Gordon & Gotch Australia Pty Ltd v Horwitz Publications Pty Ltd

[2008] NSWCA 257

NEW SOUTH WALES COURT OF APPEAL

CITATION:
GORDON & GOTCH AUSTRALIA PTY LIMITED v HORWITZ PUBLICATIONS PTY LIMITED [2008] NSWCA 257

FILE NUMBER(S):
40697/07

HEARING DATE(S):
1 October 2008

JUDGMENT DATE:
17 October 2008

PARTIES:
GORDON & GOTCH AUSTRALIA PTY LIMITED
HORWITZ PUBLICATIONS PTY LIMITED

JUDGMENT OF:
Allsop P Beazley JA Sackville AJA   

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
50187/2006  50108/2007

LOWER COURT JUDICIAL OFFICER:
Bergin J

COUNSEL:
F M Douglas QC, D C Price
N Cotman SC

SOLICITORS:
Makinson & d'Apice Lawyers
Heidtman & Co Lawyers

CATCHWORDS:
ARBITRATION – appeal from award – grounds of appeal – manifest error on the face of the award – error of law – certainty of commercial law – Commercial Arbitration Act 1984 (NSW), ss 38(5)(a), 38(5)(b)
CONTRACTS – construction and interpretation of contracts – commercial contracts – implied terms – distinction between interpretation and implication of terms – meaning of "interpretation".

LEGISLATION CITED:
Commercial Arbitration Act 1984 (NSW)
Supreme Court Act 1970 (NSW)

CASES CITED:
Antaios Compania Naviera SA v Salen Rederierna AB (The ‘Antaios’) [1985] AC 191
Bellevarde Constructions Pty Limited v CPC Energy Pty Limited [2008] NSWCA 228
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153
Codelfa Construction Pty Limited v State Rail Authority (NSW) (1982) 149 CLR 337
Equitable Life Assurance Society v Hyman [2002] 1 AC 408
Federal Commerce & Navigation Co Limited v Tradax Export SA (The ‘Maratha Envoy’) [1977] 2 Lloyd’s Rep 301; [1978] AC 1
Fitzgerald v Masters (1956) 95 CLR 420
Gordon v Macgregor (1909) 8 CLR 316
Kooee Communications Pty Limited v Primus Telecommunications Pty Limited [2008] NSWCA 5
L G Thorne & Co Pty Limited v Thomas Borthwick & Sons (Australasia) Limited (1956) 56 SR (NSW) 81
Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; 210 CLR 181
Marcus Clark (Victoria) Ltd v Brown (1928) 40 CLR 540
Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556
Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676
National Commercial Bank Jamaica Ltd v Guyana Refrigerators Ltd (Jamaica) [1998] UKPC 14
P & O Property Holdings Ltd v Norwich Union Life Assurance Society (unreported, England and Wales Court of Appeal, 1 April 1993)
Pacific Carriers Limited v BNP Paribas [2004] HCA 35; 218 CLR 451
South Australian Asset Management Corporation v York Montague Ltd [1997] AC 191
Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165
United Breweries Ltd v Tooth & Co Ltd (unreported, Supreme Court of NSW, 11 June 1985)
Vodaphone Pacific Limited v Mobile Innovations Ltd [2004] NSWCA 15

TEXTS CITED:

DECISION:
Appeal dismissed with costs.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40697/07

ALLSOP P
BEAZLEY JA
SACKVILLE AJA

17 October 2008

GORDON & GOTCH AUSTRALIA PTY LIMITED v HORWITZ PUBLICATIONS LIMITED

Headnote

The appellant, Gordon & Gotch Australia Pty Limited, distributed publications on behalf of the respondent, Horwitz Publications Limited. The parties engaged in commercial relations for many years before entering into a written contract on 1 July 2000 and a subsequent, new, agreement on 1 April 2002, for a term of 5 years from 1 July 2000 (the “Distribution Agreement”).

A dispute arose between the parties as to whether, on the proper construction of the agreement, the written agreement between the parties required the appellant to have returned to it by distribution outlets unsold copies of publications and to confirm the number of those returned copies by a process of counting.

