ABSTRACT Since 2008, the House of Lords decision in Fiona Trust has guided the interpretation of arbitration clauses in England. The Fiona Trust approach has been rejected by the Supreme Court of New South Wales, but now endorsed by the Federal Court of Australia. As a result, two of Australia’s most important commercial courts now take differing approaches to the construction of arbitration clauses. Are there meaningful distinctions to be drawn, when an arbitration agreement is construed, between disputes ‘arising from’ a contract, disputes ‘arising under’ a contract and disputes ‘in connection with’ a contract? The answer to that question appears to depend, not only on what country you are in, but upon which court of that country decides it. Until 2008, when the question was settled by the House of Lords in Fiona Trust & Holding Corporation v Privalov,1 courts in England had often wrestled with this issue. The history of their deliberations was set out carefully by Lord Hoffmann, who referred to a number of cases in which various forms of words in arbitration clauses have been considered. Some of them draw a distinction between disputes ‘arising under’ and ‘arising out of’ the agreement. In Heyman v. Darwins Ltd  AC 356, 399 Lord Porter said that the former had a narrower meaning than the latter but in Union of India v. E.B. Aaby’s Rederi A/S  AC 797 Viscount Dihorne, at p. 814, and Lord Salmon, at p. 817, said that they could not see the difference between them. Nevertheless, in Overseas Union Insurance Ltd v. AA Mutual International Insurance Co Ltd  2 Lloyd’s Rep 63, 67, Evans J said that mere was a broad distinction between clauses which referred ‘only those disputes which may arise regarding the rights and obligations which are created by the contract itself and those which ‘show an intention to refer some wider class or classes of disputes’. The former may be said to arise ‘under’ the contract while the latter would arise ‘in relation to’ or ‘in connection with’ the contract. In Fillite (Runcorn) Ltd v. Aqua-Lift (1989) 26 Con LR 66, 76 Slade LJ said that the phrase ‘under a contract’ was not wide enough to include disputes which did not concern obligations created by or incorporated in the contract. Nourse LJ gave a judgment to the same effect. The court does not seem to have been referred to Mackender v. Feldia AG  2 QB 590, in which a court which included Lord Denning MR and Diplock LJ decided that a clause in an insurance policy submitting disputes ‘arising thereunder’ to a foreign jurisdiction was wide enough to cover the question of whether the contract could be avoided for non-disclosure.2 Lord Hoffmann had little patience for these arguments, ‘because in my opinion the distinctions which they make reflect no credit upon English commercial law’, and instead he agreed with Longmore LJ, in the Court of Appeal, ‘that the time has come to draw a line under the authorities to date and make a fresh start’.3 The approach proposed by Lord Hoffmann was that: The construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction. As Longmore LJ remarked, at para 17: ‘if any businessman did want to exclude disputes about the validity of a contract, it would be comparatively easy to say so’.4 Lord Hoffman’s approach (with which Lord Hope of Craighead, Lord Scott of Foscote, Lord Walker of Gestingthorpe, and Lord Brown of Eaton-under-Heywood agreed) was to construe arbitration clauses not by mining their language for hair-splitting points of difference, but by seeking to give effect to their commercial purpose—to submit disputes concerning the relevant commercial arrangement to arbitration, except where a clause makes it plain that particular disputes are to be excluded. The approach adopted in Fiona Trust has been adopted consistently in England over the last ten years.5 The decision has also been cited with approval in the High Court of Australia, in support of the proposition that, when an arbitration clause is construed, the ‘presumed or imputed intention is ordinarily’ that ‘parties who enter into an arbitration agreement for commercial reasons ordinarily intend all aspects of the defined relationship in respect of which they have agreed to submit disputes to arbitration to be determined by the same arbitral tribunal’.6 So it would be reasonable to expect that the Fiona Trust approach has general support within Australia. Reasonable, but wrong. The recent decision of the Full Court of the Federal Court in Hancock Prospecting Pty Ltd v Rinehart7 emphasized a clear divergence of approach between the Federal Court and the Supreme Court of New South Wales. The case was the latest