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Cargill International SA v Peabody Australia Mining Ltd [2010] NSWSC 887 (11 August 2010)

Last Updated: 12 August 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Cargill International SA v Peabody Australia Mining Ltd [2010] NSWSC 887


JURISDICTION:
Equity
Commercial List

FILE NUMBER(S):
2010/009966

HEARING DATE(S):
10 June 2010

JUDGMENT DATE:
11 August 2010

PARTIES:
Cargill International SA (Plaintiff)
Peabody Australia Mining Ltd (Defendant)

JUDGMENT OF:
Ward J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
J Stevenson SC with D McLure (Plaintiff)
F Gleeson SC with K Day (Defendant)

SOLICITORS:
Macpherson + Kelley Lawyers (Plaintiff)
Freehills (Defendant)


CATCHWORDS:
COMMERCIAL ARBITRATION
application under s 38(4)(b) of Commercial Arbitration Act 1984 (NSW) for leave to appeal from Arbitrator’s award on grounds of manifest error of law or strong evidence of error or in the alternative to remit questions of law to Arbitrator under article 34(2)(b)(ii) of Model Law
if former, whether leave to appeal should be granted under Commercial Arbitration Act
if latter whether denial of natural justice under the Model Law
HELD
Model Law applies
referral of dispute under rules of ICC did not operate as an ‘opt-out’ of Model Law under s 21 of the International Arbitration Act 1974 (Cth) – the decision in Eisenwerk Hensel Bayreuth Dipl-Ing Burkhardt GmbH v Australian Granites Ltd [2001] 1 Qd R 461 is plainly wrong and should not be followed
referral of dispute to ICC Rules did not indicate that parties intended to opt-out of Model Law to extent it applied as the curial law or lex arbitri
had Commercial Arbitration Act applied, threshold requirements for grant of leave not satisfied
discretion to grant leave would not have been exercised in any event
no denial of natural justice
plaintiff’s application dismissed
ADMIRALTY AND MARITIME JURISDICTION
whether dispute was one arising out of a maritime claim
HELD
dispute did arise out of a maritime claim so that exclusion agreement by adoption of article 28(6) of the ICC Rules would not apply

LEGISLATION CITED:
Admiralty Act 1988 (Cth)
Commercial Arbitration Act 1984 (NSW)
International Arbitration Act 1974 (Cth)
International Arbitration Amendment Bill 1988 (Cth)
International Arbitration Amendment Act 2010, No 97 (Cth)


CASES CITED:
Aerospatiale Holdings Australia Pty Ltd v Elspan International Ltd (1992) 28 NSWLR 321
Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570
American Diagnostica Inc v Gradipore Ltd (1988) 44 NSWLR 312
Appleton Papers Inc v Tomasetti Paper Pty Ltd (1983) 3 NSWLR 208
Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485
BCCI v Ali [2001] UKHL 8; [2002] 1 AC 251
Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1998] UKHL 19; [1999] 1 AC 266
Beveridge v Whitton [2001] NSWCA 6
Bread Manufacturers of NSW v Evans [1981] HCA 69; (1994) 180 CLR 404
British Sugar plc v NEI Power Projects Ltd (1997) 87 BLR 42
CAL No 14 Pty Limited v Motor Accidents Insurance Board [2009] HCA 47; (2009) 239 CLR 269
Carbotech-Australia Pty Ltd & anor v Yates & 14 ors [2008] NSWSC 540
Carcione Nominees Pty Ltd & Anor v Western Australian Planning Commission & Ors [2005] WASCA 56
Dranichnikov v Minister for Immigration and Multicultural Affairs [2003] HCA 26; (2003) 197 ALR 389;
Durayappah v Fernando (1967) 2 AC 337
Eisenwerk Hensel Bayreuth Dipl-Ing Burkhardt GmbH v Australian Granites Ltd [2001] 1 Qd R 461
Equuscorp v Glengallan [2004] HCA 55; (2004) 218 CLR 471
Export Credits Guarantee Department v Universal Oil Products Co [1983] 2 All ER 205; [1983] 1 WLR 399
Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407
Gatoil International Inc v Arkwright–Boston Manufacturers Metal Insurance Co [1984] UKHL 8; [1985] AC 255
Gett v Tabet (2009) 254 ALR 504; [2009] NSWCA 76
Gordion Runoff Limited v Westport Insurance Corporation [2010] NSWCA 57
Heilbrunn v Lightwood plc [2007] FCA 1518; (2007) 164 FCR 1
Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896
John Holland Pty Ltd aka John Holland Construction & Engineering Pty Ltd v Toyo Engineering Corp (Japan) [2001] 2 SLR 262
Kirk v Industrial Relations Commission of New South Wales [2010] HCA 1; (2010) 262 ALR 569
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; [2001] HCA 70; (2001) 210 CLR 181
Mobil Oil Australia Pty. Ltd. v Federal Commissioner of Taxation [1963] HCA 41; (1963) 113 CLR 475
Natoli v Walker (1994) 217 ALR 201
Nishina Trading Co Ltd v Chiyoda Fire & Marine Insurance Co Ltd (The Mandarin Star) [1968] 1 WLR 1325; [1968] 3 All ER 712; [1968] 2 Lloyd's Rep 47
Pacific Carriers v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Port of Geelong Authority v The “Bass Reefer” [1992] FCA 378; (1992) 37 FCR 374
Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203
Raguz v Sullivan [2000] NSWCA 240
Russell v Duke of Norfolk (1949) 1 All ER 109
Sharah v Healey [1982] 2 NSWLR 223
Shell International Petroleum Ltd v Gibbs [1983] 2 AC 375
Smith Ltd v H & S International [1991] 2 Lloyd’s Rep 127
Sunport Shipping Ltd v Tryg-Baltica International (UK) Ltd [2003] 1 Lloyd’s Rep 138
The “Catur Samudra” [2010] SGHC 18
The Kalliopi A [1988] 2 Lloyd’s Rep 101
The Radauti [1987] 2 Lloyd’s Rep 276
The Solon [2000] CLC 593
The Queen v Commonwealth Conciliation and Arbitration Commission: ex parte Angliss Group (1969) 122 CLR
The Zeus [1888] 13 PD 188
Toll v Alphapharm [2004] HCA 52; (2004) 219 CLR 165
Tradhol Internacional SA v Colony Sugar Mills Limited 2009 WL 3929893 (C.A.2(N.Y)) (20/11/09)
Trustees of Henry Smith’s Charity v AWADA Trading & Promotion Services (1983) 47 P&CR 607
Westcott v Hahn [1918] 1 KB 495
Westport Insurance Corporation v Gordion Runoff Ltd [2009] NSWSC 245

TEXTS CITED:
Aronson, Dyer and Groves, Judicial Review of Administrative Action, 3rd ed, 2004
Barret-White S., and Kee C., “Enforcement of Arbitral Awards where the seat is Australia – how the Eisenwerk Decision might still be a sleeping assassin: (2007) 24(5) Journal of International Arbitration 515
Blackaby N., Partasides C., Redfern A., and Hunter M., Redfern and Hunter on International Arbitration, 5th edn, Oxford University Press, 2009
Davies S., “International Arbitration: when arbitral rules and procedural rules collide”, Australian Mining and Petroleum Law Association Yearbook, 2002
Chow P., “Issues in International Commercial Arbitration: Conflict between Model Law and Arbitral Rules” (2003) 19 BCL 426
Croft and Fairlie, “The New Framework for International Commercial Arbitration in Australia”, ACICA Conference, December 2009
Dicey, Morris and Collins, The Conflict of Laws, Sweet & Maxwell, 2006 and updating October 2009 edn
Gehle B., “The Eisenwerk decision is generally considered as bad law”, Vindobona Journal of International Commercial Law & Arbitration, 2009 13 VJ 251
Greenberg S., “ACICA’s New International Arbitration Rules” (2006) 23 (2) Journal of International Arbitration 189
Heydon, “Limits to the Powers of Ultimate Appellate Courts” (2006) 122 LQR 399
Lewison, The Interpretation of Contracts, 4th edn, Sweet & Maxwell, London, 2007
Megens P. and Cubitt C., “Arbitrators' perspective: the evolving face of international arbitration - the past, the present and the future”, International Arbitration Law Review, 2010, 13(1), 1-7
Mustill and Boyd, Commercial Arbitration, 2nd edn, Butterworths, 1989
Pryles M., “Exclusion of the Model Law” [2001] Int ALR 175
Submissions made to the Commonwealth Attorney General, in response to the Discussion Paper of 21 November 2008, by ICC Australia, ACICA, the Chartered Institute of Arbitrators, the NSW Bar Association, the Law Society of NSW, the Law Council of Australia, and the Victorian Bar

DECISION:
Plaintiff's application dismissed



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL ARBITRATION LIST


WARD J

WEDNESDAY 11 AUGUST 2010

10/009966 CARGILL INTERNATIONAL SA V PEABODY AUSTRALIA MINING LTD

JUDGMENT

1 HER HONOUR: This application relates to a partial award made by Mr David Jackson QC, as arbitrator, on 7 December 2009 in a dispute arising out of a Standard Coal Trading Agreement made on 5 December 2005 between Cargill International SA and Peabody Australia Mining Limited (then known as Excel Coal Ltd) for the supply of coal to Cargill. (For convenience, I will adopt the same terminology as that used in the Arbitrator’s award and refer to the parties as Cargill and Excel, respectively.)

2 In the arbitration Excel claimed moneys outstanding in respect of certain coal deliveries made by it in 2009 at the end of the period covered by the agreement and Cargill counterclaimed for demurrage in respect of the late delivery to it of a number of shipments of coal earlier in the course of the agreement in mid 2007. Those disputes were referred to arbitration pursuant to the arbitration clause contained in the parties’ agreement (clause 18.9). It is conceded that the arbitration conducted by Mr Jackson was an international commercial arbitration for the purposes of the International Arbitration Act 1974 (Cth) (the Commonwealth Act).

3 The Arbitrator found in favour of Excel’s claim for USD299,822.74 (basically, for the amount of the short payment by Cargill in 2009) and dismissed the whole of Cargill’s counterclaim, having held that demurrage was not payable during the force majeure period (the duration of which had been one of the matters in dispute between the parties). In so doing, the Arbitrator found, relevantly, that:

(a) the period of force majeure had commenced at 0815hrs on 8 June 2007 and ran through to 0700hrs on 25 June 2007;

(b) the notice of intention to claim force majeure given by Excel to Cargill on 13 June 2007 satisfied the requirement in clause 17.2 of the agreement that such notice be given as early as practicable; and

(c) in any event, Cargill was not then entitled (by reason of the fact that it had reached an enforceable agreement to resolve disputed rights, or had by its conduct waived or would be estopped in equity from asserting any entitlements, in respect of demurrage for that part of the force majeure period) to raise the question whether demurrage was payable in the period from 0815hrs on 8 June 2007 to 1800 hrs on 21 June 2007 (to which I refer as the estoppel/waiver finding); though the Arbitrator went on to say that if Cargill had been so entitled he would have concluded that demurrage was not payable in that period by reference to the conclusion he had already reached in relation to the force majeure period.

4 There is no challenge to any of the Arbitrator’s findings summarised in (a) to (c) above (though Cargill does seek to challenge the conclusion that demurrage was not payable during the period of force majeure as so found). Rather, Cargill challenges the Arbitrator’s December 2009 award by reference to what is contended to be the Arbitrator’s failure to deal (or to deal correctly) with an alternative argument said to have been put by Cargill to the Arbitrator in relation to its demurrage claim.

5 That alternative argument, in essence, is that the period between the commencement of conditions amounting to force majeure (0815 on 8 June 2007) and the giving (at 1348 on 13 June 2007) of a force majeure notice, whether or not that notice had been given as early as practicable (and hence whether or not that notice was a valid and effective notice in compliance with clause 17.2 of the agreement), should have been accepted as counting as “laytime” under the agreement.

6 If that alternative argument were to be correct, then it seems not to be disputed that laytime would have continued to run from 0815 on 8 June 2007 and would have expired not long after that at 0956hrs on 8 June 2007. (On any view, this would mean, on the Arbitrator’s findings, that force majeure commenced before, albeit only very shortly before, the expiration of laytime.) Once laytime had expired, the Iron Bradyn would have been on demurrage (and once on demurrage all time lost, including time lost on account of force majeure, continues to count as demurrage).

7 Leaving aside for the present the import of Excel’s arguments (which were accepted by the Arbitrator) based on waiver/estoppel or the like, Cargill contends that, had the Arbitrator found that the vessel went on to demurrage as at 0956hrs on 8 June 2007, this would have meant that Cargill’s counterclaim for demurrage ran for the whole of the force majeure period from 8 to 25 June 2007.

8 In the present proceedings, Cargill seeks to challenge the Arbitrator’s award in one of two alternative ways, depending on the conclusion which is reached as to an initial jurisdictional question, that being whether the arbitration is governed by the Commercial Arbitration Act 1984 (NSW) (the State Act), as Cargill contends, or the UNCITRAL Model Law in accordance with s 16 of the Commonwealth Act, as Excel contends.

9 The first is under the State Act. Cargill seeks leave pursuant to s 38(4)(b) of the State Act to appeal from the award (which requires it to establish that the State Act applies and then to satisfy the threshold requirements of section 38, namely that there was an error of law that substantially affects the parties’ rights and either that there has been a manifest error of law on the face of the award or that there is both strong evidence of error and the question is one which is likely to add substantially to the certainty of commercial law).

10 Secondly, if (contrary to Cargill’s primary submission) the State Act does not apply, Cargill seeks an order setting aside the award under article 34(2)(b)(ii) of the Model Law, on the basis that the award is in conflict with the public policy of the State due to the failure of the arbitrator to address Cargill’s alternative argument (that failure, it is said, amounting to a denial of natural justice).

11 In its Amended Summons in these proceedings, Cargill sought not only leave to appeal but also, if successful in obtaining leave, a determination of the relevant questions of law upon the hearing of that appeal. However, before me it was conceded that it was not appropriate to entertain any appeal in the context of the present application, having regard to what was said by Allsop P (with whom Spigelman CJ and Macfarlan JA agreed) in Gordion Runoff Limited v Westport Insurance Corporation [2010] NSWCA 57, from [103]. Accordingly, the relief now claimed by Cargill (in the event that the State Act applies) is limited to the grant of leave to appeal.

12 I note that it is contended by Excel that, if the Model Law applies, then Article 34 of the Model Law provides the exclusive recourse against an arbitral award in the present case and that Cargill is thus precluded from applying for leave to appeal under s 38(4)(e) of the State Act because that provision is inconsistent with the more limited form of recourse against an arbitral award available under article 34 of the Model Law (and thus the State Act is, to the extent of the inconsistency, invalid by operation of s 109 of the Commonwealth Constitution). It was conceded by Mr Stevenson, though only for the purposes of this application, that if there were found not to have been an agreement between the parties to ‘opt out’ of the Model Law, then there would be a section 109 inconsistency between the two modes of review and that Cargill could proceed for a review of the Arbitrator’s decision only under the provisions of the Model Law.

13 Finally, in the event that the Model Law does apply, and Cargill succeeds on its application to set aside the award, then Cargill requests that the matter be remitted to the Arbitrator pursuant to article 34(4) of the Model Law for a determination by the Arbitrator of what I will refer to as the Alternative Argument.

Background Facts

14 The agreement (a standard form agreement developed by an entity known as globalCOAL and of which there have been successive versions since May 2001) was for the delivery, over the period from March 2006 to December 2008, of coal FOB (“free on board”) to three specified vessels at the port of Newcastle. (There was some dispute as to the extent to which the SCoTA form of agreement was used in the Australian coal industry in transactions for the sale of coal in and from Australia but it does not seem to be disputed that it is and can be used for the sale of seaborne thermal coal; and that it is so used in a percentage of trading contracts entered into in this country.) The version used by the parties in this case was version 5a (the standard terms of which incorporated all revisions effective as at 0630 GMT on 19 October 2005); however, there has been no subsequent change to the force majeure provisions in the current version of the agreement (hence any determination of a point of construction on the force majeure provisions of the earlier version has potentially wider relevance than for this case alone).

15 The coal deliveries were made by rail. Unfortunately, those deliveries which were due to take place in June 2007 were delayed due to disruption to the rail infrastructure in the Hunter Valley caused by severe storms in that month. The consequential delay in loading and departure of the three vessels in question gave rise to a claim for demurrage by Cargill. For the purposes of the present application, the particular dispute between the parties relates only to the claim for demurrage in respect of the delivery of coal to the MV Iron Braydn.

16 Cargill’s claim for demurrage in respect of the late delivery of coal due in June 2007 seems first to have been raised shortly after the coal was in fact delivered in July 2007. Excel relied upon the force majeure provisions of the agreement to deny the claim for demurrage. There was some correspondence between the two entities during the latter part of 2007 and early 2008 in relation to that claim.

17 The Arbitrator, in his award, referred to the communications between Excel and Cargill in relation to that claim from 2007 onwards and expressed the opinion that, as at November 2007, the only matter in issue between the parties in relation to the demurrage claim was whether it extended to the period beyond 21 June 2007.

18 Relevantly, the Arbitrator noted that, by February 2008 (when Cargill issued an invoice for an “undisputed amount” of demurrage, without prejudice to its claim for the balance, which was described as the “disputed amount”), there was no hint that Cargill was reserving to itself an entitlement to claim demurrage for the period extending back before 21 June 2007. The so-called “disputed amount” (in respect of which Cargill had reserved its position at that time) related to the claim for demurrage for the period from 21 to 25 June 2007. It represents the USD amount for which Excel was ultimately successful in the arbitration before the Arbitrator. However in relation to the “disputed amount”, the Arbitrator noted (at [7]) that the effect of the correspondence between the parties was that it was accepted that Excel was not liable for demurrage in the period from 8 June to 21 June 2007. (This becomes relevant when considering one of the threshold requirements for the grant of leave under the State Act, as the Arbitrator’s estoppel/waiver finding, which is not challenged, has the effect that Cargill is precluded from revisiting any claim for demurrage at least in the period prior to 21 June 2007.)

19 No further steps seem to have been taken by Cargill, whether in relation to the overall demurrage now claimed or for the “disputed amount”, until the term of the contract was coming to an end. At that point, when Cargill made payment in respect of the final invoice issued by Excel for the later (2009) coal deliveries it withheld an amount which included the “disputed amount” in respect of the 2007 coal deliveries. Excel then made a claim for short payment of that sum (USD299,882.47), after which Cargill served revised invoices claiming demurrage for the whole of the period from 8 to 25 June 2007. That claim was maintained by it by way of counterclaim in the arbitration (Excel being the moving party in the arbitral proceedings).

20 The Arbitrator noted that in the arbitration proceedings Cargill had put in issue every step which might lead to an entitlement on the part of Excel to rely on the force majeure provisions. The issues before the Arbitrator (which he observed were more numerous than would ordinarily be found in a commercial arbitration involving amounts of the kind there involved) included the time at which the force majeure event had occurred; whether notice of the force majeure event had been given as early as practicable, as required under the agreement; whether, under the agreement, as properly construed, demurrage was payable during a force majeure period; and whether Cargill was estopped or otherwise precluded from then asserting its claim for demurrage.

21 The issue which is the nub of the Alternative Argument (and which Cargill contends the Arbitrator failed properly to address) relates to the calculation of the period of laytime under the agreement and, in particular, whether (after commencement of force majeure) laytime continues to run up until the time at which a force majeure notice (valid or otherwise) is given. As Senior Counsel for Cargill, Mr Stevenson SC, accepted, the logical extension of this argument (if correct) is that unless a force majeure notice is given simultaneously with the commencement of a force majeure event, then laytime continues to run until such notice, valid or otherwise, is given. (By contrast, the effect of the Arbitrator’s determination is that if a valid force majeure notice is given in compliance with clause 17.1 of the agreement, then clause 17.3 means that a party does not become liable for demurrage during the period from the happening of the force majeure event the subject of that notice and that the giving of a notice of intention to claim force majeure under clause 17.2 as early as practicable in the circumstances means that time lost on account of force majeure does not count as laytime.)

22 The practical context in which this issue arose was as follows. As noted earlier, the coal was to be delivered on board the Iron Bradyn at the port of Newcastle. The procedure for the delivery and loading of coal involved the giving of a notice of readiness once the particular ship had arrived in port. There was then a period of ‘turntime’ (12 hours), following which ‘laytime’ commenced.

23 Laytime (defined in clause 1.1) is the time allowed under the agreement for the loading of the vessel at the delivery point, after which time demurrage (defined in clause 1.1 as the financial compensation payable if the time used in completing loading was longer than laytime) became payable. Under the agreement, laytime was to be calculated by reference to the nominated quantity of coal to be loaded on the vessel according to the formula set out in clause 7.5 (namely, the number of hours or part thereof calculated by dividing the tonnage of the shipment, expressed in metric tonnes, by the relevant “Cargo Handling Rate” expressed in Metric Tonnes per hour). (In that regard, I note that Cargill also asserts that the Arbitrator made an error of law in placing reliance, for the purposes of addressing the argument as to laytime, on the definition of Cargo Handling Rate including its reference to Weather Working Days, a matter I consider in due course.)

