[1991] FCA 637; (1991) 33 FCR 227

Foster J.(1) $NCWDS Practice and Procedure - application for stay - proceedings commenced in Court where a contractual reference of disputes to arbitration exists.

Arbitration - contractual reference of disputes arising from contract to arbitration - whether claims that the contract itself was void ab initio can be resolved at arbitration.

Trade Practices - arbitration - contractual reference of disputes arising from contract to arbitration - whether a claim under s 52 Trade Practices Act 1974 can be resolved at arbitration - whether an arbitrator can resolve a dispute where the relief sought includes a declaration that the contract is void ab initio - exercise of judicial power - constitutional prohibition.

Trade Practices Act 1974 (Cth) - s 52, s 87

Judiciary Act 1903 (Cth) - s 79

Commercial Arbitration Act, 1984 (NSW) - s 33, s 53

Hughes Motor Service Pty Limited v Wang Computer Pty Limited [1978] FCA 49; (1978) 35 FLR 346

Muller v Fencott [1981] FCA 129; (1981) 37 ALR 310

Bond Corporation Pty Limited v Thiess Contractors Pty Limited and Ors (1987) 71 ALR 125

GWJ Blackman and Co SA v Oliver Davey Glass Co Pty Limited [1966] VicRp 77; (1966) VR 570

IBM Australia Limited v National Distribution Services Limited (1991) 100 ALR 361

Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture [1981] HCA 9; (1981) 146 CLR 206

Qantas Airways Limited v Dillingham Corporation and Ors (1985) 4 NSWLR 113

Hooper Bailee Associated Limited v Natcon Group Pty Limited (1990) 6 BCL 142

Heyman v Darwins Ltd (1942) AC 356

Ashville Investments Ltd v Elmer Contractors Limited (1988) 3 WLR 867

Waterside Workers' Federation of Australia v J.W. Alexander Limited [1918] HCA 56; (1918) 25 CLR 434

R v Kirby; Ex parte Boilermakers' Society of Australia [1956] HCA 10; (1956) 94 CLR 254

Attorney-General of the Commonwealth of Australia v The Queen [1957] HCA 12; (1957) 95 CLR 529

Re Tracey; Ex parte Ryan [1989] HCA 12; (1989) 166 CLR 518

The Commonwealth v Hospital Contribution Fund [1982] HCA 13; (1982) 150 CLR 49

Harris v Caladine [1991] HCA 9; (1991) 65 ALJR 280

Counsel for the applicant : W.G. Hodgekiss with C.A. Ying

That proceedings number G233/1991 be stayed pending the further order of the Court;

That it be a condition of the stay that the second respondent in the proceedings, Charles Russell Gibbons, submit to the jurisdiction of the arbitrator and consent to be bound by any award made by the arbitrator;

That the respondents to this motion pay the applicant's costs of the motion.

NOTE: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

The Court has before it a Notice of Motion brought by the first and second respondents in these proceedings seeking orders that the "action be dismissed, or in the alternative stayed".

2. At the hearing, the application for dismissal was not pressed and the question for decision is whether the proceedings should be stayed. The motion is brought under s 53 of the Commercial Arbitration Act, 1984 (NSW) and, in the alternative, under O 20 r 2(1) of the Federal Court Rules. The basis of the application for the stay is that the relevant agreement between the parties, to which reference will be made later, contains an arbitration clause, pursuant to which the dispute between the parties comprehended by these proceedings, together with other disputes, should be referred to the decision of an arbitrator.

3. The present proceedings are brought pursuant to s 52 of the Trade Practices Act 1974 (Cth) (the "Act"). The applicants are companies incorporated in New South Wales and involved in the tourism industry. In 1988 they became interested in having built and thereafter operating a substantially sized cruise ship in the waters of the Great Barrier Reef. The first respondent is a company incorporated in Victoria. It is involved in ship design and building. The second respondent is its chairman and managing director.

4. After extensive discussions in 1988 and 1989, the applicants entered into an agreement with the first respondent on 22 December 1989, for the design and construction of the cruise vessel. This agreement is referred to as "the Purchaser Agreement". It contains the arbitration clause relied upon by the respondents. I shall refer to its provisions later.

5. By their statement of claim in the present proceedings, the applicants allege that discussions and negotiations leading to the conclusion of the contract for the design and construction of the cruise ship took place between their representatives and the second respondent acting on behalf of the first respondent. These discussions and negotiations occurred "after November 1988 and throughout 1989".

6. The statement of claim (paragraph 8) alleges that in the course of the discussions and negotiations the first respondent made the following representations to the applicants:

"(i) the First Respondent was experienced and had knowledge

and skill in the designing and building of cruise ships;

(ii) the First respondent had the capacity to design and build

a 73 metre Cruise ship in accordance with certain

specifications and to the standard subsequently set out

in the Purchaser Agreement dated 22nd December 1989;

(iii) the First respondent would design and build the 73 metre

cruise ship in accordance with the specifications and

building schedule and to the standard subsequently set

out in the Purchaser Agreement dated 22nd December 1989;

(iv) The design drawings, and initial approvals from the

American Bureau of Shipping, and all necessary bodies

were well advanced.

(v) That the design was sufficiently well advanced to allow

construction to commence almost immediately after the

contract was signed and that the shipyard would be placed

in a position to commence construction almost immediately

after the contract was signed.

