Possibility of invalidity not enough: High Court rules on stays in favour of arbitration

Carmichael Rail Network Pty Ltd v BBC Chartering Carriers GmbH & Co KG [2024] HCA 4

The parties to a proceeding in the Federal Court were parties to an arbitration agreement.  Section 7(2) of the International Arbitration Act 1974 (Cth) (IAA) provides that in such a case, the court shall stay the court proceedings in favour of arbitration.  However, s 7(5) of the IAA says that the court shall not stay the proceeding if it finds that the arbitration agreement is null and void.  In this case, one of the parties argued that the arbitration agreement may be null and void so no stay of the court proceedings should be ordered. As explained below, the High Court held that the “null and void” exception to referral to arbitration will only apply in a case where the arbitration agreement has been proved, to the usual civil standard (and after a full hearing), to be null and void.  A mere allegation of invalidity – or even a prima facie case of invalidity – will be insufficient to avoid a stay of court proceedings and referral to arbitration.

The facts

In June 2020, Carmichael Rail Network Pty Ltd entered into an agreement with BBC Chartering Carriers GmbH & Co and another for the shipment by BBC of steel from Whyalla in South Australia to Mackay in Queensland.  The steel was damaged in transit and BBC commenced arbitration proceedings in London pursuant to the parties’ agreed dispute resolution mechanism.  Shortly thereafter, Carmichael Rail commenced proceedings in the Federal Court seeking to restrain the arbitration on the basis that it had a statutory right to an anti-suit injunction under s 11(2) of the Carriage of Goods by Sea Act (Cth).  BBC, for its part, sought orders under s 7(2) of the IAA to stay the whole of Carmichael Rail’s court proceeding so that the matter could be determined by arbitration.

The issue

One of the issues that had to be decided was Carmichael Rail’s argument that the arbitration agreement between the parties was null and void. The issue arose because Article 3(8) of the “Australian Hague Rules”, which apply to contracts for the carriage of goods by sea, (by operation of s 10(1) of the Carriage of Goods by Sea Act 1991 (Cth)), provides that any clause in a contract that relieves or lessens a carrier’s liability for loss or damage to goods shall be null and void. 

Because the arbitration agreement provided for arbitration in London, Carmichael Rail argued, among other things, that there was a risk that the London arbitrators would consider themselves bound to interpret Art 3(2) of the Hague Rules (which provide that the carrier shall carefully load, carry, and care for the goods carried) in accordance with English law and that it would lose the chance of arguing that Art 3(2) imposed a non-delegable duty on BBC in accordance with Australian law (the law relating to non-delegable duties differs as between Australia and the UK).  If that proved correct, Carmichael Rail argued that the arbitration would be null and void because it would have the effect of relieving or lessening a carrier’s liability (and in that case Art 3(8) of the Australian Hague Rules would apply).

Analysis

The High Court rejected Carmichael Rail’s argument because, among other things, it held that in order for s 7(5) of the IAA to apply (no stay on court proceedings if the arbitration agreement is null and void) a final finding of fact – to the usual civil standard of proof, that is, on the balance of probability – would need to be made that the arbitration agreement was in fact null and void.  The High Court stated that s 7(2) of the IAA provides that court proceedings shall be stayed if the parties are party to arbitration agreement.  By s 7(5) no stay shall be ordered if the court “finds” the arbitration agreement is null and void.  The court said that for an Australian court to “find” an arbitration agreement is null and void under the IAA it must do so as a matter of law based on agreed, admitted or proved facts, and that the usual civil standard of proof applies.   The High Court noted that despite the interlocutory nature of an order under s 7(2) to stay court proceedings, such an order is effectively a final determination. 

Accordingly, Carmichael’s assertion that the arbitration agreement might be null and void was insufficient.  The Court stated that anything less than a final determination of invalidity (e.g., a prima facie basis) would be insufficient to stay court proceedings.  On this basis, the matter was referred to arbitration in London.

Comment

The case is important because it upholds the parties’ decision to arbitrate their disputes and it means that allegations of a “null and void” arbitration agreement will be ineffective to prevent the stay of court proceedings where the parties have agreed to arbitrate. 

Finally, given that Commercial Arbitration Act 2011 (Vic), and other state commercial arbitration acts, generally have similar provisions to ss 7(2) and 7(5) of the IAA, the position that applies to domestic arbitrations will be the same as that under the IAA.