Carmichael Rail Network Pty Ltd as Trustee for the Carmichael Rail Network Trust v BBC Chartering Carriers GmbH & Co. Kg & Anor

[2023] HCATrans 141

[2023] HCATrans 141

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B32 of 2023

B e t w e e n -

CARMICHAEL RAIL NETWORK PTY LTD AS TRUSTEE FOR THE CARMICHAEL RAIL NETWORK TRUST

Appellant

and

BBC CHARTERING CARRIERS GMBH & CO. KG

First Respondent

ONESTEEL MANUFACTURING PTY LTD

Second Respondent

GAGELER J
GORDON J
STEWARD J
GLEESON J
JAGOT J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 17 OCTOBER 2023, AT 10.00 AM

Copyright in the High Court of Australia

MR E.G.H. COX, SC:   If your Honours please, I appear with MR D.J. REYNOLDS for the appellant.  (instructed by Mills Oakley)

MR G.J. NELL, SC:   If your Honours please, I appear with my learned friend MR J.K. KENNEDY for the first respondent.  (instructed by Aus Ship Lawyers)

MR J.A. HOGAN‑DORAN, SC:   If your Honours please, I appear for the second respondent.  (instructed by HWL Ebsworth Lawyers)

GAGELER J:   Mr Hogan‑Doran, I understand from your written submissions that you do not wish to supplement them orally.

MR HOGAN‑DORAN:   That is correct, your Honour.

GAGELER J:   Thank you.  Yes, Mr Cox.

MR COX: Thank you, your Honour. By way of introduction, could I just make these observations. During the voyage from Whyalla in South Australia to Mackay in Queensland, the cargo steel rails collapsed in stow. The issue in the proposed arbitration governed by English law will likely involve a consideration of whether the words in Article 3 rule 2 of the Hague‑Visby Rules as they appear in Schedule 1A of the Australian Carriage of Goods by Sea Act:

The carrier shall properly and carefully load . . . the goods carried –

we say carries a non‑delegable obligation.  The arbitrators in considering that question will be bound to apply English law, which is the proper law of the contract in the bill of lading, and they will have no choice but to apply the English law interpretation of those words.  They must necessarily apply the House of Lords decision in Jindal Steel, and that the FIOST clause on the face of the bill of lading can transfer both performance and risk of the Article 3 rule 2 obligation.

By contrast, were that issue to be tried in the Federal Court of Australia in accordance with section 8 of the Carriage of Goods by Sea Act, that would mandate the Australian law interpretation on the appellant’s case, which we say has the non‑delegable obligation and the liability question would not simply be a transfer of the risk but the carrier would be required to factually demonstrate a defence under Articles 4 rule 2(i) and (q) – namely, an error by the shipper – so, effectively, that the shipper’s agent, the stevedore, had caused the poor loading, or that the loss occurred without the fault or privity of the carrier.  One would need to consider whether the master, or the ship, was in some way responsible or had a supervisory role or failed to exercise a supervisory role in the loading of the cargo.

The risk that we say the Federal Court – the Full Court below – and the error they made – is that the Full Court did not consider the risk and the likelihood of that risk that the arbitrators would reach a conclusion that the carrier’s liability would be reduced, contrary to Article 3 rule 8 that is incorporated in whatever version of the Hague Rules is in the contract of carriage.

GAGELER J:   Do you say that the undertakings were insufficient to mitigate that risk?

MR COX:   Yes, your Honour.  We say the undertakings are not binding on the carrier in the United Kingdom in accordance with section 33 of the United Kingdom legislation and there would be no reason why the carrier would simply not argue that it was not bound by that undertaking or the declaration of the Federal Court and could adopt a different position.

GLEESON J:   They are two different things.

MR COX:   Indeed, your Honour.  Yes. There are a number of different ways in which the risk could eventuate.

GLEESON J:   What about section 46 of the Arbitration Act?

MR COX:   Yes, your Honour.  We would say that there is equally a risk that the arbitrators would regard themselves as bound to simply apply English law, whatever view the parties took of the steps in Australia.  We say that that is the other way in which the issue could arise.  In a sense, the obvious example of that occurring is the decision in The Amazonia that we have referred to in the submissions in reply, where an English arbitrator, in considering whether an English arbitration clause in respect of an interstate shipment in Australia was not subject to section 9 of the Sea‑Carriage of Goods Act 1924, including the same provision invalidating arbitration provisions as section 11 of the 1991.

GLEESON J:   Why have you not taken steps to establish an arbitral tribunal and seek a determination as to what law the tribunal would apply?

MR COX:   Because before the appointment of the arbitrators, the step that was taken was to seek the anti‑suit injunction to restrain that process, to preserve and protect the exercise of the Federal Court’s jurisdiction, because of the apparent inevitability that an English court would follow the Jindal Steel approach and simply find that Article 3 rule 8 would not be engaged.

GLEESON J:   But that is a separate question; I am asking about the question of determining what law the arbitral tribunal would apply, not whether they would apply the Jindal Steel approach.

MR COX:   Well, it simply it has not been done, there is no explanation that I can give.  The approach that was taken immediately upon Sir Nigel Teare being appointed the arbitrator, was to seek the anti‑suit injunction that was initially granted ex parte by Justice Derrington and then discharged by the Full Court, and ‑ ‑ ‑ 

STEWARD J:   I suppose the question that Justice Gleeson is asking is what is the downside of waiting to see what would happen?  What is the downside, practically, to you?  You could come back and get the stay lifted if your fears were realised.

MR COX:   Yes, that was an approach that had been considered in some of the United Kingdom cases – from memory, I think it is Baghlaf (No 2) where that - - -

STEWARD J:   And also in that United States Supreme Court case.

MR COX:   Although in the United States Supreme Court case, it is considered in a very different way.  It is considered in the context of the public policy defence.

STEWARD J:   In any event, leaving aside authorities.

MR COX:   It is a possibility that remains open to the parties.  I suppose the question is whether, on the demonstration of what we would say would be a sufficiently arguable case for an anti-suit injunction, the Federal Court should not have protected its own process where there was a punitive invalidity.

STEWARD J:   But do you say there is some legal impediment that would prevent you from having the stay lifted in the event that your fears are realised?

MR COX:   It depends on the timing.  There would be a legal impediment after an award, not in the event that a change in the undertaking was taken during the course of the arbitration, I accept that.  So, in a sense - - -

GORDON J:   Sorry, I just missed that last – what did you just say then about the undertaking?

MR COX:   I accept that if there was a change in the position adopted by BBC in respect of the undertaking during the arbitration, there would be an opportunity to come back to the Federal Court to vary or remove the stay, but that same opportunity does not arise if the listing of liability only becomes apparent after an award has been given, because the review rights would then be limited to the public policy ground.

GORDON J:   Could I ask, then, one question.  That seemed to accept that the undertaking has some force, which seems contrary to the position you did in response to the answer to the question from Justice Gageler.  What is wrong with the undertaking, given the way in which it is put?

MR COX:   There are two things that are wrong with the undertaking.  The first is that it does not deal with the Australian law interpretation.  So, we would only ‑ ‑ ‑

GORDON J:   We had better just take that for the moment.  It does say, as applied under Australian law.