24 In respect of the coal to be delivered in June 2007 to the Iron Bradyn, the issue between the parties is now not as to the time of commencement of force majeure (although that was previously in issue); rather the question is whether, in the circumstances, laytime continued to run after the commencement of the force majeure period for the purposes of calculating when Excel became liable for demurrage.

25 It seems to be accepted that, but for the severity of the storms that occurred in early June 2007 and the consequential disruption to the rail infrastructure over most of that month, laytime (the period in which the Iron Bradyn was required to be loaded and after which demurrage would have been payable by Excel) would have ceased (and the Iron Bradyn would have gone on demurrage) at 0956hrs on 8 June 2007. It also seems to be accepted that, had the Iron Bradyn been on demurrage prior to the commencement of force majeure, the operation of force majeure would not have affected Excel’s liability for demurrage (it being broadly said that ‘once in demurrage, always in demurrage’, although there seem to be some exceptions (not material in the present case) to that principle, as identified by the Arbitrator at [170]).

26 Excel gave a notice of intention to claim force majeure of the kind contemplated by clause 17.2 at 1348hrs on 13 June 2007. (It had the day before given a notice of force majeure for the purposes of clause 17.1 and in that regard I note that the agreement contemplated two separate force majeure notices, only the second of which was in contention before the Arbitrator.) Whether the 13 June 2007 force majeure notice had been given as early as practicable for the purposes of clause 17.2 of the agreement was in issue before the Arbitrator, who ultimately found that it had. (Cargill had asserted that the failure to give a notice as early as practicable rendered it of no effect.)

27 As noted earlier, the Arbitrator ultimately found that Excel did not become liable for demurrage in respect of the Iron Bradyn until 25 June 2007 (after the cessation of the force majeure period).

28 Cargill’s principal submission in relation to the force majeure notice was that it was not valid or effective, as it had not been issued as early as practicable in the circumstances. It does not seek the challenge the Arbitrator’s finding in that regard. It relies now on the alternative submission it says it raised, namely that, even if the notice was not held to be invalid or ineffective, nevertheless the “delay” in its issue was to be taken into account when calculating whether laytime had expired and whether the vessel had gone on demurrage (as Cargill contended) on 8 June 2007. I consider in more detail below the content of the submissions put to the Arbitrator. For present purposes I simply note that Cargill’s complaint, in substance, is that the Arbitrator failed to deal at all (or dealt incorrectly) with the Alternative Argument identified now as being to the effect that (irrespective of whether the force majeure notice was a notice compliant with clause 17.2) laytime continued to run until a force majeure notice was given. (As I understand it, this argument requires acceptance of the proposition that a notice given as early as practicable in all the circumstances may nevertheless still be a notice the giving of which was the subject of delay for the purposes of clause 17.2.)

29 Senior Counsel for Excel, Mr Gleeson SC, submits that, to the extent that the Alternative Argument was put to the Arbitrator, it was rejected on the basis that the Arbitrator had concluded that notice was given as early as practicable (and hence, as I understand the submission, it was not necessary for the Arbitrator expressly to consider an argument predicated on a proposition antithetical to such a finding – namely, that there had been a delay in the giving of the notice) (as to which it says there was no manifest error of law) and, alternatively, to the extent that what Cargill is now seeking is to put an argument which was not in fact put (or put clearly) before the Arbitrator, there cannot be said to have been any denial of natural justice in the Arbitrator not having considered or expressly addressed the argument. It is submitted that Cargill was not deprived of a fair hearing of the case as put by it at the arbitration.

Issues

30 There are a number of jurisdictional and threshold issues which arise on the present application:

(i) Whether the agreement of the parties to refer any disputes to international arbitration under the rules of arbitration of the International Chamber of Commerce (the ICC Rules) constitutes an agreement to opt out of the Model Law for the purposes of s 21 of the Commonwealth Act, such that the State Act applies.

(ii) If the answer to (i) is yes, whether the dispute is one falling within the Admiralty jurisdiction of this Court (so as to override the effect of s 40 of the State Act, which precludes the grant of leave to appeal where there is an “exclusion agreement” under which the parties have waived recourse to the court in respect of their agreement).

(iii) If the answer to both (i) and (ii) is yes, whether the threshold requirements in s 38(5) of the State Act for the grant of leave to appeal are satisfied (namely that (a) the determination of the relevant questions of law could substantially affect the rights of one or more parties to the arbitration agreement; and (b) there is either a manifest error on the face of the partial award or there is strong evidence that the Arbitrator made an error of law and, if so, the determination of that question may add or be likely to add substantially to the certainty of commercial law).

(iv) If the answer to (i) above is no, and the Model Law applies, whether the Arbitrator failed to address the Alternative Argument, so as to amount to a denial of natural justice (such that the award was in conflict with the public policy of Australia for the purposes of s 34 of the Commonwealth Act).

(v) Whether, as a matter of discretion, the court should grant the relief sought (under the State Act or the Model Law, as the case may be) if Cargill has otherwise made out an entitlement to relief.

Summary

31 For the reasons set out below, I have concluded as follows on the above issues:

(i) I consider that an agreement by parties to refer any disputes to international arbitration under a particular set of procedural rules (as opposed to an agreement that the lex arbitri should be other than that of the Model Law) does not constitute an implied agreement to opt out of the Model Law for the purposes of s 21 of the Commonwealth Act (and that the decision in Eisenwerk Hensel Bayreuth Dipl-Ing Burkhardt GmbH v Australian Granites Ltd [2001] 1 Qd R 461 to the contrary is plainly wrong and should not be followed).

I am further of the view that the parties, when adopting the ICC Rules as the procedural rules to govern their arbitration in the terms in which they did, cannot be said to have done so with the knowledge or intention that this would necessarily be construed as an opt out clause for the purposes of s 21. While I would accept that the parties, represented by experienced legal representatives as they were, should be taken to have entered into their agreement with knowledge of the state of the law at that time (which was to the effect that a clause providing for settlement of disputes in accordance with ICC Rules had been construed as constituting an implied agreement to opt out of the Model Law) the clause in fact adopted by the parties was, in my view, sufficiently distinguishable from the Eisenwerk clause to cast doubt on such a result being the objective common intention of the parties at that time.

Accordingly, I find that there was not an agreement between the parties in writing to opt out of the Model Law for the purposes of the Commonwealth Act and that the Model Law applies.

(ii) Had I found otherwise on question (i) (ie, that the Model Law had been excluded and the State Act applied), then I would have found that the dispute was one arising out of a maritime claim within the Admiralty jurisdiction of this Court, for the purposes of s 41 of the State Act, so as to override the operation of the ‘exclusion agreement’ under which the parties waived recourse to the court in respect of their agreement.

(iii) Had I found for Cargill on (i) above and held that the State Act applied, then given my finding on (ii) above it would have been necessary to consider the threshold requirements set out in s 38(5) of the State Act for the grant of leave to appeal. In that regard, I am of the view that:

substantial effect on parties’ rights?

In light of the Arbitrator’s findings as to the existence of an enforceable agreement in 2008 in effect to compromise the claim for demurrage (or as to estoppel /waiver) it seems to me that the determination of the relevant questions of law (assuming Cargill’s contentions on those questions were to be accepted) could at most permit Cargill to claim demurrage for the short period from 21-25 June 2007 and therefore would have a lesser impact financially than Cargill has contended.

Excel’s argument, as I understand it, goes further than this and is that, because the Arbitrator’s finding based on clause 17.3 was that demurrage was not payable during the force majeure period and this finding is not challenged, any determination in Cargill’s favour of the Alternative Argument (i.e. even for the 21-25 June 2007 period) would not sound in any recovery by Cargill. The difficulty I have with that proposition is that if Cargill is correct on its interpretation of clause 7.11.2, and laytime runs (in any particular case) from the period force majeure commences until the giving of a notice of intention to claim force majeure under clause 17.2, then the finding that demurrage was not payable by reason of force majeure over a period in which the vessel was on demurrage would seem to be inconsistent with this and, therefore, any reconsideration of the clause 7.11.2 argument must necessarily entail a review of the position under clause 17.3.

Therefore, I would have been prepared to accept that a determination of the Alternative Argument was one which could have had a substantial effect on the rights of Cargill (albeit a lesser financial effect than that for which Cargill is contending). (The determination of the weather working day issue is not, however, one which of itself would be likely to have had a substantial effect on the parties’ rights, as conceded by Mr Stevenson, and it alone would not have a substantial effect on the parties’ rights.)

manifest error?

As to the alleged error the subject of the first ground of appeal, namely the construction of clause 7.11.2 in relation to the running of laytime until any notice of the kind contemplated in clause 17.2 is given, I am not satisfied that there has been shown to be a manifest error on the face of the partial award. I consider that the Arbitrator’s construction in this regard was one which was reasonably arguable. Any error of construction that might have been made in this regard (and I am by no means suggesting that there was one) is not so obvious as to satisfy the test of manifest error.

As to the alleged error the subject of the second ground of appeal, namely the working weather days argument, again I am not satisfied that there has been shown to be a manifest error on the face of the partial award. To the extent that the Arbitrator construed clause 7.11.2 by reference to the definition of ‘Weather Working Days’ in the definition of Cargo Handling Rate again I think such a construction was reasonably arguable. Although the purpose of the definition of Cargo Handling Rate, on its face, was to enable the calculation of the period of laytime to be allowed for the purposes of a shipment, as opposed to the question whether the period of laytime so calculated was to be suspended by reason of weather conditions or force majeure in any particular case, I think the possibility that the definition could be construed as having the operation for which Excel contended is not so unarguable as to make its adoption by the Arbitrator a matter in which he made a manifest error of law.

I accept that, insofar as the Arbitrator took into account, when reaching his conclusion on this point, the parties’ post-contractual conduct as evidence of their understanding of the clause, as an apparent aid to construction, this would appear to have been in error. However, the Arbitrator also reached his conclusion on this issue by reference to the content or operation of the relevant specification schedule. Therefore, I cannot find that his overall decision was one which was not otherwise reasonably open to him. I consider that the construction adopted by the Arbitrator by reference to the Cargo Handling Rate decision was one which was reasonably open to be reached without reference to the parties’ understanding of the clause at all and therefore it cannot be said that his conclusion on that point was a manifest error of law.

Strong evidence of error/certainty of commercial law?

I am not satisfied that there is strong evidence that the arbitrator made an error of law in relation to the first alleged error in relation to the construction of clause 7.11.2. Had I been satisfied that there was strong evidence as to the making of an error of law in the construction of clause 7.11.2 of the agreement, then I would have found that the determination of that question might add or be likely to add substantially to the certainty of the law in this area, since it relates to the construction of a standard form document in use in the area of international commerce.

As to the second alleged error, given that the Arbitrator seems to have had regard, as an aid to construction, to the parties’ post contractual conduct and that this may have affected the weight placed by him on the other matter which led to his finding that the weather working day definition had a substantive negative operation (and was not merely an integer in the definition of Cargo Handling Rate), I am of the view that although there was not a manifest error of law in relation to the construction of clause 7.11.2 by reference to the concept of weather working days, there is strong evidence of an error of law in this regard. For the same reason as indicated above, I would have found that the determination of this question was one that might add or be likely to add substantially to the certainty of the law in this area.

Given the findings summarised above, even had I found for Cargill on the initial jurisdictional question, I would not have found that it had established an entitlement to relief. I would not have been satisfied that the threshold requirements for the grant of leave to appeal under the State Act had been satisfied. (In relation to the second ground of appeal where I consider there was strong evidence of an error of law, the determination of which might add or be likely to add substantially to the certainty of the law in this area, the determination of that question alone – ie, not coupled with the determination of the Alternative Argument - would not have been likely to substantially to affect Cargill’s rights).

(iv) I am not satisfied that there has been a denial of natural justice. I am of the view that the Arbitrator considered and dealt with the submissions as made to him in relation to the construction and operation of clause 7.11.2. I think there is some force in the suggestion by Excel that what is now sought to be put by Cargill is a modification or reformulation of the alternative submission that was in fact put before the Arbitrator. If so, he cannot be criticised for having not dealt with it. However, even if it can be said that there has been no modification or reformulation as such, I consider that the Arbitrator’s findings are consistent with a conclusion that there is no operative delay for the purposes of clause 7.11.2 in circumstances where there was a force majeure notice issued as early as practicable. The Arbitrator raised the issue as to the effect of a notice not given timeously, during the course of debate with Senior Counsel then appearing for Cargill on the arbitration. He was clearly appraised of the submission that even if the notice was effective, and had been given as early as practicable, there might be a continuation of laytime for the purposes of Cargill’s claim for demurrage (and he seems to have dealt with this submission, implicitly, by rejecting the premise that there could be such a notice which nevertheless amounted to delay for the purposes of clause 7.11.2). The Arbitrator appears to have addressed the thrust of the Alternative Argument put to him in his Partial Award, even if he did not frame his reasons in the way in which the argument is now put. Cargill cannot in my view be said to have been deprived of a fair hearing in that regard.

(v) Had I been satisfied that the jurisdictional and threshold requirements for the grant of leave to appeal under the State Act (or for the setting aside or revision of the award for denial of natural justice under the Model Law) were met, I would nevertheless not have exercised discretion in this case to grant leave to appeal on the question of law relating to the construction of clause 17.2 (and hence the question as to the argument based on ‘weather working days’ does not arise). In summary, it seems to me that it would be inconsistent with the emphasis placed on judicial restraint in intervention of arbitration awards such as this, to permit what seems in essence to be a desire to re-litigate what had been a carefully argued (and analysed) construction argument (particularly since the unchallenged estoppel/waiver finding, and the doubt as to whether any inconsistency between the existing findings and those to be challenged could be revisited in light of the clause 17.3 finding, could well mean that any redetermination of the construction issues may now be of little or no practical benefit to Cargill).

Reasons

32 I have outlined above the factual background to the present dispute. In summary, if the Model Law does not apply then the relevant questions are whether Cargill has satisfied the threshold requirements for the grant of leave to appeal under the State Act and whether, as a matter of discretion, leave should be granted; if the Model Law does apply then the question is as to whether there has been a denial of natural justice. I consider the issues for determination below.

(i) Is there an opt out agreement?

33 The UNCITRAL Model Law has the force of law pursuant to s 16 of the Commonwealth Act and appears as schedule 2 to that Act. Section 21 of the Commonwealth Act provides that:

21 If the parties to an arbitration agreement have (whether in the agreement or in any other document in writing) agreed that any dispute that has arisen or may arise between them is to be settled otherwise than in accordance with the Model Law, the Model Law does not apply in relation to the settlement of that dispute. (my emphasis)

Is it necessary that the opt-out agreement be express?

34 Section 21 requires that, to exclude the Model Law, there must be an agreement in writing but says nothing as to whether that agreement must be express or can be implied from the terms of the parties’ written agreement.

35 Mr Gleeson placed emphasis on the fact that (as made clear in the Explanatory Memorandum to the International Arbitration Amendment Bill 1988 (Cth)) s 21 is an ‘opt out’ provision. The notes to Clause 7 of the Bill (relating to the then new s 21) stated that:

The Model Law is implemented on an ‘opt out’ basis by the amending legislation. Accordingly, the provisions of the Model Law will apply to an international commercial arbitration ... unless the parties agree otherwise, either in the arbitration agreement or in any other agreement in writing.

There is nothing in that explanatory note to require that there be an express exclusion, as opposed to an implied exclusion, of the Model Law. That said, in the Outline section of the Explanatory Memorandum, it is said that the Bill will amend the Act, relevantly, to implement the UNCITRAL Model Law “on an ‘opt out’ basis so that its provisions will apply unless the parties expressly exclude it”(my emphasis).

36 Mr Gleeson submits that what the adoption of an opt out procedure makes clear is that the parties must turn their minds to the issue and do something (in writing) expressly to exclude the Model Law and that, in the absence of an express exclusion, they should not be taken impliedly to have done so. It seems to me that it by no means follows that an implied agreement to exclude the Model Law could not be the result of the parties having turned their minds to the question of the law which should govern their arbitration and adopted a different law. The adoption, if that be the case in any particular agreement, of a different curial law suggests that the parties have indeed turned their minds to the question of what law should govern their arbitration. The fact that they may have provided for this in an indirect way, by way of adoption of a particular system of law as the lex arbitri, rather than by the direct exclusion of the lex arbitri which would otherwise apply does not seem to me to be any the less effective a means of indicating their intention in that regard. Apart from the brief reference in the outline to the Explanatory Memorandum (not reiterated in the specific notes to the relevant clause) to an express exclusion of the Model Law, there is nothing in that Memorandum or in the terms of s 21 itself to preclude the operation of an implied agreement as a means of exclusion of the Model Law, provided that that implied agreement can be discerned from the terms of a written agreement between the parties.

37 The implication of an agreement to exclude the Model Law must surely arise if the parties in their written arbitration agreement (or any other document in writing) have chosen a wholly inconsistent system of law to govern their arbitration. In those circumstances, I am not persuaded that (had they done so in this case) this would not have been sufficient to enliven the operation of s 21. I do not read s 21 as requiring that the agreement to ‘opt out’ be in express terms, as opposed to an agreement which can be inferred from a written agreement. (To the extent that Eisenwerk, to which I refer below, is authority for the proposition that the relevant opt out agreement can be one which is an implied agreement, then I would not conclude that it was plainly wrong. Where I differ from the conclusion reached in Eisenwerk is as to whether the choice of procedural rules to govern an arbitration amounts to an implied exclusion of the lex arbitri.)

38 Was there an implied agreement between the parties in this case to settle any disputes otherwise than in accordance with the Model Law?

39 Clause 18.9 of the agreement provided as follows:

In respect of matters which are to be referred to an Expert pursuant to the foregoing provisions of this clause 18 any appeals from the Experts decisions, and other disputes or claims arising out of or in connection with a Transaction and/or this Agreement, including any questions regarding its existence, validity or termination, shall be referred to International Arbitration under the Rules of Arbitration of the International Chamber of Commerce with any arbitration to be heard in Sydney in the English language before three arbitrators (my emphasis)

40 The agreement to refer disputes for arbitration under the ICC Rules, though with the modification that only a single arbitrator was to be appointed in this case, was confirmed (after the particular disputes had arisen) in an exchange of correspondence between their respective lawyers on 15 April 2009 (Cargill’s solicitor having earlier suggested that an ICC arbitration was not necessary and that the arbitration, by default, would be governed by the Commonwealth Act (as well as the State Act) and the Model Law – see p 138 vol 4 Ex A).

41 The question arises, therefore, as to whether the parties’ agreement to “refer” the dispute for arbitration “under” the ICC Rules (terminology which in my view may well connote something other than what would be comprised by an agreement for “settlement” of the dispute “in accordance with” any particular system of law) constitutes an implied agreement to opt out of the Model Law for the purposes of the Commonwealth Act. (It seems to me that there is a not immaterial difference in this context between the respective clauses in Eisenwerk and in the present contract, in that the reference to referral of the dispute for arbitration under the ICC Rules more clearly draws attention to the procedural aspects or rules governing the arbitration rather than the ultimate resolution or determination of the dispute.)

Eisenwerk

42 Not surprisingly, Mr Stevenson relies (in support of his submission that the parties’ agreement to adopt the ICC Rules constitutes an implied agreement to opt out of the Model Law for the purposes of the Commonwealth Act), on the decision of the Queensland Court of Appeal in Eisenwerk, a case determined in 1999. There, the parties’ arbitration agreement included a provision in similar (though not relevantly identical) terms to that contained in the arbitration agreement in the present case before me, that clause being as follows:

Any dispute arising out of the Contract shall be finally settled, in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, by one or more arbitrators designated in conformity with those Rules.

43 In Eisenwerk, the question whether the parties had, by including the above clause, “opted-out” of the Model Law for the purposes of s 21 of the Commonwealth Act arose on an appeal from the refusal by Fryberg J to grant a stay, under s 7(2) of the Commonwealth Act, of court proceedings brought by the respondent to the appeal and his Honour’s decision to restrain the appellant from pursuing an ICC arbitration. Pincus JA (with whom Thomas JA and Sheperdson J agreed) took judicial notice of the existence and content of the ICC Rules and construed the parties’ agreement for any dispute to be ‘finally settled in accordance with ICC Rules’ as an agreement that the dispute would be settled otherwise than in accordance with the Model Law. His Honour thus held that the Model Law did not apply. Pincus JA said at [11]-[12]:

It might be thought that the question whether a clause such as that contained in the contracts which are in issue is effective to exclude the Model Law is a matter of some importance, for the arbitration clause in the present case conforms to an international standard; making allowances for variances, perhaps due to translation. cl. 13.1 of the General Conditions, quoted above, is an adoption of the clause recommended by the ICC for use by those wishing to have their disputes resolved under its rules. The 1988 ICC Rules as set out in Redfern and Hunter, Law and Practice of International Commercial Arbitration, (2nd., 1991) state the recommended clause as follows:

“All disputes arising in connection with the present contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”

If Australian Granites’ argument is right, use of this recommended clause is insufficient to avoid the, surely highly inconvenient, result that the parties are bound to both a Model Law arbitration and an ICC arbitration. And the former would not be an arbitration under the aegis of an established international organisation, as the latter is; it should be noted that the Model Law has not been widely adopted. Only 19 countries had adopted it, to the month of February 1998, and those countries did not include Germany: see A. Shields, “The development of a uniform framework for international arbitration” (1998) 16 The Arbitrator 217 at 224.

