When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument.
See also the observations of Allsop J (with whom Finkelstein JJ agreed) in Comandate 157 FCR 45 at [192]-[193]. I respectfully agree with, and adopt, the views of their Honours. Where there is an agreement to arbitrate, there are sound commonsense and commercial reasons why the scope of the disputes agreed to be arbitrated should be robustly assessed.
25 It is a logically prior question as to whether there is an agreement to arbitrate, so as to oblige the parties to the Agreement to do so, in relation to the present proceeding. But for cl 20.3 of the Agreement, I would have little doubt that they had done so. The consideration referred to in the preceding paragraph is, in addition, a reason why cl 20 of the Agreement should be construed as a whole, including cl 20.3, and should be construed in a broad and practical way. That, however, does not relieve the Court from the task of considering cl 20 as a whole including cl 20.3.
26 Clause 20 of the Agreement indicates the circumstances in which disputes between the parties to the Agreement are to be submitted to arbitration. It could also have indicated powers agreed to be conferred upon the arbitrator. In the case of sophisticated remedies such as an injunction or a declaration, it was formerly generally thought that express conferral of power to grant such remedies upon an arbitrator is desirable: Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240; IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 at 486 (IBM Australia). That is because an arbitrator is not exercising judicial power. An arbitrator exercises power conferred by agreement between the parties to the arbitration agreement, or an award or order by an arbitrator is binding on the parties by reason of their agreement: see Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 at 14. Hence, if a party against whom an arbitrator has made an award fails to comply with the arbitrator's orders, the enforcement of the award is through proceedings in an appropriate court.
27 In that context, it is helpful to refer to cl 20.1(b). The reference to arbitration is in accordance with the Rules for the Conduct of Commercial Arbitrations of the Institute of Arbitrators and Mediators Australia. Those rules as in force at the time these proceedings commenced, were the Institute of Arbitrators and Mediators Arbitration Rules 2007 (the 2007 Rules). Rule 22.1 of the 2007 Rules provides that the Model Law shall apply to any international arbitration conducted under the 2007 Rules. The reference to the Model Law is a reference to the Model Law on International Commercial Arbitration prepared by the United Nations Commission on International Trade Law (UNCITRAL) and adopted by the General Assembly of the United Nations on 11 December 1985. Article 17 of the Model Law, as senior counsel for the respondent pointed out, is expressed as empowering an arbitrator to order any party "to take such interim measure of protection" as the arbitrator considers necessary in respect of the subject matter of a dispute. See also Pt III of the IA Act, including s 23 of the IA Act. They are sufficiently wide to encompass a declaration as to the meaning and proper operation of the Agreement in the circumstances which have now arisen. Indeed, as senior counsel for the respondent contended, in Cufone v Cruse [2000] SASC 17 Bleby J after a review of certain authorities concluded at [58] that an arbitrator generally has an implied power under an arbitration agreement to grant such rights and remedies as would have been available to a Court if the parties had sought to enforce their contract in a Court of law of appropriate jurisdiction, including declaratory relief. That decision was upheld on appeal: Cufone v Curse (sic) (2000) 210 LSJS 238; [2000] SASC 304.
28 At least in the case of declaratory relief, which would in the present circumstances reflect a necessary determination by the arbitrator of the meaning and manner of operation of the Agreement in the process of arbitration, it is clear enough that there was no need to expressly grant the arbitrator power to give declaratory relief. That power would have been implied. The same may be said about final "injunctive" relief. If the present dispute is one which the parties have agreed to submit to arbitration, depending upon the proper construction and operation of the Agreement, the respondent may have been ordered by an arbitrator to meet the purchase orders presented by the applicant from time to time up to 30 June 2008 independently of the amount of credit insurance available to it. That would necessarily follow from an arbitral determination in the applicant's favour on the issue in dispute. The power to grant injunctive relief in an arbitrator would therefore be implied where cl 20 operates as an agreement to submit a particular dispute to arbitration. See also Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture (1981) 146 CLR 206 per Mason J (with whom Murphy J agreed) at 246-247; IBM Australia 22 NSWLR 466 at 480; Rolls and Son (Produce) Ltd v J Alastair McGregor & Co Pty Ltd (1973) 6 SASR 358 at 378. As with any award of an arbitrator, if not complied with, the applicant would have had to resort to a Court of appropriate jurisdiction to enforce the award, but the character of such an order by the arbitrator is an injunctive one.