MR COX: And our concern with that, as it was articulated before the Full Court and we maintain here, is that all that the existing undertaking would do would, to take the words from Article 3 rule 2 as they appear in Schedule 1A of the Carriage of Goods by Sea Act, that is to adopt a transposition of the same words and then to consider what they mean under English law.  There is no part of the undertaking that says that one should conduct an Australian law interpretation of what Article 3 rule 2 means.  Indeed, we would say that if one is applying English law, as the arbitrators must, there is no opportunity, having regard to the clear decision in Jindal Steel, to consider the non‑delegability argument.

GAGELER J:   You are contemplating a hybrid.  You have an Australian provision which you say, according to the undertaking, is to be interpreted according to English law.

MR COX:   Yes, your Honour.

GAGELER J:   That is a very, if I may say so, difficult construction of the undertaking.

MR COX:   Assuming that to be the case, one, in a sense, then has to consider what an arbitrator applying English law would do.  An arbitrator, even taking into account the undertaking, is still bound to apply English law.  The notion that there would be some subsidiary incidental question, almost like a renvoi‑type analysis within the arbitration seems an unusual approach that an arbitrator might take.

STEWARD J:   Does what you sit at all well with what BBC say in their submissions at paragraph 10, namely, that the phrase “as applied under Australian law” means the same as “as interpreted in Australia”?  They seem to be conceding that you would interpret the words in accordance with Australian law.

MR COX:   In one sense, I am reminded that the way in which this arose is – if your Honours have the book of supplementary materials, if I can answer your Honour’s question in this way, by reference to what occurred during the Full Court hearing ‑ ‑ ‑

GORDON J:   Is that the appellant’s book or the respondents’ book, please?

MR COX:   It is in the appellant’s book of supplementary materials.

GORDON J:   Thank you. 

MR COX:   At page 24, the issue was the subject of the debate between myself and the Full Court as to whether the proposed undertaking would add anything to ameliorating the risk in the UK.

STEWARD J:   Well, I suppose we could simply ask Mr Nell when it is his turn what he means in his written submissions about interpreting in accordance with Australian law.  He can either concede that the risk exists, as you have articulated it, or tell us it does not.

MR COX:   The other way, which – even assuming that there is no risk, if I can just develop that proposition, your Honour.

STEWARD J:   Yes.

MR COX:   The difficulty with the United States Supreme Court approach of relying on post‑award review, is, it may be that BBC does not resile from the undertaking that is given, adopts a position that is neutral, and simply says to the arbitrators, we submit you should follow Jindal Steel, whatever the approach is.  You are construing Article 3 rule 2 ‑ ‑ ‑

GLEESON J:   But, Mr Cox, if Mr Nell went to the Tribunal, to the arbitration in London, and said what he says in his submissions in paragraph 10, you would not say to the Tribunal, do not accept that submission. 

MR COX:   No, no, we would, no doubt, embrace that.  But the arbitrators would be required by the Arbitration Act (UK) to give effect to English law, and the English law interpretation can have no real doubt in light of Jindal Steel. 

GLEESON J:   And you would say that section 46 of the Arbitration Act would not apply to Mr Nell’s submission about the law and your embracing of that? 

MR COX:   In one sense, there may be arguments that could be advanced by my client at that stage, but the risk that exists is, once one has an award but comes down and says that the Tribunal would follow Jindal Steel, there is no opportunity for an Australian court to review that error, and there is no effective remedy for the plaintiff, and would lose the opportunity to articulate the case based on a non‑delegable obligation. 

GLEESON J:   So, your case depends on there being no possibility of the kind that I mentioned, that the Tribunal would identify what law could say whether they accept the submission of the parties or whether they disagree with it without proceeding to a final award.

MR COX:   I accept that that would be an opportunity that would be available to the parties but it would, in my submission, not ameliorate the final risk in respect of a final award, nor does it necessarily mean, in my submission, that the plaintiff in seeking an anti‑suit injunction to protect the invocation of the validly invoked jurisdiction of the Federal Court – if the cause was punitively invalid under Article 3 rule 8 – did not have an appropriate prima facie case.  There were two other ways in which one could also have considered invalidity, which are also relied on, so that one does have a number of ways in which the arbitration could lessen the liability, not just the undertaking. 

GORDON J:   Mr Cox, just before you do that, could you, at some point, just identify what the second problem with the undertaking was?  You gave me one and I would just be grateful if you could just finish off the second one.  Would that be possible?

MR COX:   Yes, your Honour.

GORDON J:   I apologise.

MR COX:   No, no, no, I am ‑ ‑ ‑

GORDON J:   So, one is the phrase “as applied under Australian law”, which you have made submissions about.  What was the second problem with the undertaking?

MR COX:   The second is that it will not be binding on the arbitrators in accordance with section 33(1) of the Civil Jurisdiction and Judgments Act 1982, and the clearest example of that – if I can identify for your Honours the passage in Dicey and Morris, which is in the joint bundle of authorities at tab 64, volume 6, at page 1868.

GAGELER J:   What are the words of the provision you have referred to?

MR COX:   The provision is in volume 2, Part B of the materials, behind tab 10, at page 279.  Section 33(1) provides circumstances where steps taken by a party will not bind them in the forum proceedings, under the United Kingdom proceedings, where they have effectively taken a step simply for the purposes of contesting jurisdiction.

GLEESON J:   Is not the point more 33(1)(b) than 33(1)(a)?

MR COX:   Except for this, your Honour.  The giving of the undertaking was a step that was only ever taken to – in fact, your Honour is right.  Yes, it is seeking a stay, yes, your Honour is quite right.  The step of giving the undertaking would only be binding if it was taken in the context of seeking a stay of the proceedings.

GAGELER J:   You say this provision is addressed to arbitration in London?

MR COX:   Yes, your Honour.  And there are a number of examples.  The clearest example of this is the judgment of Justice Thomas following this Court’s decision in Akai v People’s Insurance Co when Justice Thomas granted the anti‑suit injunction to restrain the parties after the High Court’s judgment – to decline the stay of the Australian proceedings, Justice Thomas granted an anti-suit injunction to restrain the further conduct of the Australian proceedings, on the basis that the steps that had been taken in Australia were not binding, in accordance with section 33(1). 

The explanation of that principle, without taking your Honour to all of the authorities – there is a clear statement of it in Dicey and Morris, if I could just identify that for your Honours, the way in which it would apply, which was a passage in volume 6 of the Part E materials at page 1868.  It is the passage beginning:

The general thrust of the authorities –

and then continuing:

as his primary defence –

through until the end of the paragraph.  I will not read it, but it identifies the ways in which a step taken would not be binding.  We say that that would apply to the undertaking given by BBC and to the declaration made by the Federal Courts, so none of those steps would be binding in United Kingdom proceedings, including the arbitration.

GORDON J:   Can I just ask one question about that, now I understand the two aspects of your complaint about the undertaking.  Is not the agreement itself sufficient an answer to both of those contentions?

MR COX:   The arbitration agreement?

GORDON J:   No, the fact of the agreement to the undertaking, that is, the proffering of the undertaking.

MR COX:   There was, in fact, no agreement per se.

GORDON J:   Wrong language ‑ ‑ ‑ 

MR COX:   I appreciate that the Full Court recorded it as an agreement.  The position of the appellant before the Full Court was that no undertaking would be effective and that, whatever the terms of it, it would not warrant a stay.  It has been recorded as an agreement in the Full Court’s judgment but there was not, as I understand what occurred in the Full Court, an agreement between the parties as to the undertaking.  We would say that there was not a strict agreement that Australian law would apply in the arbitration because the position of the first respondent has always been that the arbitrators will apply English law, whatever the terms of the undertaking might be.