The Distribution Agreement contained an arbitration clause. The parties submitted the matter to arbitration by the Hon M J R Clarke QC under the Commercial Arbitration Act 1984 (NSW). The arbitrator made two interim awards and a final award. In his final award the arbitrator declared: “That on its proper construction, and subject to the exceptions relating to Western Australia, Northern Territory, Tasmania, remote areas and supermarkets, the Distribution Agreement permitted Gordon & Gotch to a Returns Credit only in respect to those publications which had been returned by the outlets to Gordon & Gotch and in respect of which Gordon & Gotch had confirmed by count that the return had actually occurred.”

The award required the appellant to pay the respondent the sum of $832, 390 as damages for breach of contract and interest. The appellant sought leave to appeal from the interim awards and final awards made by the arbitrator. The primary judge (Bergin J) refused leave to appeal. The appellant appealed under Commercial Arbitration Act 1984 (NSW), s 38(5)(a) and (b) on the grounds that there was a manifest error on the face of the award, that there was strong evidence that the arbitrator made an error of law and that the determination of the question would add or would be likely to add to the certainty of commercial law (s 38(5)(b)), and that the determination of the question could substantially affect the rights of the appellant as a party to the arbitration agreement (s 38(5)(a)).

Held, dismissing the appeal:

(Allsop P and Sackville AJA; Beazley JA agreeing)

1. There was no error in the approach or conclusions of the primary judge as to the treatment by the arbitrator of the remote areas and supermarkets: [27].

2. There was no error in the acceptance by the primary judge of the arbitrator’s reasoning as to the meaning of the agreement: [34].

3. Interpretation is the ascertainment of the meaning which a document would convey to a reasonable person in the context: [36].

Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165

4. The relationship between interpretation and implication discussed: [36]

Codelfa Construction Pty Limited v State Rail Authority(NSW) (1982) 149 CLR 337; Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556; National Commercial Bank Jamaica Ltd v Guyana Refrigerators Ltd(Jamaica) [1998] UKPC 14; Equitable Life Assurance Society v Hyman [2002] 1 AC 408; South Australian Asset Management Corporation v York Montague Ltd [1997] AC 191; P & O Property Holdings Ltd v Norwich Union Life Assurance Society (unreported, England and Wales Court of Appeal, 1 April 1993); Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; 210 CLR 181; KooeeCommunications Pty Limited v Primus Telecommunications Pty Limited [2008] NSWCA 5.

5. The appellant did not impermissibly imply a term into the agreement: [36], [39].

6. There was no error by the primary judge as to the proper place and importance of the certificate clause: [45]

7. There was no manifest error on the face of the award nor was there strong evidence that the arbitrator made an error of law: [47].

8. The determination of the proper construction and interpretation of the contract would not add or be likely to add substantially to the certainty of commercial law: [47].

9. The arbitrator was correct in his interpretation of the agreement; no criticism could be made of how he approached the construction of the agreement: [48].

10. The primary judge displayed no error in her approach to the application before her: [48].

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40697/07

ALLSOP P
BEAZLEY JA
SACKVILLE AJA

17 October 2008

GORDON & GOTCH AUSTRALIA PTY LIMITED v HORWITZ PUBLICATIONS LIMITED

1. ALLSOP P and SACKVILLE AJA:  This is an appeal from orders made by a Judge of the Commercial List (Bergin J) refusing the appellant leave to appeal from interim awards and a final award made by an arbitrator (the Honourable M J R Clarke QC) under the Commercial Arbitration Act1984 (NSW). The primary judge also dismissed the appellant’s application for orders setting aside the arbitrator’s award and for removal of the arbitrator for technical misconduct.

2. The appeal from the primary judge’s orders was limited in terms of the amended notice of appeal to two grounds that reflected the terms of the Commercial Arbitration Act, s 38(5)(a) and (b). The substantive argument put to this Court was that the arbitrator erred in his interpretation of the agreement in a manner that could be said to attract the supervision of the Court under s 38 because:

   (a)there was a manifest error of law on the face of the award, or there was 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 (s 38(5)(b)); and

   (b)having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of the appellant as a party to the arbitration agreement with the respondent (s 38(5)(a)).