in an apparently endless series of financial disputes between the mining heiress, Gina Rinehart (who was once reckoned to be Australia’s richest woman) and estranged members of her family. Proceedings were commenced by Ms Rinehart’s daughter and son, Bianca Rinehart and John Hancock, who alleged that their mother had breached her fiduciary duties as a trustee of various family trusts to confer advantages upon herself at the expense of her adult children. One of the (many) issues which the Full Court considered was whether the claims raised in the Federal Court proceedings fell within the scope of the arbitration clause in a document known as the Hope Downs Deed, a complicated provision that purported to apply to ‘any dispute under this deed’. In the Rinehart family battles, few problems are dealt with only once. The construction of the arbitration clauses in their various agreements had been considered before, by the Supreme Court of New South Wales, in Rinehart v Welker.8 In that case, the Court of Appeal refused to stay proceedings commenced by three of Gina Rinehart’s children, who alleged that their mother had breached her duties as trustee. Importantly, Bathurst CJ found that the disputes were not to be characterized as disputes ‘under this deed’. Bathurst CJ considered that ‘the words of an arbitration clause should be, to the extent possible, consistent with the ordinary meaning of the words, liberally construed’.9 For that reason, It follows that it is not appropriate for this Court to adopt what Lord Hoffman described in Fiona Corporation supra at  as a ‘fresh start’ and construe clauses irrespective of the language in accordance with the presumption that the parties are likely to have intended any dispute arising out of the relationship into which they have entered to be decided by the same tribunal unless the language makes it clear certain questions were intended to be excluded: Fiona Corporation supra at . Whilst the presumption that parties intended the same tribunal to resolve all their disputes may justify a liberal approach consistent with the plain meaning of the words in question, the approach suggested by Lord Hoffman is contrary, in my opinion, to the approach laid down by the High Court as to the construction of commercial contracts.10 Bathurst CJ rejected the notion that ‘a particular rule of construction be applied irrespective of the plain meaning of the words’, stating that ‘the approach suggested by Lord Hoffmann is contrary, in my opinion, to the approach laid down by the High Court as to the construction of commercial contracts’. His Honour concluded that ‘the phrase “under this deed” has consistently been given a narrower construction than phrases such as “arising out of the deed” or “in connection with the deed”’.11 A few years later, substantially the same parties dragged another fight to the courts, and on this occasion the primary judge was Gleeson J in the Federal Court.12 Her Honour compared the approaches taken in Fiona Trust and by Bathurst CJ in Rinehart v Welker, and followed the reasoning in Rinehart v Welker, finding that ‘based on Bathurst CJ’s interpretation of clause 20 of the Hope Downs deed in Rinehart v Welker, a dispute will be a dispute “under” a deed if the outcome of the dispute is “governed or controlled” by the deed’.13 On this point, the Full Court disagreed with the primary judge. While the Full Court did not think that ‘arguments about Fiona Trust’ were ‘critical to the resolution of the appeals’, it nonetheless dealt with the issue at length, because it was ‘of general importance, and should not be left diminished’.14 The Full Court summarized the reasoning in Fiona Trust, and observed that it was ‘reflective’ of, and ‘fully in accord with’ the 1996 judgment of Gleeson CJ in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways.15 In that case, Gleeson CJ had said that the ‘correct general approach to problems of this kind’ was to presume that parties to an arbitration agreement did not intend the inconvenience of having their disputes being heard in two different fora. The Full Court extrapolated that: The existence of a ‘correct general approach to problems of this kind’ does not imply some legal rule outside the orthodox process of construction; nor does it deny the necessity to construe the words of any particular agreement. But part of the assumed legal context is this correct general approach which is to give expression to the rational assumption of reasonable people by giving liberal width and flexibility where possible to elastic and general words of the contractual submission to arbitration, unless the words in