WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd [2008] NSWSC 894 | Case summary

(2) Subject to this Part, where: (a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and (b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration; on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter." 9 In addressing the question whether s 7(2) requires the court to make the order Fordberry seeks, it is necessary to refer briefly to some matters of background. Fordberry is a company incorporated in England and Wales. Its registered office is at Llandow and its principal place of business is at Cowbridge, both of which are in the Vale of Glamorgan, South Wales. Fordberry does not carry on business or have a place of business in any part of Australia. Nor is it or has it been registered as a foreign company under the corporations legislation of any Australian jurisdiction. 10 The United Kingdom of Great Britain and Northern Ireland became in 1975 and has remained a Contracting State within the meaning of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards set out in schedule 1 to the International Arbitration Act. It is therefore a "Convention country" as defined by s 3 of the Act. 11 It is contended by Fordberry and not disputed by Eastcoast that, having regard to the matters to which I have referred, Fordberry is properly regarded as "domiciled" or "ordinarily resident" in the United Kingdom. The circumstance of incorporation in England and Wales is alone sufficient to warrant a finding of domicile in the United Kingdom: see the judgment of Macnaghten J in Gasque v Inland Revenue Commissioners [1940] 2 KB 80 quoting with approval the observation of Holmes J in Bergner Engel Brewing Co v Dreyfus 70 Am St R 251 (1898) that "[a] corporation has its domicil in the jurisdiction of the state which created it, and, as a consequence, has no domicil anywhere else". 12 It is also contended by Fordberry and not disputed by Eastcoast that those two companies are parties to an "arbitration agreement" within the meaning of the Act, being, in terms of the s 3 definition, an agreement of the kind referred to in article II(1) of the Convention: "… an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration." 13 The meaning of "agreement in writing" comes from article II(2): "The term 'agreement in writing' shall include an arbitration clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams." 14 In the present case, Fordberry issued to Eastcoast, in October 2006, a "pro forma invoice" with respect to the sale of the tyres. It was addressed to Eastcoast and framed as an offer. The invoice contained "General Conditions of Acceptance" one of which (clause 5) was: "All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules." 15 The invoice contained at its foot a form of acceptance which was signed on behalf of Eastcoast and read in part as follows: "I agree to accept the terms and conditions contained within this Pro-forma offer for and on behalf of the buyer/importer and confirm that I am authorised to do so." 16 The parties' contract was formed by the classic process of offer and acceptance, with Eastcoast, as offeree, communicating by writing unequivocal acceptance of Fordberry's offer which had been communicated in writing. The case is thus one in which, as Allsop J (with the concurrence of Finn J and Finkelstein J) observed in Comandante Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; (2006) 157 FCR 45 at [151], "the terms and the assent to such terms are … in exchanged documents". Communication of that kind was there held to be "contained in an exchange of letters or telegrams". The expression "letters or telegrams" should be taken to extend to all "forms of written communication regularly utilized to conduct commerce in the various signatory countries: Chloe Z Fishing Co Inc v Odyssey Re (London) Ltd 109 F Supp (2d) 1236 (2000) at 1250. 17 There is accordingly, for the purposes of the International Arbitration Act, an "arbitration agreement" in the terms set out in clause 5 of the General Conditions of Acceptance. 18 The findings as to the domicile of Fordberry and the existence of an "arbitration agreement" to which Eastcoast and Fordberry are parties mean that the present proceeding - or more precisely Eastcoast's cross-claim against Fordberry - is caught by s 7(2)(a) of the Act. The next question, therefore, is that posed by s 7(2)(b), that is, whether the cross-claim involves the determination of "a matter that, in pursuance of the agreement, is capable of settlement by arbitration". To answer that question, it is necessary, first, to identify each matter to be determined in the proceeding and, second, to construe the agreement so as to identify each matter that, in pursuance of it, is capable of settlement by arbitration. To the extent that there is correspondence between the results of the two inquiries, the matters concerned will be matters in respect of which the Act will require that the proceeding be stayed. 19 At this point, attention must be given to the way in which Eastcoast's cross-claim is framed. Eastcoast pleads: (1) an agreement for the sale of the tyres on the terms in the pro forma invoice and implied terms of merchantable quality, fitness for purpose and correspondence with description; (2) representations by Fordberry by means of a list of tyres and accompanying photographs provided by Fordberry to Eastcoast and a description of repairs that had been carried out, being representations that the tyres were in good condition, were properly repaired and were in a fit state for use on a dump truck having regard to the size of the tyres being ordered; (3) that the representations were made in trade or commerce, in Australia (by reason of emails received in Australia and telephone conversations involving persons in Australia), by the use of telegraphic or telephonic services or in trade or commerce between Australia and places outside Australia; (4) reliance by Eastcoast on the representations in entering into the contract with Fordberry, entering into contracts with WesTrac, receiving the tyres from Fordberry and delivering the tyres to WesTrac; (5) breach of contract by Fordberry because the tyres were not in good condition or properly repaired or in a state fit for use on a dump truck having regard to the size of the tyres being ordered; (6) that the representations were false and the conduct of Fordberry in making them was misleading and deceptive and in contravention of the Trade Practices Act ; and (7) damage in the form of liability to WesTrac as determined in the action and certain costs. 