GORDON J:   So, if I step back from that just for the moment, it may not be an agreement, but you both want – you want Australian law and you have an undertaking that there is an Australian law – it might not be an agreement between you, but your positions are consistent before the arbitrator.

MR COX:   They might be, your Honour.  At the moment – there are two qualifications to that, and I think they are these:  there is no reason why a party, when it gets back to London after the conclusion of the Australian proceeding, would not adopt a different position where it is in their own interest – the obvious example being the steps taken in Akai v People’s Insurance Co.

In the final paragraph of this Court’s reasons in the Commonwealth Law Reports in Akai, there is – for your Honours’ reference, it is in the agreed volume of materials, right at the end of the report at page 338 of the joint bundle of authorities – there is a reference to a summons being filed in the Commercial Division in the United Kingdom at the time that this Court declined to give a stay.  There was at that stage no suggestion that the People’s Insurance Co was unlikely to accept the decision of this Court, but yet – no doubt in their own commercial interest – relying on section 33 of the Civil Jurisdiction and Judgments Act (UK), knowing that it was not, as a matter of United Kingdom law, bound by the steps in Australia, could simply take a contrary position in the London proceedings.

GLEESON J:   Is that your only answer to section 46 of the Arbitration Act?

MR COX:   No, your Honour, it is not.  Even if one assumes that BBC would not advance a positive decision inconsistent with the arbitration, there is nothing to stop the arbitrators, consistent with United Kingdom law, from simply saying that they are required to apply United Kingdom law as the law agreed by the parties, and that means Jindal Steel.  We say that that would be an orthodox approach by the arbitrators, consistently with authorities in the United Kingdom Court of Appeal, like The Amazonia.

GLEESON J:   Applying section 46?

MR COX:   In my submission, what would have been agreed by the parties still remains English law.  In my submission, we do not fall within any exception to section 46.

GLEESON J:   So, you say that the law chosen by the parties as applicable is English law, notwithstanding the undertaking?

MR COX:   Yes, your Honour, that is the position under the bill of lading, and there is nothing that occurred in the Federal Court proceedings that constituted a new and separate arbitration agreement.  That is, for example, the precise question that arose in The Amazonia in a different way, there one had – but there is nothing, and I do not understand the first respondent to contend that anything that occurred before the Full Court could constitute a separate and distinct choice of law or arbitration.

GLEESON J:   Section 46(1)(a) does not require the arbitral tribunal to identify the law chosen by the parties by reference to the bill of lading.

MR COX: No, that is true, your Honour. But the way in which the appellant has always submitted that Australian law applies is pursuant to section 8 of the Carriage of Goods by Sea Act, not pursuant to any step or agreement by the parties. Section 8, subject to section 10, gives Schedule 1A the force of law in Australia. That is the reason why we say an Australian law arbitration is compelled, and any agreement to the contrary would be invalid, not by reason of a separate agreement by the parties.

The fact that BBC may have given an undertaking to make a concession or an admission for the purpose of seeking the stay of the Australian proceedings would not constitute an agreement to arbitrate in a strict sense.  It would lack the consent of both parties or any consideration.  It is simply a position that had been adopted for the purposes of obtaining the stay.

In the same way that the People’s Insurance Company returned to the UK, there is no reason to suggest that BBC may not do the same thing.  Similarly, even if BBC retains a neutral position, there is no reason why the arbitrators would not regard themselves as bound, applying English law, to give effect to Jindal Steel.  And if they do that at the stage of the final award, there is no remedy.

GLEESON J:   The Australian courts could just as readily apply Jindal Steel.

MR COX:   It could, your Honour, and we accept that that is a possibility.

GLEESON J:   That is not a point of differentiation?

MR COX:   No, your Honour, but there is strong judicial authority suggesting that that would not accord with Australian law, in our submission.

GAGELER J:   The common position of the parties before the arbitrators would not give rise to a conventional estoppel, you say?

MR COX:   I suppose one would have to ask what the detriment might be for a conventional estoppel in that sense.  Even if one assumed that there was a common assumption between the parties, there is not necessarily any detriment that would arise, and the question would be how that might be enforced if one has a final award produced by the arbitrators, the only remedy for which might be a public policy defence at the enforcement stage, and there would be some doubt as to whether that would be available in this Court once one has a final award that were binding.

STEWARD J:   Might not your detriment be your forbearance in not seeking to have the stay lifted?

MR COX:   That assumes that one is able to move the stay before you get a final award.

STEWARD J:   The Federal Court is pretty quick at organising its business.

MR COX:   No doubt, your Honour, but in a sense that assumes that the arbitrators give some warning that they are going to adopt a position ‑ ‑ ‑ 

STEWARD J:   You would ask them, would you not?  Or seek a determination, as Justice Gleeson has pointed out.

MR COX:   That may be a remedy, that may be a possibility, yes, your Honour, but the question, I suppose, is, to put it another way, does that possibility mean the court would not otherwise embark on the orthodox exercise of determining whether the clause is valid when it is invoked?

STEWARD J:   Is the risk really, perhaps that the arbitrators, unbeknownst to the parties, deliver a surprising award which applies English law and Jindal Steel?

MR COX:   That would be the clearest example of the risk, yes, your Honour, I think that ‑ ‑ ‑

STEWARD J:   Yes, I see.  All right, thank you.

GAGELER J:   And there would be a procedural fairness problem with that award, would there not?  Would that be a ground for challenging in an English court?

MR COX:   It may be, your Honour, yes.  I suppose it depends whether the position may be argued – one could call it procedural fairness, the arbitrators may give notice saying that they wish to hear the parties as to what the law applies.  That may not provide a basis for lifting the stay in Australia, but may be sufficient for procedural fairness.  One of the submissions that I had proposed to develop in due course, but perhaps now is the time, is, in my submission, there are effectively three propositions that sit behind the appellant’s appeal.  The first is what Lord Diplock decided as to the way in which Article 3 rule 8 applies for forum clauses.  That is the first question.

GLEESON J:   In Hollandia?

MR COX:   In Hollandia, yes, your Honour.  The second is whether any different test applies to an ordinary forum selection clause as opposed to an arbitration.  The third is whether the predictive exercise is appropriate to some extent.  Now, to some extent what your Honours have been putting to me is the matter of degree of the risk as to whether we met the threshold, but, in my submission, when one looks at the way in which the question arises in Lord Diplock’s reasons, which has been followed universally by other common law courts at least – putting the United States Supreme Court to one side for a moment – is that one has to determine the question of invalidity at the time the clause is invoked.

Can I just develop that proposition by taking your Honours briefly to identify the passages that we rely on in that regard.  Could I take your Honour to the Court’s judgment in The Hollandia, which is case 51 in the joint bundle of authorities, which is in volume 5 of part D, beginning at page 1557.

GORDON J:   What page of the report is it, please?