their context should be read more narrowly. One aspect of this is not to approach relational prepositions with fine shades of difference in the legal character of issues, or by ingenuity in legal argument (Gleeson CJ in Francis Travel at 165); another is not to choose or be constrained by narrow metaphor when giving meaning to words of relationship, such as ‘under’ or ‘arising out of’ or ‘arising from’. None of that, however, is to say that the process is rule-based rather than concerned with the construction of the words in question. Further, there is no particular reason to limit such a sensible assumption to international commerce. There is no reason why parties in domestic arrangements (subject to contextual circumstances) would not be taken to make the very same common-sense assumption. Thus, where one has relational phrases capable of liberal width, it is a mistake to ascribe to such words a narrow meaning, unless some aspect of the constructional process, such as context, requires it.16 The Full Court then turned its attention to the judgment of Bathurst CJ in Rinehart v Welker, disagreeing with His Honour’s view ‘that Fiona Trust says that arbitration clauses should be construed irrespective of the language used’.17 Instead, it argued, the House of Lords was Refusing … to engage in semantic debates about relational prepositional phrase capable of throwing up fine distinctions, often based on the temporal or visual metaphor from the language ‘under’, ‘arising under’, ‘out of’, ‘arising out of’, ‘in relation to’ and ‘in connection with’. Context will almost always tell one more about the objectively intended reach of such phrases than textual comparison of words of a general relational character.18 The Full Court went on to observe that: The meaning of ‘any dispute under this deed’ may be narrower than the meaning of other phrases, such as ‘a dispute in connection with this deed’. So much can be accepted. Nothing in Francis Travel, Comandate, or Fiona Trust required the meaning of words to be set to one side for a rule. What these cases say is that the correct general approach is to give liberal amplitude to available meaning. That one phrase has a narrower meaning than another, does not mean that the first has a narrow meaning.19 In reaching that conclusion, the Full Court was ‘acutely aware’ that it had departed from the view expressed by Bathurst CJ in Rinehart v Welker, but it was ‘persuaded to the necessary point of clarity that his Honour’s construction is not correct’ because ‘he applied earlier cases in which different phrases were construed and which revealed, in our respectful view, an overly narrow, dictionary-based meaning to an elastic relational phrase’.20 All of this leaves the state of the Australian authorities in a curious state of uncertainty and conflict. The Federal Court has wholeheartedly embraced Lord Hoffmann’s approach in Fiona Trust, maintaining that arbitration clauses should be construed in the light of their presumed commercial intention, rather than through close textual analysis. The Supreme Court of New South Wales disagrees, having expressly declined to follow Lord Hoffmann and holding that the ‘plain meaning of words’ should be considered rather than any ‘rule of construction’. That decision was reached before the High Court cited Fiona Trust, with approval, but without directly addressing Lord Hoffmann’s approach to construction, and it is questionable whether that citation would have had any impact on the decision in Rinehart v Welker. At present, two of Australia’s most significant commercial courts (and two of its most distinguished Chief Justices) hold significantly different views on a question of substantial importance to arbitration lawyers. It may require an appeal to the High Court to bring clarity to the position. Footnotes 1  1 Lloyd’s Rep 256. 2 256–57. 3 257. 4 257. 5 See, eg, Chugai Pharmaceutical Co Ltd v UCB Pharma SA and others  EWHC 1216, and Microsoft Mobile Oy (Ltd) v Sony Europe Ltd and others  EWHC 374 (Ch). 6 TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia  HCA 5 per French CJ and Gaegler J. 7  FCAFC 170. 8  NSWCA 95. 9 . 10 . 11 . 12 Rinehart v Rinehart (No 3)  FCA 539. 13 . 14 . 15 (1996) 39 NSWLR 160. 16 . 17 . 18 . 19 . 20 . © The Author(s) 2018. Published by Oxford University Press on behalf of the London Court of International Arbitration. All rights reserved. For permissions, please email: firstname.lastname@example.org This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)
Arbitration International – Oxford University Press
Published: May 25, 2018
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