(vi) the design drawings, and approvals from the American

Bureau of Shipping, the Queensland Marine Board and all

necessary bodies would be produced and obtained within a

reasonable period after 22 December 1989 so as to permit

the cruise ship to be built promptly and within 15 months

of that date.

(vii) the Second respondent would virtually live in Fiji during

construction and put an expert and experienced project

management team in the Fiji shipyard, headed by himself

or his principal assistant, at all times during the

period of construction and all other relevant times."

7. The statement of claim goes on to assert that as a result of these representations the applicants entered into the Purchaser Agreement and took other steps and incurred expenditure. It then alleges that each of the representations were false and constituted misleading or deceptive conduct. It further alleges that the applicants "have suffered loss and damage and continue to suffer loss and damage" which is particularised as follows:

"(a) The partly constructed cruise ship remains incomplete in

the Fiji shipyard. Launching should have taken place in

November 1990, but as at the date herein this has not

been done.

(b) The Applicants have incurred unnecessary expenditure

under the Purchaser Agreement.

(c) The Applicants have suffered loss of profit."

8. By the application in the proceedings the applicants claim a declaration that the first respondent "in trade or commerce engaged in conduct in contravention of s 52" of the Act, and also a declaration that the second respondent "aided, abetted, counselled, procured or was knowingly concerned in or party to the contravention by the first respondent".

9. A claim is also made for "an order declaring that the Purchaser Agreement ... be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date before the date of the order as is specified in the order."

10. A further or alternative order is sought "refusing to enforce any or all of the provisions of the Purchaser Agreement".

11. Further orders of a specific nature are sought. They are not presently relevant except in so far as it is alleged on behalf of the respondents that they are matters which could and should be dealt with by an arbitrator under the Agreement.

12. The Purchaser Agreement is made between the first respondent and the first and second applicants. The second respondent is not a party to it. It is an elaborate document drawn up as a result of lengthy negotiations between the parties and their legal advisers. It is in essence a construction contract for the building of the cruise ship. The arbitration clause provides as follows:-

"Part 16

Dispute and Arbitration

(a) If any dispute or difference arises between the Purchaser and SDMA

at any time as to the construction of this agreement or as to any

matter or thing of whatsoever nature arising thereunder or in

connection therewith then either party shall give to the other

notice in writing adequately identifying the matters the subject

of that dispute or difference and the giving of such notice shall

be a condition precedent to the commencement by either party of

arbitration with regard to the matters the subject of that dispute

or difference as identified in the notice.

(b) At the expiration of 5 Business Days from the date of receipt of

the notice referred to in clause 16.1(a) by the Purchaser or SDMA

as the case may be the party giving such notice shall refer the

matter to the arbitration of a single arbitrator to be agreed

between the parties. If the parties are unable to agree as to an

arbitrator then each party will appoint its own arbitrator and

both arbitrators so appointed will appoint an umpire.

(c) The arbitration will be held at such location as is determined by

the arbitrator, arbitrators or umpire (as the case may be).

Notwithstanding the preceding provisions of this Part 16 it is recognised that if any dispute or difference of opinion arises in regard to the construction of the Vessel, machinery or equipment or concerning the quality of material or workmanship thereof or thereon such dispute may with the agreement of both parties be referred to the Classification Society who may agree to determine such dispute. Such determination is to be final and binding upon the parties and is not subject to further arbitration.

The arbitrator or arbitrators shall publish their award within 10 Business Days of the completion of the hearing or within such further time as might be agreed by the parties. The award as soon as it has been published must be transmitted to the Purchaser and SDMA.

The arbitrators are bound by the rules of evidence as applicable in the Supreme Court of New South Wales at the time of the hearing.

The arbitrators shall have none of the powers provided for in section 27 of the Commercial Arbitration Act 1984 (NSW).

If a reference to arbitration of any dispute arises out of matters occurring prior to the delivery of the Vessel the award may include any postponement of the Delivery Date which the arbitrator or umpire may deem appropriate.

Notwithstanding the foregoing provisions of this Part 16, SDMA shall if the Vessel has not been completed at all times proceed without delay to continue to perform and execute this agreement and in so doing may comply with all reasonable and proper instructions of the Purchaser consistent with this agreement provided that the same shall not touch upon or involve the subject matter of the dispute or difference in respect of which notice has been given pursuant to clause 16.1."

13. It is clear form the correspondence between the respective solicitors of the parties which has been placed before me that this detailed arbitration clause was arrived at as a result of careful consideration and negotiation. It is the respondents' case that the parties intended to refer all disputes that might arise in relation to the contract and its performance to arbitration. The respondents rely upon the course of negotiation, amply demonstrated in the evidence, as providing a discretionary reason why the applicants should be prevented by order of the Court from taking proceedings in relation to the contract other than by reference to arbitration.

14. The applicants submit, in answer, that the current proceedings, brought under s 52 of the Act, cannot, as a matter of law, be dealt with by an arbitrator. They assert that the claim that the contract should be set aside ab initio is not one that can be dealt with by an arbitrator whose charter to determine matters arising in relation to the contract has its genesis in a clause of the same contract. They also submit that an arbitrator cannot determine the matter under s 52 of the Act as he would thereby be exercising the judicial power of the Commonwealth which is forbidden to him by The Constitution. I shall deal with these two matters separately.