In my opinion the better view is that, by expressly opting for one well-known form of arbitration, the parties sufficiently showed an intention not to adopt or be bound by any quite different system of arbitration, such as the Model Law. It follows that, insofar as Australian Granites relies upon (and succeeded below on) the argument that Article 8 of the Model Law precluded the grant of a stay of the action in favour of Hensel, after delivery of its defence, that view must be rejected. In consequence, the provision of domestic law which governs the right to a stay is s. 7(2) of the Act, quoted above. (my emphasis)

44 Eisenwerk has since been followed by the Supreme Court of Singapore in John Holland Pty Ltd aka John Holland Construction & Engineering Pty Ltd v Toyo Engineering Corp (Japan) [2001] 2 SLR 262.

45 Eisenwerk stands as authority for the proposition that, by expressly adopting a different ‘form of arbitration’ (there, that being the ICC Rules), parties will be taken to have shown a sufficient intention not to adopt the form or system of arbitration provided for under the Model Law (and that this is sufficient to amount to an opt-out agreement for the purposes of the Commonwealth Act).

46 What the Court of Appeal in Eisenwerk did not appear expressly to address was the question whether, by providing for their disputes to be settled by arbitration in accordance with the ICC Rules, the parties had done any more than to adopt a particular set of arbitral rules, rather than the lex arbitri or curial law as the law governing any such arbitration.

47 It is the conceptual distinction between the lex arbitri and the procedural rules of an arbitration on which Mr Gleeson bases his primary submission that the decision in Eisenwerk is plainly wrong and should not be followed by this Court. Mr Gleeson submits that where the Queensland Court of Appeal erred in Eisenwerk was that it was not taken to, or failed to appreciate, the critical distinction between the lex arbitri or curial law governing an arbitration (which, if the seat of arbitration is within Australia is likely, unless excluded by the parties, to be the Model Law) and the procedural rules of the arbitration (which may be chosen by the parties themselves as a matter of contract to govern the operation of the arbitration itself). (The Queensland Court of Appeal does appear, however, to have been taken in argument to the fact that the provisions of the Model Law were capable of being varied by agreement between the parties and that the ICC Rules were capable of applying as a partial modification of the Model Law, leaving untouched other provisions of the Model Law such as the recognition and enforcement provisions – at least so far as reference is made to the summary report, appearing in the published reasons, of Counsel’s submissions on that appeal.)

Deference to be accorded to Eisenwerk decision

48 The need for me to be convinced (in order to accept Mr Gleeson’s submission that Eisenwerk should not be followed) that the conclusion reached in Eisenwerk is plainly wrong arises from the deference that I am bound, as a first instance judge, to accord to decisions of intermediate appellate courts and, here, to the interpretation there placed on s 21 of the Commonwealth Act by the Queensland Court of Appeal and its application having regard to the clause there being considered. The High Court in Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485, at 492, has said that:

[U]niformity of decision in the interpretation of uniform national legislation ... is a sufficiently important consideration to require that an intermediate appellate court -- and all the more so a single judge -- should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong.

49 To similar effect was the statement in Beveridge v Whitton [2001] NSWCA 6, by Heydon JA (as his Honour then was), with whom Mason P and Powell JA agreed, applying that approach also to well-considered dicta of intermediate appellate courts, at [30].

50 In Gett v Tabet (2009) 254 ALR 504; [2009] NSWCA 76, the Court of Appeal considered (at [274]-[293]) the meaning of the phrase “plainly wrong”, in the context of the question as to when an intermediate appellate court ought to depart from its own decisions in relation to a matter of common law. At [283], the Court (comprised of Allsop P, Beazley and Basten JJA) noted that the adverbs “plainly” and “clearly” in the context “bespeak the quality of the error or the level of conviction of error that must be perceived” (and do not limit the circumstances of departure from previous authority to those in which the error is patent or obvious or easily perceived). Their Honours concluded (at [294] – [295]):

The phrases “plainly wrong” or “clearly wrong” can be understood to focus on at least one or more of the following attributes of a ruling:

(a) the fact of error is immediately (in the sense mentioned in [283] above) apparent from reading the relevant judgment;

(b) the strong conviction of the later court that the earlier judgment was erroneous and not merely the choice of an approach which was open, but no longer preferred (compare Chamberlain and Clutha), and

(c) the nature of the error that can be demonstrated with a degree of clarity by the application of correct legal analysis.

In our view, the first possibility is liable to be highly subjective and should not be required, where the other two possibilities are satisfied. The existence of (b) and (c) is a precondition to the exercise of the power to depart from earlier authority.

51 At [301], their Honours said:

The phrase “plainly wrong” (or any like phrase) tends to focus attention on the jurisprudential nature and character of the error and underlying principle or course of authority or the conviction as to the existence of the error. Factors considered by Aickin J in Queensland v Commonwealth and in the joint judgment in John, on the other hand, suggest that there are other considerations bearing on the question as to whether the earlier decision should be overruled, error having been exposed to the requisite degree of conviction. These considerations are properly invoked because they are relevant to the underlying principles of certainty, predictability and transparency upon which the theory of precedent is founded. As explained by Nettle JA in RJE (at [104]), there must be “compelling reasons” for departure from earlier authority, whether in the same court or in a court of co-ordinate jurisdiction, a phrase encompassing both jurisprudential and practical considerations.

52 The position stated in Marlborough was reiterated in Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89 (where the High Court also emphasised the need for regard to be had to “long-established authority and seriously considered dicta of a majority of this Court”, at [134]). (In CAL No 14 Pty Limited v Motor Accidents Insurance Board [2009] HCA 47; (2009) 239 CLR 269, at [50], the High Court rejected the suggestion that Farah had altered the doctrine of precedent (in a different regard) by expanding the principle in Marlborough to the common law generally (the application of the relevant principle to the common law being well-established).)

53 In Justice Heydon’s article “Limits to the Powers of Ultimate Appellate Courts” (2006) 122 LQR 399, at 415 n 114), when considering the factors which may affect the weight to be attributed by an ultimate appellate court to its own dicta, Justice Heydon referred, among other things, to various circumstances in which that dicta may have fallen from the court otherwise than in the course of considered argument on the point. By analogy, the weight to be accorded to the conclusion in Eisenwerk may potentially be affected by the fact that it does not appear from the court’s reasoning that attention was drawn to the distinction between the lex arbitri and the procedural rules of an arbitration, as such.

Other authorities

54 In his submissions, Mr Stevenson noted that there has been no demur by other courts to the reasoning in Eisenwerk (though having been cited on seven or eight occasions on other points); that there is no judicial expression of opinion that it is wrong; and that there is no example of any court in Queensland or any other State refusing to follow it. Nevertheless, I was not taken to any authority in which the question as to whether Eisenwerk should be followed in this respect had been expressly argued before the court and hence had been the subject of considered review.

55 In addition to the absence of express authority overturning or rejecting Eisenwerk, Mr Stevenson pointed to the decision of Cole J in Aerospatiale Holdings Australia Pty Ltd v Elspan International Ltd (1992) 28 NSWLR 321. There, his Honour (at 325) considered an arbitration clause which referred disputes to arbitration “by a single arbitrator appointed at the request of either party by the President for the time being of the Institution of Engineers of Australia in accordance with the Commercial Arbitration Act 1984 (NSW)”. His Honour held that, by referring to the State Act, the parties had agreed that the Model Law was not to apply for the purposes of s 21 of the Commonwealth Act.

56 Relevantly, Mr Stevenson submitted that, to the extent that his Honour was of the view that a specific reference to a different set of arbitration procedures to the Model Law involved exclusion of it, this decision supports the result in Eisenwerk. However, in Elspan, the reference was to an arbitration under the State Act itself (and therefore can be seen as a choice of the lex arbitri, not an adoption of a particular set of procedural rules as such) and it seems to me to be distinguishable from Eisenwerk in this regard.

57 Similarly, although reference was made by Mr Stevenson to the decision of Giles CJ Comm D (as his Honour then was) in American Diagnostica Inc v Gradipore Ltd (1988) 44 NSWLR 312, there again the relevant choice was of the State Act (albeit in conjunction with the UNCITRAL Arbitration Rules). There, Giles CJ found (at 323) that an agreement to use the UNCITRAL Arbitration Rules for an arbitration in conjunction with the “Arbitration Act current in New South Wales, Australia” was a sufficient agreement for the purposes of s 21 of the Commonwealth Act to opt out of the UNCITRAL Model Law. Again, this decision is distinguishable by reference to the particular wording of the clause in question. I agree with the submission by Mr Gleeson that American Diagnostica and Elspan (neither of which expressly referred to or applied Eisenwerk) do not support the reasoning in Eisenwerk as in both cases what the parties expressly chose was the State Act (as the lex arbitri). I also note that in American Diagnostica (at 324), his Honour recognised that the lex arbitri, as the law governing the conduct of the arbitration, went beyond matters of procedure, saying that:

Although the law governing the conduct of the arbitration (the lex arbitri) is said to be concerned only with procedural matters, it goes beyond, for example, the production of documents or the order of witnesses. The appointment, removal, and replacement of arbitrators, time-limits, interim relief, consolidation of arbitrations, representation before the arbitrator, the form and validity of the award, and the finality of the award, are amongst the matters which can fall within the lex arbitri.

Is reasoning of Eisenwerk plainly wrong?

58 Is the conclusion reached in Eisenwerk plainly wrong, such that it would be open for me to find that the adoption by the parties of the ICC Rules did not necessarily amount to an agreement to opt out of the Model Law (assuming for this purpose, though I think that such an assumption is doubtful, that the respective arbitration clauses can be said to be relevantly indistinguishable)?

59 Mr Gleeson’s principal contention, as noted earlier, is that the adoption of arbitral rules by the parties does not of itself constitute an opting out of the Model Law for the purposes of s 21 of the Commonwealth Act and that in this regard the decision in Eisenwerk is plainly wrong and should not be followed.

60 What was the reasoning underlying the conclusion in Eisenwerk? Although reference was made by Pincus JA, first, to the perceived high level of inconvenience which would follow from a result that the parties are bound to both a Model Law arbitration and to an ICC arbitration; secondly to the fact that the former would not be an arbitration under the aegis of an established international organization, as the latter would be; and, thirdly, to the fact that the Model Law had not then been widely adopted, the basis for the conclusion that there had been an implied opting out of the Model Law was the perceived inconsistency and irreconcilability as between the provisions of the Model Law and those of the ICC Rules. In that regard, as noted above, had the provisions in fact been wholly irreconcilable and had the systems in question performed the same function in relation to an arbitration, then I would accept the logic on which the Court of Appeal proceeded. However, for the reasons set out below that does not appear to be the case.

61 Turning first to what I might describe as the peripheral or background matters raised (as to inconvenience and the like), it seems to me that the perceived inconvenience of there being two sets of rules is overstated in that many of the arbitral rules provided for under the Model Law are rules which apply in default of any choice to the contrary by the parties. Therefore, as submitted by Mr Gleeson, there is no reason why the two systems could not operate together (and, I might add, any inconvenience in reconciling which of any two potentially applicable rules was intended to apply, apart from being something of the parties’ own making, would thus be readily able to be resolved by ignoring all default rules which covered a matter dealt with in the ICC Rules). As to the second matter, it is not suggested how the question whether an arbitration would or would not be under the aegis of an established international organization is relevant in pointing to the intention of the parties whether or not to opt a form of arbitration not under the aegis of any such organization. Thirdly, apart from the question of how this would be relevant in any event, the breadth of acceptance worldwide of the Model Law is now very different from that which was the case in 1999. (Mr Gleeson noted that, to the extent that it is relevant, more than 60 countries have now adopted the Model Law, referring to statistics available from the UNCITRAL website.)

62 Mr Gleeson, recognising the high test that must be met in order to come to such a conclusion, put forward a series of propositions as to why Eisenwerk should be held to have been wrongly decided, each in essence turning on the distinction between the lex arbitri governing an arbitration and the procedural rules applicable to an arbitration. In summary, those propositions were that the Court of Appeal in Eisenwerk had:

(i) (this being the fundamental focus of the criticism of this decision) failed to appreciate and apply the distinction between the lex arbitri or curial law governing the conduct of the arbitration (being the legislative framework in which the arbitration takes place, here the Model Law unless excluded) and the procedural rules applicable to an arbitration by agreement between the parties (here, the ICC Rules);

(ii) failed to appreciate that the ‘opt out’ provision in s 21 of the Commonwealth Act allows the parties to substitute an alternate law under which their dispute will be resolved and is not concerned with the parties’ choice of procedural rules;

(iii) failed to appreciate that the Model Law is a form of lex arbitri, not a different system of arbitration procedure from that comprised by the ICC Rules and hence the Model Law provisions can logically apply to arbitrations administered by a variety of permanent arbitral institutions, such as the ICC (Mr Gleeson referring there to Articles 2(a), (d) and (e) of the Model Law);

(iv) failed to take into account that the Model Law contains provisions which allow parties a wide degree of autonomy or control over how their dispute is to be resolved (referring, in particular, to Article 19 of the Model Law, the importance of which has been stressed in other contexts as noted below) including the right (under Article 2(d) of the Model Law) to authorise a third party (which would include an institution such as the ICC) to determine the procedure to be followed and contemplates that the parties may include in their arbitration agreement matters as to arbitration rules (institutional or otherwise) (there referring to Article 2(e) of the Model Law), this autonomy being subject only to the mandatory provisions of the Model Law concerning the conduct of the proceedings or the making of an award (referring to Article 18);

(v) incorrectly assumed that the Model Law and the procedural rules as chosen by the parties (or as determined by the arbitrator) cannot operate in conjunction with each other (the contrary position being contemplated by Article 19, which allows the parties to determine the rules of procedure to govern their arbitration); (in support of which proposition Mr Gleeson referred to the Report of the Secretary General, UNCITRAL Secretariat, Analytical Commentary on draft text of a Model Law on International Commercial Arbitration, presented to the United National Commission of International Trade Law, 18^th Session, Vienna, 3-21 June 1985, at 44-45 which identified Article 19 as the most important provision of the Model Law in that the parties are thereby given a choice as to the procedures to be adopted for their arbitration);

(vi) incorrectly suggested that the provisions of the Model Law and the ICC Rules are inconsistent and that such inconsistency is irreconcilable (in particular, Mr Gleeson noted that the example given by Pincus JA as to the differences in respect of provisions concerning the number and identity of arbitrators under the Model Law and ICC Rules (comparing Article 10 of the Model Law and s 18 of the Commonwealth Act and Articles 1 and 8 of the ICC Rules) did not support the conclusion that there was any inconsistency in light of the fact that Articles 10(1) and 11(2) of the Model Law provide that the parties are free to determine the number of arbitrators and to agree upon a procedure of appointing the arbitrator or arbitrators); and

(vii) wrongly assumed that there would be a high level of inconvenience if an arbitration were to be held in accordance with the ICC Rules but was subject to the Model Law as the lex arbitri.

63 As noted by Mr Gleeson, insofar as the Model Law deals with procedural matters, the provisions in the Model Law generally apply by way of default or fall back provisions in the absence of specific agreement by the parties or where the procedural rules selected are unable to apply for some reason (referring by way of example to the wording “unless otherwise agreed by the parties” used in Articles 3, 11(1), 17, 24, 26 and 29) or the statement that “the parties are free to agree” on certain matters in Articles 10, 11(2), 13, 19, 20, and 22). This illustrates the autonomy given to parties under the Model Law and the ability to reconcile the two sources of potential rules applicable to an arbitration conducted under the Model Law as the lex arbitri but adopting procedural rules from another source.

64 Apart from the express recognition in the Model Law that the parties may choose the procedural rules of a particular institution (Articles 2(a) and (d) of the Model Law) and hence contemplates that another institution may have a procedural role to play in the conduct of the arbitration, the Model Law reserves to the court the power to intervene where an institution fails to perform its procedural function and thus contemplates that the Model Law may have a supervisory or supplementary role over and above the role accorded to other institutions by reason of the parties’ contractual choice of rules. In this regard, Mr Gleeson referred to the procedure for the appointment of arbitrators outlined in Article 11(4)(c) of the Model Law.

65 As the parties’ freedom to choose the procedural rules governing the arbitration is expressed by Article 19 to be subject to any mandatory provisions of the Model Law, Mr Gleeson submitted that the parties’ choice of procedural rules cannot of itself constitute ‘opting out’ of the Model Law for the purposes of s 21 of the Commonwealth Act and that the choice of procedural rules does not involve the parties selecting any alternate law (such as the lex arbitri) under which their dispute will be resolved.

66 It seems to me that the critical distinction is as to whether the opt out provision contemplated by s 21 is one which focusses on the adoption of the Model Law as the lex arbitri or simply as the source of the procedural rules for the arbitration. In its terms, clause 18.9 of the arbitration agreement in the present case expressly focusses on the adoption of particular procedural rules (by reference to the ICC Rules, those being of a procedural nature). That does not necessarily involve any adoption of a different system of law as the lex arbitri (which, as explained in Dicey, Morris and Collins, The Conflict of Laws, Sweet & Maxwell, 2006, at [16-035], is the law chosen by the parties to govern arbitral procedure that is, the procedural law of arbitration (at [16-039]) from that which would apply under the Model Law, nor is it inconsistent with the application of the Model Law as the lex arbitri. (This is also referred to as the ‘curial law’ of the arbitration (see Mustill and Boyd, Commercial Arbitration, 2^nd edn, Butterworths, 1989, at 64). Ordinarily, the lex arbitri is that of the seat of the arbitration for the reasons noted in Raguz v Sullivan [2000] NSWCA 240, where Spigelman CJ and Mason P (with whom Priestley JA agreed) said at [93]:

The seat of arbitration is not necessarily where it is held, although where the parties have failed to choose the law governing the conduct of the arbitration it will prima facie be the law of the country in which the arbitration is held because that is the country most closely connected with the proceedings: see James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 607, 609, 616; Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1981] 2 Lloyd’s Rep 446 at 453-454; Bank Mellat v Helliniki Techniki SA [1984] QB 291 at 301.

67 Recently, Dicey and Morris in their updating companion (October 2009) to the 2006 edition, have stated (affirming the position that parties can choose procedural rules different to the seat of the arbitration) (at [16-034]) that:

Where parties have expressly chosen the seat of their arbitration , it is the courts at the seat which have exclusive supervisory jurisdiction to determine claims for a remedy going to the existence or scope pf the arbitrator’s jurisdiction, or to allegations of bias.

Difference between the lex arbitri and procedural rules of the arbitration

68 In the private international law context, there are a number of laws which may govern different aspects of or relating to an arbitration. Those may be summarised as being the proper law governing the substantive rights of the parties in respect of their underlying dispute (here the proper law of the contract), the proper law of the arbitration agreement (which may differ from the proper law of the contract itself) which governs the obligation of the parties to submit their disputes to arbitration and to comply with any arbitral award made in the context of that arbitration, and the lex arbitri or curial law governing the conduct of the arbitration of any particular dispute referred to in accordance with the arbitration agreement (to which I have referred above). (See Mustill and Boyd, Commercial Arbitration, at 61-62)

69 As explained by Dicey and Morris (at [16-035]) the lex arbitri is the law chosen by the parties to govern arbitral procedure that is, the procedural law of arbitration (at [16-039]). The extent to which the parties may choose the lex arbitri (or the extent to which such a choice may be given recognition by the law applicable at the seat of the arbitration) will be determined in much the same way as in other contexts the courts determine when to recognise and give effect to a choice by the parties of the proper law of their contract. However, the lex arbitri is recognised as being distinct from the proper law of the contract (Smith Ltd v H & S International [1991] 2 Lloyd’s Rep 127, at 129-130; American Diagnostica, at 324-328; Blackaby N., Partasides C., Redfern A., and Hunter M., Redfern and Hunter on International Arbitration, 5^th edn, Oxford University Press, 2009, at 3.39-3.43). It is also to be distinguished from the procedural rules by which, in accordance with the lex arbitri, the parties may agree that the arbitration will be conducted.

70 Giles CJ in Comm D in American Diagnostica, referred to the lex arbitri as the law governing the conduct of the arbitration (at 324), and explained that the scope of the lex arbitri (or curial law of the arbitration) goes beyond matters of procedure:

Although the law governing the conduct of the arbitration (the lex arbitri) is said to be concerned only with procedural matters, it goes beyond, for example, the production of documents or the order of witnesses. The appointment, removal, and replacement of arbitrators, time-limits, interim relief, consolidation of arbitrations, representation before the arbitrator, the form and validity of the award, and the finality of the award, are amongst the matters which can fall within the lex arbitri.