MR COX:   It begins at page 565 of the Appeals Cases.  It has to be accepted at the beginning that Lord Diplock expressed and did not need to express any view about the degree to which one would demonstrate the risk in the foreign proceedings of a lessening of liability, because the position was agreed between the parties.  That is an accepted proposition by both parties.  Just initially, if one goes to – in the joint bundle of authorities 1556 and in Appeals Cases version 574 – if I just draw your Honours’ attention to the passage that begins at point E of the report, and I will not read it, but if I can just identify the relevant portions, where Lord Diplock, with whom the other members of the House of Lords agreed, rejected the purely procedural approach.  Then at the bottom, at point H, beginning:

My Lords, unlike the first paragraph –

Lord Diplock explained that the way in which article III, paragraph 8 operates in a forum selection clause, was that it should be treated as a condition subsequent in the contract of carriage, and explains how that operates at the top of 575 of the Appeals Cases, 1567 of the report.  The timing is adverted to at points C and D of 1567, 575 of the appeal cases.  And that has some consequence for the propositions that your Honours are putting to me about the notion that one should, in a sense, go to the arbitrators and see whether the problem is going to develop.  And that is, it is ultimately, the question of invalidity, in our submission, has to be determined at the time the clause is invoked.

And that, in our submission, is when the arbitrators are appointed or at the time the stay is determined, not at a later time when further developments might arise, because what effectively one has is a contract to carry goods that has a dispute resolution clause that, if it were to lessen the carrier’s liability, becomes invalid upon that event occurring.  But the element or the crystallising factor, for present purposes, is the invocation of the arbitration clause, not the final award or an intermediate step where the arbitrators might indicate a tentative view, for example.

So, it is a little bit like the distinction that one might ordinarily draw between the time of ascertaining a breach of contract and when one might suffer the loss for the breach of contract, by way of analogy.  We say that would be one reason why one would not wait and see.  The parties could make an application to the arbitrators, and one could then leave the possibility either that one would come back to Australia to vary or vacate the stay, or in the even that an award is published by the arbitrators that does, in fact, lessen the liability would then leave the cargo claimant simply with the remedy of a public policy review under the Arbitration Act.

STEWARD J:   But is not the condition subsequent, in our case as a practical matter, the possibility of the application of English law?

MR COX:   It is necessarily both, in a sense, your Honour.

STEWARD J:   And so you would wait, based upon what Lord Diplock ‑ ‑ ‑

MR COX:   No, your Honour, I do not accept that, because at appointing the arbitrators under the contract includes a term as to English law, that is something that exists ‑ ‑ ‑

STEWARD J:   But in the context of the undertaking that has been given.

MR COX:   Well, if one, in a sense, takes a literal view of what Lord Diplock is saying, I am not suggesting that is the only or the most logical construction, the undertaking is irrelevant if one determines invalidity at the time of invocation of the clause, because the invocation of the clause is the appointment of the arbitrator.  If one took a literal approach to what Lord Diplock is saying, one would determine invalidity at that stage and the undertaking would be irrelevant.

GAGELER J:   If one is determining invalidity at that stage by reference to risk, as you would have us do, surely the undertaking is relevant to the assessment of that risk.

MR COX:   Yes, your Honour, and I accept that it would be an inconvenient result, or an inconvenient construction, to not consider the question of invalidity other than at the time of seeking the stay.  But in a ‑ ‑ ‑

GORDON J:   So, put in different terms, the question is whether or not, in a sense – there may not be an agreement, but each of the parties have, for the purpose of 46(1)(a), chosen the way in which that clause will be interpreted.  They may not have an agreement about it, but they have each chosen it, and it is the same law.

MR COX:   When your Honour says “chosen”, one ‑ ‑ ‑

GORDON J:   Well, the undertaking reflects one party’s position, and you want to interpret it in the same way.

MR COX:   If one adopts that construction of the undertaking then, whether one calls that an agreement, the way we would put ‑ ‑ ‑

GORDON J:   You do not need to call it an agreement.  You have each chosen and expressed a view about the way in which the law should be – the law that is applicable to the substance of the dispute.

MR COX:   And, I suppose, that is a relevant consideration to assessing the risk, but, I suppose, so is, in my submission, the possibility that an arbitrator giving effect to the clause would regard themselves as required to apply English law, and the possibility that the first respondent will adopt a different position, in their own self‑interest, relying on section 33(1) of the Civil Jurisdiction and Judgments Act.  All of those matters are necessarily part of the assessment of the risk, I accept that.  I suppose the first stage is that one of the difficulties with the Full Court’s approach is they did not consider that question at all, they simply said it was a matter for the arbitrators.

GAGELER J:   There are degrees of risk.  What degree of risk, do you say, is determinative?

MR COX: One approach, which is the first way to answer your Honour’s question, is to say that it is a situation analogous to an anti‑suit injunction where one would be required to demonstrate a prima facie case for invocation. The other way to consider it is within the context of section 7(5) of the International Arbitration Act as part of the stay.

There are two ways that it could arise.  The difficulty, we would submit, with an approach that only considers an articulated position by reference to an undertaking, is the reasonable possibility that the first respondent will take advantage of section 33(1) and change its position. 
Then, secondly, that the arbitrators would adopt a view that simply applies English law.  One has to assess both of those propositions to determine whether there is – and this may be a loose description – something equivalent to a prima facie case that the arbitration clause is null and void within the meaning of Article 3 rule 8.

In a sense, if one adopts the respondents’ position – or the United States Supreme Court’s position, or even the Full Court’s position – one could only have invalidity where there was agreement that the foreign court would, necessarily, apply a different damages regime – which is, perhaps, the clear example in Hollandia – or an award.  There are a number of cases in other jurisdictions which have looked at – the two I am thinking of are the first of the Hong Kong decisions and the Canadian Regal Scout decision where there was some evidence of differing views, and the court conducted an evaluative exercise as to whether there was a sufficiently arguable case, for want of a better description.  But one would need to include all of the ways in which the arbitrators could reach a conclusion which would lessen its liability.

GAGELER J:   I am not quite sure, then, what you are assuming in your point to risk.  Are you assuming a burden of showing a prima facie case that one of the two risks that you have pointed to will come home?

MR COX:   The way in which we have put it in the written submissions was the shifting onus; that once one demonstrates a risk, the onus was on the respondent to demonstrate it.

GAGELER J:   Yes.

MR COX:   If it is simply considered in a sense of balance of probabilities, what we would say is, it is a question of whether there has been demonstrated a realistic risk that might occur in the foreign proceedings.

GLEESON J:   That is a little different from the approach that is identified in Akai, at 445, which suggests that it would simply be a matter of asserting a legitimate juridical advantage which is then disproved by the other side.  So, you are not adopting that?

MR COX:   No, no.  In one sense, though, it is perhaps not that different, in my submission, for this reason.  One is, inevitably, dealing with future events which have no degree of certainty – and one cannot always predict, with certainty, human behaviour.  All one really knows is, one has a contract that says that English law will be applied.  An undertaking has been given in certain terms – and I will not back to the debate about what that means – and the position in England is that, if the first respondent decides not to be bound by that undertaking, they are entitled not to be.

Now, if one is determining the likelihood of invocation, there would seem to be a reasonably sensible basis for assuming that the first respondent will act consistently with their own economic best interest, and act consistently with the way People’s Insurance Company acted after this Court’s decision, which was to not be bound by this Court’s decision and adopt a different position in the UK.