15. Before doing so, however, I should deal with two preliminary matters which are not in contest between the parties. First, it appears quite clearly that this Court has the necessary power to stay these proceedings. Apart from the specific power to stay proceedings pursuant to O 20 r 2(1) for abuse of process, there is a general power to control its own proceedings which would enable the granting of a stay (Hughes Motor Service Pty Limited v Wang Computer Pty Limited [1978] FCA 49; (1978) 35 FLR 346 at 351; Muller v Fencott [1981] FCA 129; (1981) 37 ALR 310). More particularly, however, by virtue of s 79 of the Judiciary Act 1903 (Cth), s 53 of the Commercial Arbitration Act, 1984 (NSW) is applicable to these proceedings in this Court. This conclusion was reached by French J, after a full discussion of the relevant authorities, in Bond Corporation Pty Limited v Thiess Contractors Pty Limited and Ors (1987) 71 ALR 125 at 136-139. I respectfully agree with his Honour's conclusion that the relevant provision of the State legislation provides this Court with a source of power to order a stay in the circumstances contemplated by that legislation. It is appropriate that I set out the terms of s 53, which provide as follows:-

"53. (1) If a party to an arbitration agreement commences

proceedings in a court against another party to the

arbitration agreement in respect of a matter agreed to be

referred to arbitration by the agreement, that other party

may, subject to subsection (2), apply to that court to stay

the proceedings and that court, if satisfied -

(a) that there is no sufficient reason why the matter

should not be referred to arbitration in accordance

with the agreement; and

(b) that the applicant was at the time when the

proceedings were commenced and still remains ready and

willing to do all things necessary for the proper

conduct of the arbitration,

may make an order staying the proceedings..."

16. There is no dispute that the first and second respondents, as applicants in this Notice of Motion have complied with the requirements of subparagraph (1)(b). There is equally no dispute that the terms of subparagraph (1)(a) do not cast any onus upon the applicants to establish the absence of "sufficient reason". On the contrary "the courts have consistently acted on the view that the parties should be kept to their bargain unless strong reasons are shown why an action commenced in defiance of the agreement for a submission should be allowed to continue" (G.W.J. Blackman and Co S.A. v Oliver Davey Glass Co Pty Limited [1966] VicRp 77; (1966) VR 570 at 574; Bond Corp. v Thiess op cit p 140-141).

17. As I have already indicated, the parties to the present agreement clearly contemplated that their disputes relating to that agreement should be determined by arbitration, except for those matters which the classification society was to decide. I do not understand it to be seriously contended by the applicants in the proceedings that the disputes in relation to the Purchaser Agreement should not, in the ordinary course, be determined by arbitration. Their submission is that the particular dispute cannot, as a matter of law, be so determined. I turn, therefore, to the matters of law to which I have already made reference.

18. By clause 21.3 of the Purchaser Agreement, the parties agreed that the law of the State of New South Wales should govern the contract. Although s 52 of the Act is not part of the New South Wales legislation, New South Wales courts exercising federal jurisdiction have, since 1986, been empowered to apply that section and grant remedies under it. The question whether an arbitrator could similarly apply the section was considered by the Supreme Court of New South Wales Court of Appeal in IBM Australia Limited v National Distribution Services Limited (1991) 100 ALR 361. The court in that case (Kirby P, Clarke and Handley JJA) expressly did not consider the question whether an arbitrator making an award under s 52 of the Act would be purporting to exercise the judicial power of the Commonwealth in contravention of The Constitution. It held, however, that the wording of the arbitration clause in question was sufficiently wide to empower the arbitrator to make a determination under s 52 of the Act.

19. The relevant portion of the arbitration clause was expressed as follows: "any controversy or claim arising out of or related to this agreement or the breach thereof will be settled by arbitration". It was claimed that the respondent in the litigation had been induced to enter into the agreement as a result of a series of misleading or deceptive representations made to it before it did so. These representations were similar in character to the representations relied upon in the present case in that they related to the expertise and ability of IBM to undertake and complete the contract. It was held that these claims were "related to this Agreement", and, accordingly, fell within the arbitration clause.

20. If anything, the wording of clause 16.1(a) of the present agreement is even wider in ambit. I am quite satisfied that it authorises the arbitrator to consider and determine whether the alleged breaches of s 52 of the Act have occurred. Indeed, the respondents have not submitted otherwise. What they do submit, however, is that it is inappropriate for the arbitrator to enter upon the determination of these questions as it is beyond his power to grant a specific part of the relief sought, namely an order that the contract be void ab initio. It is submitted that this question is left open by the decision in IBM and is concluded against the applicants by decisions of considerable authority. It is convenient to consider this aspect of the case by going in the first place to the judgments in IBM.

21. As the scope of the phrase "related to this agreement" was a central issue in the case, the construction of these words in the light of previous authority necessarily occupied a major portion of the judgments. Kirby P, in particular, made an extensive survey of earlier case law. This led his Honour to the view that the phrase was sufficiently wide to comprehend decision under s 52 of the Act. His Honour did not find it necessary to consider whether an arbitrator, acting under the contractual power given by the arbitration clause, could make an order, pursuant to s 52 that the contract, including the arbitration clause, be void ab initio.