20 To what extent are these matters the determination of which is, in pursuance of the arbitration agreement, capable of settlement by arbitration as referred to in s 7(2)(b)? The agreement, by its terms, is concerned with "disputes arising out of or in connection with" the contract constituted by the offer in Fordberry's pro forma invoice and Eastcoast's endorsed acceptance of that offer - that is, the contract for the sale and delivery of the tyres. 21 Eastcoast's claims involving allegations of breach of that contract, including breach of implied terms, and an entitlement to damages for such breach obviously arise "out of or in connection with" the contract. It is necessary, however, to consider whether the claims based on alleged pre-contractual representations concerning the tyres (including claims of statutory misconduct) arise "out of or in connection with" the contract. 22 The expression "arising out of" used in a context such as the present, was considered by Gleeson CJ (with whom Meagher JA and Sheller JA agreed) in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160. The plaintiff in that case based its claims upon representations made by the defendant while a contract was on foot. The representations were to the effect that, notwithstanding the contractual terms as to termination, the defendant would not terminate until a particular date (alternatively, that the actions of the defendant had given rise to a common assumption on that matter). The plaintiff alleged that the representations were made in contravention of the Trade Practices Act. The court held that these claims were claims "arising out of" the contract. Gleeson J said (at 165): "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." 23 The broad construction thus to be given to "arising out of" may cause that expression to be synonymous with "arising … in connection with": Samick Lines Co Ltd v Owners of the "Antonis P Lemos" [1985] AC 711. In the Comandante Marine case (above), Allsop J proceeded on the basis that Trade Practices Act claims of the kind made in this case (that is, claims related to pre-contract representations) were claims "arising out of" the contract. His Honour said (at [176]): "This being, in my view, the correct approach, it is clear that all the Trade Practices Act 1974 Cth claims here arise out of the time charter in that they arise out of the formation of the contract. That this is so is demonstrated here by the equivalent evidence (as can be seen from the pleading) necessary to show (1) the falsity of the representations and the breach of the asserted contractual terms; and (2) the damage flowing from the misleading or deceptive conduct and the breach of contract. It is also demonstrated by the fact that the conduct asserted to be misleading or deceptive was the body of negotiations that led to the formation of the contract. It is also demonstrated by the fact that the contract was entered in reliance upon the impugned conduct. Without the entry into the time charter, that is without the coming into existence of the time charter, there would have been no act of reliance upon which to found a cause of action under the Trade Practices Act . It is true to say that, in one sense, the claims also arise out of the Trade Practices Act itself; but they do arise out of the contract in the sense discussed above." 24 In the present case, of course, the words "in connection with" are used in addition to and as an alternative to "out of". Even if, contrary to the view taken by Allsop J (and supported by ample authority) "arising out of" is somehow narrower than "arising in connection with", it seems to me plain that claims based on pre-contract representations arise "in connection with" the contract. In Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1, Emmett J observed, in obiter dicta, that a connector described by the words "in connection with" was wide enough to include a claim alleging contravention of s 52 of the Trade Practices Act inducing the contract in question. In QH Tours Ltd v Ship Design & Management (Aust) Pty Ltd (1991) 33 FCR 227, Foster J held that, having regard to the width of a clause using the words "arising thereunder or in connection therewith", an arbitrator would have power to declare the contract valid ab initio as a result of breaches of s 52. 25 I am satisfied, therefore, that all of Eastcoast's claims against Fordberry, as summarised at paragraph [19] above, are claims comprehended by clause 5 of the General Conditions of Acceptance. Each such claim is accordingly, in terms of s 7(2)(b), "a matter that, in pursuance of the agreement, is capable of settlement by arbitration". 26 All the conditions arising from paragraphs (a) and (b) of s 7(2) of the International Arbitration Act are satisfied in this case. The court is therefore bound by s 7(2) to deal with the present application by Eastcoast by way of an order staying so much of the present proceedings as involves determination of Eastcoast's cross-claim against Fordberry and referring Eastcoast and Fordberry to arbitration in respect of the cross-claim. The court is compelled by the Commonwealth Act to take that course. Mr P B Walsh of counsel, who appeared for Eastcoast, did not seek to submit to the contrary. 