement. For these reasons the arbitrator had misconstrued and misapplied the arbitration agreement.
57 Secondly, in deciding what disputes were referred to arbitration by the arbitration agreement, the arbitrator should have confined himself to the conduct of the parties leading to the entry into the agreement. In not doing so the arbitrator proceeded contrary to the principle that post-contractual conduct is not admissible on the question of what the contract means. See FAI Traders Insurance Company Ltd v Savoy Plaza Pty Ltd[11]; Ryan v Textile Clothing & Footwear Union of Australia[12]; Brambles Holdings Ltd v Bathurst City Council[13]. Wrongly, in construing the arbitration agreement the arbitrator took into account the letter of 26 November 2003, statements at the preliminary conference and the IAMA Rules.
58 Further, on the matter of deciding what disputes had been referred to arbitration, the arbitrator erred in placing little or no weight on the notice of dispute and notice of default. The following matters pointed to their relevance on this matter: the consistency of language in the notice of dispute and the arbitration agreement and that the notice of default related to matters in the notice of dispute, which indicated that those notices identified the subject dispute. It was thus not surprising that the arbitration agreement excluded the requirement of a notice of dispute.
59 As to these submissions and the reasoning of the arbitrator, I make the following observations.
60 The arbitrator first had to consider the proper construction of the clause in the arbitration agreement that referred the disputes to arbitration. Having done so he then had to decide what disputes were referred by that clause.
61 As to the first issue, it is axiomatic in law that the question of construction was to be resolved as at the time when the agreement was entered into, and not by reference to subsequent matters. It was not suggested that the arbitration agreement was subsequently varied by agreement of the parties. The terms and tense of the expression "Certain disputes have arisen under the Contract" referred as clearly as may be to disputes that had arisen to the date of the agreement and not to future disputes that may thereafter arise. The clause then stated as clearly as may be that those presently arisen disputes were referred to arbitration. At least insofar as the claim in paras 43 and 43A were concerned the words "under the Contract" added nothing and the submissions and reasoning in that regard were beside the point.
62 Thus construed the question was, what were the "Certain disputes" which were referred to arbitration. This was a question of fact, and was to be determined on an objective consideration of the relevant facts. As I have said, there was no suggestion that the parties subsequently agreed to add further disputes to the reference. What, then, did the arbitrator have as evidence of what the parties, objectively considered, intended by their reference to "Certain disputes".
63 The parties did not assist the arbitrator with evidence on the issue. I was told, and accept, that all the arbitrator had by way of pre-agreement advice of a dispute was the notice of dispute and notice of default. Those documents were provided to him and he considered them. On their terms, and read with the arbitration agreement, the two notices bespoke notification of disputes which had arisen within the comprehension of the arbitration agreement. They were, self-evidently, objective evidence of that which the parties intended by their agreement to refer to arbitration. Plainly, it was the best evidence the arbitrator had. Putting it at the least, I cannot understand how the arbitrator could have considered that the notices ought be given little if any weight. There was, with respect, no rational basis for that view. It is sufficient to say of the letter of 26 November and the arbitrator's summary of what occurred at the preliminary hearing that they were not admissible on the construction of the arbitration agreement and were post-agreement statements by one party which, even if not disputed, could not affect the decision as to what disputes had arisen prior to entering into the arbitration agreement and which by that agreement were referred to arbitration. Furthermore, the language in para 10.7 and the arbitrator's summary of the preliminary hearing was significantly non-specific when compared to the claim now made in paras 43 and 43A, and in the circumstances could not have referred to that claim. In all of this it was not a question of what was in the "contemplation" of one or both parties "at around the time" of entering into the arbitration agreement. The questions were, objectively considered at the time of entry into the arbitration agreement, what did the parties agree to refer, which turned on the proper construction of the reference clause, and what were the disputes advised to that date.
64 Considered overall it is apparent that at several points the arbitrator fell into error in his reasoning, including on the proper approach in law to construing the arbitration agreement and in taking account of irrelevant matters in determining what disputes had arisen. Nevertheless, the ultimate question as to what disputes were referred was a question of fact, not law. As such, any error of the arbitrator in that regard is not appealable under s 38(5).
65 Let it be assumed, however, that on the question as to what disputes were referred there is a manifest error of law on the face of the ruling. Even on those assumptions, and assuming s 38(5) was satisfied, I would not grant leave to appeal. That is because, in my view, it was open, indeed correct, for the arbitrator to conclude that the claim for consequential damages was within the reference as being damages flowing from the alleged breach of contract. The analysis is this. By the arbitration agreement the parties referred certain disputes to arbitration. At that time the disputes were not identified as in the manner of points of claim. The areas of dispute were known but not in the detail that would find expression in terms of liability and relief in points of claim. What was clear though was that Moose's claim lay in contract the remedy for breach of which would lie in specific relief pursuant to a clause or clauses in the contract and/or damages. Subject to any special provision in the contract, and none is suggested, damages could be awarded under the principles in Hadley v Baxendale as expounded and explained in the cases. There are two limbs to the principles stated in Hadley v Baxendale, the second relating to what may be called consequential damages or loss which would include the consequential damages claimed by Moose. Whether the damages be sought under the first or second limb of Hadley v Baxendale, the claim for damages is not a cause of action in itself but relief claimed in respect of the alleged breach. For these reasons, it was open to Moose to claim damages as part of its relief in respect of the breaches of contract alleged in its points of claim when they were provided. It is not suggested by Mowby that the breaches alleged in the points of claim are outside the disputes referred to arbitration. Nor does it matter that Moose went into liquidation subsequent to the arbitration agreement. That is for the above reasons and the further reason that damage is not an essential element of the cause of action in contract. Thus the actual damage now claimed was not required to have been suffered at the time of entry into the arbitration agreement. Indeed, it is in the nature of things that in terms of damages the full impact of a breach may not become apparent for some time.
66 It is for these reasons that in my view it was open to the arbitrator to rule that he had jurisdiction to decide the claim for consequential damages. Indeed, in my view that was the correct decision. In these circumstances, even if it be assumed that there was a relevant manifest error of law (as distinct from fact) on the face of the ruling, it would not be appropriate, in the exercise of discretion, to grant leave to appeal. In any event, of course, any question of granting leave is precluded by the non-satisfaction of s 38(5)(a).
67 The result of these reasons is that the application for leave to appeal must be refused.
68 Subject to anything that counsel may say I will order that the plaintiff have leave nunc pro tunc to commence and proceed with a counterclaim in the arbitration between the parties up to and including a final award but not thereafter to enforce the award if in its favour without further leave, that the proceeding be dismissed, and that the plaintiff pay the defendant's costs of the proceeding including reserved costs.