22. All members of the Court of Appeal held that an application of the reasoning of the majority of the High Court of Australia in Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture [1981] HCA 9; (1981) 146 CLR 206 necessarily produced the result that, even though the terms of the submission did not expressly refer to statutory jurisdictions of the court, nevertheless it was to be implied that the parties in referring their disputes to arbitration in such wide terms had clothed the arbitrator with authority to decide questions arising between them under s 52 of the Act. Kirby P (at p 375) said in relation to Atkinson-Leighton:-

"Properly analysed, the holding of that case is not confined

solely to an authority to award interest. It concerns the

entitlement of parties to confer upon an arbitrator by

agreement, express or implied, authority to resolve their

dispute in the same way as a court of law of competent

jurisdiction would do utilising its powers. The holding

stems from the proposition that, in determining the

arbitrator's authority, the powers conferred upon such a

court by statute may be taken to be agreed within the

submission to the arbitrator. This may be so even where the

language of the submission is expressed in perfectly general

terms. How the arbitrator exercises such authority in the

particular case presents an issue which has not yet arisen

in the present case."

23. I take the last sentence of this passage to refer to the fact that there was no issue, at that stage, before the court as to the arbitrator's power to declare the contract in question void ab initio. His Honour accordingly did not deal with that question even by way of obiter. The other members of the court did, however, make reference to this matter.

24. Clarke J.A. (at p 379) in dealing with a submission that no implication of a power to decide matters arising under s 52 of the Act should be made because particular powers were given to the court under s 87 of the Act had this to say:-

"Particular reliance was placed in these submissions upon

the power now granted to the court under s 87 of the Act to

declare contracts void ab initio. The significance of this

power is that the effect of a declaration that a contract,

which contains an arbitration clause, is void ab initio is

that there never was a contractually valid submission to

arbitration: see Heyman v Darwins Ltd (1942) AC 356 at 367,

383 and 395; Codelfa Constructions Pty Ltd v State Rail

Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 364; 41

ALR 367.

The received doctrine is that for this reason an arbitrator

has no jurisdiction to determine whether or not a contract

containing the arbitration clause under which he was

appointed was, or should be declared to have been, void ab

initio. If, the argument proceeds, that is the well

recognised law then an intention to grant to an arbitrator

power to exercise extensive powers, including the power to

declare the contract void ab initio, should not be

attributed to the parties.

I am prepared to accept that, properly construed, the clause

did not empower an arbitrator to make a declaration that the

contract was void ab initio. But acceptance of that

proposition does not lead to the conclusion that the

arbitrator was not empowered to determine claims based on

s 52 of the Act. The principle which should be applied is

that expressed by Stephen J in Government Insurance Office

of New South Wales v Atkinson-Leighton Joint Venture (1981)

[1981] HCA 9; 146 CLR 206; 31 ALR 193. His Honour said (CLR at 235; ALR

at 220):

`The principle to be extracted from this line of

authority is that, subject to such qualifications as

relevant statute law may require, an arbitrator may

award interest where interest would have been

recoverable had (the word `and' in the report of this

case in CLR is clearly a typographical error) the

matter been determined in a court of law. What lies

behind the principle is that arbitrators must

determine disputes according to the law of the land.

Subject to certain exceptions, principally related to

forms of equitable relief which are of no present

relevance and which reflect the private and

necessarily evanescent status of arbitrators, a

claimant should be able to obtain from arbitrators

just such rights and remedies as would have been

available to him were he to sue in a court of law of

appropriate jurisdiction.' (See also Mason J (CLR) at

246-7.)

Accordingly, their Honours held that, notwithstanding that

the contract contained no express grant of power to the

arbitrator to award interest, there was to be implied in the

submission an authority for the arbitrator to award such

interest conformably with s 94 of the Supreme Court Act

As the appellant, very properly, accepted that the Supreme

Court of New South Wales had power to determine claims on

s 52 of the Act, and to grant relief referred to in ss 82

and 88, it follows that, upon the application of the

principle expressed in Atkinson, it should be implied that

the parties authorised the arbitrator to grant, subject to

certain exceptions which arise primarily from his status,

such relief as would be available in a court of law having

jurisdiction with respect to the subject matter.

The power to declare the contract void ab initio would be an

obvious exception. For reasons which I have already

discussed, an arbitrator is not able to decide, or make a

declaration, that the contract containing the submission is

void ab initio for that would be tantamount to deciding he

had no jurisdiction at all. That this is the law has been

long understood and there is no reason that principle should

not operate to exclude from the ambit of an arbitrator's

powers the authority to make a declaration under s 87 that a

contract is void ab initio. But the fact that it is not

open to an arbitrator to exercise all of the remedies set

out in the relevant sections of the Act does not mean that

he is not entitled to determine claims made under s 52 and

to grant a successful party one or more of the remedies

enumerated in ss 82 and 87 of the Act to the extent that it

is appropriate that an arbitrator grant such a remedy."

"that an arbitrator, whose jurisdiction arises under a

submission which is a term of a contract, cannot exercise a

power to avoid that contract ab initio. Such an award would

destroy his jurisdiction or authority to make any award at

all. It is not necessary to decide whether the implied term

in the submission should be construed as withholding this

power, or whether the power is impliedly conferred but

incapable of exercise" (p 381).

25. I am satisfied that, as the headnote to IBM asserts, these passages are properly to be regarded as obiter. However, they are clearly based upon statements of principle in cases of high authority and must be accorded great respect. It is the applicant's contention that, as they are specifically claiming as part of the relief sought, a declaration that the Purchaser Agreement is void ab initio, the claim cannot be heard by an arbitrator, can only be heard by the Court, and consequently should not be stayed. Accordingly, in these proceedings, the question arises squarely for determination.