In one sense, by way of example of an undertaking that might be sufficient, in The Benarty, which we have referred to in the written submissions – I can provide your Honours with a reference – the form of the undertaking was to entirely waive any reliance on the limitation defence, which was a much clearer undertaking in broader terms.  But I accept that one is, in a sense, asking the Court to consider what are the reasonable likelihoods and possibilities of future events, when all one really knows as to the current circumstances is, absent the undertaking and no change of position – a change of position, consistent with English law, there is, we would say, not a realistic likelihood that the first respondent will simply act in its own sensible best interest to adopt the best way to minimise its liability in the London arbitration.

Otherwise, why have the arbitration rather than proceedings in this Court?  One might ask, if all they were going to do would be to apply Australian law, consistent with at section 8 – I mean, one way in which the first respondent could have given an undertaking would have been to undertake that it would agree that the obligation under Article 3 rule 2 was non‑delegable.

GLEESON J:   But it could still win on that point if the proceedings was dealt with in Australia.

MR COX:   Yes, your Honour.  But, in a sense, if it has not done that, there remains a risk to the plaintiff that it will adopt the position of its own best interest in the London proceedings, in the same way that other litigants have.  It is not to be critical of the People’s Insurance Company not deciding to be bound by this Court’s decision, but an Australian court cannot necessarily bind foreign parties to the steps that they will take in foreign litigation, where the United Kingdom law says they are entitled to make statements for the purposes of obtaining a stay that will not bind them in subsequent United Kingdom proceedings.

GAGELER J:   You have taken us to The Hollandia.  Was there something more in that judgment? 

MR COX:   Yes, your Honour.  The third thing that – and it is to deal with the three questions that I identified, the aspect of whether any different test would apply to arbitration.  We can just identify the relevant passages that are relevant to that.  If your Honours still have page 1567 or page 575 of the appeal cases, at the bottom of that page, 575 about point H, Lord Diplock adverts to an argument that was put in relation to the Arbitration Act 1975, and that one of the difficulties with Article 3 rule 8 is it would be consistent with the Arbitration Act.

Over the page on 576 of the Appeals Cases, 1568 of the joint book of authorities, at about point B, in the paragraph, “I content myself by saying”, he rejects that proposition and then, at point D to E, expresses a qualified concern about how arbitration might be different, but also a reason why one would not apply the clause in the same way.  Because if you simply said, leave it to arbitrators, an arbitrator may be left in a position where determining the merits of the claim would simply undo their own jurisdiction.

The other thing I would just note, although it is not relevant to this subject but, whilst I have your Honours in The Hollandia, if I can just identify it, because it is not dealt with in the written submissions – on page 577 of the Appeals Case report, 1569 of the joint bundle of authorities, at point G to H, his Lordship identifies the same public policy consideration behind the 1971 English Act that had been identified by the Master of Rolls in the Court of Appeal, namely that the two important changes in the legislative scheme that significantly changed from the 1924 version was that giving the Rules the force of law and Article 10’s extended operation to a broader range of bills of lading effectively ruled out what is described as the “clause paramount” technique, that of using a choice of law to adopt a more favourable position. 

So, it was clearly contemplated that the policy behind this legislation, which is the same scheme adopted by the Australian Parliament, was intended to stop contracting out and that, in a sense, there should be no reason why that should not occur in an arbitration context rather than in a choice of forum context. I would make the observation – although it is not relevant to what your Honours are now dealing with – that in an Australian context, that was clearer because section 11(2) of the Carriage of Goods by Sea Act prohibited arbitration for international shipments and, by a quirk of drafting for the reasons explained by the Full Court, that does not apply to interstate trade.

The next thing I was proposing to deal with was a bit of Akai that Justice Gleeson just asked me about, about the shifting onus. Perhaps I will pass over that to deal with the next subject, of the reasons why one should consider whether an arbitration is null and void and not leave it to a later stage. The first is that, in an orthodox sense, whether an arbitration clause is null and void under section 7(5) was dealt with in the Full Federal Court in Comandate Marine v Pan Australia Shipping.  This is a matter that is not dealt with in this same detail in the written submissions so, if I just identify the passage.  If your Honours can go in the joint bundle of authorities to case 24, the relevant passage in the joint bundle of authorities begins at page 902.

What I am proposing to do is to take your Honours to this decision and then to the United States Supreme Court’s decision in Mitsubishi to develop the proposition that questions of invalidity should always be determined by the forum court and not left to a later stage.  And, to the extent that is suggested in Sky Reefer, it comes from a misreading of Mitsubishi.  But, if I could start with the Australian position more generally, I will just identify the relevant paragraphs, which are on pages 902 and 903 of that joint bundle at 210, where his Honour Justice Allsop, with whom other members of the court agreed, and then at 216, deal with in the ordinary course. 

Justice Allsop, as his Honour then then was, was of the view that questions of invalidity should be dealt with. Although at 217, he identifies the one qualification that he did not adopt and proceeded on the basis that he should – the forum court on a stay application should determine invalidity consistently with section 7(5) and should not, in a sense, leave it to the arbitrators later.

Could I next take your Honours to develop this argument to the decision of the Supreme Court in Mitsubishi Motors, which is in Part D, volume 5 of the joint bundle, case 41, at page 1337.  Just to put this case in context, no part of the appellant’s case is to embrace a proposition that courts in Australia should have any doubt that an arbitrator, properly exercising the agreed jurisdiction, would not apply a forum statute, and that is the proposition that was adopted from this judgment by Chief Justice Gleeson when he was in the New South Wales Court of Appeal in Francis Travel.  None of the three ways in which the reduction of liability would occur challenges that basic proposition.

The context in which the passages I propose to take your Honours to arise was a question of construction of an arbitration that included a Sherman Act claim, the anti‑trust claim.  If I could just identify the passages that make good this proposition.  The court deals with the way in which one approaches invalidity of the arbitration clause, starting at 1344.  It says on the right‑hand column [2, 3]:

Accordingly, the first task –

but then in more detail on the following page, on the left‑hand column of 1345, in particular the passage in the bottom left‑hand corner beginning:

Of course, courts should remain attuned to well‑supported claims –

and I will not read that passage.

GORDON J:   Where is that passage?  Sorry, I missed that.

MR COX:   On 1345 of the joint book of authorities in the bottom left‑hand corner, which begins:

Of course, courts should remain attuned –

GORDON J:   Thank you.

MR COX:   Then, in the right‑hand column, under paragraph [4], about halfway through, the passage beginning:

it is the congressional intention –

To the same effect, that is expanded on at 1348, if your Honours have the passage in paragraph [7], in the left‑hand column beginning “Initially”.  That paragraph is the passage that we point out that as a matter of United States law, in Mitsubishi Motors – which has been adopted by Chief Justice Gleeson in the Court of Appeal of New South Wales, at least – no sense of historical antithesis to arbitration or a concern that arbitrators will not apply forum legislation would mean that jurisdictional challenges, whether they be based on fraud, unconscionability or a statutory ground that meant that the arbitration clause itself was invalid, was not part of the orthodox exercise of the court.