3. By way of brief background, the appellant (referred to as the Distributor in the arbitrator’s awards and in the underlying agreement) has distributed publications on behalf of the respondent (referred to as the Company in the arbitrator’s awards and the underlying agreement) for many years.  On 1 July 2000, the parties entered into a written contract dealing with their continuing relationship.  The term of the contract was for five years.  With the advent of the introduction of the Goods and Services Tax, new terms were necessary to accommodate the requirements of that taxation regime.  A new agreement (being the relevant underlying agreement with which the arbitrator and the primary judge were, and this Court is, concerned) was signed on 1 April 2002 for a term which expired 5 years after 1 July 2000.

4. A dispute arose between the parties as to the proper construction of the agreement.  The commercial arrangement between the parties contained an arbitration clause (cl 14).

5. The agreement had a New South Wales proper law clause (cl 15).

6. The agreement also had an entire agreement clause entitled “Implied Terms” in the following terms (cl 18):

   This Agreement embodies the entire understanding of the parties and there are no promises, terms, conditions or obligations, oral or written, express or implied other than those contained herein.

7. Schedule 1 to the agreement which set out the method of payment had a certificate clause (cl (3)(iv)) as follows:

   The Distributor will provide a final accounting in respect of each Publication to the Company on or before Finalization.  The Distributor will, on the date of such final accounting, be deemed to have purchased from the Company the number of copies of each Publication which that final accounting indicates have been sold by the Distributor.

8. The essential nature of the dispute was whether the written agreement between the parties required the appellant to have returned to it by distribution outlets (such as newsagents) unsold copies and to have confirmed the number of those returns by a process of counting to be entitled to a Returns Credit.

9. The final award dated 4 July 2007 contained the terms of the relevant declaration as to the construction of the agreement as follows:

   That on its proper construction, and subject to the exceptions relating to Western Australia, Northern Territory, Tasmania, remote areas and supermarkets, the Distribution Agreement permitted Gordon & Gotch to a Returns Credit only in respect of those publications which had been returned by the outlets to Gordon & Gotch and in respect of which Gordon & Gotch had confirmed by count that the returned had actually occurred.

10. The final award also required the appellant to pay to the respondent the sum of $832,390.27, as damages for breach of contract, plus interest.  No issue arises on this appeal as to the quantum of damages awarded by the arbitrator.

11. The qualification in the declaration made by the award after the phrase “exceptions relating to” was at the heart of the arguments on appeal as to the asserted error of the arbitrator and of the primary judge.  There was, apparently, a different approach to “returns” for distribution outlets in what might be said to be areas remote from the operations of the parties in New South Wales, and for supermarkets.  It was common ground that in years prior to the agreement and during the course of the operation of the agreement there was no expectation that full unsold copies of publications would be physically returned to the appellant by outlets in Western Australia, Northern Territory, Tasmania and remote areas. Rather, the arrangement was that outlets in those areas would return covers of the publications.  The evidence before the arbitrator diverged somewhat as to whether a counting of the covers was undertaken.  The appellant’s witness said it was not; the respondent’s said it was (or was understood to have been).  As to supermarkets, it was common ground that the understood arrangement was that the parties would accept as reliable the claim by the supermarkets as to what was unsold without the need to return either full copies or even covers of the publications and thus, necessarily, without any counting.  The written agreement did not, however, make special, or differential, written provision for these areas and for these circumstances.

12. The submissions on appeal directed themselves to the asserted errors of the arbitrator.  This was done because it was asserted that the error of the primary judge was in the failure to identify and accede to the submissions of the appellant that the arbitrator’s approach was sufficiently in error to engage the Commercial Arbitration Act, s 38. It is unnecessary to deal with this approach at length, save to say that what was involved in this Court was an appeal from orders of the primary judge. The appeal was under the Supreme Court Act1970 (NSW), s 75A. Success on appeal requires the demonstration of error in the primary judge.

13. The first complaint made by the appellant was the asserted failure of the arbitrator to recognise that the differential treatment by the parties in their commercial dealings to the question of returns from remote areas and supermarkets was fatal to his conclusion that the agreement had a meaning and content requiring unsold publications to be returned by outlets to the appellant and for the appellant to count them.  It was submitted that, if this procedure had not been undertaken in relation to remote areas and supermarkets for many years, the contract could not be given an undifferentiated meaning contrary to that practice.