26. I should note, at the outset of discussion in this matter, that it would seem highly undesirable that, in a matter of this kind, where there must obviously be a large number of matters in dispute between the parties relating to the performance of the contract, which matters would be most appropriate for determination by an arbitrator, the litigation should be split simply because one party wishes to seek the one remedy available under s 52 which cannot be provided by an arbitrator. Whilst in no way suggesting that the present is such a case, there could clearly be cases where a tactical advantage of an improper kind could be pursued by the raising of s 52 claims in an arbitration, claiming the non-arbitral remedy, and thereby achieving not inconsiderable delay and inconvenience in the prosecution of the litigation. This would certainly be an unfortunate situation, having regard to the most desirable increase in the use of arbitration for the speedy determination of commercial disputes. This is especially so in the context that arbitration clauses in general, as is made obvious in the careful historical analysis undertaken by Kirby P in IBM, have progressively received more liberal interpretation in recent years (see also Qantas Airways Limited v Dillingham Corporation and Ors (1985) 4 NSWLR 113 at 117, per Rogers J; Hooper Bailee Associated Limited v Natcon Group Pty Limited (1989) 6 BCL 142 at 144).

27. The perceived impediment to an arbitrator deciding whether or not the contract containing the arbitration clause under which he is appointed is void ab initio appears to arise from certain passages in the speeches in the case of Heyman v Darwins Ltd (1942) AC 356, a decision of the House of Lords of great significance in the law of contract dealing with the repudiation of agreements.

28. The headnote encapsulates the essential point decided in the case. It reads, so far as relevant, as follows:-

"When an arbitration clause in a contract provides without

any qualification that any difference or dispute which may

arise `in respect of' or `with regard to' or `under the

contract' shall be referred to arbitration, and the parties

are at one in asserting that they entered into a binding

contract, the clause will apply even if the dispute involves

an assertion by one party that circumstances have arisen,

whether before or after the contract has been partly

performed, which have the effect of discharging one or both

parties from all subsequent liability under the contract,

such as repudiation of the contract by one party accepted by

the other, or frustration of the contract."

29. The case involved only allegations that a contract duly entered into had been subsequently repudiated by one of the parties. It was held that, on a proper construction of the arbitration clause in question, this question fell to be determined by the arbitrator. The case, however, contains passages which clearly gave rise to the following further statement in the headnote:-

"Secus, generally, if the point in dispute is whether the

contract containing the clause was ever entered into at all

or was void ab initio, for example, because the making of it

was illegal."

30. The passages to which I shall now refer are, therefore, plainly obiter. However, it must be acknowledged that they appear to have been accepted, to a significant extent, as establishing an immutable legal principle upon which the applicants rely.

31. The first passage to which reference must be made is found in the speech of Viscount Simon L.C. (at p 366). The Lord Chancellor, having considered earlier authority, said as follows:-

"At the risk of some repetition, I would summarize what I

conceive to be the correct view on the matter as follows.

An arbitration clause is a written submission, agreed to by

the parties to the contract, and, like other written

submissions to arbitration, must be construed according to

its language and in the light of the circumstances in which

it is made. If the dispute is whether the contract which

contains the clause has ever been entered into at all, that

issue cannot go to arbitration under the clause, for the

party who denies that he has ever entered into the contract

is thereby denying that he has ever joined in the

submission. Similarly, if one party to the alleged contract

is contending that it is void ab initio (because, for

example, the making of such a contract is illegal), the

arbitration clause cannot operate, for on this view the

clause itself also is void. But, in a situation where the

parties are at one in asserting that they entered into a

binding contract, but a difference has arisen between them

whether there has been a breach by one side or the other, or

whether circumstances have arisen which have discharged one

or both parties from further performance, such differences

should be regarded as differences which have arisen `in

respect of,' or `with regard to,' or `under' the contract,

and an arbitration clause which uses these, or similar,

expressions should be construed accordingly."

32. It must be noted, additionally, that at the conclusion of his consideration of the relevant principles, the Lord Chancellor said by way of a final observation that:-

"... notwithstanding the general validity of the above

observations, the governing consideration in every case must

be the precise terms of the language in which the

arbitration clause is framed. Its terms may, of course, be

such as will either expressly or by implication reduce what

would otherwise be the full ambit of the clause, or again,

will extend it yet further."

33. Lord Macmillan (at p 370), before entering upon a discussion of matters directly arising in the case made some preliminary observations which he described as "more or less elementary". He said:-

"Arbitration clauses in contracts vary widely in their

language for there is no limitation on the liberty of

contracting parties to define as they please the matters

which they desire to submit to arbitration. Sometimes the

reference is confined to practical question arising in the

course of the execution of the contract; sometimes the most

ample language is used so as to embrace any question which

may arise between the parties in any way relating to the

contract."

"If it appears that the dispute is whether there has ever

been a binding contract between the parties, such a dispute

cannot be covered by a arbitration clause in the challenged

contract. If there has never been a contract at all, there

has never been as part of it an agreement to arbitrate. The

greater includes the less. Further, a claim to set aside a

contract on such grounds as fraud, duress or essential error

cannot be the subject-matter of a reference under an

arbitration clause in the contract sought to be set aside."

