Source: BOOK: Yearbook Commercial Arbitration, A.J. van den Berg (ed.) Vol. XXXIII (2008), pp.

331 - 341

Australia 31. Federal Court of Australia, Queensland District Registry, 16 February 2007, VID
978 of 2006
PARTIES:

Applicant 1 APC Logistics Pty Ltd (nationality not indicated)

Applicant 2 Phoenix International Freight Services Limited (nationality

not indicated)
Respondent 1 CJ Nutracon Pty Ltd (nationality not indicated)

Respondent 2 Multisource Network Corporation (nationality not indicated)

PUBLISHED IN:

Available online at <www.austlii.edu.au>

ARTICLES:

II(2)

SUBJECT MATTERS:

arbitration agreement “in writing”

exchange of letters

COMMENTARY CASES:

¶ 206

Facts

Freight forwarders APC Logistics Pty LTD and Phoenix International Freight Services Limited (collectively, the applicants)
entered into a contract with CJ Nutracon Pty Ltd (the first respondent) and Multisource Network Corporation (the second
respondent) for the transportation of machinery and equipment from the United States to Australia.
A dispute arose in respect of charges the applicants claimed from both respondents and of a claim the second respondent
had against the first respondent arising out of their contractual arrangements relating to the carriage of the goods. "331"On
12 September 2006, the parties held a meeting in Los Angeles. At that meeting, according to the applicants, the parties
orally agreed to undertake mediation and, if mediation was not successful, to refer the dispute to arbitration, both to be
conducted in the United States. According to the second respondent, that agreement was only in principle. On 22
September 2006, the first respondent reached an agreement with the applicants that was recorded in an Interlocutory
Settlement Deed. The Deed provided that the first respondent endeavour to persuade the second respondent to undertake
alternative dispute resolution. To this aim, the first respondent sent a draft arbitration agreement to the second respondent,
combining mediation and arbitration. The second respondent recommended in reply that the two methods be split and the
focus be put on mediation. On 6 December 2006, the first respondent and the second respondent participated in a
mediation meeting in which the applicants did not appear. The second respondent subsequently filed a request for
arbitration.
In the meantime, proceedings were commenced in the Federal Court of Australia, Queensland District Registry. The
applicants and the second respondent sought an order from the Court staying proceedings pending arbitration.
The Federal Court, per Kiefel, J, denied the request, holding that there was no arbitration agreement in writing between the
parties within the meaning of the 1958 New York Convention. The Court examined the correspondence among the parties
and concluded that though an agreement can be validly reached through an exchange of correspondence, in the present
case there was no confirmation or acceptance by the parties that they agreed on all terms of a dispute resolution
mechanism and considered themselves bound to perform it.

Excerpt

[1] “The applicants and the second respondent apply to the court for orders staying these proceedings until the parties to
the proceedings, or alternatively the respondents, conduct an arbitration in respect of the issues between them, prior to 15
March 2007. At issue on their applications is whether an agreement for arbitration was concluded as between all of the
parties or as between the respondents. A further issue is raised by the first respondent as to whether electronic mails (e-
mails) passing between the parties may constitute a ‘written agreement’ within the meaning of the International Arbitration
Act 1974 (Cth) (the Act) and the [1958 New York] Convention and [UNCITRAL] Model Law to which it refers. It is
convenient to refer to this requirement at the outset.

"332"

[2] “Sect. 7(2) of the Act provides for a mandatory stay of legal proceedings where there is an arbitration clause applying to
the resolution of the dispute in question. The operation of the Act and its relationship to the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards (the New York Convention of 1958) and the 1989 amendments to the Act
giving effect to the Model Law on International Commercial Arbitration were explained by Allsop J in Comandate Marine
Corp v. Pan Australia Shipping Pty Ltd [2006] FCAFC 192,(1.) at [37] and following. For present purposes it is sufficient to
observe that Art. II of the Convention requires a court in Australia to refer the parties to an arbitration when they have made
an agreement to that end. Given that the place of the arbitration is here said to be the United States of America, only certain
Articles of the Model Law apply. Relevantly Art. 7, which does apply, provides the definition of an arbitration agreement and
the form it takes.(2.)