27 The question that then arises is whether the order the court must make should be made upon conditions. 28 Mr Walsh submitted on behalf of Eastcoast that conditions should be attached to the order under s 7(2). Two conditions are sought: first, a condition that the arbitration take place in Australia; and, second, a condition that Eastcoast's claims based on the Trade Practices Act are to be determined in the arbitration. Eastcoast also made it clear that, whether by way of condition or more generally, it would seek to have the arbitration between itself and Fordberry proceed in conjunction with an arbitration between itself and WesTrac. 29 The nature and scope of the conditions that may be attached to an order under s 7(2) of the International Arbitration Act were the subject of observations by Kirby P in O'Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601 at 622:

"To resolve these arguments, it is necessary to consider the kinds of conditions that the Court may impose such as are contemplated by the power conferred in this respect by s 7(2) of the Act. It is true that the subsection is expressed in apparently wide terms ("upon such conditions (if any) as it thinks fit"). But it is obvious that the conditions are incidental and ancillary to the achievement of the main purpose of s 7(2). This is to hold the parties to international commercial agreements to an agreement to arbitrate. I do not consider, in this context, that it would be proper to impose a condition which effectively distorted the agreement initially entered between the parties. Nor should such a condition be imposed as would manipulate the rights of the parties under that agreement, notwithstanding their agreement to arbitrate. Nor should conditions frustrate the achievement of the policy of the statute to enforce that agreement. The "conditions" which s 7(2) of the Act contemplates are machinery conditions. They relate to hearing and the like procedures and not to conditions which determine, in effect, the substantive rights of the parties. Those substantive rights were, relevantly, fixed by the agreement. The Court should neutrally hold the parties to that agreement. In my opinion it would be wrong for the Court to distort and frustrate that agreement (whilst requiring the stay necessitated by the statute) to impose conditions which were not within the agreement which it is the purpose of the Act to enforce." 30 It is thus clear that it is not open to the court to impose conditions upon a s 7 stay which will detract from the integrity of the arbitration process the Commonwealth Act mandates. 31 In view of the desire of Eastcoast to see the whole of the claims and cross-claims dealt with together by way of arbitration, it is appropriate at this point to consider Eastcoast's claim under s 38 of the Civil Procedure Act for an order that the whole of the proceedings (that is, WesTrac's claims against Eastcoast and Eastcoast's claims against Fordberry) be referred for determination by an arbitrator. 32 It may be said at once that an order in those terms will not be made. The operation of the Commonwealth Act is such as to require the making of an order that causes Eastcoast's claims against Fordberry to be referred in their entirety to the particular form of arbitration that prevails under that Act. The court simply could not make another order that purported to impose some different form of arbitration for the resolution of those claims as part of a larger set of claims and counter-claims. Eastcoast's application should therefore be approached as an application for an order under s 38 of the Civil Procedure Act referring WesTrac's claims against Eastcoast for determination by an arbitrator, with the order framed in such a way as to ensure, as far as is possible, that the two arbitrations take place together. 33 It is necessary, at this point, to notice some of the features of the system of arbitration to be engaged in pursuant to the Commonwealth Act, that is, arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce (which I shall call "the ICC rules"). Under article 8.1, there must be one arbitrator or three arbitrators. Provision with respect to determination of the number is made by article 8.2. Article 9.5 requires that a sole arbitrator (or the chairman of an arbitral tribunal of three) be of a nationality other than those of the parties, with provision for this to be relaxed in the absence of objection by the parties and "in suitable circumstances". Under article 14, the place of the arbitration is to be fixed by the International Court of Arbitration unless the parties otherwise agree; and the arbitral tribunal may, after consultation with the parties, conduct hearings and meetings at any place it considers appropriate (unless otherwise agreed by the parties). Under article 17, the arbitral tribunal is to apply the rules of law it considers appropriate unless the parties agree on the rules of law to be applied. By article 28.6, submission of a dispute to arbitration causes the parties to waive their right to any form of recourse insofar as any such waiver can validly be made. 34 With those specifications in mind, I turn to the provisions of the Civil Procedure Act that would be relevant to any arbitration between WesTrac and Eastcoast. 35 Section 38 of the Act empowers the court to refer for determination by an arbitrator proceedings in respect of claims of certain kinds, including "a claim for the recovery of damages or other money" and a claim for relief "ancillary to" such a claim. The claims advanced by WesTrac against Eastcoast fit this description. 36 But a referral under s 38 can only be to an "arbitrator" as defined by s 35, that is, an arbitrator appointed under s 36. The last-mentioned section allows for the appointment as arbitrators of former judicial officers, barristers nominated by the Bar Council and solicitors nominated by the Law Society Council. Persons so appointed will, in the normal course, be persons in New South Wales. 