29 Apart from there being no need for cl 20.3 to expressly grant to the arbitrator powers which the arbitrator already apparently has, in respect of a dispute which the parties have agreed to be arbitrated, cl 20.3 is not expressed in terms of a grant of power to an arbitrator, or in terms of the confirmation of the grant of power to an arbitrator, to grant particular forms of relief. It does not say, as it could readily have done if that was intended, that the arbitrator, in addition to other powers granted by this clause, should have power to grant declaratory or injunctive relief; or it could have said that to avoid doubt, the arbitrator etc. There are other available ways in which cl 20.3, if intended to ensure that arbitrator has power to grant declaratory or injunctive relief, might have been clearly expressed. It does not do so. It is expressed as not preventing (i.e. preserving to) a party the right to seek injunctive or declaratory relief in relation to certain types of breaches of the Agreement. The focus on the preservation of a party's right to seek such relief is by way of contrast with, or alternative to, the arbitral procedure imposed by cl 20.1. In addition, if the parties' intention were to ensure certain forms of relief were available to an arbitrator conducting an arbitration under cl 20.1, one would expect the expression of those additional powers also to be included in cl 20.1 rather than the place they are presently found. In my view, that observation is reinforced by the content and location of cl 20.2, a clause dictating the parties' obligations under the Agreement pending the resolution of their dispute by arbitration under cl 20.1.
30 I accept the other contention of the respondent that cl 20.3 is intended to address circumstances of some urgency, whether by reason of a threatened breach or of a material breach of the Agreement. That is plain enough. But of itself that does not indicate how the parties intended to agree for urgent disputes to be addressed. And, as the present circumstances illustrate, cl 20.2 does not operate helpfully where there is a dispute as to what the parties' respective obligations are.
31 In my view, cl 20.3 should therefore be seen, at least in part, as part of the bargain between the parties as to how their disputes should be resolved where there is a "threatened breach" encompassing conduct which one party asserts amounts to a breach of a term of the Agreement and the other does not. The use of the term "threatened breach" may also encompass foreshadowed contentious conduct as well as actual contentious conduct by one party. Clause 20.3 should also be seen as part of the bargain between the parties as to how their disputes should be resolved where there is a "material breach" or an asserted "material breach" of the Agreement. There is no definition of what may constitute a "material breach". But, clearly, the present dispute concerns what may be a material breach; the respondent did not contend to the contrary. It is clearly a dispute in respect of which cl 20.2 does not operate satisfactorily as each of the applicant and the respondent considers that it is continuing, or seeking to continue, its obligations under the Agreement and that the other party is failing to do so.
32 The textual matters to which I have referred, in my view, point to the parties' agreement being to treat disputes to which cl 20.3 refers differently from the regime for arbitration specified in cl 20.1. That is not an agreement simply to skip the procedural prescription for consultation in cl 20.1(a) before arbitration, for the reasons I have given. I further consider the difference in subject matter in cl 20.1(b) and cl 20.3, and in the verb used in cl 20.3 also support that conclusion. Clause 20(1)(b) has as its subject the dispute, and it is the dispute which is referred to arbitration. Clause 20.3 has as its subject the agreement to a dispute being referred to arbitration (and the holding position prescribed by cl 20.2). It is that subject which does not prevent the parties in certain circumstances from "seeking" certain relief. That is, as a matter of grammar, the rights the parties have agreed to preserve to themselves by cl 20.3 are available, notwithstanding the arbitration agreement in cl 20.1. Clause 20.3 is not confined in its subject matter to the agreement to consultation prior to arbitration contained in cl 20.1(a). And, I think the use of the word "seeking" also contemplates, in the overall text of cl 20, proceeding in different way from referral to an arbitrator.