14. The primary judge dealt with this matter in [71] to [79] of her reasons.  The primary judge said that this matter came to the debate before her late in the piece.  Her Honour allowed written submissions on this aspect of the matter after the hearing had concluded.  In [72] of her reasons the primary judge said:

    It seems to be common ground that absent an agreed position or understanding that such carve out should occur, it would amount to a manifest error on the face of the Award.

15. By this the primary judge was referring to the exception made in the terms of the declaration set out above.

16. Later in [72] of her reasons the primary judge shortly identified the parties’ submissions.  Her Honour said:

    Put shortly the defendant’s position is that the carve out was ‘agreed’ or was not part of the ‘dispute’ referred to arbitration.  The plaintiff denied that there was any agreement or common ground between the parties that the Arbitrator should, in construing the Agreement, carve out the excluded group.

17. Her Honour then in [73] to [78] of her reasons set out an outline of the matter that had occurred at the arbitration, as follows:

    [73]It is true that there is nothing recorded in the Final Award in respect of any such agreement. However in the First Interim Award the Arbitrator under the heading “Background of the dispute” referred to the system pursuant to which the Outlets recorded the number of unsold copies and returned them with the completed form to Albury. The Arbitrator referred to this in paragraph 4 of that Award and said that such system was “subject to some exceptions referred to below”. In paragraph 6 the Arbitrator said:

    As indicated there were exceptions to this practice. The distributor had never required some outlets to return full copies of unsold publications. These included outlets in Western Australia, Northern Territory and Tasmania and outlets from far country regions. As well supermarkets were excluded. These facts were said to be known to the company but, apart from these exceptions, the general practice applied. For its part the company asserted that it had always believed that, apart from the instance of supermarkets in respect of which it acknowledged that there was a specific agreement, unsold publications from Western Australia, Northern Territory and Tasmania (and other remote regions) were returned to the distributors’s relevant State office rather than Albury (either by way of full copy returns or by “cover returns”), and that these returns were in some way reconciled against the unsold publication[s] claimed by the relevant outlets. I should add that there is some difference between the parties as to whether those outlets which returned copies were required to send return forms but that is presently of no moment in this dispute.

    [74]       In the First Interim Award the Arbitrator also said:

    34.In the remarks I have just made I have excluded consideration of the special cases of remote areas, distant states and supermarkets. It seems clear that specific arrangements were made and/or accepted by the company in relation to some of those circumstances. In others it may be that the company was ignorant of the precise practices of the distributor. These facts do not, in my opinion, bear on the construction of the agreement. Accordingly, this award deals only with those publications which were dealt with under the agreement and not subject to any specific exemption from its terms.

    35. Confining my remarks in that way I would conclude that in changing its system, departing from its normal procedures for checking and counting of the publications which were returned to it, and making claims for credit based merely on the statement of numbers returned proffered by an outlet the distributor was making claims from returns credits on a false basis and not one authorised by the contract. The consequence is that the company is entitled to a declaration that states, in effect, that the distributor is only entitled to make a claim for a Returns Credit in respect of publications returned to it, the number of which is confirmed by counting with mechanical or hand counting. …

    …

    38. … In my opinion a declaration should be made and it should be in the following form: That on its proper construction, and subject to the exceptions relating to Western Australia, Northern Territory, Tasmania, remote areas and supermarkets, the 2002 distribution agreement permits the distributor to a Returns Credit only in respect of those publications which have been returned by the outlets to the distributor and in respect of which the distributor has confirmed by count that the return is actually occurred.

    [75]After the First Interim Award was made, the defendant amended its Points of Claim in the arbitration which included the following:

    "Outlet (s)" means an Outlet within the meaning of the 2002 Distribution Agreement not being a supermarket, an outlet in Western Australia, Tasmania, Northern Territory, or a remote rural outlet, which prior to 1 October 2003 was not required to make full copy returns to Gordon & Gotch in order to claim credit for unsold Publications.

    [76]The plaintiff responded to that amendment with an Amended Reply in which it claimed that the relevant calculations for the Purchase Price did not depend upon "actual returns" but rather upon the [returns] "claimed” by the Outlets. The Amended Reply then claimed:

    There is a sound basis for structuring the Agreement in this way. Simply put, it has never been practical for all Publications to be returned to G & G. Even under the previous system, all Publications were not counted. This was known to Horwitz.

