Caf-Grains, Re [1993] QSC 315 [1994] 2 Qd R 252

TRANSCRIPT OF PROCEEDINGS · (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION MOYNIHAN J os No 336 of 1993 IN THE MATTER OF THE COMMERCIAL ARBITRATION ACT 1990 IN THE MATTER OF AN ARBITRATION AWARD BETWEEN CAF-GRAINS AND PARS RAM BROS (AUSTRALIA) PTY LTD PURSUANT TO A CONTRACT DATED 18 SEPTEMBER 1990 BRISBANE .. DATE 1 5 I 1 0 I 9 3 JUDGMENT 1 -- 1 of 18 -- 151093 mar (Moynihan J) HIS HONOUR: In my view, for the reasons which I now publish, the application for leave to appeal ought to be refused, the summons dismissed, and unless there is some consideration to which I am not presently aware, it would seem the applicant ought to pay the respondent's costs of the application to be 10 taxed. 20 30 40 50 60 JUDGMENT 2 -- 2 of 18 -- (1 () IN THE SUPREME COURT OF QUEENSLAND 0/S No. 336 of 1993 IN THE MATTER OF THE COMMERCIAL ARBITRATION ACT 1990 AND IN THE MATTER OF AN ARBITRATION AWARD BETWEEN Counsel: CAF - GRAINS and PARS RAM BROS (AUSTRALIA) PTY LTD pursuant to a contract dated 18 september 1990 JUDGMENT - MOYNIHAN J Delivered the 15th day of October, 1993 Mr P Bickford for the Applicant Mr J Bell for the Respondent Solicitors: Clayton Utz for the Applicant Carter Newell for the Respondent Hearing date; 29 April, 1993 S: c.. .::lj,~/ 3C'$ -- 3 of 18 -- c) IN THE SUPREME COURT OF QUEENSLAND 0/S No. 336 of 1993 IN THE MATTER OF THE COMMERCIAL ARBITRATION ACT 1990 AND IN THE MATTER OF AN ARBITRATION AWARD BETWEEN CAF - GRAINS and PARS RAM BROS (AUSTRALIA) PTY LTO pursuant to a contract dated 18 september 1990 JUDGMENT - MOYNIHAN J Delivered the 15th day of October, 1993 This is an application for leave, pursuant to S.38(4)(b) of the Commercial Arbitration Act 1990, to appeal in respect of an award made on 20 January, 1993. The arbitration arose out of a contract by which the respondent Pars Ram Bras (Australia) Pty Ltd sold a substantial quantity of seed oats to the applicant CAF-Grains for delivery in Algeria. CAF-Grains had in turn onsold the oats to an Algerian buyer; this was found by the arbitrators to have been reflected in the contract documentation. The contract provided for arbitration pursuant to the F.I.S. Arbitration Procedure Rules for the international seed trade. The letters F.I.S. stand for Federation lnternationale Des Semences. The F.I.S. is an international association -- 4 of 18 -- 2 for the seed industry made up of various national member associations. lt produces arbitration procedure rules for the international seed trade, the edition relevant for the purposes of this application is the fourth edition published in 1979. lt also produces a guide to arbitration procedures adopted for the international seed trade. The F.I.S. rules apply to arbitrations within member associations as well as across international boundaries. The Award the subject of complaint was handed down by a panel of three arbitrators reflecting a wide cross-section and considerable knowledge of the seed-growing industry. As a result of the arbitration CAF-Grains was awarded the following sums attributable to the following heads:- • Penalty for delayed departure US$60,000.00 • Quality refraction US$9,037.75 • Weight loss claim US$2,899.37 • Negotiation expenses US$8,544.00 TOTAL US$80,491.12 Pars Ram was awarded $95,201.39 on account of demurrage so that on a c) G final adjustment CAF-Grains owed Pars Ram US$14, 720.27. The arbitrators U recommended that the amount awarded against CAF-Grains be recovered by it forthwith from its Algerian buyer. The issues which arise for consideration in this application largely relate to the arbitrators permitting Pars Ram to pursue the counterclaim which resulted in the Award against CAF-Grains and against their then dealing with it. There are also complaints about the calculation of two of the components of the sums making up the Award. -- 5 of 18 -- ( \ "--- 3 I should mention that the F.I.S. Arbitration Rules make provision for appeal but that right was apparently lost by the applicant (a French corporation) when it failed to provide instructions to its Australian solicitors within the time provided. The applicant's proposed grounds of appeal are as follows (the numbering reflects that certain proposed grounds of appeal were not pursued):- 1. The Arbitrators erred in law in holding that the counterclaim arose from the same contract as the original claim. 2. That the Arbitrators erred in law in holding that the counterclaim arose from the same contract as the original claim after having found that the counterclaim was not submitted pursuant to Article 9.1 of the F.I.S. Rules. 3. That the Arbitrators erred in law in holding that they could consider the counterclaim under Article 9.2 of the F.I.S. Rules when the counterclaim was not received in accordance with Article 9.1 of the F.I.S. Rules. 