Fowl Play: the proper scope of bespoke Arbitration Clauses

Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82

The case involved an appeal from a decision of Slattery J in the New South Wales Supreme Court granting a stay of proceedings brought by Mr Hannigan: [2019] NSWSC 1186.  The appeal judgment is Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82.

Stated briefly, Mr Hannigan is a chicken farmer who raised chickens for Inghams under a contract by which they would supply him with day-old chickens, and he would raise them and return them to Inghams for a fee.

The Agreement relevantly contained the following dispute clause (omitting immaterial parts):

If:

23.6.1 the Dispute concerns any monetary amount payable and/or owed by either party to the other under this Agreement […]; […]

then the parties must (unless otherwise agreed) submit the Dispute to arbitration […].

On 8 August 2017, Inghams attempted to terminate the agreement and stopped delivering chickens to Mr Hannigan. On 30 August 2017, Mr Hannigan brought proceedings seeking a declaration in the Supreme Court and reserving his right with respect to damages (the 2017 Proceedings). He was ultimately successful in those proceedings and the court declared that Inghams had breached its agreement with him: [2019] NSWSC 321 (these proceedings are summarised by Bell P on appeal at [19]-[22]).

Subsequently, Mr Hannigan sought to refer the dispute to arbitration and Inghams commenced proceedings to prevent this. Inghams claimed that:

  • The damages claim was not within the scope of the arbitration agreement; and
  • Mr Hannigan had waived his entitlement to arbitration by commencing the 2017 Proceedings.

The primary judge held that the damages claim was within the scope of the arbitration clause and that Mr Hannigan had not waived his entitlement to rely on that clause.

Outcome

The Court was split 2:1, with Bell P in dissent adopting a ‘broad commercial’ interpretation of the arbitration agreement.

The majority (Meagher JA and Gleeson JA) held that:

  • The damages claim was not properly described as a dispute concerning monetary amounts payable or owed ([127]-[156] (Meagher JA) and [158] (Gleeson JA), Justice Bell in dissent on this point); and
  • Mr Hannigan had not waived his right to arbitrate given the express reservation and the provision for urgent applications to the court in the agreement (all members of the Court).

Distinction between approaches

The key distinction between the majority and Justice Bell was their approach to whether ‘monetary amounts payable under the agreement’ extended to contractual damages. The majority, referring heavily to Mann v Paterson Constructions Pty Ltd (2019) 93 ALJR 1164, held that it did not: [140]-[151], see in particular [148].

The majority retained a clearer division between common law and contractual rights holding that:

  • the obligation to pay contractual damages could not be considered to arise “under this agreement” ([150]); and
  • likewise, the secondary obligation to pay damages arose by operation of law and could not be considered to arise under the contract.
  • In contrast, while Justice Bell acknowledged that the obligation to pay damages arose by operation of law, he considered that:
  • the concept of arising ‘under’ an agreement included matters governed or controlled by the agreement. This extended to contractual damages that were assessed by reference to the agreement: [86]-[87].[1]
  • The fact that the obligation to pay damages is a secondary obligation that arises by operation of law does not prevent it from also being said to arise ‘under’ the contract ([89]-[99]), the ultimate source of the obligation being the contract itself: [98].
  • The conclusion that the dispute was within scope was mandated by the broad and liberal approach to the construction of arbitration clauses despite the clear intent of the parties that only a subset of disputes under the agreement should be referred to arbitration: [100]-[103].

Takeaway

The judgments in this case emphasise that Australian courts apply orthodox contractual interpretation principles to the interpretation of arbitration clauses. While this approach will assume that the parties did not wish to fracture their disputes amongst different venues, no presumption is applied in the face of the express words of the agreement to the contrary.[2]

Careful consideration of each term used in bespoke and multi-tiered arbitration clauses is required. The dissenting judgment in particular highlights the need to avoid the application of terms of broad application where a fine distinction is sought in the allocation of disputes to different methods of dispute resolution.

By using terms such as:

  • “Dispute”;
  • “any”;
  • “including without limitation”;
  • “monetary amount” (where the defined term “Fee” was available),

Inghams came close to having an arbitration clause of more general application than it may have wanted.

It will be interesting to see whether further consideration is given to the nature of contractual damages and whether they can be said to ‘arise under’ an agreement.

[1] Referring to Rinehart v Welker [2012] NSWCA 95; 95 NSWLR 221, at [125]  and Commonwealth v Amann Aviation Pty Ltd (1992) 174 CLR 64 at 80.

[2] To the extent that this differs from the presumption outlined in Fiona Trust & Holding Corporation v Privalov

[2007] UKHL 40, the two jurisdictions diverge. In this respect, it should be observed that the Australian courts do not consider there to be any substantive difference in approach (see Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170).

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