The part of Mitsubishi which was later adopted in Sky Reefer to deal with deferring the question to the arbitrators and public policy was only put in the context of the concern that arbitrators will not apply forum law.  If I can just take your Honours to those passages to draw the distinction – I apologise that I am labouring this authority, but it is an important distinction to understand where Sky Reefer, in our submission, reach an erroneous conclusion.  If your Honours just go to 1350, to the left‑hand column at the bottom:

There is no reason to assume –

That is the passage that is adopted by Chief Justice Gleeson in Francis Travel and it is traditionally quoted as the reason why courts should proceed on the basis that arbitrators will apply forum statutes.  Could your Honours just note on the left‑hand side – I apologise, it is a bit hard to see – on the right‑hand column, the passage that begins:

Where the parties have agreed –

and that continues.  Your Honours will note at page 637 – if your Honours could just note that, because it is important when one comes to look at Sky Reefer – and at footnote 19 at the bottom that is at the end of that sentence.  This is the passage referred to by the later decision in Sky Reefer to justify not conducting a predictive exercise and leaving everything until after the award.

GAGELER J:   What also emerges from that passage is that the arbitrators can be expected to decide the dispute that is tendered by the parties.

MR COX:   As a matter of United States law, yes, your Honour, although perhaps that may not be the case in the UK.  I suppose the question is whether – in your Honour’s question – that means that an agreement for the dispute to be determined by English law would be varied by a step that were taken – if what your Honour is putting to me that the arbitrators would be bound by that ‑ ‑ ‑

GAGELER J:   I am just reading ‑ ‑ ‑

MR COX:   It is perhaps an aspect of the risk, if I can put it that way, your Honour.

GAGELER J:   Yes.  I am reading the passage in Justice Blackmun’s judgment that you are referring us to.

MR COX:   Yes, I am grateful.  I suppose, all I was saying is that the question of whether that means that the position adopted by BBC means that they can never change even in a United States situation may be a different matter.  I am, perhaps, going off‑piste.

GAGELER J:   It goes to the second of your risks, that is – if I can summarise it this way – the risk of the arbitrators going rogue.

MR COX:   I am grateful.

GLEESON J:   It would be a good business practice for an arbitrator to go rogue, would it not?

MR COX:   One might cynically suggest that one chooses the trial judge from Jindal Steel with some hope that they would find his owns reasons consistent and compelling – and that is not to suggest that he is not impartial and independent.

STEWARD J:   Mr Cox, I think you may have gone a bit too fast for me, but what is the best passage or sentence for the proposition that you cannot or should not defer the question of validity?  Or are you coming to it?

MR COX:   Yes, your Honour – I am coming to it, your Honour.

STEWARD J:   I am so sorry.

MR COX:   No, I apologise, your Honour.  It is one of those subtle ones that is only apparent when one reads Sky Reefer.  Now, this is the reason why I am identifying the difference, and if your Honours will indulge me a little bit I will just try to develop the argument.

STEWARD J:   Of course, I am sorry.

MR COX:   No, I apologise, your Honour, because this argument is not as clearly put in writing as it should be.  It is one that arises when one has seen all of the submissions and has a more close reading of all of the authorities, and it is why I wish to develop it a little more slowly.  The notion of post‑award review is explained in the passage on 1350 in the last paragraph, beginning:

Having permitted the arbitration to go forward –

It then deals with – so, in one sense, what they are contemplating is a situation where there is no invalidity.  One is permitting an arbitrator to go forward, determine their own jurisdiction, whether that might include the statutory claim, here the Sherman Act trust claims, and one would do that for the reason that is identified on the top of the next page, where they say:

While the efficacy of the arbitral process –

And then they advert to the possibility of what that public policy review would look like.  Namely, whether the arbitrators have, in fact, taken:

cognizance of the antitrust claims and actually decided them.

So, the post‑review consideration that is contemplated by the United States Supreme Court is not a question of validity but a question of whether a claim that is clearly within jurisdiction has, in fact, been properly considered and determined.  That is the only way in which the court is contemplating public policy would operate.

GORDON J:   It is in the context of what follows, is it not?  It is reflecting that in the 1980s – it was just before, arguably, this burgeoning market that we now have.  There is this saying they have yet to see how these questions are to be tested, and it is a new world we are living in.

MR COX:   And, in one sense, one can see the difference between the nine‑judge Bench in Indussa to consider how one would approach arbitration in the 1960s perhaps looks very different when one comes to 1995, but the difficulty is, perhaps – and the difficulty that we say arises with Sky Reefer is, if one takes a concern about whether arbitrators will apply foreign statutory law which is within jurisdiction and says that that precludes an evaluative exercise, one is ignoring the earlier parts of the Mitsubishi judgment that say a challenge to invalidity is always part of the forum court’s responsibility.

That is where Sky Reefer seems to substantially depart from the Mitsubishi approach, and that means a claimant loses the right to have their claim determined in accordance with a valid clause, and we say that questions of invalidity should be determined at the time of invocation of the clause, not after an award, potentially, when the lessening has no remedy.

I accept that the Court has put to me an intermediate remedy where there is a change of position but, as a general proposition – not just in this case but in many cases – it may not be apparent that there is a lessening until you get the award.  But if there is an invalidity ground, that is always part of the Court’s task and should be dealt with at the time of invocation.

When one gets to Sky Reefer – if I could just take the Court to that to explain how things go awry, at least in the United States Supreme Court – it is, perhaps, useful to note that the – your Honours, it is at tab 54 of the bundle of authorities, that is volume 5, part D, it begins at 1625.  The argument of the cargo claimant is, as it bears some similarity to the present case – which I will reference.

If your Honours go to 1637, which is where the Court is dealing with the substantive question rather than the transaction costs – for want of a better description – so under point B, on 1637, the question was that a Japanese court would apply a Jindal Steel approach to Article 3 rule 2 and the cargo claimant in the United States was saying that they would lose the opportunity of the non‑delegability argument relying on the Associated Metals decision – that is referred to by Justice Sheller in the Court of Appeal.  So, there is a factual similarity but that is just an observation.  At 1638, if one goes over the page, in the first sentence of the paragraph that begins:

Whatever the merits –

an approach – perhaps, almost identical with the Full Federal Court’s approach of declining to consider what would happen because it is premature is identified.  The explanation that is then given is by reference to the local court retaining control, and the reference is to Mitsubishi Motors at 638, and over the page, if one just notes at 1639, the reference halfway down the page to – the sentence that begins:

Under the circumstances –

they say:

it must be decided in the first instance by the arbitrator –

There is a reference to:

Mitsubishi Motors . . . at 637, n. 19 –

which are the passages I took your Honours to where the United States Supreme Court referred to public policy as remedy for an arbitrator applying a forum legislative claim that was no doubt within jurisdiction but without a question of invalidity.

So what, in our submission, The Sky Reefer decision does – which we say is an extension without justification from Mitsubishi Motors, and unexplained – is to take the notion of a forum court leaving it to the arbitrators where it is within jurisdiction, to preclude any consideration of invalidity, where Mitsubishi had expressly indicated that that ground always remained to the forum court.  Your Honours will just note on the bottom of 1638, at point 7 on the page, the sentence that begins:

Were there no subsequent opportunity for review –

Through to the bottom of the page.  The court otherwise would have regarded the issues themselves as they presented.  Now, obviously they do not have any question of undertakings involved, but the basic fact of a party invoking an arbitration clause in Japan, which, under its domestic interpretation or domestic approach to Article 3 rule 2, would not adopt a non‑delegable construction of Article 3 rule 2 of the Hague Rules that, absent the opportunity for post‑award review, would have been invalid in accordance with the 1900 decision of Knott v Botany Mills, which considered the similar Harter Act provision and dealt with invalidity in respect of choice of law clauses.