4. That the Arbitrators erred in law in the exercise of their discretion in holding that the provisions of Article 9.2 of the F.I.S. Rules had been satisfied in respect of the counterclaim. 5. That the Arbitrators erred in law in holding that the evidence presented by the respondent, PARS RAM BROS. (AUSTRALIA) PTY LTD was capable of amounting to an exceptional case in terms of Article 9.2 of the F.I.S. Rules. 7. That the Arbitrators erred in law in having regard to irrelevant considerations in the exercise of their discretion in connection with the admission of the counterclaim as follows: (i) in having regard to the presence of Mr Punj, a Director of the Respondent company between the months of November 1991 andMarch 1992. (ii) in having regard to the familiarity or lack thereof of the parties to theArbitration with the F.I.S. relating to the Arbitration process; (iii) in having regard to the absence or lack of formal warnings given by the Arbitrators to the parties to the arbitration regarding the need for strict compliance with the F.I.S. Rules of Arbitration. 8. That the Arbitrators erred in law in failing to have regard to relevant considerations in the exercise of their discretion in connection with the admission of the counterclaim as follows: -- 6 of 18 -- 4 (i) in having regard to the presence of Mr Punj, a Director of the Respondent company between the 7th August 1991 when the Notice of Arbitration was sent to the Respondent company and the 7th November 1991 when the said Mr Punj left for overseas; (ii) in having regard to the prejudice suffered by the Appellant arising out of the late admission of the counterclaim; (iii) in failing to have regard to the fact that a copy of the F.I. S. Arbitration Rules were supplied to the Respondent company on the 7th August 1991; (iv) in failing to have regard to the fact that the Respondent company through its solicitors, Messrs Carter Newell, responded to the claims made by the Appellant herein in a letter dated 24 March 1992 prior to the return to Australia of the said Mr Punj; (v) in failing to have regard to the fact that the counterclaim related to a claim for demurrage by the Respondent in addition to a claim arising out of an alleged "side letter" to the principal contract; 11. That the Arbitrators erred in law in failing to apply the correct legal test in the calculation of the Appellant's damages with respect to losses arising out of a weight shortfalls in the shipment and quality refractions. 12. That the Arbitrators erred in law in failing to apply the correct legal test with respect to the Respondent's entitlement and calculation on such entitlement. So far as the counterclaim is concerned, Article 9 of the F.I.S. Rules provided:- "1. The respondent is entitled to make a counterclaim against the claimant, provided this claim arises from the same contract as the original claim. 2. A counterclaim must be made to the Arbitration Chamber within 21 calendar days after dispatch of the original application for arbitration referred to in Article 2 on penalty of being inadmissible save in exceptional cases at the discretion of the arbitrators." The Award dealt with relevant aspects of the counterclaim in these terms: 6.5 A counterclaim lodged by Pars Ram Brothers was relayed to the Arbitrators contained in a submission dated March 24th, 1992. This counterclaim was not received in accordance with article 9. 1 of the Arbitration Procedure Rules for the International Seed Trade (Fourth Edition 1979). The Arbitrators could then only consider the counterclaim under article 9.2 of the above publication on Arbitration Procedure Rules which reads, C! C\/ -- 7 of 18 -- CJ 5 "A counterclaim must be made to the Arbitration Chamber within 21 calendar days after dispatch of the original application for arbitration referred to in article 2 on penalty being inadmissible, save in exceptional cases at the discretion of the Arbitrators." In the "Memorandum of Issues and Current Status of Arbitration" dated 29th July 1992 which was sent to both parties, the Arbitrators notified that they would accept the counter-claim under article 9.2 of the Arbitration Procedure Rules for the International Seed Trade (Fourth Edition 1979). CAF-Grains objected to its acceptance at the oral hearing on November 4th 1992 and in their final written submission received. At the oral hearing the Arbitrators heard details of CAF-Grains' objection. The Arbitrators have considered whether the counterclaim should be admitted taking into consideration the representations of CAF-Grains provided at the oral hearing and in the final written submission. In this review the Arbitrators took into account the following points: a) The original contract 2706 dated 29/8/90 was amended after discussion between the two parties