71 The learned authors go on to say, at 62;

The curial law governs: the manner in which the reference is to be conducted; the procedural powers and duties of the arbitrator; questions of evidence; the determination of the proper law of the contract .

72 Dicey and Morris note (in a passage substantially in the same form from the 1987 edn which was approved by Giles CJ in American Diagnostica, at 325) that the choice of the seat of arbitration is in effect the choice of the lex arbitri to govern the arbitration but that there remains the potential, after choice of the lex arbitri for parties to choose a different set of procedural rules governing the arbitration to those of the seat, save for the mandatory rules that will still apply according to the relevant law of the seat, (at [16-035]);

Party autonomy in the choice of the law to govern arbitral procedure (the lex arbitri) is expressed in the choice of a seat for the arbitration. This “seat” is in most cases sufficiently indicated by the country chosen as the place of the arbitration. For such a choice of place not to be given effect as a choice of seat, there will need to be clear evidence that the parties (or the arbitrators, if so authorised by the arties) agreed to choose another seat for the arbitration; and that such a choice will be effective to endow the courts of that country with jurisdiction to supervise and support the arbitration. The concept of the “seat” of the arbitration is a juridical concept. The legal “seat” must not be confused with the geographically convenient place chosen to conduct particular hearings (there citing Naviera Amazonica)

The courts of the seat will have sole supervisory and primary supportive function in relation to the conduct of the arbitration save where there has been an express and effective choice of a different lex arbitri, in which event the role of the courts of the seat will be limited to those matter specified by their own law as internationally mandatory, is non-derogable, even where an express choice of a different lex arbitri has been made by the parties.

73 The dual source of procedural rules in the context of arbitration is referred to by Dicey and Morris (at [16-030]) as follows:

The dual character of procedural law in arbitration is reflected in the dual source of procedural rules. All of the major international arbitral institutions have their own procedural rules, which will apply to arbitrations conducted under their auspices (save to the extent that the parties expressly provide otherwise). From the perspective of the parties to an international arbitration (and of the arbitral institution) these rules will form the primary procedural code. Even where the parties have chosen ad hoc rather than institutional arbitration, the parties may select a set of procedural rules such as the UNCITRAL Arbitration Rules.

The other source of procedural law for arbitration is those provisions of national law which deal specifically with arbitration – the lex arbitri properly so called. Such rules may perform one of three functions: (a) directory: they may provide a source of arbitral rules which may be applied to the extent that the parties have not expressly chosen their own rules of procedure (whether by drafting specific rules into their arbitration agreement or more commonly by choosing a set of standard procedural rules, such as those of the ICC or LCIA or the UNCITRAL Arbitration Rules); (b) mandatory: national law may also however place mandatory limits on the autonomy of the parties in arbitration, by prescribing certain matters of arbitral procedure from which no contracting out is permitted; (c) supportive; national law may extend the support of national court processes to arbitration, by making available to the parties certain judicial procedures to deal with matters which are outside the scope of the arbitrators’ authority, since they require the coercive powers of the State.

74 Thus, as recognised in American Diagnostica and explained in the academic text referred to above it is possible for parties to choose different procedural rules to those applying under the lex arbitri of the seat of the arbitration, though the mandatory procedural rules of the seat of the arbitration will apply notwithstanding any attempt by the parties to preclude their application by choice of a different set of procedural rules.

75 In American Diagnostica his Honour said:

That there can be a lex arbitri different from the law of the country in which the arbitration is held is implicit in what was said in James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd, Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG and Bank Mellat v Hellenik Techniki SA referred to above. The place where the arbitration is held is not necessarily conclusive of the seat of the arbitration, as is obvious when one considers a peripatetic arbitration, and in Naviera Amazonica Peruana SA v Compania Internacional de Seguros del Peru, Kerr LJ said (at 120):

“There is equally no reason in theory which precludes parties to agree that an arbitration shall be held at a place or in country X but subject to the procedural laws of Y. The limits and implications of any such agreement have been much discussed in the literature, but apart from the decision in the instant case there appears to be no reported case where this has happened. This is not surprising when one considers the complexities and inconveniences which such an agreement would involve.”

Can agreement on a lex arbitri different from the law of the country in which the arbitration is held entirely escape the local rules? The foundation for agreement on a lex arbitri is that all arbitrations are consensual, party autonomy being the cornerstone of modern arbitration, and so Gradipore said that the consensual nature of the arbitration permitted American Diagnostica and Gradipore to agree to exclude the Act if it would otherwise have applied to their arbitration. But there must be a limit to the parties' freedom, because their choice of the place of their arbitration may carry with it application to the arbitration of the law of that place according to its terms so as to govern the conduct of the arbitration. The freedom is to choose the place. So far as the local rules compulsorily apply and are inconsistent with the chosen lex arbitri, they can not be put aside by agreement that they do not apply.

76 In addition, his Honour said (at 328);

There is thus some judicial and other guidance contrary to Gradipore's submission. In principle, party autonomy does not mean complete freedom to exclude a system of law, or particular elements of a system of law, from the relationship between the parties. Confining attention to statutory law, if the statute on its proper construction and with regard to the legislative power of the legislature applies to the parties and their conduct of the arbitration, and expressly or by necessarily implication can not be excluded by agreement, the agreement of the parties to exclude it will count for nothing. If the statute applies to the arbitration, a prohibition against contracting out cannot be avoided by contracting out of the prohibition.

77 Another means of distinction between the differing sources of law concerning how the arbitration is governed is made by Mustill and Boyd (at 52) in their more recent 2001 Companion to the Second Edition published in 1989. Mustill and Boyd distinguish between external and internal rules. The internal rules being those rules (as chosen by the parties – whether they be rules formulated by institutions such as UNCITRAL Arbitration Rules, or rules as set out in individual state legislation) and the national laws of a state in which the arbitration is seated, which as a matter of that state’s law will apply to the arbitration. Mustill and Boyd suggest that strictly speaking the internal rules are not laws at all, but are simply the procedures by which, (as a matter of contractual force) the parties have agreed (either implicitly or explicitly) to be bound.

Academic and other criticism of Eisenwerk

78 It is fair to say that the decision in Eisenwerk has been roundly criticised both for policy reasons (there being concerns as to the impact it would have on the willingness of parties to engage in international arbitration with Australia as the seat of the arbitration) and as to the perceived failure to recognise the distinction between the lex arbitri and the procedural rules governing arbitration (that being a consistent theme of the criticism levelled at the decision).

79 The existence of academic criticism of a judicial decision does not, of course, compel the conclusion that the judgment is plainly wrong (although that does appear to be the academic consensus) but it supports the contentions made by Mr Gleeson to that effect and, of some relevance to the question as to the parties’ intention, it indicates the extent to which the parties or their legal advisers might be taken to have been aware, as at 2005, of the state of the common law following the Eisenwerk decision in relation to the effect of adoption of procedural rules such as the ICC Rules on the question as to whether there was an implied exclusion of the Model Law.

80 In particular, I was referred by Mr Gleeson to the following:

(i) Pryles M., “Exclusion of the Model Law” [2001] Int ALR 175, where reference is made to the “fundamental juristic difference” between the arbitral procedural law and the arbitral rules selected by the parties to an arbitration, at 176, and the author expresses the view that the selection of a set of arbitral rules (which, insofar as they apply by virtue of the parties’ agreement, are contractual and not legislative in character) does not constitute the selection of a different arbitral procedural law even though there may be some overlap between the two (noting that the law governing the arbitral procedure will deal with some matters beyond the authority of the parties to settle in the rules).

(ii) commentary in relation to, and legislative amendments in Singapore to overcome the effect of, the John Holland decision (s 15(2) of the International Arbitration Act (Singapore) and Chow P., “Issues in International Commercial Arbitration: Conflict between Model Law and Arbitral Rules” (2003) 19 BCL 426, at 427 and footnote 6).

(iii) Greenberg S., “ACICA’s New International Arbitration Rules” (2006) 23 (2) Journal of International Arbitration 189 (at p191) Greenberg expresses the view that the choice of a set of institutional arbitration rules where the seat of the arbitration is in a Model Law jurisdiction does not impliedly exclude the application of the Model Law given that Article 19(1) of the Model Law expressly allows the parties to do so.

(iv) Barret-White S., and Kee C., “Enforcement of Arbitral Awards where the seat is Australia – how the Eisenwerk Decision might still be a sleeping assassin: (2007) 24(5) Journal of International Arbitration 515 (at 523-525), where (in a section entitled “Why Eisenwerk should not be followed” (at 324) the authors address the argument that the Model Law and ICC Rules are reconcilable and place emphasis on the default operation of the former.

(v) Justice Croft and DG Fairlie, “The New Framework for International Commercial Arbitration in Australia”, in a paper presented at the ACICA Conference, December 2009, in which the authors note that the proposed amendments to the Commonwealth Act (now enacted in Schedule 1 of the International Arbitration Amendment Act 2010, No 97 (Cth)) are intended to clarify that the adoption of arbitral rules by the parties does not constitute an ‘opting out’ of the Model Law (at 5).

(vi) Submissions made to the Commonwealth Attorney General, on the Review of the Commonwealth Act, in response to the Discussion Paper of 21 November 2008 – by ICC Australia, ACICA (at 10), the Chartered Institute of Arbitrators (at 8), the NSW Bar Association (at 7-10), the Law Society of NSW (at 2), the Law Council of Australia (ADR Committee) (at 6-7), and the Victorian Bar (at 13) (all favouring amendment of the Commonwealth Act to reverse the Eisenwerk decision).

81 Much of that criticism, it can be seen, was published in the period after the parties entered into their agreement (and therefore cannot be said to have informed the minds of their lawyers in relation to the Eisenwerk issue as at the date of entry into the agreement). There was, however, at least one other published criticism of the decision in the interim to which the respective legal advisers may have had regard (that by Davies S., “International Arbitration: when arbitral rules and procedural rules collide”, Australian Mining and Petroleum Law Association Yearbook, 2002, at 649, which again, at 653) criticises Eisenwerk for failing to take into account the fundamental juridical difference between arbitral rules on the one hand and the procedural law of an arbitration on the other (at 659).

82 More recently, the volume of dissent has increased with that expressed by Gehle B., “The Eisenwerk decision is generally considered as bad law” (Vindobona Journal of International Commercial Law & Arbitration 2009 Article The Arbitration Rules of the Australian Centre for International Commercial Arbitration [FNa1] 13 VJ 251) and by Megens P. and Cubitt C., “Arbitrators' perspective: the evolving face of international arbitration - the past, the present and the future”, International Arbitration Law Review, 2010, 13(1), 1-7, at 6, where it was observed that the Eisenwerk decision was not only “at odds with international practice and the objectives of the model law” but had, together with the John Holland decision, “caused instant consternation in international arbitration circles” (my emphasis).

83 The above criticism confirms the view I would in any event have formed (based on the analysis set out earlier in these reasons) that there is a distinction between adoption of procedural rules and the application of the lex arbitri and that since the Model Law (assuming that be the lex arbitri of an arbitration the seat of which is in Sydney, as it was in this case) permits the adoption of rules other than those for which it would in default of an alternative choice have provided, the choice by the parties of the ICC Rules to apply in their arbitration would not of itself constitute an opting out of the Model Law.

Conclusion

84 The distinction between the lex arbitri (or the laws of the seat relating to arbitration) and procedural rules which may be adopted consensually by the parties (subject to any mandatory provisions of the lex arbitri) to govern the conduct of the arbitration (or internal rules, to adopt the terminology used by Mustill and Boyd) is well recognised and is expressly accommodated under the Model Law.

85 Insofar as Article 19 of the Model Law allows the parties to adopt a set of procedural rules different from those which would otherwise apply under the Model Law, it cannot be said that the Model Law and ICC Rules are inconsistent and irreconcilable. In the context of an arbitration the seat of which is in Australia, as a matter of law of the lex arbitri (that is the Model Law, as enacted by the Commonwealth Act) the parties are permitted, within the framework of the Model Law provisions, to apply some or all of another set of procedural rules to apply to their arbitration.

86 If, under the lex arbitri, the parties are able to opt out whether entirely or in part of the application of the Model Law, then the decision to adopt ICC Rules as the procedural rules governing the arbitration (which are not inconsistent with the application of the Model Law as the lex arbitri) cannot logically amount to an implied agreement of the parties to have their disputes settled otherwise than in accordance with the Model Law. Rather, they can be seen to be electing to utilise the options available under the Model Law to choose different procedural rules to apply within the overall context of the Model Law provisions. Any “opting out” which is (as seems to be the case here) limited to the selection of the internal or procedural rules governing the arbitration, is consistent with the Model Law itself.

87 Accordingly, I am not persuaded that, simply by referring their disputes to arbitration under the ICC Rules, the parties in the present case could be said to have impliedly opted out of the Model Law for the purposes of s 21 of the Commonwealth Act.

88 Given that the terms used in the present arbitration agreement are different from those considered in Eisenwerk, it is possible that the above conclusion could be reached simply by distinguishing the facts here from those in that case. That would arguably be the case if it could be said that the phrase “settled otherwise than in accordance with the Model Law” in the arbitration clause there under consideration operated as a selection of the lex arbitri and not the procedural rules of that Model Law. However, insofar as the reasoning in Eisenwerk appears to be based on the perceived inconsistency between the respective systems of procedural rules, it seems to me that it is by no means clear that it can be distinguished in that fashion.

89 Mr Stevenson submitted that the question whether Eisenwerk was plainly wrong was one that I should not entertain on an application for leave to appeal in the present case. However, in both Sharah v Healey [1982] 2 NSWLR 223, at 227 and Appleton Papers Inc v Tomasetti Paper Pty Ltd (1983) 3 NSWLR 208, McLelland J (as his Honour then was) (dealing with a decision of the English Court of Appeal in the first case and with conflicting non-binding statements in the High Court and the House of Lords in the latter case) emphasised the duty of the trial judge when faced with persuasive but non-binding authority or dicta to which the judge was bound to accord great weight and respect. In Appleton, his Honour said (at 218):

My duty in these circumstances, as I conceive it, is to decide for myself, invidious task as that may be, what the relevant principles are or should be, obtaining such assistance as I can from the persuasive authorities to which I have referred. In this connection I refer to what I said in Sharah v Healey [1982] 2 NSWLR 223, at 227, 228 [namely that it is the duty of this Court to apply the law as (rightly or wrongly) it finds it to be, not as another court states it to be in a manner by which this Court is not bound], and to the passage from the speech of Lord Dunedin in Leeds Industrial Co-operative Society Ltd v Slack [1924] AC 851, there quoted.

(my emphasis)

90 It seems to me that my duty, notwithstanding that this is an application for leave to appeal, is to consider the application of Eisenwerk on the question as to whether there should be found (by referral of the dispute to arbitration under the ICC Rules) to have been an implied agreement of the parties to opt out of the Model Law – that being a necessary question to determine in considering the first of the jurisdictional issues posed before me. In circumstances where there is a doubt as to how far, if at all, the relevant arbitration clauses can be distinguished (and it was submitted for Cargill that they were relevantly indistinguishable) it seems to me (consistent with my duty) necessary that I must form a view on the correctness of the decision in Eisenwerk.

91 The conclusion to which I have come is that the decision does not properly recognise or give effect to the distinction between the lex arbitri and the procedural rules governing an arbitration. I am not satisfied that there is any inability to reconcile the application of the Model Law with the adoption of the ICC Rules as the procedural rules to govern the conduct of the parties’ arbitration. Accordingly, insofar as Eisenwerk is authority for the proposition that the adoption by the parties of procedural rules (such as the ICC Rules) to govern the conduct of the arbitration of their disputes amounts of itself to an implied agreement to opt out of the Model Law (and while conscious of the respect to be accorded to decisions of an intermediate appellate court such as this), I have formed the view that that decision is plainly wrong and is one which should not be followed by this Court.

Is there otherwise an effective opting-out of the Model Law?

92 Mr Stevenson submitted that, even if I were to form the view (as I have) that Eisenwerk is plainly wrong and should not be followed in this case, the objective intention of the parties must have been to exclude the Model Law since the parties (represented as they have been by experienced practitioners in this area) should be taken to have intended (knowing the effect of the Eisenwerk decision as it applied at the time) to opt out of the Model Law for the purposes of s 21 of the Commonwealth Act. This submission is put on the basis that the proper construction of a contract is to be determined by what a reasonable person in the parties’ position would have understood it to mean in the circumstances existing at the time of the contract’s execution (reliance being placed in that regard on Pacific Carriers v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, at 461-462; Equuscorp v Glengallan [2004] HCA 55; (2004) 218 CLR 471, at 483; Toll v Alphapharm [2004] HCA 52; (2004) 219 CLR 165, at 179; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407, at [14]; [305]; [322]).

93 Thus, Mr Stevenson submits that the contracting parties should be taken to have known, when entering their agreement in 2005, the effect of their adoption of the ICC Rules, by reference to what had been decided in Eisenwerk in 1999 (and reported in the authorised reports from 2001) (BCCI v Ali [2001] UKHL 8; [2002] 1 AC 251; Lewison, The Interpretation of Contracts, 4^th edn, Sweet & Maxwell, London, 2007, at [4.06]). That being part of the common law of Australia (Kirk v Industrial Relations Commission of New South Wales [2010] HCA 1; (2010) 262 ALR 569, at [99]), it is said that any party wishing to avoid the effect of Eisenwerk could easily have done so (say, by noting in the arbitration agreement that the Model Law is to apply notwithstanding the adoption of the ICC Rules or by noting that the parties are not to be taken to be entering into an agreement to opt out of the Model Law for the purposes of s 21 of the Commonwealth Act). Not having done so, it is submitted in effect that the parties should be taken to have intended the result which would have followed had Eisenwerk been correctly decided and followed in this Court.

94 In response, Mr Gleeson emphasised that “opting out” means “real opting out” and noted that the standard form contract entered into by the parties in 2005 was the then version of a form of agreement in place before the Eisenwerk decision was reported. It is submitted that there was no settled practice or procedure arising from the Eisenwerk decision per se and that, having regard to the comment and discussion on that case, one could not say that it was accepted as a general principle that the proper construction of s 21 would always lead to the conclusion that choice of arbitral rules of an institution is an opting out of model law.

95 In the absence of a settled practice, and any evidence of any shared or mutual intention of the parties to opt out of the result in Eisenwerk, Mr Gleeson argued that reliance on Lewison did not avail Cargill. In that regard, I would have been inclined to think that experienced practitioners in the area of arbitration would have been well aware by 2005 of the risk that, by reference to Eisenwerk, an adoption of ICC Rules might lead to the conclusion that they had opted out of the Model Law and to have made express provision to indicate (if that be the case) that that was not the intention. The fact that a standard form of contract, the subject in its various iterations of copyright from an earlier date, had been used does not seem to me to detract from such a conclusion.

96 Whilst the House of Lords in BCCI v Ali did not expressly consider the relevance of case law upon the interpretation of contracts, Lord Hoffman did there make the following observations (at [37]-[39]):

I agree with my noble and learned friend that the first issue raises an ordinary question of construction. What would a reasonable person have understood the parties to mean by using the language of the document against all the background which would reasonably have been available to them at the time? But I regret that I cannot agree with his answer. It appears to me to give too little weight to the actual language and background and to rely unduly upon the expressions of judges used in other cases dealing with different documents.

The background is however very important. I should in passing say that when, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896, 913, I said that the admissible background included "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man", I did not think it necessary to emphasise that I meant anything which a reasonable man would have regarded as relevant. I was merely saying that there is no conceptual limit to what can be regarded as background. It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective) or proved common assumptions which were in fact quite mistaken. But the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage: "we do not easily accept that people have made linguistic mistakes, particularly in formal documents". I was certainly not encouraging a trawl through "background" which could not have made a reasonable person think that the parties must have departed from conventional usage.

97 Statements to this effect had been made by Lord Hoffman previously in Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896, at 912; [1997] UKHL 28; [1998] 1 All ER 98, at 114. Both cases have been cited by the High Court in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181, where the following observations were made by Gleeson CJ, Gummow and Hayne JJ (at [11]):

Interpretation of a written contract involves, as Lord Hoffmann has put it : ‘the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract’. That knowledge may include matters of law, as in this case where the obtaining of intellectual property protection was of central importance to the commercial development of Mr Allen's ironing board (my emphasis, citations omitted).

98 Lewison refers to the decision of Scrutton LJ in Westcott v Hahn [1918] 1 KB 495, at 511, where his Lordship said:

A flood of authorities in and since the seventeenth century were poured out upon the Court in which somewhat similar words to this covenant had received a construction from the Courts. In my view, however, the first thing to be done is to endeavour to ascertain from the words the parties have used in this case their actual intention. If they have used words which by a settled course of authority have acquired a technical meaning, the court will give effect to those authorities; but, unless this is so, it appears to me very unprofitable to consider what Courts have thought that other words in other documents meant and to see which reported case has the lease differences from the present.