STEWARD J:   In this judgment, Justice Kennedy describes the risk of the application of Japanese law to Article 3 rule 2 as “mere speculation” and that is even without the presence of the undertaking of the kind we have before us here.  You obviously would disagree with that characterisation.

MR COX:   Yes, your Honour. In one sense ‑ ‑ ‑ 

STEWARD J:   But why is it wrong, then?

MR COX:   Well, in a sense, it would foreclose any predictive consideration of what a foreign court would do on the assumed fact that there is an agreed choice of law and a known approach to the Hague Rules, or the Hague‑Visby Rules, in that foreign jurisdiction.  If one takes the view that one could only demonstrate a lessening of liability under Article 3 rule 8 where it was either agreed or one has a final award, one is taking an unnecessarily narrow approach to Article 3 rule 8, which is not ‑ ‑ ‑ 

STEWARD J:   I assume at some point you will take us to the language of Article 3 rule 8 to explain why “risk” is sufficient to engage?

MR COX:   I will endeavour to, your Honour.  There is a difficulty with that, in the sense that one is adopting a construction not from a national approach but by reference to the approach to an international convention and looking for international uniformity to interpretation.  So, it is perhaps not as simple as identifying the words, but I will certainly endeavour to deal with that in a moment, yes, your Honour. 

STEWARD J:   Thank you.

GAGELER J:   By reference to Sky Reefer or not?

MR COX:   Not necessarily in reference to Sky Reefer.  Perhaps because it – in one sense, Sky Reefer does not engage in the question, not because speculation would be inappropriate, but because there is an opportunity for post-award review, because they have taken a particular view of what Mitsubishi Motors had decided for the appropriateness of the public policy review ground.

In one sense, if one considers The Hollandia‑type situation with the choice of forum clause, there would be no reason in a decision, in a situation like The Hollandia, assuming that there was some doubt about what the position would be taken in the Netherlands at the time, assuming there were two competing views, about whether the Netherlands had given effect to the Hague laws or the Hague-Visby laws, the mere fact that there was some disagreement about what the foreign law would be would not mean that a court should not consider whether, at the time of invocation, the condition subsequent had not been demonstrated, with the consequence being invalidity.

One should not determine, in my submission, the crystallisation of the condition subsequent by reference to subsequent events, particularly where those subsequent events may have less opportunity for review by either the foreign court or the forum court.  That would be equally true with a foreign court as with an arbitration, because res judicata would necessarily preclude the English court, for example, in The Hollandia situation, declining to enforce the judgment from the Netherlands if a lower limit of damages had been ordered by the Netherlands’ court.

There would be no suggestion in any of the decisions, either in The Hollandia or the other decisions, that one would require the parties to wait until the foreign court had reached a judgment.  There seems no reason in principle why an arbitration should be any different, if what one is considering is the condition subsequent that arises when Article 3 rule 8 comes into combination with a choice of forum clause – whether it is a court selection clause or an arbitration clause.

GLEESON J:   But Lord Diplock was not applying a risk test, was he?

MR COX:   No, he did not need to, because the parties had reached agreement.  I think his Lordship’s words were to be demonstrated on a balance of probabilities basis, or by agreement.  I may have misquoted the passage, but he expressly contemplates that, where there were not in agreement, it would have to be demonstrated.

Now, in one sense, one would not – one may call expert evidence in some cases.  That did not occur in this case.  One simply had the proposition that one had the identification of the forum law or the choice of English law, choice of English arbitration, a description of the issues such that it was obvious that the FIOST clause would be relevant and that Jindal Steel was a looming threat to the cargo claim, wherever it was litigated, and in the UK, if the arbitrators applied English law by reason of the first respondent resiling from its steps here, as it is entitled to do under English law, or because the arbitrators simply adopt the position that they are required to apply English law, in either event there would be a demonstrated risk on the balance of probabilities.  But in a sense, that question did not need to be considered in Hollandia because it was agreed.

GAGELER J:   Mr Cox, do you and Mr Nell have an agreement as to the allocation of time?

MR COX:   Yes, your Honour.

GAGELER J:   Very good.  The Court will take the morning adjournment.

AT 11.14 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.29 AM:

MR COX:   Your Honours, can I move to the question of construction of Article 3 rule 8 now.

GORDON J:   Just before you leave Sky Reefer, can I just ask one question about the first part of that judgment which deals with the cost question.  Do you propose to come back and deal with that?  Because that is one of your risks.

MR COX:   Yes, your Honour.  Perhaps if I – I can deal with it now.

GORDON J:   No, you do not need to do that, as long as we are going to come back to it.

MR COX:   I was not proposing – perhaps I will deal with it now, just to make it clear what we say about that.

GORDON J:   Thank you.  By that, I mean that the reasoning suggests that costs themselves are not sufficient for the purpose of identification of risk.

MR COX:   For the purposes of identifying a risk in the sense of a different outcome in the arbitration, we accept that that is a separate and distinct ground.  It seems to flow exclusively from the decision in Indussa and the dissenting reasons of Justice Kennedy in Sky Reefer.  It need not be put simply in the context of a concern that arbitrators will not apply the foreign law, although there is an impact of the Indussa decision that does have that vice.  I accept that that is an anachronism, but in many arbitration disputes – for example, a small claim, which is the particular example of Justice Kennedy in the dissent ‑ ‑ ‑

GORDON J:   I do not think you mean “in dissent”, do you, in Sky Reefer?

MR COX:   Sorry, it is Justice Stephens.  I apologise, your Honour.  I am grateful to Mr Reynolds.  The costs of an arbitration and a balancing of the two, or them being an inhibition to the bringing of the claim in the foreign court may be an independent lessening.  I accept that that is perhaps a less attractive way for the Article 3 rule 8 to operate because it would have the risk of being inconsistent with Justice Gleeson’s approach in Francis Travel and Mitsubishi Motors in the United States Supreme Court.  At a strict narrow sense, going to a foreign arbitration may increase the cost.  But I would have to say that it is put in a much narrower basis – the first two grounds, either the risk of Jindal Steel, or the risk of the clause paramount being just Articles 1 to 8 are the primary ways that we put the invalidity.

GLEESON J:   This Enka Case is talking about the possibility of different parts of the contract being governed by different laws, not – can they not call anything in particular that Mr Nell has said which suggested that the bill of lading might be governed by different laws?

MR COX:   If I misunderstood Mr Nell, and perhaps one does not need to chase this rabbit, but I understood his submission – and perhaps coming from Justice Steward’s question, that one would have a situation where the interpretation of the Australian Rules would import an element of Australian law, but one would still have English law applying – and that is the proposition that we do not accept.

GORDON J:   I do not remember precisely, I thought he was dealing with questions of procedure as distinct from questions of substantive application to the bill of lading.

MR COX:   It may be that I have misunderstood it, your Honour, but ‑ ‑ ‑

GAGELER J:   Mr Cox, can I just ask, how much longer do you expect to be in reply?

MR COX:   I would hope to be very short, but I have perhaps been more controversial than I intended to be.

GAGELER J:   Perhaps you should complete your reply, and then we will see whether Mr Nell wants to put anything in response.