    [77]The defendant filed a Response to the plaintiff's Reply which included the following:

    The 2002 Distribution Agreement provides for bar-coding to facilitate that process and penalty charges if bar-coding is not adopted. As referred to above, Horwitz believed that, subject to the agreed exceptions, the balance of unsold Publications were returned to Gordon & Gotch by Outlets, that Gordon & Gotch required this in accordance with the provisions of the agreements entered into with Horwitz, and that Gordon & Gotch then counted all of the Publications returned to it. (Emphasis added)

    [78]In opening submissions before the Arbitrator reference was made to the fact that "supermarket figures" would be ignored and there was also a reference to "agreed remote areas". There was also an exchange with the Arbitrator that he was dealing with "newsagents only". The defendant submitted that the dispute that was referred to arbitration did not include supermarkets or remote areas. It was submitted that the Arbitrator's observation in paragraph 34 of the First Interim Award correctly identified the areas of dispute between the parties.”

1. From these matters the primary judge concluded at [79] of her reasons as the follows:

   “On balance, I am satisfied that the Arbitrator understood that the areas of dispute that had been referred to him for arbitration did not include the excluded group. That understanding seems to me to have been justified by reason of the way in which the parties conducted the arbitration. I am satisfied that the Arbitrator was justified in carving out the excluded group from the Award.”

2. The appellant submitted that this was not how the arbitration was conducted and that it had asserted before the arbitrator that he should find that the propounded requirement of return and count could not be imputed into the agreement because that is not how the parties behaved in relation to remote areas and supermarkets.

3. The material identified in submissions in this Court supported no such proposition.  There was certainly debate before the arbitrator as to the appropriateness of the form of declaration and carve out when it came to assessing the appropriate terms of the interim award.  However, it is clear from the submissions of the parties that both sides urged on the arbitrator an approach to the interpretation of the agreement concentrating on the text of the document.

4. In its points of submission to the arbitrator, the appellant submitted that given the clear words of the agreement extrinsic material was not admissible for interpretation purposes.  (We leave aside the correctness of such a submission.)

1. The respondent in its submission to the arbitrator also concentrated upon the terms of the written document, though it sought to emphasise the appellant’s change of practice.  The structure of the issues put by the respondent to the arbitrator sought to place importance upon the history of the departure by the appellant from what it had previously done.  In its outline of submissions in reply at the arbitration, the appellant restated the issues that the respondent had framed for arbitration and dealt with them.  Issue 1 as framed by the respondent was as follows:

   Whether on its proper construction the Distribution Agreement permits a claim for a returns credit against the purchase price, for the value of goods not returned by Outlets (not being supermarket chains)?

2. The appellant’s response to this framed issue was as follows:

   We believe this issue raises for consideration the principal question of construction which has been isolated in Gordon & Gotch’s Points of Submission, namely, is Gordon & Gotch entitled to rely upon the number of publications the Outlets claim have not been sold.  In particular, the question raised is the meaning of the expression ‘including but not limited to the number of unsold copies of each Publication claimed by the Outlets’ as used in the definition of ‘Certification of Unsolds’.  That definition in turn is referred to in clause 3 of schedule 1, which sets out the mechanism for calculating the price at which Gordon & Gotch will purchase copies of a Publication (see in particular clause 7.1(d)).

   The construction contended for by Horwitz would involve reading the words ‘claimed by the Outlets’ in the definition of ‘Certification of Unsolds’ otherwise than in accordance with its clear and unambiguous meaning.  Gordon & Gotch repeats the submissions made in paragraph [13] and [14] of their Points of Submission.  Clause 4(a), 12(c), on its proper construction is entirely inconsistent with Horwitz’s claim.  The words in parenthesis ‘not being supermarket claims’ is not a proviso or exception which is to be found in the agreement.  It would appear to be an issue without any foundation whatsoever in the language of the agreement.

   Question 1 should be answered ‘Yes’.