following fax, telex, telephone and personal discussion during early September. This amendment came about when both parties cooperated on pricing and other contract matters. b) The counterclaim is based on a "side letter" to the contract 2706 dated 18/9/90. This side letter was issued on 20/9/90 through the broker, Establissements G Sauvage. As earlier agreed by both parties transmission and receipt of communication exchanges are not in dispute. Thus both parties became aware of the "side letter" on or about 20/9/90. c) This "side letter" was raised in the conciliation attempted between the parties in May 14/15th 1991 in Paris according to a Statutory Statement and a copy of the notes of that meeting presented to the Arbitrators. Thus CAF-Grains were aware of this "side letter" when they lodged their claim for arbitration in 1991. d) Sauvage has maintained throughout the dispute that his understanding has always been that it formed an integral part of the contract 2706 dated 18/9/90. This is re-stated in his Statutory Declaration and his telex of 17/9/91 to Pars Ram when questioned for clarification. e) Prior to the oral hearing on November 4th 1992 the Arbitrators received no written or oral advice from CAF-Grains or their representative that they objected to the notification in the -- 8 of 18 -- 6 "Memorandum of Issues and Current Status of Arbitration Hearing" dated July 29th 1992. g) CAF-Grains assert that the "side letter" should not be considered as it was not included in the contract 2706 dated 18/9/90. h) The Arbitrators find that the overall contracted position of the parties includes the "side letter" as well as all original documentation and it is in the interests of justice in this arbitration to consider all issues between the parties providing that no party is thereby prejudiced. Allowance should be made for the possible reduced ability of Pars Ram Brothers to adequately plan a response to the claim due to the prolonged absence overseas of their principal from November 1991 until March 1992. 6.5.1 The Arbitrators make the following findings in the matter of the admissibility of the counter-claim by Pars Ram brothers: a) The counterclaim is eligible for acceptance under article 9.2 of the Arbitration Procedure Rules for the International Seed Trade (Fourth Edition 1979). The Arbitrators consider that this counter-claim satisfies the criteria of "save in exceptional circumstances at the discretion of the Arbitrators," contained in article 9.2. The "side letter" has always been an integral part of contract 2706 dated 18/9/90 and mutually accepted by both parties as from 29/9/90. The Arbitrators note that until the hearing on 4/11/92 it had not been c~ suggested that the "side letter" was not part of the issues between c·-,,; the parties. The Arbitrators are disappointed that CAF-Grains did not .· alert them to this aspect of contract 2706 when arbitration was commenced. lt is not suggested that CAF-Grains has been prejudiced by the notification of the arbitration dated 29/7/92 and no prejudice has appeared to have been caused to CAF-Grains in the presentation of their verbal and written submissions at the arbitration hearing by that notification. We note that information was provided in arbitration notices in 1991 to each party with requests for responses. The absence of the principal of Pars Ram coincided with the provision of information in response to requests from the Arbitration Panel. We accept the principal of Pars Ram was required to prepare their position for arbitration and consider that it is reasonable to take into account the delay in response for that reason. We also consider that the parties were unfamiliar with the arbitration process and note that no warnings were given by the Arbitration Panel to the parties about strict compliance with the formal rules of arbitration. -- 9 of 18 -- 7 In all of the circumstances in the exercise of our discretion we consider that the circumstances of this case justify admission of the counterclaim as we find all the circumstances sufficiently exceptional to justify use of our discretion and inclusion of the counterclaim. b) All aspects of the counterclaim presented by Pars Ram will be subject to arbitration decision. The arbitrators then went on to deal with the various aspects of the counterclaim and allowed the amount for demurrage which I set out earlier. This application is necessary on account of the provisions of the Commercial Arbitration Act 1990 (the Act). Section 38(2) of the Act provides that, subject to sub-section 4, an appeal shall lie to the Supreme Court on any question of law arising out of an award. Sub-section 4 relevantly provides:- "An appeal under sub-section 2 may be brought by any of the parties to an arbitration agreement:- (b) Subject to S.40, with the leave of the Supreme Court. 