34. I would also draw attention to what his Lordship said (at p 373) as to the nature of an arbitration clause:-

"I venture to think that not enough attention has been

directed to the true nature and function of an arbitration

clause in a contract. It is quite distinct from the other

clauses. The other clauses set out the obligations which

the parties undertake towards each other hinc inde, but the

arbitration clause does not impose on one of the parties an

obligation in favour of the other. It embodies the

agreement of both parties that, if any dispute arises with

regard to the obligations which the one party has undertaken

to the other, such dispute shall be settled by a tribunal of

their own constitution. And there is this very material

difference, that whereas in an ordinary contract the

obligations of the parties to each other cannot in general

be specifically enforced and breach of them results only in

damages, the arbitration clause can be specifically enforced

by the machinery of the Arbitration Acts. The appropriate

remedy for breach of the agreement to arbitrate is not

damages, but its enforcement. Moreover, there is the further

significant difference that the courts in England have a

discretionary power to dispensation as regards arbitration

clauses which they do not possess as regards the other

clauses of contracts."

35. Again, Lord Wright, in the context of a discussion of the various meanings that have been attributed to the word "repudiation", made the following observations relevant to the present question (at p 378):-

"Repudiation of a contract is sometimes used as meaning that

the defendant denies that there ever was a contract in the

sense of an actual consensus ad idem. If that is that case,

a submission of disputes under the contract never comes into

operative existence any more than the contract to which it

was to be ancillary. Short of this, one party, though not

denying that there was the appearance of assent, might claim

that the consent was vitiated by fraud or duress or mistake

or illegality, and in that sense it is often said that he

repudiates the contract. There, again, it would be a

question of construction whether the collateral arbitration

clause could be treated as severable and could be invoked

for settling such a dispute."

36. Later in his speech, Lord Wright (at p 384) further developed this line of thought. His Lordship spoke of:-

"... the rule that, generally speaking, a dispute whether

the contract ever existed, as contrasted with the question

whether it has been ended, is not within the usual form of

submission of differences arising out of the contract or the

like, because, if there was never a contract at all, there

could never be disputes arising out of it. Ex nihilo nil

fit. It is all a question of the scope of the submission.

Hence, if the question is whether the alleged contract was

void for illegality, or, being voidable, was avoided because

induced by fraud or misrepresentation, or on the ground of

mistake, it depends on the terms of the submission whether

the dispute falls within the arbitrator's jurisdiction."

37. After consideration of certain reported cases, Lord Wright, speaking of one of them, said (at p 385):-

"In the later case, it was observed by Romer L.J. that an

arbitrator could not arbitrate on the rightfulness of a

repudiation because if he held that the repudiation was not

justified, but the rescission was justified, he would be

awarding that the contract was gone and making an award

against the existence of his own jurisdiction. I should

prefer to put it that the existence of his jurisdiction in

this, as in other cases, is to be determined by the words of

the submission. I see no objection to a submission of the

question whether there ever was a contract at all, or

whether if there was, it had been avoided or ended. Parties

may submit to arbitration any or almost any question."

38. Finally, Lord Porter, in dealing with this general topic said (at p 392):

"I think it essential to remember that the question whether

a given dispute comes within the provisions of an

arbitration clause or not primarily depends on the terms of

the clause itself. If two parties purport to enter into a

contract and a dispute arises whether they have done so or

not, or whether these alleged contract is binding on them, I

see no reason why they should not submit that dispute to

arbitration. Equally I see no reason why, if at the time

when they purport to make the contract they foresee the

possibility of such a dispute arising, they should not

provide in the contract itself for the submission to

arbitration of a dispute whether the contract ever bound

them or continues to do so. They might, for instance,

stipulate that, if a dispute should arise whether there had

been such fraud, misrepresentation or concealment in the

negotiations between them as to make an apparent contract

voidable, that dispute should be submitted to arbitration.

It may require very clear language to effect this result,

and it may be true to say that such a contract is really

collateral to the agreement supposed to have been made, but

I do not see why it should not be done."

39. His Lordship went on to say (at p 393): "the question of the arbitrator's jurisdiction must, therefore, ultimately depend on the wording of the arbitration clause."

40. One might be pardoned for thinking that one could not derive from these various obiter expressions, any firm rule that there was a legal prohibition upon parties to a submission to arbitration granting to the arbitrator the power to declare their agreement void ab initio. Rather one might have thought that the prevailing view was that, at the most, in the construction of any arbitration clause, there was a presumption against the conferral of such a power, but that, if that was what the parties wished, they could confer the power by appropriate language. There would appear to be an underlying concept that, whereas a court always had power to determine whether or not it has jurisdiction, a similar power could not be, as a matter of course, entrusted to an arbitrator, presumably, on the basis that being a lay person (if such were the case) he might lack the necessary legal ability to determine such a fundamental matter. It might be noted that, if this assumption be correct, then it would appear to be inconsistent with present day views of the abilities of arbitrators. At best, the proposition would appear to be founded upon a logical rather than a practical approach. It was somehow inconceivable that an arbitrator could declare void ab initio (or even perhaps at some later point in its existence) a contract upon which the arbitrators own appointment depended. It was logically unthinkable that he could exercise a power, the very exercise of which destroyed it. One might have thought that Lord Wright's discussion, referred to above, of the essentially different nature of the arbitration clause from the other clauses of the contract of which it formed part, and also its potential for being severed from that contract, contained the answer to this problem.