3. Paragraphs 13 and 14 of the Points of Submission referred to in the appellant’s submissions in reply did not embody the proposition that the treatment of remote areas and supermarkets of itself assisted in the denial of the legitimacy of the respondent’s construction.  Rather, to the contrary, it contained, in paragraph 14(g), the proposition, referred to a little earlier, that given the clear words of the agreement, extrinsic material was not admissible for interpretation purposes.

4. A little later in its submissions in reply the appellant then posed the second question framed by the respondent in the arbitration as follows:

   If 1 is answered Yes, whether by reason of the fact that it was the practice before and at the time of the making of the distribution agreement for Gordon & Gotch to claim return credit against the purchase price only for goods verified by count as returned, Gordon & Gotch may not depart from that practice in the performance of the Distribution Agreement?

5. In answer to this question, which in its terms raised the conduct of the parties before and after the distribution agreement, the appellant put the following submission:

   The prior practice of the parties before and at the time of the making of the Distribution Agreement is not relevant to the interpretation of the agreement.  Whilst in certain circumstances evidence of custom or common usage is admissible, … this is not what is sought to be relied upon here.  Nor can the conduct of the parties subsequent to the making of the agreement be relied upon … .  Attention has also been drawn in our Points of Submissions to clauses 17 and 18 of the Distribution Agreement to the effect that previous agreements are cancelled, and the agreement and embodies [sic] the entire understanding of the parties.  (Emphasis added.)

6. Looking at all the material placed before this Court, it appears plain that the way the arbitrator approached the treatment of remote areas and supermarkets was entirely in accordance with the way the matter had proceeded before him.  We see no error in the approach or conclusions of the primary judge in [71]-[79] of her Honour’s reasons.

7. The appellant then submitted that the construction of the agreement by the arbitrator was plainly wrong.  This submission had a number of aspects to it.  The first was that, as a matter of legal technique, the arbitrator implied a term into the agreement to the effect that the appellant was only entitled to a returns credit in respect of those publications which had been returned by the outlets to the appellant and in respect which the appellant had confirmed by count that the return had actually occurred.  Such an implication was contrary not only to clause to 18 of the written agreement, so it was asserted, but also struck at the legitimacy of commercial certainty.  Thus, not only was there a manifest error of law on the face of the award, but also there was strong evidence that the arbitrator had made an error of law and that the determination of the question would add substantially to the certainty of commercial law.  In effect, it was submitted that the correction of such error of the arbitrator by this Court would assist in the maintenance of certainty in the commercial law by the recognition that implications of terms, in the teeth of provisions such as cl 18, should not be permitted.

8. The second branch of the complaint was that as a matter of construction of the agreement the learned arbitrator was plainly wrong.

9. The primary judge carefully set out the terms of the agreement in [12]-[17] of her reasons.  We do not propose to repeat them and otherwise lengthen this judgment.

10. The primary judge at [18]-[19] of her reasons set out in full the relevant paragraphs of the first interim award dealing with the construction of the agreement.  Again, we do not propose to lengthen these reasons by setting out the terms of the arbitrator’s reasoning which are adequately described in the primary judge’s reasons. 

11. It can be seen from the reasoning of the arbitrator that he did not engage expressly in any process of implication.  What the arbitrator did was to seek to give content to the words of the written agreement by reference, primarily, to the text, structure and evident aims and commercial purposes of the document.  The arbitrator’s reasons at [29]-[32] make this clear. 

12. The primary judge dealt with the argument on construction extensively and fully at [20]-[39] of her Honour’s reasons.  Detailed argument was put before this Court as to the better construction of the agreement that would favour the contrary conclusion propounded by the appellant.  It is sufficient to say in these reasons that we agree entirely with the approach of the primary judge at [20] to [39] of her Honour’s reasons.  The contrary arguments put by the appellant do not amount in our view to such clear case as could be stated to be manifest error on the face of the award. 