11 Section 40 is of no relevance to the current circumstances. Section 38(5) provides that a court is not to grant leave under sub-section 4(b) unless it considers that:- 11 a) having regard to all the circumstances, the determination of the questions of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement; and b) There is- i) a manifest error of law on the face of the Award; or ii) strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or -- 10 of 18 -- 8 may be likely to add, substantially to the certainty of commercial law. 11 lt may be accepted that S.38 (2) (4) and (5) in particular, are the manifestation of a statutory intention to limit the circumstances in which the court may intervene in respect of an award. This is in the interest of finality of the resolution of disputes by the means to which the parties have agreed; cf. Pioneer Shipping Ltd & Ors -v- B.T.P. Tioxide Ltd (The Neema) 1982 A.C. 724 per Lord Diplock at 739/40, Update Constructions Pty Ltd -v- Roselle Child Care Centre Ltd (1990) 20 N.S.W.L.R. 251 at 259. Thus an appeal is restricted to a question of law arising out of an award and, in the present circumstances, to the granting of leave. Sub-section 5 controls the grant of leave by requiring that it not be granted unless a court considered that the conditions specified in (a) and (b) of the sub- section have been satisfied. The issues which arise for consideration in this case are whether the matters complained of by CAF-Grains are questions of law arising out of the Award in terms of Section 38(2) and whether there is a manifest error of law on the face of the Award or strong evidence that the arbitrators 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)). These considerations have been the subject of considerable judicial exegesis which has progressively provided a basis in subsequent cases for attempts to take advantage of one view or another by emphasising a particular approach or expression. lt is I think for purposes of this case largely unnecessary to become embroiled in such exercises. Thus, it may be arguable that the phrase 11 arising out of an award 11 is merely adjectival and descriptive so that any question of law c c~ (l c~ -- 11 of 18 -- 9 arising out of the arbitration as finalised by the Award may be brought on appeal. On the other hand it is, I think, more likely from the terms of the legislation and their context that the phrase is one of delimitation, restricting appeals to questions of law which arise out of the Award as distinct from out of the arbitration generally. I think this is so, irrespective of any particular policy considerations which might have been applied in a line of English cases favouring the latter constructions. By this I mean that the words of the statute are themselves a (·. \ sufficient expression of policy. [The issue just canvassed is dealt with, without the point being necessarily decided, in Worley Pty Ltd -v- Adco Constructions Pty Ltd (1989) 8 A.C.L.R. 73 (see also Miles CJ in Commonwealth of Australia -v- Rian Financial Services and Developments Pty Ltd (unrep.) S.C.A.C.T. 4 December 1991.)] The requirement of manifest error on the face of the Award requires that the error be "obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator." Brandeis lnsel Ltd -v- Calabria m Chemicals Corp. 656 F.Supp. 160 (S.D.N.Y. 1987) and Pioneer Shipping etc, The Neema (ante) at 742 and following. I find it unnecessary to explore the matter ( further because the present case seems to me to stand or fall on the matters "--· complained being demonstrable by arising out of the Award as distinct from arising out of the arbitration in the wider sense. An award may incorporate documents by reference; Granfreddo -v- Garra Constructions Pty Ltd 1971 V.R. 289 at 290. In addition, it may be that it is on occasion necessary to go to other documents to understand and assess whether the requirements of S. 38(5)(b)(ii) in particular are satisfied. This consideration has some reference to grounds 11 and 12 in particular. In that case the material must -- 12 of 18 -- 1 0 constitute strong evidence of error and satisfy the other requirements of the subsection: see for example Worley (ante). Reference was made in the course of argument to the so-called Neema guidelines and the grant of leave to appeal. This is a reference to (The Neema) (ante). At pages 742 and 743 of the report Lord Diplock made a distinction between the allegedly erroneous construction of a one off clause and the construction of a standard clause of general application. In the former case he postulated a test of error being apparent upon the perusal of the relevant award ('1 without the benefit of adversarial argument that the arbitrators were wrong. This he thought was to be contrasted with a less