MR COX:   Yes, your Honour.  The second matter which I hope I have misunderstood Mr Nell was a submission that there ought to have been evidence on what English law was.  All I would say about that is that there was no issue in the proceedings below as to whether, having regard to the way the issue arose, that English law could not be identified by identifying the appropriate volume of the Appeals Cases to at least identify that Jindal Steel was then the relevant law.  There was no issue, as we understood the position below, bearing in mind that the undertaking arose in the written submission shortly before the hearing.  There was then a debate about whether that undertaking would be effective.  There was no submission put to the Full Court, as I understood it, that the absence of evidence affected the court’s ability to determine whether the undertaking would affect what was likely to occur in the United Kingdom.

Moving to a separate question, having regard to what we say is the position of the respondent, namely, that all that the undertaking does is identify the wording of the Rules from Schedule 1A and then considers that by reference to English law, one does not need a rogue arbitrator for – the use of the description that has come during the course of the hearing – simply, the maintenance of that position by the respondent gives rise to what we say is a high degree of risk, perhaps approaching balance of probabilities but it is difficult to go that far because of the predictive element – that the arbitrator will look at the identical words in Schedule 1A of the Australian Act and the words in the English Act and applying English law would follow Jindal Steel.  So, we would say, it is not a matter of mere speculation; one knows what English law is in respect of the same words.  We say one does not have this separate question of Australian interpretation before the arbitrators.

Moving to a separate issue, in respect of the same issue in The Sky Reefer, we would simply note that when the Supreme Court came to consider the relatively similar situation of an issue about non‑delegability being known to be the law in Japan and the proposition as to what the issues were in the dispute, absent post‑award review – and I am referring to the passage in the joint bundle of authorities at 1638 by reference the description of the issues in 1637 – accepted that absent post‑award review, Article 3 rule 8 would otherwise have been satisfied.

That perhaps sheds some light on the degree to which the likelihood is more than a mere possibility but may be approaching, we would submit, something close to the balance of probabilities standard to the best one can do in respect of a future arbitral award.

In relation to the post‑award remedy, what we would observe is that, at least as a matter of Australian law, the scope of the public policy ground – and if I could adopt the passage that is in volume 6 – I will just give your Honours a reference, I will not read it out – behind tab 69 in Mr Holmes and Mr Brown’s text on the International Arbitration Act.  They set out at page 1907 and quote the passage from Sir Anthony Mason in the Court of Final Appeal in Hong Kong, that public policy means:

“contrary to fundamental conceptions of morality and justice” –

The submission that we would advance is that any post‑award review that relies merely on public policy is likely to be of very little comfort if the arbitrators applying English law to the words of Schedule 1A – and that does not require a rogue arbitrator or a change of position in the strict sense, in the sense of departing from one undertaking if they simply say: here are the words from Schedule 1A of the Australian Act, we are applying English law. That is not a rogue arbitrator, that is simply performing their task consistently with section 46. There would be no real scope for a public policy review.

It would effectively reintroduce the notion of the clause paramount technique to avoid the operation of the Hague Rules to adopt the language of the Master of the Rolls in The Hollandia in the Court of Appeal in the passage that is set out at the joint bundle of authorities at 1549.  The further matter in relation to the change of position, if I could put it that way, or the departing from the undertaking, although perhaps we would put it as acting consistently with section 33(1) to not be bound by a step that was taken to obtain the stay, to put it more neutrally than Mr Nell did, I accept the force of what he said, but what he described as departing from a serious undertaking could be equally described as simply acting consistently with what section 33(1) of the English Act permits a party to do where the step was taken to obtain a stay.

But that sort of situation where an arbitration clause may become invalid because of a party’s conduct, but then suddenly become valid again because of a change of position, does seem to have some of the commercial inconsistency and difficult consequences that were adverted to by Lord Diplock in The Hollandia – and I had best give your Honours a reference though, I provided it before – in the Appeals Cases version at 576, points D to E, and that is page 1568 of the joint bundle of authorities.

GLEESON J:   You have not challenged the Full Court’s finding that section 33 did not apply because the BBC had submitted to the jurisdiction, did you?  Paragraph 27 of the Full Court’s judgment, they said nothing in section 33 was relevant because BBC had submitted to the jurisdiction.

MR COX:   We did not raise it as a separate ground of appeal in support of special leave.  The way in which the argument was put is that, in considering whether the risk or likelihood of a “lessening of liability”, one would need to consider whether the undertaking that had proffered was binding on the first respondent.  Now, in a sense, we did not put it as a separate ground of appeal.  We probably would have been going beyond the ground of special leave to do so.  I have to accept that vice.

GAGELER J:   You said you had three points in reply.  I have lost track of where we are.

MR COX:   Your Honour, I think we have done all three.  I apologise for the controversial one, I could not give notice of in advance.  I do apologise if it causes inconvenience.

GAGELER J:   It is a matter for Mr Nell.  Are you ‑ ‑ ‑

MR COX:   I apologise to Mr Nell.

GAGELER J:   ‑ ‑ ‑ inconvenienced?

MR NELL:   Your Honours, we do not see that there are two lex causae – if that is the submission that my learned friend is addressing.  We say that there is one lex causae, which is English law.  We say, we have agreed that the amended Rules as applied by Australian law are also to apply.  We do not say that that is an Australian lex causae.  We say that that is an agreement consistent with the plaintiff’s case – that those rules, as applied by Australian law, are to apply but, otherwise, the lex causae – the law of the contract, the law of the arbitration – is English law. 

To the extent to which my learned friend says, yes, that just simply means that you are lifting those rules out of the Act.  No, that is not what we were saying at all, and as we indicated to your Honour Justice Steward, it is

the interpretation, and as your Honour Justice Gleeson, we do not need to worry about the words as applied if that was the case because we would be just lifting them.  We are not simply saying that those words are lifted and then would be applied as a matter of English law, we are saying that they should be applied as a matter of Australian law.

To the extent to which section 46 is relevant, section 46(1)(b) allows for the parties’ agreement to other things, other than simply the lex causae.  So, if the parties agree to other principles of law other than references to contracts and conflicts of law, then the arbitrators are bound to apply that.

STEWARD J:   So, really, what you are saying is that the lex causae is English law save for the four square walls of the undertaking that was given, which the parties wish the arbitrators to follow.

MR NELL:   Yes, which would have the effect of applying the Australian Rules as applied in Australian law in the same way that section 8 gives effect to those rules, and section 10 applies those rules to an interstate shipment.

STEWARD J:   So, to take the micro‑issue of Jindal Steel, it is an open question to be applied and you would replicate the sort of argument you would have in the Federal Court.

MR NELL:   Indeed, your Honour.  And it is not just one arbitrator, potentially it is three arbitrators in this case – it is not just Justice Teare – it is open to my friends to appoint former Chief Justice Allsop as an arbitrator in that case and get the Australian perspective in the arbitral panel.

But, hopefully that alleviates my friend’s concern about that issue.  As a result of that, Enka, in our respectful submission is not relevant; we agree with Justice Gleeson, it is actually not relevant to this question.  It is more about different parts of the contract and whether what governs the law of the arbitration, but Enka – we do not want to say any further about Enka, and hopefully I have put that rabbit to death.  That is all.

GAGELER J:   Or in its burrow.  Thank you, Mr Nell.  The Court will consider its decision in this matter and will adjourn until 9.45 am tomorrow.

AT 4.29 PM THE MATTER WAS ADJOURNED