99 Reference was also made to the decision of Waller LJ in British Sugar plc v NEI Power Projects Ltd (1997) 87 BLR 42, at 50, where his Lordship said:

Once a phrase has been authoritatively construed by a court in a very similar context to that which exists in the case in point it seems to me that a reasonable businessman must more naturally be taken to be having the intention that the phrase should bear the same meaning as construed in the case in point. It would again take very clear words to allow a Court to construe the phrase differently.

100 Lewison goes on to state:

Even if one might consider that the parties to the contract themselves might not have had the previous decisions of the Courts in mind when making their contracts, their lawyers will have done so in deciding whether or not to pursue a dispute subsequently.

citing The Radauti [1987] 2 Lloyd’s Rep 276 CA; The Kalliopi A [1988] 2 Lloyd’s Rep 101; The Solon [2000] CLC 593 as authority for this proposition.

101 However, the comment is also made in Lewison (at 103, of the 3^rd edn) that where an erroneous decision has departed from orthodoxy, and a contract is entered into while the erroneous decision was thought to represent the law, that will not provide a reason for applying the erroneous decision to the contract in question, there citing Shell International Petroleum Ltd v Gibbs [1983] 2 AC 375; Trustees of Henry Smith’s Charity v AWADA Trading & Promotion Services (1983) 47 P&CR 607.

102 Shell International supports the view that, simply because contracts may have been drafted on the assumption that a specific legal interpretation of a phrase made in a case is good law and binding, a court will not necessarily be precluded from later overruling a particular interpretation placed upon that phrase (at 390 – 391). There, the House of Lords in considering the meaning to be attributed to a particular phrase in a contract, considered whether an earlier decision (Nishina Trading Co Ltd v Chiyoda Fire & Marine Insurance Co Ltd (The Mandarin Star) [1968] 1 WLR 1325; [1968] 3 All ER 712; [1968] 2 Lloyd's Rep 47) construing the same phrase in a manner differently from that which their Lordships considered was the correct interpretation should be overruled despite the uncertainty that may be created in relation to agreements drafted on the basis of or with the interpretation placed on the phrase by the erroneous decision of The Mandarin Star in mind.

103 Lord Roskill was of the view that, despite the uncertainty created in relation to contracts drafted on the assumption that The Mandarin Star was good law, this was not (although it could be in other cases) a relevant consideration when determining whether to overrule the decision. It should be noted that in Shell International, the House of Lords did not expressly consider whether it should, despite the overruling of and subsequent non-application of the erroneous legal interpretation made in The Mandarin Star, nonetheless conclude that such an interpretation was intended by the parties (who would have known of the interpretation and by adopting such a phrase might have impliedly intended that such an interpretation apply). It was submitted before their Lordships that it should be taken that the parties intended the decision to apply to the contract, on the basis that it was assumed to be good law and because no steps had been taken by relevant commercial bodies to change the standard form contract adopted. However, Lord Roskill dealt with this submission not by considering what the objective intention of the parties would have been by adopting the particular phrase in question (that is whether it could be said that they intended the interpretation to apply in circumstances where they did not take steps to draft the phrase differently to avoid its application) but instead dealt with this submission as an appeal for promoting commercial certainty by not overruling the erroneous decision (The Mandarin Star) in question, (which submission was not accepted).

104 While Lewison cites this case as authority for proposition that where a contract is entered into assuming that decision correctly represents the law, that will not provide a reason for applying the erroneous decision to the contract in question (which can be implied from the outcome of the decision, although not the express reasoning), it might perhaps be more precise to read Shell International as authority for the proposition that the fact that a contract has been drafted assuming the correctness of a decision will not necessarily prevent the courts from finding that the decision is incorrect (and as a consequence to refuse subsequently to apply the erroneous decision to the interpretation of the contract). That was the approach of Sir John Donaldson MR in The Mandarin Star, who rejected an argument of this kind as follows:

Mr. Joseph also submitted that as the terms of the lease were agreed before the decision of the House of Lords in United Scientific Holdings Ltd. v. Burnley Borough Council, the lease had to be construed and the intention of the parties deduced on the basis of the law as it was thought to be at that time. Whilst this argument is not without its attractions, I think that it must be rejected as involving an undesirable extension of the doctrine of stare decisis. A somewhat similar argument was rejected by the House of Lords in Shell International Petroleum Ltd v Gibbs.

105 In relation to the ability of parties who adopt a standard form contracts to do so against a background of previous case decisions on the meanings of the words in the standard form contracts, Lewison refers (at 104 of 3^rd end) to the statement of Lord Hoffman in Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1998] UKHL 19; [1999] 1 AC 266, where his Lordship states:

It is also important to have regard to the course of earlier judicial authority and practice on the construction of similar contract. The evolution of standard forms is often the result of interaction between the draftsmen and the courts and the efforts of the draftsmen cannot be properly understood without reference to the meaning which the judges have given to the language used by his predecessors.

106 Clarke LJ in Sunport Shipping Ltd v Tryg-Baltica International (UK) Ltd [2003] 1 Lloyd’s Rep 138 similarly stated:

When a contract has been professionally drawn ... the draftsmen is certain to have in mind decisions of the courts on earlier editions of the clauses. Such decisions are part of the context or background circumstances against which the particular contract falls to be construed. If the draftsmen chooses to adopt the same words as previously construed by the courts, it seems to me to be likely that, other things being equal, he intends that the words should continue to have the same meaning.

107 While it might be difficult to say that a “settled practice” of draftsmanship had arisen following one judgment (Eisenwerk) in Australia in which the construction of a particular clause seems to have been addressed, I think it might well be said that the apparent notoriety within arbitral circles of the decision in the period at least from 2001 was likely to have given rise to an awareness on the part of lawyers advising their clients on contracts containing arbitration clauses of this kind of the prudence of ensuring that any doubt as to the parties’ intentions in respect of the lex arbitri should be removed (and I see no reason to think that the practice would have differed where what was in consideration was a standard form contract).

108 That said, the force of Mr Stevenson’s submission depends on the similarity (or otherwise) between what I might refer to as the Eisenwerk clause and the clause adopted by the parties in their agreement. It seems to me that this is where the argument fails.

109 While I would have been inclined (had the clauses mirrored each other in all relevant respects) to infer that reasonable parties in the position of Cargill and Excel, knowing the law and acting on the advice of the experienced solicitors, must have intended to exclude the Model Law when they chose a form of arbitration agreement relevantly the same as that construed in Eisenwerk and did not take steps to ensure that the result in that case was avoided in their case, the fact is that here the parties adopted a clause which uses somewhat different terminology (referring their disputes for arbitration under the ICC Rules, not providing for the settlement of their disputes in accordance with those Rules). It seems to me that I cannot properly draw the inference for which Mr Stevenson contends in light of that difference, which I see as more than a mere semantic difference but as having potential substance (insofar as the emphasis to referral of the arbitration to take place under particular rules, in the present formulation, in my mind highlights the very distinction between procedural rules and the overriding role of the lex arbitri which I consider was not taken into account in Eisenwerk).

110 Therefore, I have concluded that there was no implied agreement between the parties to opt out, for the purposes of s 21 of the Commonwealth Act, of the Model Law nor is any such intention to be inferred from the fact that the parties chose to adopt an arbitration clause similar to that which had been used in Eisenwerk at a time when the potential consequence of using such a clause should have been well known to those practising in the area of international arbitration.

111 The answer to the initial jurisdictional issue, therefore, is that the Model Law applies. Strictly speaking, that means that the balance of the issues in relation to the application for leave to appeal under the provisions of the State Act do not arise. However, they were argued before me and I address them as follows.

(ii) Does the claim arise out of a maritime contract?

112 The second jurisdictional issue arises from the provisions of the State Act under which leave to appeal may be granted in respect of questions of law arising out of arbitral awards. Subject to subs (4), s 38(2) of the State Act confers a right to appeal to this Court on any question of law arising out of an award. In the absence of consent of all other parties, an appeal can only be brought with the leave of the court (s 38(4)(b)) and the grant of leave is subject to s 40, which provides that the court shall not grant leave to appeal with respect to a question of law arising out of an award if there is in force an exclusion agreement, that being defined as being an “agreement in writing ...between the parties to the arbitration agreement which excludes the right of appeal under section 38(2) in relation to the award...”

113 Section 40(3) provides that an agreement may be an exclusion agreement for the purposes of the section whether or not it forms part of the arbitration agreement. Mr Gleeson noted (and Mr Stevenson accepts) that Article 28(6) of the ICC Rules in its terms amounts to an exclusion agreement for the purposes of the Act and hence that, by the submission of the dispute to arbitration under the ICC Rules, there was an exclusion agreement.

114 Pursuant to s 41(a), an exclusion agreement shall have no effect in relation to the award or question where the award or question of law arising in the course of the arbitration relates in whole or in part to a question of claim falling within the Admiralty jurisdiction of this Court. Accordingly, to avoid the effect of the exclusion agreement, the Cargill needs to establish that the claim before the Arbitrator was a maritime claim.

115 Section 9(1) of the Admiralty Act 1988 (Cth) confers jurisdiction on this Court, amongst others, in respect of maritime claims. A reference to a maritime claim is a reference to a proprietary maritime claim or to a general maritime claim. The latter includes (s 4(3)(f)) “a claim arising out of an agreement that relates to the carriage of goods or persons by a ship or to the use or hire of a ship, whether by charterparty or otherwise”.

116 Reliance was placed by Mr Stevenson relies on Heilbrunn v Lightwood plc [2007] FCA 1518; (2007) 164 FCR 1 for the submission that the claim brought by Cargill for demurrage under a contract for the delivery of coal FOB to a ship (for the subsequent carriage of the coal by ship) was a maritime claim (and hence the exclusion clause is overridden). Mr Gleeson relies, inter alia, on The Zeus [1888] 13 PD 188 for the contrary conclusion.

117 It is accepted that the relevant test in determining whether there is a maritime claim is that applied in Heilbrunn - the ‘reasonably direct connection’ test, namely whether there is a reasonably direct connection between the claims made and an agreement for the use of a ship or the carriage of goods by ship. In this case, as outlined earlier, the claims made in the arbitration were for payment due in respect of the delivery of goods to a ship and a counterclaim for demurrage for delay in loading the ship.

118 In Heilbrunn, Allsop J (as his Honour then was) was considering whether a claim, against a warehouseman in England, for damage which occurred when a vintage car was loaded into a sea container to be transported by road to the port of Tilbury for loading on a ship for sea carriage to Australia was a maritime claim within the Admiralty jurisdiction under the Act. His Honour held that it was. In essence, his Honour considered that the agreement to load a shipping container was sufficiently directly related to the anticipated carriage of goods by sea to satisfy s 4(3)(f), at [52]-[54]. The agreement under which the claim was made was for the loading of the sea container which was then to be to the port and then by sea to Australia.

119 By contrast, in The Zeus, to which his Honour referred to in Heilbrunn, the claim was made under what was described as an undertaking (by way of guarantee) by a colliery company to load a cargo of coal onto a ship within a particular period (and thereafter to pay demurrage). That claim was held not to be an agreement “made in relation to the use or hire of any ship, or in relation to the carriage of goods in any ship” within the meaning of the County Courts Admiralty Jurisdiction Amendment Act 1869 (32 & 33 Vict. c.51). The agreement was characterised as “merely an engagement to deliver coals at a particular place” with a penalty to be paid if the contract was not performed within a limited time. The use of the word ‘demurrage’ was said to be immaterial (when considering whether this was a claim having the necessary relationship to the use or hire of or carriage of goods in a ship), it being a word of different meanings, “... unless it can be established that the agreement is one in relation to the use or hire of a ship”. Admiralty jurisdiction was there found not to have been established.

120 As is apparent, the present facts are broadly analogous with those in both Heilbrunn and Zeus in that (as in Heilbrunn) the coal was to be delivered by Excel on board a ship for the purpose of its carriage by sea (albeit that it was not being loaded into a sea container as such but was being transported by rail for delivery over the ship’s rail) and the claim (as in Zeus) was for demurrage by reference to the delay in loading the ship.

121 In Heilbrunn, Allsop J said from [22]:

The relevant question to address is whether the assertions of right or interest recognised by law and carrying an entitlement to relief made by the plaintiff in the application and statement of claim (being the claim of the plaintiff) have (and has) the legal character of that which is set out in s 4(3)(f): Owners of Shin Kobe Maru v Empire Shipping Co Inc [1994] HCA 54; (1994) 181 CLR 404 at 422 and 426; and The ‘Global Peace’ 154 FCR at 459-60 [73]-[76].

This task is to be undertaken with the meaning and content of s 4(3)(f) understood.

Mr Cutler argued that the correct approach to the interpretation of s 4(3)(f) could be found in Port of Geelong Authority v The ‘Bass Reefer’ [1992] FCA 378; (1992) 37 FCR 374 at 380-382 in which case Foster J adopted the approach of Lord Keith of Kinkel in Gatoil International Inc v Arkwright-Boston Manufacturers Mutual Insurance Co [1984] UKHL 8; [1985] AC 255 at 270-271 and said that the relationship connoted by the words "that relates to" in s 4(3)(f) must be "some reasonably direct connection". The same passage from Lord Keith’s speech in Gatoil [1985] AC at 270-271 was cited with apparent approval by Gummow J in Empire Shipping Company Inc v Owners of the Ship ‘Shin Kobe Maru’ [1991] FCA 499; (1991) 32 FCR 78 at 95 (at first instance).

...Before dealing with these cases, it is appropriate to set out, by reference to settled Australian law, some important considerations that attend the construction and interpretation of the Act. The first consideration is the proper approach to the construction of the [2005] FCAFC 68; Act. In Tisand Pty Limited v The Owners of the Ship MV ‘Cape Morton’ (Ex ‘Freya’) (2005) 143 FCR 43 at [59]- [65], the Full Court set out relevant governing principles. It is unnecessary to repeat those passages other than to say the Act should be read in its legal and historical context, and that the Act and the definitions of maritime claims have an international as well as a domestic maritime context, including the International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-Going Ships 1952, done at Brussels on 10 May 1952 (the "1952 Convention") and the Australian Law Reform Commission, Civil Admiralty Jurisdiction, Report No 33 (1986) (the "ALRC Report").

The second consideration is that provisions conferring jurisdiction or granting powers to courts should be interpreted liberally and without imposing limitations not found in the express words: The ‘Shin Kobe Maru’ 181 CLR at 421 and see the numerous other High Court authorities to like effect referred to in Hewlett Packard Australia Pty Limited v G E Capital Finance Pty Limited [2003] FCAFC 256; (2003) 135 FCR 206 [187].

The third consideration is a particular aspect of the importance of the context provided by the ALRC Report. In Owners of MV Iran Amanat v KMP Coastal Oil Pte Ltd [1999] HCA 11; (1999) 196 CLR 130 at 138 the High Court in a joint judgment (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ) stressed the importance of the background of English legislation and authority and any settled international construction:

... When the Parliament has enacted legislation, affecting the subject of international shipping, and followed a statutory precedent from overseas which has by then received a settled construction, there is every reason to construe the statutory language in the same way in this country unless such construction is unreasonable or inapplicable to Australian circumstances. ...

Thus, both Gatoil [1984] UKHL 8; [1985] AC 255 and The Antonis P Lemos [1985] AC 711 can be seen as unanimous decisions of the final court of appeal in the United Kingdom interpreting domestic legislation having its origins in an international convention, one aim of which was to bring uniformity of approach among different legal systems. The existence of those decisions, the desirability of international uniformity, or at least broad consistency, and an expressed suggestion by the ALRC (which was heeded) that Parliament follow the wording of the 1981 UK Act, which had been (recently) interpreted (as well as the antecedent provision in the 1956 UK Act) by the House of Lords in Gatoil [1984] UKHL 8; [1985] AC 255 and The Antonis P Lems’ [1985] AC 711 necessarily constrain the interpretation of s 4(3)(f), certainly at first instance. Further, two judges, of this Court (Foster J in The Bass Reefer [1992] FCA 378; 37 FCR 374 and Gummow J in The Shin Kobe Maru [1991] FCA 499; 32 FCR 78) at first instance have applied Gatoil [1984] UKHL 8; [1985] AC 255. (My emphasis)

122 From [38], in a passage on which Mr Stevenson places reliance, Allsop J said:

After discussion at 725-731, and for the reasons expressed at 731, Lord Brandon [in the Antonis P Lemos] rejected the first contention of the owners. A wide and liberal, not narrow, construction was, his Lordship said, to be given to the phrase "arising out of", equivalent to "in connection with". In his discussion, Lord Brandon said at 727:

With regard to the first point, I would readily accept that in certain contexts the expression "arising out of" may, on the ordinary and natural meaning of the words used, be the equivalent of the expression "arising under," and not that of the wider expression "connected with".

In my view, however, the expression "arising out of" is, on the ordinary and natural meaning of the words used, capable, in other contexts, of being the equivalent of the wider expression "connected with". Whether the expression "arising out of" has the narrower or the wider meaning in any particular case must depend on the context in which it is used.

I should apply The Antonis P Lemos [1985] AC 711 in this regard. All the reasoning of Lord Brandon is equally applicable to s 4(3)(f). I would only add the following remarks. Given the need for the 1952 Convention to apply to a wide variety of legal systems and given the capacity of maritime claims to arise by reference to chartering and carriage arrangements often of some complexity, it would make little practical sense to limit the types of claims to which this paragraph was directed to contractual claims between parties to the agreement. Secondly, the provision is one in which jurisdiction is given to a court. It should be read liberally: The Shin Kobe Maru 181 CLR at 421. Thirdly, The Antonis P Lemos [1985] AC 711 was recently applied by a Full Court of this Court, though in a different context: that of construing an arbitration clause containing the phrase "arising out of", in Comandate Marine Corporation v Pan Australia Shipping Pty Limited [2006] FCAFC 192; (2006) 157 FCR 45 at 45 at [171]. The Full Court, though in that different context, gave the same wide meaning to the phrase "arising out of"’: Comandate Marine v Pan Australia [2006] FCAFC 192; 157 FCR 45 at [162]- [176].

123 Accordingly, a liberal view should be taken in determining when a claim arises out of an agreement but the second part of the test is whether that agreement has a reasonably direct connection with the carriage of goods by sea and a narrower view is taken on that aspect. In Heilbrunn, Allsop J said of this question, from [44]:

The next question is whether any one or more of these agreements answers or answer the description of "an agreement that relates to the carriage of goods... by a ship", as that phrase was interpreted by the House of Lords in Gatoil [1984] UKHL 8; [1985] AC 255.

In Gatoil [1984] UKHL 8; [1985] AC 255 Lord Keith of Kinkel (with whose speech Lords Fraser of Tullybelton, Scarman, Wilberforce and Roskill agreed) concluded that the phrase "related to" should not be construed widely, but rather there should be "some reasonably direct connection" with the activities described in the provisions (there ss 1(1)(h) and 47(2)(e) of the 1956 UK Act).

It is also be noted that in The Antonis P Lemos [1985] AC at 730 Lord Brandon expressed the view that what "tilted the balance in favour of giving a narrow meaning to the expression ‘relating to’" was the existence of two authorities, The Zeus (1888) 13 PD 188 and The Aifanourios [1980] SC 346 (the reasoning in which latter case can be seen as contrary to some of the comments of Lord Brandon about the natural and inevitable overlap in the list of maritime claims). Lord Brandon said (at [1985] AC at 730 G-H) that in the absence of these authorities it might not be right to give the expression "relating to" (in s 4(3)(f) "relates to") a narrow meaning as given by the House in Gatoil [1984] UKHL 8; [1985] AC 255.

This apparent degree of tension between the two decisions (though the word "tension" is not used in any way disrespectfully, in particular since Lords Scarman and Roskill concurred in both decisions) can be set against the background of the clear injunction of the High Court in The Shin Kobe Maru 181 CLR at 421 (and the numerous other High Court decisions earlier referred to) to read provisions conferring jurisdiction and discretion on courts liberally.

For the reasons that I have earlier given, however, it is not appropriate that, sitting at first instance, I do other than apply Gatoil [1984] UKHL 8; [1985] AC 255. Further, in what might be said to be in support of a wide construction of "arising out of" and a narrower approach to "relates to", the former expression should be wide to catch all claims that have a connection with an agreement that has the appropriate maritime connection or character. The appropriate maritime connection or character for s 4(3)(f) might be seen to be assisted by the recognition that all the general maritime claims in Article 1 of the 1952 Convention and in s 4(3) are expressed to be the foundation of an action in rem against a ship and to found the remedy of arrest. The relational connection in the phrase "that relates to" is to be seen in that context. It also may be important to see the appropriate maritime connection by reference to the Constitutional reach of s 76(iii). Section 4(3) must at all times be construed within the confines of the Constitutional authority given to Parliament: cf the Acts Interpretation Act 1901 (Cth), s 15A.