stringent test where questions of c) construction of contracts in standard terms arise. The less stringent test was on account of the desirability of legal certainty as to the application of standard terms on ·the occurrence of events of the kind not unlikely to recur. Lord Diplock, it may be accepted, identified considerations relevant to the exercise of the jurisdiction conferred on the court by Section 38. They are not, C) however, in my view, considerations conclusive of the exercise of that power. In Oantas Airways Limited -v- Joseland and Gilling (1986) 6 N.S.W.L.R. 372 at 333 McHugh JA spoke of Lord Diplock's guidelines as "important factors" but pointed out that the legislation required that the power to grant leave had to be exercised "considering all of the circumstances of the case"; see also F.A. Pigeon & Son Pty Ltd ( 1992) 2 Od.R. 375 per Derrington J at 278. Moreover, I agree with Derrington J when he says:- "When the events to which the standard clause fell to be applied in the particular arbitration were themselves "one off" events, stricter criteria should be applied on the same lines as those that apply to "one off" clauses." (p. 278) 0 -- 13 of 18 -- 1 1 I turn now to the various grounds which CAF-Grains (the applicant) contend satisfy the requirements of 8.38. Grounds 1 to 3 are to the effect that the arbitrators erred in law in holding that the counterclaim arose from the same contract as the original claim, particularly having found that the counterclaim was not submitted pursuant to Article 9. 1 . The terms of the Article are set out earlier. lt may be taken to have been incorporated into the Award by reference. I must say that some of the subtlety of the argument that having concluded that the counterclaim was not submitted pursuant to Article 9.1, the arbitrators erred in proceeding to consider whether they could exercise the discretion conferred on them by 9.2, is lost on me. lt seems plain enough from the face of the Award that the arbitrators proceeded on the basis that since the claim was out ··. of time they could deal with it only in the exercise of the powers conferred by Article 9.2. In other words the claim did not satisfy Article 9.1 because it was not submitted in time. Article 9.1 's reference or the necessity for a counterclaim to arise referred to arise from the same contract as the original claim is, I should have thought, ( \"-__ clearly enough a reference to contract from the perspective of the substance of the transaction as distinct from, for example, the same document. The arbitrators determined here that the relations between the parties in respect of the shipment in issues included the side letter under which the demurrage claim at least arose as well as all other documentation governing the relationship between the parties in respect of the transaction of very use to the dispute. -- 14 of 18 -- ----- ~----~-~ -~ 1 2 They may be taken as having rejected the applicant's submissions to the effect that the bill of lading, charter party and side letter were not part of its case and hence could not be relied on. lt is also clear reading the Award as a whole and particularly paragraph 6.6.1 and 6.6.1 (a) that references to all the original documentation included a reference to the side letter and the charter party. The arbitrators considered that the terms of the charter part carried over to the applicant for reasons dealt with at p. 16 of the Award. Moreover, there is, I think, much to be said for the view that the determination of what constituted the contract is at least as much one of fact as it is of law. lt is to my mind by no means apparent that the arbitrators erred in concluding that the counterclaim arose from the same contract or in holding that it was open for them to proceed to consider the application of Article 9.2. Grounds 4, 5, 7 and 8 are related. Ground 4 is to the effect that the arbitrators erred in concluding article 9.2 had been satisfied. Ground 5 complains (1 () that the evidence was not capable of satisfying the exceptional case requirements ci of article 9.2. Ground 7 is a catalogue of irrelevant matters, said to have been taken into account so tainting the arbitrators' exercise of the power conferred on them by Section 9.2 Ground 8 is a catalogue of matters to which it is said the arbitrators ought to have had regard but did not. ~At pages 12, 13 and 14 of the Award in particular the arbitrators identified various considerations which they took into account in exercising their power pursuant to article 9.2 and deciding to deal with the counterclaim. The considerations catalogued by the arbitrators do not immediately strike one as being irrelevant to the exercise of the power. Indeed in respect of some of them, for -- 15 of 18 -- 1 3 example the absence of a Mr Punj of Pars Ram