13. Not only is there no manifest error, in our view there is no error.  The conclusion reached by the arbitrator in our view was right for the reasons he gave and for the reasons of the primary judge.  Indeed there are matters not specifically referred to by the arbitrator or the primary judge that provide additional support for the conclusions reached by them.  The definition of “Unsolds” and the rest of Schedule 1 cl 3, show that the respondent was agreeing to pay for unsold copies returned to the appellant by outlets.  The obligation to certify and any consequential deeming effect of such certification was predicated upon the number of unsold copies that as a matter of fact were returned, thereby embodying within the text of the agreement the obligation to count to ascertain the number.  This approach does not focus on the word “claimed” in the definition of “Certification of Unsolds”, but on the entitlement of the appellant to deduct from the total “Purchase Price” the “Returns Credit”.  The agreement defined “Returns Credit” to mean the number of unsold publications (not unsold copies claimed by the outlets) set out in the “Certification of Unsolds”.  The definition of “Certification of Unsolds” is consistent with the certificate including not only the unsold copies claimed by the outlets but the copies actually unsold by the outlets and returned by them.   This is not to identify any error in the approach of the arbitrator, but rather to indicate that another way of looking at the agreement leads to the same conclusion.  In our view, there has been no error shown in the primary judge’s acceptance of the arbitrator’s reasoning as to the meaning of the agreement.

14. As to the assertion that there was an impermissible implication of terms as opposed to the process of interpretation the appellant relied upon a number of cases to this effect:  KooeeCommunications Pty Limited v Primus Telecommunications Pty Limited [2008] NSWCA 5 at [27] and [38]; Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; 210 CLR 181; Pacific Carriers Limited v BNP Paribas [2004] HCA 35; 218 CLR 451; Fitzgerald v Masters (1956) 95 CLR 420; Marcus Clark (Victoria) Ltd v Brown (1928) 40 CLR 540 at 553-554; Brambles Holding Ltd v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153 at 164 [28]; Vodaphone Pacific Limited v Mobile Innovations Ltd [2004] NSWCA 15 at [196]-[208]; L G Thorne & Co Pty Limited v Thomas Borthwick & Sons (Australasia) Limited (1956) 56 SR (NSW) 81 at 88; Gordon v Macgregor (1909) 8 CLR 316; Antaios Compania Naviera SA v Salen Rederierna AB (The ‘Antaios’) [1985] AC 191.

15. We reject this argument.  None of the above cases requires the conclusion that the process undertaken by the arbitrator was the implication of a term in the agreement to which cl 18 was directed.  The taxonomy outlined by Hodgson J (as his Honour then was) in his interlocutory judgment in Carlton and United Breweries Ltd v Tooth & Co Ltd (unreported, Supreme Court of NSW, 11 June 1985) (using, in part, the dissenting judgment of Higgins J in Marcus Clark (Victoria) Ltd v Brown at 553 and 554) as adopted by Heydon JA in Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153 at 164 [28], is not authority for the proposition that the orthodox conception of interpretation is to be fully equated with the implication of terms. Interpretation is the ascertainment of the meaning which a document would convey to a reasonable person in the context: Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165 at 179 [40]. That interpretation can shade into implication and, indeed, that both may perhaps be seen as part of the one process of the construction of words in a document to identify linguistic and legal meaning can be accepted. However, the distinction between interpretation and implication of terms is recognised (even if the limits of each are not capable of clear definition): see Codelfa Construction Pty Limited v State Rail Authority(NSW) (1982) 149 CLR 337 at 345 (per Mason J, with whom Stephen and Wilson JJ agreed in this respect); Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556 at 578; National Commercial Bank Jamaica Ltd v Guyana Refrigerators Ltd(Jamaica) [1998] UKPC 14 at [12] (Lord Steyn speaking on behalf of himself and Lord Browne-Wilkinson, Lord Slynn of Hadley, Lord Hutton and Sir Christopher Staughton); Equitable Life Assurance Society v Hyman [2002] 1 AC 408 at 458-459; and South Australian Asset Management Corporation v York Montague Ltd [1997] AC 191 at 212.

16. As Steyn LJ said in P & O Property Holdings Ltd v Norwich Union Life Assurance Society (unreported, England and Wales Court of Appeal, 1 April 1993, extracted in [1995] LMCLQ at 19) speaking for himself, Dillon and Rose LJJ:

    … [I]t is important never to forget the purpose of the process of interpretation.  It is to assign to the language chosen by the parties the most appropriate meaning which the words can legitimately bear … [b]ut interpretation must not become a route to supplementing or changing the contractual regime which the parties have chosen by the language appearing above their signatures.  That is an end which can only be achieved by implication, in law or fact, of a term into the chosen language of the parties.  That process can, however, only be pressed into service if the implication is essential to make the contract work, or if it is otherwise entirely obvious.