Approaching the matter by applying Gatoil [1984] UKHL 8; [1985] AC 255, does or do any one or more of the agreements referred to in [43] above have a reasonably direct connection with the activity of carriage of goods by a ship and thereby "relates or relate to the carriage of goods by a ship" for s 4(3)(f)?

124 Adopting the reasoning of his Honour, the question whether a claim is a maritime claim is thus to be determined by applying a liberal approach to the question whether there is claim ‘arising out of’ an agreement but a narrower approach should be taken when considering the question of whether the agreement has the appropriate maritime character. In Heilbrunn, there was the necessary relationship or connection between the agreement and the carriage of goods by sea because the agreement for the loading of the container was seen as being “essential to the performance of the sea carriage”. His Honour said, at [52]:

The cars had to be loaded into the shipping container in preparation for sea transport. That is what the defendant undertook to do. The loading of the container was, in substance, for the sea carriage. ... The agreement to load the shipping container between the arranger of the carriage and its subcontractor had a reasonably direct relationship with the carriage of goods by the ship. (my emphasis)

125 In the present case, although the coal was not being loaded into a separate sea container to be put on board the ship, it is clear that the coal was being delivered for the purpose of and in preparation for its carriage by sea. The specification standards in the agreement make clear that aspects of the loading obligations were referable to conditions relevant to the carriage of goods by sea.

126 It seems to me that this is not a case, such as Gatoil International Inc v Arkwright–Boston Manufacturers Metal Insurance Co [1984] UKHL 8; [1985] AC 255, where the contract in question is separate from the action involved in putting the ship in readiness for goods to be carried by sea. Rather the steps to be taken under the present contract were an essential part of putting the ship in readiness for the carriage of goods by sea. In Gatoil, by contrast, there was a claim for a contract for insurance of goods that were carried by ship and the House of Lords said this was not a sufficient connection. It can be seen that in that case the contract was not entered into to make possible or to facilitate or to further the purpose of carriage of goods by sea, but rather was to deal with the financial risk attaching to such carriage. Similarly, in the Port of Geelong Authority v The “Bass Reefer” [1992] FCA 378; (1992) 37 FCR 374, claims in relation to a lease of a cargo assembly at the port and a licence for priority berthing at a nominated berth did not satisfy the reasonable connection test. Neither of those cases is factually similar to the present. Mr Gleeson referred also to The “Catur Samudra” [2010] SGHC 18 where the High Court of Singapore held that to satisfy the direct connection test a claim under an agreement which is collateral or ancillary to the contract of carriage must be intrinsically related to the use or hire of a vessel.

127 Mr Gleeson submitted that the distinction between the present case and the Heilbrunn case was that in the present case the claim related to a contract anterior to something which subsequently happened on a ship. It was submitted that the reasonably direct connection must be with the use of the ship itself (relying on Geelong Authority and Heilbrunn). Further, it was submitted that the only connection with a ship was that the obligation was to deliver foods over the ship rail, with title to the goods and risk of loss or damage passing progressively to Cargill as the goods passed over the rail of the vessel.

128 It was said that the mere place for delivery could not transform the subject matter of the agreement from one for the sale and delivery of goods into a charterparty or the like. (As I understand it, this argument assumes that the fact that the goods were ultimately to be transported by sea was incidental to the contract, which could just as easily (assuming that were possible logistically) have been for delivery of coal to, say, a trucking terminal for delivery by road and with no suggestion of a maritime flavour.) In that regard, the fact that there might have been a different result had Cargill chosen to carry the coal it purchased by a different means seems to me not to be relevant – it might equally be said that had the vintage Vauxhall been transported by air, the contract for the loading of it into a container for transport by plane would not have been a maritime contract.

129 Here, the connection between the agreement for the delivery of coal and the carriage of that coal by ship is obviously closer to the position in Heilbrunn than the relationship of the contracts in the Gatoil and Geelong Authority cases to the use/hire of carriage of goods by ship.

130 If the contract to load and deliver a sea container to port was sufficiently connected to the use of a ship to give rise to a maritime claim (and not construed simply as a contract for the transport by road of goods to a place of delivery for later shipment by sea), then it is by no means clear why the agreement in question (which involves the physical delivery of the goods onto the ship for subsequent transport by sea) is not also sufficient to enliven the Admiralty jurisdiction. Indeed, but for the decision in Zeus, I would find it difficult to see any reasonable basis for distinguishing between a situation where the delivery is made by way of loading goods into a container to be transported to the port and placed on a ship and the situation where the delivery is made not by loading a container but by way of loading a freight car to be transported by rail to the port and then for the goods to be placed directly into the ship.

131 Does Zeus, which (but for the fact that it seemed to involve a claim for demurrage under a guarantee or ‘undertaking’ of performance of the work within time, as opposed to a claim for demurrage under a contractual provision not labelled by reference to a guarantee or undertaking) seems almost on all fours with the present factual situation, require a different conclusion from that reached in the similar situation in Heilbrunn?

132 Zeus, considered without apparent disapproval in Heilbrunn and approved in Gatoil, was a very briefly reasoned judgment on appeal from the County Court of Northumberland in 1888. (It is perhaps not far from the category of case the citation of which was “strongly deprecated” by the House of Lords, as noted in Export Credits Guarantee Department v Universal Oil Products Co [1983] 2 All ER 205; [1983] 1 WLR 399.) In terms of persuasive authority, the considered analysis of Allsop J in the Heilbrunn case is, with respect, entitled to more deference than the decision in Zeus and seems to me more likely to be reflective of maritime practice in the modern business world.

133 I note that reference was also made by Mr Gleeson to Tradhol Internacional SA v Colony Sugar Mills Limited 2009 WL 3929893 (C.A.2(N.Y)) (20/11/09) as being broadly consistent with Zeus and involving an FOB contract for sale of goods. In that case, the Court of Appeals held that the seller had failed to establish a prima facie admiralty claim and was not entitled to an order of maritime attachment and garnishment. The relevant law to be applied as to whether there was a prima facie maritime claim raised issues as to whether a contract including both marine and non-marine elements could be brought within one of the two exceptions to the “mixed contracts rule” – which turned on whether the non-maritime obligations were severable or whether the non-maritime claims were merely incidental to the maritime ones, hence a different context from the question presently under consideration. The court considered that the demurrage clause in a contract for the sale and loading of goods FOB was not the focal point of the contract and that “In the context of the contracts at issue demurrage alone does not raise a claim to which the remaining claims are merely incidental so as to support the second exception to mixed contracts”, and held that Tradhol had failed to explain how its demurrage and ‘dead freight’ claims fitted within the mixed contract prohibition. As I read the decision, the court seems to have proceeded on the assumption that a demurrage claim was a maritime claim but that the remaining claims were not merely incidental to it or severable so as to overcome the problem for Tradhol that the contract contained both maritime and non-maritime elements. If that is the proper conclusion to be drawn from the reasons then it would seem to me to support the view that a claim for demurrage could be seen as having a maritime flavour when linked with a contract for the carriage of goods by sea.

134 Applying the test enunciated in Heilbrunn, had this issue been necessary to determine, I would have held that the claims the subject of the arbitration in this case were maritime claims falling within the Admiralty jurisdiction by reference to s 4(3)(f) of the Act on the basis that the loading of the coal onto the ship was an essential step in the preparation of the vessel for the carriage of goods by sea and, hence, the maritime exception would apply.

135 In the written submissions served for Excel, Mr Gleeson next argued that the Admiralty exception did not apply in any event because the “exclusion agreement” was entered into after the commencement of the arbitration (s 41(1)(d) of the State Act). That submission was based on the arbitration proceedings having commenced on 18 March 2009 (upon receipt of the request by the ICC Secretariat) and the reliance placed by Cargill in its written submissions on the exchange of correspondence in April 2009 as amounting to the arbitration agreement in question.

136 However, in oral submissions before me, Mr Stevenson made it clear that Cargill accepted the contention (which had been made by Excel’s lawyers in April 2009) that the reference to arbitration had occurred by virtue of the arbitration agreement itself (not an agreement comprised by the exchange of correspondence) (T8.8). It was conceded (as noted above) that Article 28(6) of the ICC Rules, as adopted by the parties by their arbitration agreement in clause 18.9 of the standard coal trading agreement entered into in 2005, amounted to an exclusion agreement for the purposes of s 40 of the State Act. Therefore, it was contended by Mr Stevenson that the exclusion agreement was not one entered into after the arbitration commenced and thus s 41(1)(d) did not apply. In those circumstances, I did not understand Excel’s written submission to the contrary to be pressed but, if it were, it would not have succeeded.

137 Accordingly, had I been satisfied that the State Act applied, I would have determined the second jurisdictional question in favour of Cargill.

(iii) Have the threshold requirements in s 38(5) of the State Act been satisfied?

138 Having considered the jurisdictional issues, I turn then to whether (had those been found in favour of Cargill) the threshold requirements for the grant of leave to appeal would have been satisfied. As already noted, Cargill is seeking leave to appeal in relation to two issues – the first is as to the construction of clause 7.11.2 of the agreement (namely, whether laytime should have continued until the giving of a force majeure notice irrespective of whether that was a notice compliant with clause 17.2 in terms of its timing) and the second is as to whether laytime was suspended during any time that was not a “Weather Working Day”.

Could determination substantially affect the rights of one or more parties

139 The first threshold requirement is that the court be satisfied that the determination of the relevant question of law, having regard to all the circumstances, “could substantially affect the rights of one or more parties to the arbitration agreement”. Factors relevant to the determination of this question include the quantum of the amount in issue and the relationship between the costs of the appeal and the significance of the question of law to be determined (Westport Insurance Corporation v Gordion Runoff Ltd [2009] NSWSC 245, at [15]; Natoli v Walker (1994) 217 ALR 201, at 9).

140 For Cargill, it was submitted that if its contention as to the construction of clause 7.11.2 were to be correct this would make a substantial difference to its rights as it would then have had an entitlement to demurrage from 8 June (at a rate of USD50,000 per day), rather than only from 25 June 2007. (The additional demurrage charges amount to USD850,000.)

141 Mr Gleeson contended that this submission failed to take into account the effect of the determination made by the Arbitrator as to the estoppel/waiver issues that are not now the subject of any challenge by Cargill. It is said that because of those findings, the determination of neither of the grounds of appeal could now have any substantial effect on the parties’ rights.

142 As to the first ground of appeal, the findings to which Mr Gleeson refers are the findings that the force majeure notice was given as early as practicable (para 223(b) of the Partial Award); that clause 17.3 applied and had the effect that laytime was suspended during the force majeure period (in effect, para 223(a) of the Partial Award); and that Cargill was not entitled to resile from the position it had earlier adopted (in February 2008) and seek demurrage for the period from 8 to 21 June 2007 (para 223(c)).

143 As to the second ground of appeal, it is said, first, that any appeal would be futile (because the conclusion as to the weather working day issue was in the context of responding to an alternative argument) and the Arbitrator’s finding as to the principal contention, ie that time did not count towards laytime by reason of the force majeure provisions, is not challenged. Thus it is said that whatever the result of an appeal by reference to the alternative “Weather Working Day” argument, the outcome will remain the same by reference to the principal finding). Secondly, it is said that it has been conceded by Cargill that there is no difference in monetary terms if an allowance was not made for wet weather but was made for force majeure. Thirdly, it is submitted that (as per the first ground of appeal) this issue could affect the parties’ rights only if Cargill were to be permitted to claim demurrage for the period up to 21 June 2007 and the Arbitrator has found otherwise.

144 (Mr Stevenson concedes, as I understand it, that if leave to appeal is not granted in respect of the first ground of appeal then there is no utility in a grant of leave in relation to the weather working day point.)

145 Turning to the first ground of appeal, it is contended by Cargill that the Arbitrator should have found in all the circumstances that the Iron Bradyn went on demurrage shortly after the commencement of the force majeure period. While there is no challenge to the finding of the period over which force majeure was operative, Cargill’s position is that had there been a finding that the vessel was on demurrage as at 0956 hrs on 8 June 2007 then demurrage would have been payable from that time.

146 The interaction between clauses 7 and 17 (which I consider in more detail below) is relevant when considering what would be the effect if, as Cargill contended, the time from the beginning of the interruption did count as lay time.

147 Before the Arbitrator, Excel had claimed (in its Summary of Claimant’s Claims, as set out in the Arbitrator’s award para 154) that clause 17.3 governed the situation and that it was not liable for damages for delay or failure to perform its primary contractual obligations in the period from 8 to 25 June 2007 (and it sought a declaration to that effect). Clause 17.3, which I set out later in these reasons, made express reference to the counting of laytime (but was subject to the proviso that the affected party had complied with the requirements of clause 17.1). The Arbitrator considered that, although they might have been better expressed, the opening words of clause 17.3 made clear that, in the counting of laytime, delay caused by a force majeure was to be taken into account (at [198]) and that this meant that the running of laytime was suspended during the force majeure period.

148 It is by no means clear, therefore, how a finding that clause 17.3 operated (as the Arbitrator seems to have found) such that laytime (and any liability for delay) was suspended during a force majeure period (provided the notice requirements of clause 17.1 were complied with), would have been reconcilable with a finding that, notwithstanding the commencement of a force majeure period, demurrage was payable for part of that period if a notice under clause 17.2 was not issued immediately the force majeure event occurred and the vessel went on demurrage during the course of the force majeure period. A finding that laytime continued to run from the commencement of the force majeure period (and demurrage was payable once laytime expired early in that period) until the giving of the force majeure notice (and therefore that the Iron Bradyn went on demurrage earlier than 25 June 2007) would seem to be inconsistent with the Arbitrator’s finding (para 223(a)) that no demurrage was payable during a force majeure period.

149 Mr Gleeson contended that if leave were to be obtained by Cargill the issue whether there had been an error of law would be immaterial as its counterclaim has already been rejected and there is no attempt by Cargill to seek leave to appeal against the finding of the arbitrator rejecting the counterclaim the whole of which was dismissed (para 224(e)), there being no immediate entitlement to claim demurrage in any event.

150 Mr Stevenson’s response was that the Arbitrator’s findings in relation to waiver, election and the like are encapsulated in para 139 of the word (namely that Cargill was not then entitled to raise the possibility that Excel had no entitlement to rely on the force majeure provisions of the agreement at all in the relevant period) but that this said nothing as to whether Cargill could raise the question of the proper construction of the force majeure provisions. Mr Stevenson contends that nothing in the Arbitrator’s findings justifies the conclusion that Cargill was not entitled to make the Alternative Argument as to the proper construction of clause 7.11.2.

151 If the two findings (ie a revised finding on clause 7.11.2 and the existing finding on 17.3) could not stand together then it would seem that the conclusion reached in relation to Excel’s claim for a declaration that amounts had become payable under clause 17.3 would need to be revisited (whether or not that finding had been the subject of a separate challenge) since there would seem to be an inconsistency in saying both that a vessel goes onto demurrage during the force majeure period and that liability for demurrage is suspended in that period. Therefore I am not persuaded that the overall conclusion reached by the Arbitrator as to clause 17.3 necessarily renders futile an appeal on the first ground.

152 However, in my view (leaving aside the clause 17.3 argument) the effect of the Arbitrator’s estoppel/waiver finding (which is not challenged) would seem to deprive a finding in relation to the first ground of appeal of much of its effect. At best, Cargill would in those circumstances seem to be limited to a claim for demurrage for the period from 21 to 25 June 2007 (a claim of much less than the USD850,000 figure which Cargill contended would be recoverable if it succeeded on this issue – being a claim of USD250,000 at most, assuming the first and last day of that period are both included in the calculation).

153 I have outlined above the circumstances in which Cargill did not press, as at February 2008, its claim for the so-called “undisputed” amount and reserved its position only in relation to the “disputed” amount. The Arbitrator dismissed the whole of Cargill’s counterclaim on the basis that there was an agreement by Cargill to compromise its claim for demurrage and/or waived or was estopped from any claims to demurrage in the period from 8 to 21 June 2007 (paras 142-144). That counterclaim was for the “undisputed” amount referable to the period (from 8 to 21 June 2007 but also, as I understand it, for the “disputed” amount referable to the period from 21 to 25 June 2007. There seems to be nothing in the award to suggest that Cargill had waived or would be precluded from raising the claim for demurrage in that latter period.

154 Therefore, I accept the submission by Mr Gleeson that a re-consideration by way of appeal of the proper construction of clause 7.11.2 will not overcome the problem for Cargill of the estoppel/waiver finding, but that finding seems to me to be confined to any claim for demurrage for the period 8 to 21 June 2007, not the later period.

155 Balancing a claim of that lesser magnitude against what would surely be the limited cost of arguing a discrete construction point before the arbitrator, I would not accept that there could not be a substantial effect on the parties’ rights arising from the determination of that discrete issues and thus would have been prepared to conclude that the first threshold requirement was met and that the determination of the question of law posed by the first ground of appeal could substantially affect the parties’ rights.

156 If so, then to the extent that the second ground of appeal can be called in aid to support the argument based on the first ground of appeal (as Cargill seeks to do in the manner I consider below), the determination of that question of law may also be said to have the potential substantially to affect the parties’ rights (though in an indirect way). However, if leave to appeal is not granted in relation to the first alleged error, then it is not disputed that there would be no utility in granting leave in respect of the second alleged error and thus the first threshold requirement would not be met in that case.

Requirement that there be manifest error of law on the face of the record

157 Although I have summarised above the errors said to have been made by the Arbitrator, in considering this threshold requirement (and the alternative argument that there is a strong likelihood that there was an error of law) it is necessary to focus in some detail on how it is said that the Arbitrator has erred in his award.

158 Before so doing, I note that emphasis was placed by Mr Gleeson on the high hurdle confronting a party seeking to establish manifest error of law on the face of an award for the purposes of s 38(5) of the State Act. In Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203, Sheller JA said (at 225):

The expression “error of law on the face of the award” is one of a type well-known to courts. The award having been examined the question is whether there is apparent (and such is the denotation of the word “manifest”) an error of law. “Manifest error” is an expression sometimes used in reference to reasons given by judges or the approach taken by juries: see, eg, s 107(c)(iii) of the Supreme Court Act 1970 and the judgments of Kirby P in Azzopardi v Tasman UEB Industries Ltd (at 151) and Otis Elevators Pty Ltd v Zitis (1986) 5 NSWLR 171 at 181. It is used to indicate something evident or obvious rather than arguable: see generally per McHugh JA in Larkin v Parole Board (1987) 10 NSWLR 57 at 70-71. (my emphasis)

159 His Honour later went on to say (at 226), in the context of considering whether (and determining that it was not) it would be appropriate for the judge to proceed to determine whether there was manifest error without hearing adversarial argument:

... However as McHugh JA pointed out “manifest”, in the context of the subsection, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law that is more than arguable. There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law. (my emphasis)

160 For there to be manifest error, the error must be evident or obvious, not something which is reasonably arguable and not something that takes prolonged adversarial argument to deduce. As is the case when considering whether a decision is plainly wrong, it is the quality that bespeaks the error. The fact that I might have come to a different conclusion on a point of construction would not be to the point (as I was reminded more than once, no doubt lest I be tempted to stray down the path of construing the relevant clauses afresh).

161 In that regard, the very fact that the argument as to the construction of the relevant clauses required careful and detailed analysis by Counsel on the hearing before me (and, I should add, has given me pause when considering whether and how the relevant submissions were put to and/or addressed by the Arbitrator) seems to me to compel the conclusion that any error of law which the Arbitrator might have made in construing the respective clauses is certainly not manifest on the face of the award. It is not the case that there was an obvious point which could be said to have been overlooked or misconstrued in the Arbitrator’s analysis. Rather, the construction adopted by the Arbitrator in respect of the relevant clauses for the purpose of addressing the question whether demurrage was payable during the force majeure period seems to be one which was reasonably arguable and open for him to find. I set out below the basis on which I have come to that conclusion.

Clause 7.11.2 ‘error’

162 As to the first error, it is said that on the natural and ordinary meaning of clause 7.11.2 the time between the beginning of an interruption for force majeure and the giving of a force majeure notice should have counted as laytime.

163 Clauses 7.11.1 and 7.11.2 provided, relevantly, (with my emphasis) that:

7.11.1 Time spent or lost on account of Force Majeure shall not count toward Laytime (unless the Vessel is on Demurrage) provided that either:

(a) Seller gives notice pursuant to clause 17.2; or ...

7.11.2 If Seller does not give any notice or Statement of Facts to Buyer as required in clause 7.11.1, the time lost shall count as Laytime and any delay in giving such notice from the beginning of the interruption shall count as Laytime...

164 The giving of a force majeure notice was dealt with in clause 17 (not surprisingly headed Force Majeure):

17.1 Upon the occurrence of any event which affects or is likely to affect the ability of a Party to perform its obligations under this Agreement, that Party shall give the other Notice in Writing thereof, which shall include details of the event, and shall give further notices of any change in the situation as may be appropriate from time to time.