during a period later than the 21 calendar days referred to in article 9.1 some fairly fine analysis of material extraneous to the Award is required to provide even a starting point for the commencement of an argument. I do not think, as seems to be suggested for the applicant, that the arbitrators were required to carry out a fine analysis of the meaning of exceptional circumstances. There can be derived from the Award, notably the pages to which (.. I earlier referred, a catalogue of the considerations to which the arbitrators referred in exercising the power given them by article 9.2. lt is plain that they were aware of the terms of article 9.2 and regarded themselves as applying it. They concluded that the circumstances as they found them justified the exercise of the power in favour of Pars Ram. lt is by no means obvious that they erred in doing this. lt is moreover by no means obvious that the concatenation of circumstances to which they had regard were not capable of constituting exceptional circumstances in () terms of the article in the particular case. ( The matters catalogued in ground 8 as not being taken into account do not appear on the face of the Award. They are at most for the applicant matters which might have been urged on the arbitrators as relevant as at least grounds 8(i),(iii) were. The arbitrators said that they took into account the applicant's submissions. In so far as the question of prejudice was covered by submission the arbitrators may be taken as having regard to it; see clause 6.5 of the Award. No adjournment was sought by the applicant to deal with any apprehended prejudice. The relevance of 8(iv) is far from obvious and it was not apparently a matter urged on the arbitrator. So far as 8(v) is concerned, it is far from obvious that the -- 16 of 18 -- 1 4 contention it contains is correct, having regard to clause 6.5(g) and 6.6.1 of the Award in particular. The catalogue of events contained in grounds 7 and 8 are simply one off events and as such would be subject to the stricter criteria approach of the Neema rule, ( 1982 AC 724 at 739). Those grounds are simply a catalogue of facts particular to the present case which it is said were either improperly taken into account in exercising the power conferred by article 9.2 or which ought to have been taken into account in that exercise. lt is far from obvious that the 0 determination of the questions arising on account of grounds 7 or 8 may add or be likely to add substantially to the certainty of the commercial law. On the view of c~ them most favourable to the applicant, grounds 7 and 8 do no more than reflect a particular application of what may be accepted as a well-settled principal; that in the exercise of a power such as that conferred by clause 9. 2 the arbitrators ought not omit relevant considerations or take into account irrelevant ones. Ground 11 reflects a contention by the applicant made before the arbitrators that the damages in respect of weight shortfall and quality refraction deficiencies 0 ought to have been calculated on a price of US$458 per tonne whereas the C: respondent contended for a price of US$536 per tonne. The former was the price for which the applicant sold the grain, the latter was the price at which the applicant purchased it. The difference is $7,995.40. The arbitrators applied the basis contended for by the respondent. The arbitrators concluded that the loss of income by CAF-Grains in not being able to invoice the Algerian buyer in respect of the deficient grain was allowed to be claimed in a calculation of gross margin. lt is not obvious to me that the arbitrators erred in proceeding on the basis on which -- 17 of 18 -- \ 1 5 they did. Nor, taken in context, do I think it can be said that it is obvious that there is a failure to give reasons vitiating this aspect of the Award. Ground 1 2 is in effect a complaint about the arbitrators allowing the respondent's claim for demurrage for a period of 8 days while the grain was being re-bagged. The re-bagging was found to be the fault of the respondents. In concluding as they did the arbitrators apparently rejected submissions made on the applicant's behalf. The error of law is far from obvious on the face of the Award. The demonstration of error would seem necessarily to involve canvassing determinations of fact and it is far from obvious that the settling of the issues sought to be canvassed by the ground would contribute substantially to the certainty of commercial law. lt is pertinent to remark that the latter consideration would seem to apply to ground 11. The considerations being those I have canvassed, in my view the application for leave to appeal ought to be refused, the summons dismissed and the applicant ordered to pay the respondent's costs to be taxed. I ' \__. -- 18 of 18 --