33 Clause 20.1(b), in the customary way, uses the term "referred to arbitration", and as I have noted above also provides for the arbitration to be conducted under the 2007 Rules. Art II cl 1 of the Convention also refers to an agreement to submit to arbitration certain differences, and Art 7(1) of the Model Law uses the expression agreement to submit to arbitration certain differences. Clause 20.3 then preserves to a party the right to seek (my emphasis) certain forms of relief in the circumstances to which it applies. It may readily be seen that the focus in cl 20.1 is upon the referral of a dispute to arbitration whereas the focus in cl 20.3 is upon the remedies available in resolution (or interlocutory resolution) of a dispute, so the particular semantic difference to which I am presently referring is only of relatively minor significance. But, putting aside the question of interlocutory relief, the need to express the entitlement of a party to "seek or ask for" (cf The Macquarie Concise Dictionary, (2nded, The Macquarie Library Pty Ltd, 1988 p 899) declaratory or injunctive relief from an arbitrator is not evident. This is not a case where the applicant is seeking interlocutory relief, but I note that Art 9 of the UNICTRAL Model Law in Sch 2 to the IA Act addresses that circumstance, as well as Art 17.
34 I do not regard cl 25 of the Agreement as helpful in informing the meaning and application of cl 20 of the Agreement. It specifies the governing law of the Agreement to be the laws of Victoria, and "subject to Section 20" the parties submit to the Courts of Victoria. That reference to cl 20 of the Agreement, it seems to me, is central as to how cl 20 overall operates in relation to the present question. Counsel did not refer to other contextual matters in the Agreement which might assist in resolution of that question.
35 There is one general contextual matter which I think is significant. The Agreement was clearly the result of extensive negotiation and careful drafting. It comprises 38 clauses and two schedules, including a detailed pricing schedule, and many of the clauses are themselves broken into subclauses and then paragraphs. It is not necessary to refer in detail to each of the clauses to illustrate the thoroughness and care apparent in its terms, and in the commercial negotiations leading to them. There is no real scope to conclude that the parties were not alert to the nuances of their expressed agreement. I think that point is significant when determining the scope of the arbitration agreement in cl 20 of the Agreement.
36 The analysis of the structure and wording of cl 20 of the Agreement has indicated that the preserved entitlement of a party under cl 20.3 (in circumstances in which applies) is not one which is confined to seeking declaratory or injunctive relief from an arbitrator in an arbitration. To that extent, I reject the contention of the respondent. However, as I noted earlier, in construing a clause of an agreement such as cl 20, I should adopt a robust and commonsense view in determining what the parties have agreed, or more explicitly the extent to which they have agreed to submit their disputes to arbitration. One might ask rhetorically why they may have chosen different means of dispute resolution, or why in their commercial bargain they might (as the applicant contends) have chosen separate forms of dispute resolution depending upon the nature of the relief sought, or indeed where a party seeks declaratory or injunctive relief, why the circumstances in which such relief might be sought are so widely expressed (threatened or material breaches). Senior counsel for the respondent described the width of cl 20.3 as enabling "a coach and horses" to go through it.
37 It is easy to say that the Court should adopt a commercial commonsense approach to the construction of the parties bargain: see Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191 at 201 per Lord Diplock; Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 198. But it does not flaunt business common sense that the parties, having agreed upon arbitrating their disputes, should nevertheless agree upon an optional alternative dispute resolution process - by way of court proceedings - in certain circumstances. There is no inherent commercial reason why certain disputes where declaratory or injunctive relief is sought should not be agreed to be determined by a court. There is nothing to suggest such resolution would or should be less speedy or less efficacious or more expensive. Particularly where the parties have demonstrated such care in arriving at, and expressing, their bargain, the syntactical and semantic analysis of cl 20 as a whole should not be ignored because it suggests a preserved alternative but limited dispute resolution process by court proceedings. The availability of such access to the courts would not defeat the commercial purpose of the agreement; indeed it may serve it; cf per Kirby J in Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 at 378. I am mindful that, cl 20.3 does not expressly refer to circumstances seeking from a court (my emphasis) declaratory or injunctive relief. But for the reasons already given, in my view, it indicates that in respect of certain forms of dispute where particular relief is sought the arbitration obligation specified in cl 20.1 and recognised in cl 20.2 is a qualified one.