17.2 In the event that a Party wishes to claim Force Majeure (the “Affected Party”) in accordance with clause 17.3 it shall give notice to such effect to the other Party (the “Non-Affected Party”) as early as practicable which notice may be given orally and confirmed by Notice in Writing as soon as possible.

17.3 Neither Seller nor Buyer shall be liable in any way whatsoever for delay and/or failure to comply with this Agreement (other than a failure to make any payment due under it) to the extent that and for as long as such failure is caused by Force Majeure including the counting of Laytime, provided that the Affected Party;....

17.3.3 has complied in substance with the notice requirements of clause 17.1

165 I interpose to note that it seems to be accepted (and was treated as such by the Arbitrator) that the notice provided for under clause 17.1 is different from (and logically would be likely to precede) a notice of intention to make a clam in 17.2. Further, insofar as clause 7.11.2 refers to a notice “as required” in clause 17.11.1, in that clause what is required is a notice “pursuant to” clause 17.2 (which arguably might mean no more than a notice of the kind referred to in that clause – a notice of intention to claim force majeure – as opposed to a notice issued in accordance with the time specified in clauses 17.2, namely as early as practicable).

166 On a first reading of 7.11.1, it has the effect that laytime is suspended during periods of force majeure (unless the vessel is already on demurrage) provided, relevantly, that notice is given pursuant to clause 17.2. Clause 7.11.2 then deals with the consequences of there being no notice “as required under clause 7.11.1” and those consequences are, first, that time lost [on account of force majeure] shall count as laytime and, secondly, that “any delay” in giving such notice from the beginning of the interruption shall count as laytime. The second consequence (so specified) seems of itself to contemplate that a notice “as required” under clause 7.11.1 could be given albeit with some delay. In other words, if “as required” relates to the time at which a notice is issued, clause 7.11.2 seems to contemplate that there might be some delay even if the notice was given as early as practicable.

167 For completeness, I note that clause 7.11.6 provides that:

7.11.6 Notwithstanding the provisions of clauses 7.11.1, 7.11.2 and 7.11.3, once the Vessel is on Demurrage, all time lost (including time lost by reason of Force Majeure) shall continuously count as Demurrage ...

Cargill’s submissions to the Arbitrator

168 The Outline of Submissions, dated 14 August 2009, served by Cargill in relation to the arbitration were contained volume 3 of the Court Book (Exhibit A).

169 The manner in which the clause 7.11.2 submission was put is highly relevant. At para 18 of Cargill’s written submissions, Cargill pointed to the fact that the provision in clause 7.11.1 (that time spent or lost on account of force majeure did not count towards laytime) was qualified by the provision that the notice of intention to claim force majeure be given as early as practicable and went on to say that “This requirement that there be no delay in the service of this notice is reinforced by the terms of clause 7.11.2”; and that this provision applied unless the vessel was already on demurrage in which case it would continue to run and be payable by Excel notwithstanding force majeure (clause 7.11.1 and 17.8) (my emphasis). In that submission, it seems to me, the notion that notice be given as early as practicable was equated with the situation of there being ‘no delay’ in the service of the notice (said to have been reinforced by clause 7.11.2.

170 Cargill disputed not only that the events gave rise to force majeure but also that the notice was in compliance with clause 17.2 “in particular such that laytime would not count from 8 June 2007 or at any time prior to service of that notice” (para 21(b) submissions) and submitted that even if the events amounted to force majeure nevertheless that force majeure period (during which time would not count against laytime) commenced when Excel contended it did or ended when Excel said that it did.

171 Of the issues there identified as requiring determination, Cargill noted that one was whether there had been compliance with the requirement for a valid and effective declaration of force majeure (and, if not, the effect of non-compliance (para 34(b)) and as to whether and to what extent time did not run for the purposes of calculating laytime as a result of the events claimed to amount to force majeure (para 34(c)).

172 At para 40 of its then submissions, Cargill said:

If the seller (Excel) does not give any notice to the buyer (Cargill) in accordance with clause 17.2, the time lost shall count as laytime. Further any delay in giving such notice from the beginning of the interruption shall count as laytime (clause 7.11.2). (my emphasis)

173 There was thus a distinction there drawn by Cargill between the situation where there was no notice compliant with the timing requirements of clause 17.2 and the situation where there was a ‘delay’ in giving of the notice (the latter being the very submission now sought to be made and which it is said the Arbitrator did not address or properly determine).

174 Mr Gleeson submitted that the key submission put by Cargill at the arbitration was that contained in para 72 of Cargill’s then submissions, namely that:

In those circumstances [ie non compliance with the requirements] it is submitted that the Force Majeure notice given by Excel on 13 June 2007 was not given as early as practicable as required by clause 17.2 and is therefore not a valid and effective notice for the purposes of that clause and thereby the Agreement generally

(that being in a section headed “Whether there has been compliance with agreement in claiming force majeure” and thus the context in which it was put related to compliance with clause 17.2 from a timing point of view).

175 An alternative submission was in paragraph 79 of the submissions:

Alternatively, even if Excel’s failure to give notice pursuant to clause 17.2 of the Agreement as early as practicable does not invalidate the notice completely the delay in giving that notice has the effect that time lost from the beginning of the interruption caused buy the Force Majeure event until the notice was given shall count as laytime. This is pursuant to the first sentence of clause 7.11.2 of the Agreement which provides...

176 Thus para 79 was clearly putting the proposition that there could be a notice given as early as practicable but one which also involved a delay for the purposes of clause 7.11.2. The result was said in para 80 to be that:

Accordingly in those circumstances any Force Majeure period does not commence (and time does not cease to count for the purposes of laytime) prior to the service of Excel’s Force Majeure Notice on 13 June 2009 [sic] and until the time it was served.

177 In its submission as to whether and to what extent Excel is relieved from liability, Cargill again put submissions in the alternative; as to where there was no force majeure event; as to whether, if there was a force majeure event an effective notice had been given; and then, thirdly, as to whether (if the events and circumstances did amount to force majeure for the purposes of 7.11 “but the delay in giving the notice pursuant to clause 17.2 means that any time spent or lost from the Force Majeure) the delay (prior to the issue of the notice) nevertheless did not count against laytime (para 85) and in that last situation it was submitted that the force majeure period did not commence until the notice was given to Cargill on 13 June 2007.

178 Those written submissions were supplemented by the oral submissions made on behalf of Cargill by its then Counsel (Mr Nell SC). Relevantly, the transcript records as follows:

MR NELL: That is the first scenario. The second scenario, which is really the same outcome and which is picked up by the respondent’s [Cargill’s] submissions, is if the force majeure notice that was purportedly given was not valid or effective at all, in particular because it was not given as soon as practicable in compliance with clause 17.2, the respondent’s primary submission in that regard is that the clause is then effective; therefore time spent or lost as result of the force majeure event will still count against laytime and the exception that is found in clause 7.11 would not operate in those circumstances. As a practical matter, the effect of that is the same as if there was no force majeure event and the figures should therefore be the same as the first situation.

The third situation, which is also a reflection of the claim made by Excel, is if there was a delay in giving the force majeure notice, and consistent with clause 7.11.2 ... the time between the force majeure event and the giving of the notice, in effect the period of the delay, will not count for the purposes of laytime. (my emphasis)

179 Reliance was placed on the second half of the first sentence in clause 7.11.2 that “If Seller does not give any notice or Statement of Facts to Buyer as required [by the clause], the time lost shall count as Laytime”.

180 Mr Nell submitted that if no notice [compliant with clause 17.2] is given, the effect of that would be that the force majeure notice was given on 13 June and that if there was found to have been a delay in the giving of the notice for the purpose of that clause, then any time lost or spent because of the force majeure event from the commencement of that event, whenever it might have been up to that time on 13 June would count again laytime (and then from 13 June onwards). The Arbitrator’s response to that submission was “If you don’t give the notice the time lost counts as laytime”, to which Mr Nell responded:

MR NELL: We read that as saying not only if you don’t give a notice but in light of what is 7.11.1, if you don’t give a notice, that complies with 17.2.

THE ARBITRATOR: Well, it says pursuant to 17.2.

MR NELL: Yes. The point that I’m making, and perhaps I’m not making it clear enough, is that 17.2 requires not only a notice to be physically given but that it be given as early as practicable. If it is not given as early as practicable, then that notice is not a notice pursuant to 17.2 and in those circumstances the first half of 7.11.2 will say that time lost shall count as laytime.

If however the notice is given and it is construed as having been given but delayed then the second part of the sentence of 7.11.2 applies, and that is that the delay in giving the notice from the beginning of the interruption up to the time the notice is given is laytime. (my emphasis)

THE ARBITRATOR: But assuming that it wasn’t given timeously, why wouldn’t that second part of the fist sentence of 7.11.2 apply? (my emphasis)

181 (What is said by Mr Gleeson is thus that any reference to clause 7.11.2 in the submissions made to the Arbitrator was made in the context of the overarching submission that the notice was not given as early as reasonably practicable. Mr Stevenson accepted that this was true to some extent.)

182 Cargill contends that the Arbitrator failed to deal with its argument that, by reason of clause 7.11.2, “any delay” between commencement of the force majeure period and the giving of the notice meant that laytime continued (notwithstanding the commencement of the force majeure period) until Excel gave notice of force majeure in accordance with clauses 7.11.1 and 17.2 of the agreement (and Mr Stevenson submits that, for the purposes of this argument it is irrelevant whether or not that notice was given as early as practicable).

183 Mr Gleeson submitted that the premise on which the Alternative Argument was based was that the fact that notice was not given as early as practicable did not render the notice a nullity but nevertheless still meant that there was a delay in giving of the notice. Thus Mr Gleeson submitted that the premise of both the primary and the alternative argument was that the notice had not been given as early as practicable; whereas the premise of the argument put to me (which Mr Stevenson says was also put to the Arbitrator) was that even if a notice was given as early as practicable there could still be delay for the purposes of clause 7.11.2.

184 As I read the written submissions which were before the Arbitrator, it seems to me arguable that the submission put to the Arbitrator was premised, as Mr Gleeson suggested, on there being a valid notice albeit one not given as early as practicable (as opposed to the argument that there was both a notice given as early as practicable and delay); but that the more straightforward reading of the submission was that advanced by Mr Stevenson. (However, the very fact that there is any serious debate as to how this submission was premised indicates the difficulty for Cargill is establishing any manifest error by the Arbitrator in the dealing by him with this submission.)

185 Accepting that the submission was premised as Mr Stevenson contends, that gives rise to what would seem to be a contradiction in terms – how can there have been a delay if the notice was given as early as practicable? The concept of delay, ordinarily, suggests something more than a mere lapse of time. It suggests that there has been a procrastination or putting off of something that could have happened earlier (see Macquarie Dictionary definition of the word in its usage respectively as verb and noun). It is in this sense of the word that the Arbitrator himself seemed to approach the argument during the course of the hearing, when he raised the question as to whether what was being put to him was that there had been a failure to act ‘timeously’ and the consequences of that.

186 The semantic argument as to whether there can be an operative concept of delay where a notice has been given as early as practicable does not appear to be one around which there was much debate before the Arbitrator (there seems to have been no suggestion, for example, that if the two concepts were mutually exclusive it might be thought that there was no work left to be done by the words in the second half of the first sentence in 7.11.2). What was not, it seems, made clear to the Arbitrator was that the alternative argument in para 79 of Cargill’s written submissions was one that meant that any period of time which elapsed between the commencement of an interruption and the giving of a force majeure event amounted to ‘delay’ for the purposes of the clause (and the Arbitrator cannot in my view be criticised or accused of a denial of natural justice for having not dealt with that particular argument, albeit that it seems to be the logical extension of what Cargill is now and was then putting). Mr Gleeson thus contends that what has been done in the present application is to re-cast the ‘delay argument’ as one which means that if there was any gap in time between the occurrence of the force majeure event and the giving of the notice then that is delay and has the consequence that time continues to count towards laytime.

187 Whether or not the alternative argument was articulated as clearly before the Arbitrator as it was before me, the notion that delay could be taken into account for the purposes of laytime even if there had been a valid notice (by which Cargill seemed to be referring to one given as early as possible) seems to me to have been before the Arbitrator.

188 Mr Gleeson submitted that once it was found that notice had been given as early as practicable there could be no operative concept of delay in clause 7.11.2 – in effect that this was a contradiction in terms. (I think there is force in that submission, though the construction of these clauses is not the task before me.) The concept of delay, it was submitted, must be a reference to a notice which was not given as early as practicable (ie in respect of which there has been found to be some delay), in contrast to a notice given as early as practicable. (One might have thought that if any lapse of time was sufficient for the purposes of calculating laytime during a force majeure event then it would have been simple to provide for that expressly, without the need to employ the concept of delay – and that the failure to give a notice as early as practicable would sound in a different consequence (such as any damage resulting from the seller not having been on notice of a claim at an early enough time) rather than one linked to the calculation of laytime (which would, on Cargill’s argument, be running in any event up until a notice was ultimately given).)

189 What did the Arbitrator do?

190 The Arbitrator set out the issues he had identified for determination on the reference in paras 65-66 of his reasons.

191 The first issue was the ‘disputed amount’ of USD 299,822.47 which related to the demurrage claimed for the period 21 to 25 June 2007. The Arbitrator expressly dealt with this on the basis (which he said accorded with the way the parties had dealt with it) of an assumption that there was a relevant event of force majeure attracting the operation of clause 17 and as to whether that had come to an end by 21 June 2007 (as Cargill contended) or 25 June 2007 (as Excel contended). Pausing there, there was no suggestion that Cargill was in any way estopped or precluded from raising its claim for demurrage for this period. If, therefore, the Arbitrator’s conclusion as to the construction of clause 7.11.2 was in error, then the finding as to estoppel/waiver would not preclude recovery for that amount. (The Arbitrator found against Cargill on this first issue.)

192 The second issue was whether Cargill was entitled to re-open its claim for the undisputed amount (put by the Arbitrator as ‘whether there was force majeure in terms of the Agreement in respect of the period 8 to 21 June 2007).

193 The third issue was as to when the force majeure event commenced. The Arbitrator noted that this was one that arose if the second issue was determined in favour of Cargill (which it was not) but nevertheless seemed to recognise that Cargill might contend it was entitled to raise the substance of the third issue irrespective of the finding on the second issue. (That would presumably only be the case if the commencement of the force majeure period had any relevance to the claim for demurrage in respect of the later part of the force majeure period, which would seemingly arise only when considering how laytime was to run for the purposes of that later claim ie whether, on Cargill’s argument, laytime continued to run over the force majeure period such that by the commencement of the disputed period the vessel was already on demurrage. However, it was not suggested before me that there was any significance to be attributed to the Arbitrator’s comment in this regard.)

194 The fourth and fifth issues related to what part of the definition of force majeure was to apply and what consequences flowed therefrom and the seventh and eighth related to an argument in relation to clause 17.7 of the agreement, none of which are relevant in the present context.

195 The issue which gave rise to the first alleged error of law was the sixth issue, namely whether Cargill was given the force majeure notice as required by clause 17.2. The Arbitrator addressed this issue from paragraph 199 of his award. He referred to the notification given by Excel under 17.1 (that being distinct from a notice of intention to make a claim of force majeure which is dealt with in clause 17.2). In paragraph 200 the Arbitrator recorded Cargill’s (primary) contention, which was that the notice given on 13 June 2007 was not given as early as practicable after the alleged force majeure event occurred (there being an issue in that regard as to whether the requirement that the notice be issued as early as practicable was to be tested by reference to the alleged force majeure event or the formation of an intention to make a claim). The Arbitrator found it unnecessary to determine that issue as he was satisfied that the notice given on 13 June 2007 had been given as early as practicable. (There was no suggestion that it should, or could feasibly have been expected to, have been given simultaneously with the force majeure event.)

196 The Arbitrator noted that clause 17.3 placed importance on compliance with clause 17.1 rather than 17.2 (ie to a notice of the existence of force majeure events rather than of intention to bring a claim) and then said that the significance of that factor might be mitigated by the fact that, when clause 7.11 was applicable, reliance is placed on compliance with 17.2. The Arbitrator there seemed to contemplate that the circumstances in which a party was not liable by reason of force majeure (clause 17.3) had some connection in terms of its operation with the operation of clause 7.11 as to when and how time lost on account of force majeure was to be affected by the giving of notice in relation thereto.

197 What the Arbitrator does not seem directly to have addressed in his reasons (and this is the nub of the criticism now directed by Cargill at the award) is the submission that was put in paragraph 18 of Cargill’s submissions (that even if the notice had been given as early as possible, there was nevertheless an operative delay in the issue of that notice and laytime continued during that period).

198 However, apart from the brief reference during argument to the significance of the notice not being given timeously, the manner in which Cargill’s alternative submission was put seems to have been put was not expressly linked to the proposition that the lapse of any period whatsoever between happening of a force majeure event and the giving of notice would mean that laytime continued to run.

199 And, insofar as the written submissions referred to the requirement to give the notice as early as practicable being reinforced by the requirement that there be no delay, there is force in Mr Gleeson’s submission that the ‘delay’ argument was predicated on there being a finding that notice was not given as early as practicable (the only distinction between the two arguments being said to be as to whether in that event the notice was a nullity or had some room for operation).

200 Mr Gleeson submits that what the Arbitrator did was to reject the factual premise of the alternative argument (namely that Excel had failed to give the notice as early as practicable) and thus the delay argument failed and there was no error by the Arbitrator (nor any need for him separately to articulate his conclusion in that regard).

201 As the above discussion should illustrate, there were arguments open on both sides in relation to the question as to how clause 7.11.2 should be construed. Insofar as it seems that the Arbitrator formed the view that if notice was given as early as practicable then there was no relevant delay for the purposes of clause 7.11.2, I consider that this was a conclusion reasonably arguable and open for him to find. That being the case, whether or not ultimately it might be said to have been wrong, there was no manifest error of law in the drawing of that conclusion. That disposes of the second threshold requirement for the grant of leave to appeal.

Weather Working Day ‘error’

202 As to the second error, it is said that the Arbitrator (in accepting the submission of Excel to the effect that the definition of Weather Working Days in the definition of Cargo Handling Rate had the effect that laytime was suspended during any period in which loading was hindered by bad weather) misconstrued the agreement (by treating an integer in the calculation of Cargo Handling Rate, which was necessary to determine the allowable period of laytime, as having a substantive negative operation) and that the Arbitrator impermissibly used the parties’ post-contractual conduct as an aid to construction (contrary to Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570, at [35], [163]; Franklins v Metcash, at [10]-[13], [58], [306]-[329]).

203 It was conceded that if leave to appeal on the clause 7.11.2 issue were not to be given, then this issue would not arise.

204 Mr Gleeson noted, by way of background, that the Weather Working Days argument had been raised by Excel as an alternative argument in the eventuality that the Arbitrator did not find that force majeure had started at 8.15am on 8 June 2007 (but found that it had started at some later time on that day). As I understand it, Excel’s argument was that if the Iron Braydn came on to demurrage at around 9 o’clock on 8 June 2007 (as Cargill contends), there was nevertheless an allowance to be made in Excel’s favour for bad weather and that this operated to reduce the claim for demurrage.

205 The Arbitrator noted Excel’s contention in that regard as being that the approach reflected in Cargill’s earlier acceptance (that time did not count against Laytime from 7 June 2007 because of bad weather) could also justify a conclusion that Laytime did not run from at least the time from which Excel relied on force majeure.

206 “Cargo Handling Rate” was defined in clause 1.1 to mean the rate, as specified in the relevant specification schedule at which the coal was to be discharged at the Delivery Point “for the purposes of calculating Laytime”. The relevant specification schedule stated that the minimum shipment size was to be 15,000 Metric Tonnes and that “the Seller shall load shipment aboard the Vessel at the following average rates per WWD being a day of twenty-four (24) consecutive hours SHINC” (Sundays and holidays included).

207 The Arbitrator noted in his award that, prima facie, the reference to WWD (Weather Working Day) appeared to be an integer in the calculation of a Cargo Handling Rate but he ultimately accepted the contention of Excel that it had a substantive negative operation in that any obligation to load, and the counting of laytime, was suspended during the period when the loading was hindered by bad weather.

208 In coming to a view on this question (which the Arbitrator noted was a difficult issue because in his view the agreement was not very clear in this respect), the Arbitrator expressly had regard, first, to the description of Cargo Handling Rate in the Schedule (which he considered was something more than simply part of a definition - perhaps because it expressed an obligation for the Seller to load the shipment at the specified average rates) and, secondly, to the conduct of the parties “before Cargill sought to resile from its earlier position” (ie their conduct before Cargill reinstated its claim to demurrage for the whole of the period) which he considered suggested that the parties understood that the agreement had the meaning for which Excel contended.