17. The limits identified by Steyn LJ can be seen in Maggbury at 198 [43] as discussed by Basten JA in KooeeCommunications at [27]-[31].

18. Whatever may be the limits of interpretation and of the process of vindicating commercial common sense in the process as described by Lord Diplock in The ‘Antaios’ at 201 and Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676, here, the arbitrator was well within them.

19. Further, and not without importance, it does not seem to have been put to the arbitrator that an acceptance of the interpretation contended for by the respondent would run foul of cl 18.  The assertion of manifest (or indeed other) error to invoke the Commercial Arbitration Act, s 38 in that context becomes more than a little problematic.

1. The third argument of the appellant was that one aspect of the arbitrator being plainly wrong was his failure to give a proper place and importance to the certificate clause in the agreement.

2. Certainly, before the primary judge the certificate clause and its effect was relied upon by the appellant.  This was reflected in [35]-[37] of the primary judge’s reasons.  The primary judge discussed the role of the certificate in the contract and the support it was said to give the appellant’s argument that no counting was required.  The primary judge was of the view that the existence of the certificate clause was such as to reinforce the need for counting as the mechanism for calculating or reaching of the numbers behind the face of the certificate.

3. What does not appear to have been argued at any point before the arbitrator or before the primary judge was that the whole claim of the respondent in the arbitration was met by the existence of the certificate clause.  The arbitrator did not approach the matter that way; nor did the primary judge.  Rather, to the extent that it is evident in the primary judge’s reasons, her Honour’s views about the interpretation of the agreement rested in part upon a discussion of the certificate clause and the cases concerning such which were put before her.  It was argued by the respondent in this Court that the certificate clause had not been raised before the arbitrator.  On the material referred to in this Court, and looking at the submissions of the parties and in particular of the appellant, we agree with the respondent that it was not put (or put with any clarity) before the arbitrator that because of the certificate clause the arbitration must be disposed of favourably to the appellant.

4. As was said in BellevardeConstructions Pty Limited v CPC Energy Pty Limited [2008] NSWCA 228 at [59]-[60] if a matter is not raised before a referee (and here an arbitrator) it is difficult (in the absence of some deficiency of a character to which the referee (or here arbitrator) would be obliged to have regard irrespective of the submissions of the parties) to say that the referee or arbitrator has made an error let alone (here for the purposes of the Commercial Arbitration Act) a manifest error. 

5. The primary judge dealt with the certificate clause as part of her Honour’s disposition of the question of the interpretation and construction of the agreement.  We see no error in how the primary judge dealt with the matter.

1. For the purposes of the Commercial Arbitration Act, s 38 it can be accepted that the determination of the proper construction of the agreement could substantially affect the rights of the appellant. Thus, s 38(5)(a) can be taken as satisfied.

2. However, there was no manifest error on the face of the award nor was there any strong evidence that the arbitrator made any error of law.  To the extent that there was or is some legitimate debate about the proper construction of the agreement and to the extent that our conclusion that there was no error in construction by the arbitrator or the primary judge, in our view, the determination of the proper construction and interpretation of this particular contract would in no way add or be likely to add substantially to the certainty of commercial law.  The agreement is a particular one.  It is not a standard form contract and therefore the considerations referred to by Lord Diplock in Federal Commerce & Navigation Co Limited v Tradax Export SA (The ‘Maratha Envoy’) [1977] 2 Lloyd’s Rep 301; [1978] AC 1 at 7-8 as to the importance of standard form contracts in the operation of markets and the role of courts in their interpretation do not apply.

3. Here, in our respectful view, the arbitrator was correct in his interpretation of the agreement.  Given the way the parties approached the question of the remote areas and supermarkets no criticism can be made of how he approached the construction of the agreement.  Whether or not a declaration in the form of Order 1 in the first interim award should have been made in precisely those terms is not to the point and is immaterial.  The primary judge, in our respectful view, displayed no error in her approach to the application before her.

4. The appeal should be dismissed with costs.

1. BEAZLEY JA:     I agree with Allsop P and Sackville AJA.

**********

LAST UPDATED:
20 October 2008