37 Sections 42 to 47 of the Civil Procedure Act are concerned with rehearing of proceedings the subject of an award made in an arbitration. In essence, a person aggrieved by the award may apply to the court for a rehearing of the proceedings (s 42) and the court must order a rehearing (s 43(1)), except in certain narrowly defined circumstances (s 43(2) and s 43(3)). In the normal course, the rehearing is "a full rehearing" (s 43(5)). 38 These aspects of the process created by the Civil Procedure Act set it apart in significant ways from the system of arbitration that applies by virtue of an order under s 7(2) of the International Arbitration Act. In one case, the arbitrator (or chairman of the arbitral tribunal) must be of a nationality other than that of the parties, while in the other there can only a single arbitrator and he or she must hold an appointment available only to certain classes of persons connected with New South Wales. In one case the award is final and binding and in the other it can be displaced virtually at the whim of a party and replaced by a judicial process and a judicial determination. 39 Because of the operation of the International Arbitration Act as between Eastcoast and Fordberry, there is no scope for this court to shape the arbitration that Act makes compulsory so as to cause it to be compatible with the form of arbitration made available by the Civil Procedure Act. Eastcoast and Fordberry might be able, within the confines of the ICC rules, to achieve that result by consensus, but there is no indication that Fordberry is willing to do so; indeed, Mr Kirk of counsel, who appeared for Fordberry, made it clear that Fordberry does not wish to be involved in arbitration in Australia at all. Nor, as it seems to me, does this court have the ability to shape an arbitration under s 38 of the Civil Procedure Act so as to cause it to correspond or fit with the form of arbitration provided for in the ICC rules. 40 The court will always strive to avoid the possibility of inconsistent concurrent findings and duplication of effort and expense. If it were possible to do so, the court would adopt or prescribe a course that saw WesTrac's claims against Eastcoast and Eastcoast's claims against Fordberry litigated together. Such a course might be preferred even if it entailed departure from an agreement to adopt, as to part of the totality of claims, some other method of dispute resolution: see, for example, Savcor Pty Ltd v State of New South Wales (2001) 52 NSWLR 587. Here, however, two factors combine to defeat that objective: first, the International Arbitration Act compels the court to vacate the field, as to part of the totality of the claims, so that that part can be dealt with under the system of arbitration endorsed by that Act; and second, there is no mechanism by which the court can cause the balance of the claims to be dealt with under that same system. 41 It follows, in my opinion, that there is no point in making an order under s 38 of the Civil Procedure Act referring the proceedings between WesTrac and Eastcoast to arbitration. That course would have utility, if at all, only if it facilitated the determination of all claims together. I did not understand Mr Walsh to submit that Eastcoast sought one-to-one arbitration between itself and WesTrac. 42 It is, however, important to note that Fordberry will not incur any liability to Eastcoast unless Eastcoast is found to have a liability to WesTrac. As stated at item (7) at paragraph [19] above, Eastcoast's claim against Fordberry is for whatever damages Eastcoast must pay to WesTrac. This suggests the desirability of sequential treatment in such a way that WesTrac's claims against Eastcoast are determined first and arbitration of Eastcoast's claims against Fordberry is deferred until that determination is complete. If Eastcoast is found to have no liability to WesTrac, the claim Eastcoast pursues against Fordberry will be seen to have fallen away. If, on the other hand, WesTrac succeeds against Eastcoast and is awarded damages, the arbitration between Eastcoast and Fordberry will be able to be pursued in a context in which not only the quantum of damages but also the basis for the award of damages as between WesTrac and Eastcoast is known. 43 Section 7(2) of the International Arbitration Act will accommodate a condition of the stay of proceedings and compulsory referral to arbitration that postpones the arbitration until some other proceeding has been determined: see Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (above) at 29. The sequential treatment I have outlined could be accommodated by such a condition. 44 I am conscious of the fact that no party has sought a condition of this kind. It seems to me, however, that the parties should have an opportunity to consider the position I have reached on the matters to which submissions were directed so that they might then make further submissions on the precise orders that are appropriate. For the reasons I have stated, those orders will include an order pursuant to s 7(2) of the International Arbitration Act that Eastcoast's cross-claim against Fordberry be stayed and that those parties be referred to arbitration and an order that Eastcoast's application under s 38 of the Civil Procedure Act be dismissed. The further submissions would be confined to the question of conditions that might be imposed pursuant to s 7(2) with a view to mitigating the effects of the compulsory separation of the cross-claim from the principal claims. The question of costs could also be addressed at that time. **********

WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd

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Judgment (13 paragraphs)

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