209 Mr Gleeson conceded that the second reason given by the Arbitrator was not strictly a matter referable to interpretation of the contract. Nevertheless, it was said that this was simply a recognition that the parties had acted in a particular way, the Arbitrator having observed that this was a belated submission and seemed to be a response to Excel taking the matter to arbitration. On that aspect, I have difficulty accepting that the Arbitrator’s view of the parties’ post-contractual conduct was no more than a recognition that the parties had acted in a particular fashion and not a factor which had (in conjunction with the other matter to which reference was made) led the Arbitrator to view the operation of the Cargo Handling Rate definition in the way he did. The Arbitrator explicitly made reference to this as the second of the reasons he had for coming to that view of the definition (para 163) and treated it almost as an admission by conduct (though explaining it in terms of an indication of the parties’ understanding of the operation of the clause). In that regard, it seems to me that to the extent that the Arbitrator had regard to post-contractual conduct in construing the definition there was strong evidence of an error of law in so doing.

210 What is not clear is that but for this error the Arbitrator would not still have come to the same conclusion based on the first matter to which he said he had had regard. (Although expressed as one of the two matters to which he had regard, this part of the Arbitrator’s reasoning seems to read as if the Arbitrator was drawing some comfort (from the post-contractual conduct) for the conclusion he was proposing to draw on the wording of the definition itself.)

211 If the Arbitrator’s conclusion could have been sustained by reference to the first reason set out above, then the fact that one part of the Arbitrator’s reasoning could not be sustained might not be to the point. However, it is not clear from the award whether the first reason advanced for treating the definition as having negative operation would have been sufficient, in the Arbitrator’s eyes, to stand alone and, in any event, this does not address the issue as to whether the definition could objectively be said to be intended to have any substantive operation in relation to laytime at all.

212 It is submitted by Mr Gleeson that the finding as to the Weather Working Days issue (though apparently conceding that reliance on post contractual conduct would not strictly be correct) was not a manifest error because the approach which the Arbitrator took to the matter was reasonably arguable. Mr Gleeson pointed to the outline given by the Arbitrator of the circumstances in which this issue had arisen (Cargill having initially submitted demurrage calculations with an allowance for bad weather up to a particular time and then from that time basing the allowance on force majeure, but, by the time of the arbitration Cargill had submitted that the earlier demurrage calculation had been mistaken), the Arbitrator’s view being that this was a belated attempt to resile from the earlier approach.

213 As explained by Mr Gleeson, Excel’s argument was that the Cargo Handling Rate definition, which included the concept of Weather Working Days, encapsulated the concept that if there was not a usable period of time to load the coal on the ship because of bad weather, that was not taken into account when calculating at what average rate the coal had to get onto the ship. Insofar as the Arbitrator noted that he considered the argument difficult but made a finding which was reasonably open to him to do (whether or not he had acted in error in taking into account subsequent conduct) it is submitted by Mr Gleeson that this does not surmount the high hurdle for manifest error of law. In other words, it is said that if this is reasonably arguable and a question of construction, whether or not the Arbitrator in fact reached the wrong conclusion (and how he did so) is immaterial.

214 Mr Stevenson contended that the relationship between the two alleged errors was that the Arbitrator’s failure to consider Cargill’s alternative clause 7.11.2 argument led him into error in relation to the weather working point. It is submitted that if the Arbitrator had accepted Cargill’s Alternative Argument then that would have given rise to an inconsistency with the proposition that laytime did not run on any day which was not a weather working day, i.e. for some days after 8 June. (Mr Stevenson submitted that the weather working day argument was irreconcilable with the Alternative Argument advanced by Excel.) (In that regard, the Arbitrator does seem to have had regard to the interrelationship between the respective clauses in that he saw the weather working day point as reaching the same outcome as that he had reached on the clause 7.11.2 argument.)

215 It seems to me that the proposition put by Cargill (that WWD was no more than an integer in the definition of the Cargo Handling Rate and thence a step in determining the amount of time to be allowed as laytime) has considerable force but I do not see this as a manifest error of law on the face of the award (as opposed to an issue on which there is strong evidence of error). It seems to me that there were different conclusions reasonably open as to the construction of the relevant definition and its operation in the context of the agreement as a whole.

216 At para 163 the Arbitrator makes it clear that the reliance made by him on the definition argument was as support for his primary conclusion on the construction of clause 7.11.2, saying (after having first concluded that time does not count towards delay from 8.15am on 8 June by reason of force majeure) that: “I would also accept the same result would be achieved by reliance on the concept of weather working days”. Mr Gleeson submitted that the finding that loading was hindered by bad weather from 8.15am on 8 June 2007 was a finding of fact. The only question of law was whether, as a matter for construction, whether the Arbitrator should have accepted the proposition that the reference to weather working days had a substantive negative operation in the definition. Mr Gleeson says that is not a manifest error in the sense required by the authorities. I agree.

217 In any event, the Arbitrator’s finding on this issue was not ultimately determinative of Cargill’s claim. It was an expression of opinion that the same result could have been achieved by a different route. The Arbitrator was of the view that in the circumstances time did not count towards laytime from 8 June by reason of force majeure. The fact that he was also prepared to accept that the same result would be achieved by reliance on the concept of weather working days (paras 162/163) does not take the matter any further. (This, it seems to me, also counts heavily against the exercise of discretion to revisit the issue assuming the basis for such relief were otherwise made out.)

Strong evidence of error of law and effect of determination on certainty of commercial law?

218 Again, it is noted that the test on this alternative threshold requirement is not who is ultimately right or wrong as a matter of law on the disputed question(s) of construction, but the strength of the claim that there has been an error of law on the construction issues. In the absence of a finding that there has been a manifest error of law, what is necessary is that there be “strong evidence” that the Arbitrator made an error of law and that the determination of that question is one which may add or be likely to add substantially to the certainty of commercial law.

219 In Promenade Investments, at 226, Sheller JA said:

Assuming that there is not a manifest error of law on the face of the award it may be argued that there is strong evidence that the arbitrator made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. The requirement that the question be one the determination of which may add substantially to the certainty of commercial law indicates that it should be one of wider and greater importance than, for example, the construction of a one-off clause in the context of a particular agreement between the parties. One can discern here the sort of limitation which Lord Diplock had in mind. The expression “commercial law” should be given no narrow construction. The expression “strong evidence that the arbitrator ... made an error of law” suggests first what might otherwise be called on the leave application a strong prima facie case and second an error of law not manifest on the face of the award and demonstrable by evidence. (my emphasis)

220 Is there a strong prima facie case that the Arbitrator made an error of law in not holding that the period of time between the occurrence of a force majeure event and the giving of a notice of intention to claim force majeure (whether or not that be as early as practicable) should be counted as laytime? The issues as framed by the Arbitrator did not require a direct determination of that question but it was thrown up by the argument in relation to the adequacy or validity of the clause 17.2 notice.

221 To my mind, both arguments were reasonably available as a matter of construction. As against that contended for by Cargill, it seems to me that had the parties intended laytime to continue after the occurrence of a force majeure event up until the time that a notice of intention to claim force majeure was given (irrespective of whether that notice was given as early as practicable) then there was a very simple way to do so and it would not have necessitated the use of any concept of delay. In that regard, there seems a contradiction in terms between the situation where the notice was given as early as practicable and that where there was in any event an operative delay for the purposes of counting laytime. However, whatever the prospects of success for Cargill’s argument on that point ultimately may have been, I am not convinced that there is strong prima facie evidence that the Arbitrator erred in his construction of the clause.

222 As to the second of the alleged errors, for the reasons adverted to above, I would have been inclined to find that the weather working days point was one as to which there was strong evidence that an error of law had been made in this regard (both by reference to the use of post-contractual conduct and by reference to the application of a definition used in context for the purposes of another). On this issue I would have been satisfied that the determination of the construction of clause 7.11.2 and the extent to which it was affected by the reference to Weather Working Days in the definition of Cargo Handling Rate was one which would be likely to add certainty to commercial law. This relates to an issue of construction of clauses in a standard form agreement (not a one-off determination on the facts of this particular case.) Even if its use is not as wide as that suggested by Cargill, the construction of such a clause would in my view have potential significance beyond that of the present case. While the particular form of the agreement in use has changed, the force majeure provisions have not changed in the current version and hence I accept that the validity of the construction put by Cargill is one which would be likely to add to the certainty of commercial law.

223 However, as Mr Stevenson accepts, the alleged error as to the operation of the weather working days definition is of no moment unless Cargill obtains leave to appeal on the Alternative Argument in relation to clause 7.11.2. Therefore this is not an error that of itself would have affected the overall outcome of the dispute (and thus the first of the threshold requirements is not met in relation to this error).

(iv) Has there been a denial of natural justice for the purposes of a review under the Model Law?

224 It is conceded that there is a more limited basis for review of arbitral awards under the Model Law, that being contained in article 34. The only relevant basis for review asserted in the present case is that contained in article 34(2)(b)(ii), namely that the award is in conflict with the public policy of the State.

225 By reference to s 19 of the Commonwealth Act, there is a conflict with the public policy of Australia if there has been a breach of the rules of natural justice. Mr Stevenson submitted that the Arbitrator did not deal with Cargill’s clause 7.11.2 Alternative Argument and thus there has been a breach of the hearing rule of natural justice.

226 The “hearing rule” (to use the terminology adopted by Aronson, Dyer and Groves, Judicial Review of Administrative Action, 3rd ed, 2004, at 370) (or audi alteram partem rule), is one of the twin pillars of natural justice, the other being the bias rule (nemo debet judex esse sua in propria causa) (as explained in Carbotech-Australia Pty Ltd & anor v Yates & 14 ors [2008] NSWSC 540, at [46], per Brereton J). (There is no suggestion of bias in this case.) At the most basic level, the hearing rule requires a decision-maker to hear a person before making a decision affecting that person's interests.

227 The High Court in Dranichnikov v Minister for Immigration and Multicultural Affairs [2003] HCA 26; (2003) 197 ALR 389, said at [24];

To fail to respond to a substantial, clearly articulated argument relying upon established facts was at least to fail to accord Mr Dranichnikov natural justice.

228 The operation of the hearing rule depends on the circumstances of the case in which it is applicable (Bread Manufacturers of NSW v Evans [1981] HCA 69; (1994) 180 CLR 404, at [18], per Gibb CJ; Durayappah v Fernando (1967) 2 AC 337, at 414). In Russell v Duke of Norfolk (1949) 1 All ER 109, at 118, Tucker LJ said:

The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject-matter that is being dealt with, and so forth.

229 In Mobil Oil Australia Pty. Ltd. v Federal Commissioner of Taxation [1963] HCA 41; (1963) 113 CLR 475 (at 504) Kitto J stated:

What the law requires in the discharge of a quasi-judicial function is judicial fairness. This is not a label for any fixed body of rules. What is fair in a given situation depends upon the circumstances.

230 (The above passages from Mobil Oil and Russel were cited with approval in The Queen v Commonwealth Conciliation and Arbitration Commission: ex parte Angliss Group (1969) 122 CLR at 546, 552.)

231 The mere fact that a decision is made that is adverse to the interests of a party does not mean that the party has been ignored or denied natural justice in breach of the hearing rule (Carcione Nominees Pty Ltd & Anor v Western Australian Planning Commission & Ors [2005] WASCA 56, at [93]).

232 In Bread Manufacturers, whilst it was found that the hearing rule did not apply to the decision maker in question, Gibbs CJ was of the view that, even if the rule did apply, it would have been satisfied in the circumstances of that case where “the Commission had received and no doubt considered the submissions of the Association that prices should be increased, and did make an increase in prices generally” (at [18]).

233 The Alternative Argument is, I accept, an argument of substance. It cannot be said to be trifling or to have insignificant consequences if successful. The relevant facts upon which the argument was based (namely the giving of the notice on 13 June 2007 some days after the event amounting to force majeure) were established.

234 (So far as the second alleged error is concerned, it is not submitted that there was a denial of natural justice by failing to deal with the point - because the argument was clearly dealt with – rather, the submission is that the Arbitrator was led into the error by his denial of natural justice on the 7.11.2 argument. It is said that had the Arbitrator addressed the clause 7.11.2 argument and seen that it contradicted the weather working days argument (which he had found to be a difficult issue) he would not have come to the conclusion he did on weather working days. Thus it is said that if the matter were to be re-agitated, the submission would be that if the clause 7.11.2 argument was correct, then the “tentative” conclusions in relation to weather working days could not be correct.)

235 Where I have some difficulty, however, is as to whether the clause 7.11.2 argument was clearly articulated. That would be the case only insofar as the Alternative Argument as now put can be said to emerge clearly from the written submissions and the exchange extracted earlier above.

236 There is considerable doubt in my mind is as to whether what was being clearly articulated in the submissions put to the Arbitrator is the proposition for which Cargill now contends, namely that laytime continues to run unless and until a notice of intention to claim force majeure is given (irrespective of whether the notice was given as early as practicable) and that on the proper construction of clause 7.11.2, “delay” in the giving of a notice will occur whenever the notice is not given simultaneously with the force majeure event. There is no suggestion in the Arbitrator’s reasons that such a proposition was clearly articulated nor does it emerge clearly from the written submissions (particularly when reference is made to the statement contained in the submissions that the requirement for notice to be given as early as practicable is reinforced by the reference to delay in clause 7.11.2).

237 Although Mr Stevenson submitted that there was no need for Mr Nell, Counsel appearing for Cargill on that application, to make any argument about whether notice was given as early as practicable in order to run the Alternative Argument, the argument was linked in the sense that it was predicated on a determination against Cargill on its principal submission that a notice which was not given as early as practicable was not valid and effective for the purposes of the agreement.

238 Mr Gleeson’s submission, as I understand it, on the natural justice issue was that on the clause 7.11.2 argument, there are two possibilities: either Excel is correct in its submission that the argument was not put before the Arbitrator in exactly the way it was put to me (and accordingly Cargill cannot be heard to complain that there was a denial of natural justice by reason of any failure to deal with the argument in the way in which it was put) or, if the argument put to the Arbitrator was, as Excel contends, predicated on there being a notice which was not given as early as practicable (but nevertheless still a valid notice), then the Arbitrator dealt with it and there was no denial of natural justice (even if the Arbitrator may have been wrong).

239 I accept Mr Gleeson’s submission that there is nothing in what was put to the Arbitrator which squarely raised the proposition that if the notice is valid and effective (because it was given as early as practicable) clause 7.11.2 nevertheless has the effect that time does not count on force majeure because any gap in time between the objective event of force majeure and the giving of the notice is delay. The proposition that one can satisfy a contractual obligation to do something as early as practicable but at the same time there can be an operative delay was not one that seems to me to have been clearly put to the Arbitrator.

240 If, closely read, the written submissions did go so far, is there anything to suggest that the Arbitrator did not properly consider the argument just because it was not articulated in those terms in the award? The Arbitrator clearly addressed his mind during the course of argument to the question of what consequence might flow from the fact that the notice was not given timeously. Ultimately, his finding was that the notice was given as early as practicable and, by reference to the result which followed from that, he must have considered that there was no delay for the purpose of clause 7.11.2 where there was a notice which had been given as early as practicable.

241 In the circumstances, I am not satisfied that the argument now sought to be put by Cargill was clearly articulated before the Arbitrator. That disposes of the claim that there has been a denial of natural justice. Insofar as a version of the argument was put, it seems to have been heard by the Arbitrator and what he has done is to reach a conclusion which implicitly rejected it. I am not satisfied that this amounts to a denial of natural justice.

(v) Discretionary issues

242 This issue does not arise on the application for leave to appeal under the State Act, as the jurisdictional and threshold requirements for leave under the State Act have not all been established. Had they been, then I would have approached the question of discretion cognisant of the weight evident from the legislation placed on the exercise of judicial restraint in interference with or intervention in arbitral decisions which otherwise would be final and binding. I accept that there should be only limited curial intervention. Similar issues arise when considering the exercise of discretion under the Model Law, though they do not strictly arise for determination in the present case as I have not found a denial of natural justice.

243 In its Commercial List Response, Excel raises the following matters in relation to whether the court should exercise discretion to grant leave to appeal (assuming the jurisdictional and threshold requirements have been satisfied:

(a) the one-off nature of the force majeure events giving rise to the dispute;

(b) the qualifications of the arbitrator (he being an experienced Queen’s Counsel and former Federal Court Judge) appointed by agreement of the parties as sole arbitrator in order to resolve their dispute;

(c) the amount in dispute (demurrage from 8 June being calculated at USD850,000, or from 21 June as being in the order of USD300,000) weighed against the (unquantified) cost of further proceedings to review the partial award;

(d) the assertion that this is an attempt generally to re-litigate the subject matter of the arbitration;

(e) that the contentions, to the extent that they raise questions of law, are inappropriate for leave to appeal as they involve issues of fact that must be reviewed or decided in order to dispose of the alleged questions of law;

(f) that the contentions, to the extent that they raise questions of law, do not involve bare questions of law, but rather the examination of how, against the contractual structure, the parties acted in the particular case; and

(g) that, if leave is granted, the court is asked to determine the rights arising from the parties’ conduct rather than to determine questions of law arising from contractual documents or referred to in the partial award or on other discrete questions of law arising out of the partial award.

244 As to the last three grounds, they were not raised in oral submissions and it is not clear to me how it is said that the determination of the construction questions as put to me would involve any need to revisit factual findings of the Arbitrator.

245 What seems to me to be more relevant is that the determination of the first alleged error would not overcome the finding in relation to estoppel/waiver in respect of the claim for demurrage for the bulk of the period claimed and the determination of the second alleged error would take the matter no further as this was no more than an alternative means of reaching a conclusion already. As to the other grounds, the most relevant seem to me to be the fact that the financial consequences to flow from any re-determination are by no means as substantial as have been asserted (and, in view of the finding as to the clause 17.3 operation, there may be little practical benefit at all from a reconsideration of the matters of which complaint is made) and the fact that Cargill has had a considered hearing (and one on far more than the usual number of issues for this kind of arbitration in the opinion of the Arbitrator).

246 In Promenade Investments, after considering the language used in the expression “manifest error”, Sheller JA went on to say, at 225:

Nothing more is to be learnt from the language used but of course the discretion of the court as to whether or not it will grant leave remains and regard must be had to the requirement of subs (5)(a). The matters referred to by Lord Diplock in The Nema remain important factors in determining whether leave should be given. [His Lordship there having raised the reluctance to grant leave for a one-off question]

247 As to the discretion, in Promenade Investments, at 221, Sheller JA said:

In his second reading speech the then Attorney-General said that one of the major objectives of this uniform legislation was to minimise judicial supervision and review (New South Wales Parliamentary Debates, 22 November 1990, 10376 at 10378):

“If arbitration is to be encouraged as a settlement procedure and not as a dry run before litigation, a more restrictive criterion for the granting of leave is desirable and the parties should be left to accept the decision of the arbitrator whom they have chosen to decide the matter in the first place.”

The added requirements of manifest error of law on the face of the award or strong evidence that the arbitrator made an error of law and that the determination of the question may add substantially to the certainty of commercial law suggest that the draftsman was seeking to constrain the exercise of court control over arbitral awards in the manner described by the House of Lords in The Nema. A manifest error of law on the face of the award may be an error which would be apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument. A determination which adds substantially to the certainty of commercial law may be a determination of a question of the construction of a contract in standard terms rather than the construction of a one-off clause. In such a situation, strong evidence that the arbitrator made an error of law may equate with a strong prima facie case that the arbitrator had been wrong in his construction.

248 I am not satisfied that this is a case (had the jurisdictional and threshold requirements been satisfied for the grant of relief either under the State Act or the Model Law) in which, as a matter of discretion, leave to appeal or the remission of the matter to the Arbitrator should be granted or ordered as the case may be. The complexity of the construction issues as now put, when coupled with the fact that they do not appear to have been clearly articulated in that fashion before, suggests strongly that this is an attempt to re-litigate the issues which have already been dealt with in some detail. There should be finality in that exercise, as provided for under the parties’ arbitration agreement.

Conclusion

249 For the reasons outlined above, I am of the view that the parties did not opt out of the Model Law and hence the State Act does not apply. (Had I found otherwise, I would have held that the claims made in the arbitration were maritime claims for the purposes of overriding the parties’ exclusion agreement and hence this Court would have had jurisdiction to entertain the application for leave to appeal.)

250 Had the State Act applied, I would not have been satisfied that the threshold requirements for the grant of leave to appeal were met. Although I consider there is strong evidence of error in relation to the conclusion drawn as to the operation of the definition of weather working days for the purposes of calculating laytime, and I accept that this question is one the determination of which is likely to add to the certainty of commercial law, it is a question which (considered in isolation of the Alternative Argument in relation to clause 7.11.2) would not substantially affect the parties’ rights. In any event I would not have been satisfied that this was a case in which I should have exercised discretion to grant leave to appeal in relation to that alleged error.

251 I am not satisfied that there has been a denial of natural justice.

252 I therefore dismiss the application by Cargill. As Mr Gleeson indicated that, in that event, Excel would wish to be heard in relation to costs, I will deal with that aspect of the matter at a time convenient to Counsel.

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LAST UPDATED:
11 August 2010