41. However, there can be no doubt that the view has been taken in subsequent cases, in England, that Heyman laid down a rule of law to the effect that an arbitrator can, in no circumstances, be clothed with the power of deciding whether the contract, in which the arbitration clause is incorporated is void ab initio. Thus in Ashville Investments Ltd v Elmer Contractors Limited (1988) 3 WLR 867, May L.J. said (at p 873):-

"... it has been decided and is a principle of law that an

arbitrator does not have jurisdiction, nor can the

arbitration agreement be construed to give him jurisdiction

to rule upon the initial existence of the contract. On the

other hand, given an appropriate arbitration clause, an

arbitrator does in general have jurisdiction to rule upon

the continued existence of the contract; see Heyman v.

Darwins Ltd. (1942) AC 356 and Mustill and Boyd, Commercial

Arbitration, (1982), pp 78 et seq." (See also pp 877, 878).

42. May L.J. (at p 878) considered the passage from the speech of Viscount Simon LC in Heyman quoted above and stated that, whilst it was obiter, it was:-

"quite clear that in Heyman's case the House of Lords were

intending to give general guidance on the scope of

arbitration clauses where the dispute was whether the

contract was ever made or whether it had come to an end as a

result of an accepted repudiation."

His Lordship said that "in those circumstances I would not lightly decline to follow such guidance, even though strictly obiter, I thought it were applicable to our case."

43. Balcombe L.J. (at p 883) described as "clearly right" the proposition that "an arbitrator cannot have jurisdiction to decide that the contract under which he is appointed is void or voidable, since by so doing he would be destroying the very basis of his own position."

"A non-statutory arbitrator derives his jurisdiction from

the agreement of the parties at whose instance he is

appointed. He has such jurisdiction as they agree to give

him and none that they do not. The only inherent limitation

is that he cannot make a binding award as to the initial

existence of the agreement from which his jurisdiction is

said to derive."

45. For my part, I am unable to accept that Heyman is authority for any such broad proposition. I am fortified in this view by the discussion of this topic to be found in Jacob's Commercial Arbitration Law and Practice, 1990 at pp 1802-1803, and pp 1821-1827.

46. I am not satisfied that there is any rule of law which prohibits the empowering of an arbitrator to decide the initial validity of the contract containing the arbitration clause. With respect to those who hold a different view, I do not consider that there is any "received doctrine" to this effect. Moreover, having regard to the specific nature of an arbitration clause, as discussed by Lord Wright in Heyman, I consider that, generally speaking, it can be regarded as severable from the main contract with the result that, logically, an arbitrator, if otherwise empowered to do so, can declare the main contract void ab initio without at the same time destroying the basis of his power to do so.

47. I am therefore of the view that, in the present case, an arbitrator appointed under clause 16, having regard to the width of the clause, as already discussed, would have the necessary power to declare the main contract void ab initio as a result of breaches of s 52 of the Act.

48. I should add that when clause 16 is considered in the context of the whole of the Purchaser Agreement, further assistance is found for concluding that it is wide enough to give the arbitrator this power. Clause 21.11 clearly contemplates that an arbitrator can hold "provisions of this agreement ... to be void or unenforceable".

49. I should also add that having regard to the nature of the claim mounted under s 52, and to the fact that the performance of this contract has obviously proceeded some distance, I cannot, as presently advised, see any realistic basis upon which an order would be made avoiding the contract from its inception. Consequently, in practical terms, there appears, in my view, no real likelihood of the problem which I have been discussing, ever arising. If the contract be set aside it is most likely to be so from a point of time later than its beginning.

50. For all these reasons, then, I would consider that there exists no impediment to an arbitrator, duly appointed under clause 16 of the Purchaser Agreement, entering upon a consideration of the matters raised in the applicants' statement of claim and application.

51. I come then to consider whether an arbitrator would be prevented from determining these matters through the operation of Chapter III of The Constitution. This question was expressly left open in IBM.

52. The respondents' argument on this point can be stated quite succinctly. It is submitted that an arbitrator determining the questions raised under s 52 of the Act would, in so doing, be purporting to exercise the judicial power of the Commonwealth. As he is not a court upon whom federal jurisdiction has been conferred pursuant to s 71 of The Constitution, he is constitutionally prevented from exercising such power.

53. To this argument, the applicant replies that the arbitrator would not be exercising judicial power at all and would, accordingly, be immune form the constitutional prohibition.

54. The question to be determined, then, is whether an arbitrator in determining questions as to whether one party to the arbitration has or has not committed breaches of s 52 of the Act is relevantly exercising judicial power. it is necessary, therefore, to consider what is involved in the concept of judicial power and its exercise.

55. Happily, much guidance is to be obtained from decided cases of the highest authority.

56. In the early case of Waterside Workers' Federation of Australia v J.W. Alexander Limited [1918] HCA 56; (1918) 25 CLR 434, where the question for determination by the High Court of Australia was whether the Commonwealth Court of Conciliation and Arbitration, as then constituted, was a court exercising part of the judicial power of the Commonwealth, Griffith C.J. said (at p 442) that:-

"Without attempting an exhaustive definition of the term

`judicial power,' it may be said that it includes the power

to compel the appearance of persons before the tribunal in

which it is vested, to adjudicate between adverse parties as

to legal claims, rights, and obligations, whatever their

origin, and to order right to be done in the matter."

"It is hardly necessary to point out that the question

whether any specific function does or does not appertain to

the judicial power depends upon its nature, and not upon the

name by which the authority which exercises it is designated

in a Statute, or upon what it is called in argument. The

exercise of a function which is in its nature judicial may

by agreement between parties be delegated to a specific

person, commonly called an arbitrator; but the obligation to

obey the directions which a person so designated may give,

is, by our law, conventional; that is, it is attributed to

the agreement and not to the nature of the function."

"The lectures on the Constitution of the United States

delivered by Mr Justice Miller, of the Supreme Court of the

United States, to the law students of the National

University at Washington, in 1889 and 1890, include one on

`the judicial power.' After examining the nature of

`judicial power' he gives it the following definition

(p 314): `It is the power of a Court to decide and pronounce

a judgment and carry it into effect between persons and

parties who bring a case before it for decision.' I

respectfully adopt these words."

"It is important to observe that the judicial power includes

with the decision and the pronouncement of judgment the

power to carry that judgment into effect between the

contending parties. ... Enforceable decision by an authority

constituted by law at the suit of a party submitting a case

to it for decision is in character a judicial function."

57. His Honour contrasted judicial power with the power of an arbitrator (at p 452) as follows:-

"Besides Courts of compulsory powers for the bringing before

them of defendants or delinquents, for deciding the matter

with or without assistance of juries and for enforcing the

decision, it has at all times been common for individuals or

the State to have recourse to tribunals lacking some or all

of these compulsive powers, and especially lacking the power

of enforcement. An instance is the ordinary proceeding of

arbitration. Parties differing on any subject have agreed

to submit their differences to some person or persons for

decision, it being also agreed that the decision shall be

adopted by both sides contractually. The persons invoked

have generally been called among English-speaking people

arbitrators and umpires, and their conclusions awards. Such

proceedings being without compulsive force in any stage,

were, of course, not instances of the judicial power."

58. I have had regard to other cases which consider, in various context, the judicial power of the Commonwealth (e.g. R v Kirby; Ex parte Boilermakers' Society of Australia [1956] HCA 10; (1956) 94 CLR 254; Attorney-General of the Commonwealth of Australia v The Queen [1957] HCA 12; (1957) 95 CLR 529; and Re Tracey; Ex parte Ryan [1989] HCA 12; (1989) 166 CLR 518). None of these cases would appear to impinge upon what is said in the passages cited.

59. As there is no question in the present case of any attempt to confer by law upon an arbitrator any part of the judicial power of the Commonwealth, cases such as The Commonwealth v Hospital Contribution Fund [1982] HCA 13; (1982) 150 CLR 49 or Harris v Caladine [1991] HCA 9; (1991) 65 ALJR 280 are not in point. The arbitrator contemplated by paragraph 16 of the Purchaser Agreement is not an arbitrator appointed by the Court so that the question whether he sufficiently forms part of the structure of the Court and is thereby able to exercise the judicial power of the Commonwealth conferred upon the Court does not arise.

60. The arbitrator contemplated by paragraph 16 does not, in my view, exercise judicial power at all. Judicial power can be exercised only by the judiciary as the third arm of Government. It is an integral part of that power and its exercise that the Court can call upon the coercive force of the State to implement its judgments. This is denied to an arbitrator, whose function, therefore, necessarily fails to partake of true judicial power, although he may be authorised by contract between the parties to make decisions which are in their nature judicial.

61. It may be noted that an arbitral decision can be accorded enforcability at law, by virtue of the provisions of s 33 of the Commercial Arbitration Act, 1984 (NSW). That section provides:-

"An award made under an arbitration agreement may, by leave

of the Court, be enforced in the same manner as a judgment

or order of the Court to the same effect, and where leave is

so given, judgment may be entered in terms of the award."

62. This section clearly provides for enforcability only by leave of the Court. It is only when such leave is given that any question of the exercise of judicial power arises. The Supreme Court of New South Wales is, of course, able to make orders in relation to breaches of s 52 of the Act. When such orders are made they are made in exercise of the judicial power of the Commonwealth appropriately vested by statute in that Court. They are not made by virtue of any power vested in the arbitrator.

63. Accordingly, I am satisfied that there is no constitutional impediment to the parties giving an arbitrator, pursuant to clause 16 of the Purchaser Agreement, the power to make determinations of issues raised between them under the provisions of s 52 of the Act and to make orders which would be contractually binding between the parties. If enforcement of such orders is sought outside the contract, then recourse may be had to the Court under s 33 when such enforcement may occur as a result of the Court's authority and not the authority of the arbitrator.

64. I am satisfied, therefore, that no stay should be granted on the constitutional grounds relied on.

65. One other matter was raised by the applicants. It was said, as is the case, that the second respondent, Charles Russell Gibbons, is not a party to the arbitration agreement with the result that the proceedings brought against him in this Court could not be made the subject of proceedings before the arbitrator. He is sued on the basis of accessorial liability for alleged infringements of the first respondent. I would not be disposed to refuse a stay of these proceedings simply on this basis. However, Mr Gibbons has offered, as a condition of the granting of the stay, to submit to the jurisdiction of the arbitrator. I consider that it is appropriate for the stay to be made on this condition as it will have the advantage of enabling all matters to be dealt with by the arbitrator in the one hearing.

66. I am therefore of the view that the stay sought should be granted, with this condition attached.

1. that proceedings number G233/1991 be stayed pending the further order of the Court;

2. that it be a condition of the stay that the second respondent in the proceedings, Charles Russell Gibbons, submit to the jurisdiction of the arbitrator and consent to be bound by any award made by the arbitrator;

3. that the respondents to this motion pay the applicant's costs of the motion.