[3] “The first respondent submitted that the agreement for arbitration must itself be in writing and that a strict view should be
taken of that requirement. Reliance was placed in that regard upon the primary judge's decision in Pan Australian Shipping
Pty Ltd v. The Ship Comandate (No. 2) [2006] FCA 1112.(3.) That part of the primary decision was however held to be
erroneous by the Full Court. It was explained by Allsop J (in the appeal decision at [148]-[151]) that Art. II requires bilateral
recognition of an arbitration agreement. Relevantly to this matter the Court held that it does not require that the contract be
formed by an exchange of letters. Conduct might suffice. What is required is that the terms of the agreement and assent to
those terms are in exchanged documents.

"333"

[4] “A distinction may therefore be seen to be drawn between the requirements of the common law as to agreements
coming into effect and the requirements of the provisions for enforcement, internationally, of agreements so concluded. The
latter require recognition of the agreement. It may be however that in some cases the exchange of correspondence may be
relied upon both for the conclusion of a binding agreement having been reached by the parties and their overt acceptance
of that conclusion. This is such a case.

[5] “These proceedings concern the transportation of machinery and equipment from the United States of America to
Queensland. The applicants claim their charges as freight forwarders from both respondents, although it would seem the
second respondent is liable to pay them. The second respondent has a claim against the first respondent arising out of their
contractual arrangements relating to the carriage of the goods.”

I. Background

[6] “The starting point with respect to any alleged agreement to arbitrate is the meeting held on 12 September 2006 in Los
Angeles between all the parties. The United States lawyer for the applicants, Mr. Kaplan, asserts that although the dispute
was not settled that day, it was orally agreed that the parties would undertake mediation and, if it was not successful,
arbitration. Both were to be conducted in the United States. The mediator and arbitration was nominated, a retired judge,
Judge Wisot. It is not clear if Mr. Kaplan is contending that the appointment of Judge Wisot was agreed to on 12
September. No other party does and the e-mail correspondence shows the topic of the identity of the arbitrator arising later.
Mr. Kaplan's affidavit is unhelpful in other respects, because it states conclusions without facts and details, including dates.
Mr. Kaplan, for example, asserts that a problem arose, concerning Judge Wisot's cancellation fee if the arbitration
proceeded, but that this was somehow overcome. It is not said when this arose, how it was resolved and the
correspondence does not show that it was. There are other general assertions which do not appear to be supported by the
correspondence between the parties, in particular those which suggest that, following the mediation held on 5 and 6
December 2006, the parties were finalizing the details of their agreement to arbitrate and talking of an extended time-frame
for undertaking it.

[7] “The version of events given by the second respondent's United States lawyer Mr. Roberts, is not the same as that of
the applicants' lawyer. He does not suggest that there was anything more than an agreement ‘in principle’ "334"reached on
12 September 2006 for mediation, and arbitration if necessary. Nor does he suggest that the parties followed up on some
previous agreement for arbitration at the conclusion of the mediation on 6 December. He says that at that time he asked the
Australian lawyer for the first respondent to enter into an arbitration agreement before he left Los Angeles but he was not
prepared to do so. Mr. Roberts concludes by suggesting that the parties ought to be bound by the spirit of their agreement
or understanding, whether ‘in principle’ or otherwise.

[8] “The first respondent's Australian lawyer, Mr. Kinneally, responds in some detail to the assertions by Mr. Kaplan. He
accepts that there were some discussions on 12 September 2006 as to the prospect of mediation and arbitration, but
denies that agreement was reached. He recalls a long discussion as to possible venues and possible mediators and
arbitrators, with none selected. The name of Judge Wisot, who was later appointed as mediator, was not mentioned until
later in following correspondence. The parties necessary to the arbitration were not resolved, the issues between the
applicants and the second respondent and as between the respondents being different.

[9] “Mr. Kinneally says that following an agreement later reached with the applicants, which is recorded in an Interlocutory
Settlement Deed (the Deed) dated 22 September 2006, the first respondent made many attempts to persuade the second
respondent to take part in alternative dispute resolution. The second respondent was not prepared to enter into any binding
agreement unless the ‘neutral’ person was directly agreed upon. At a meeting conducted by telephone between the lawyers
for the parties, on 26 October 2006, it was apparent that the applicants wanted to put arbitration in place, in order to put
pressure upon the parties; the second respondent thought it should be abandoned and the parties focus upon the
mediation; and the first respondent was generally in agreement with the second respondent. In the event the parties
undertook mediation pursuant to a standard agreement with an alternative dispute resolution provider (JAMS). As to the
discussions at, or following, the mediation on 6 December, he points out that neither the applicants nor their lawyer was
present. He attempted to speak to the applicants' lawyer by telephone on 5 December 2006. He was told by the mediator
that the applicants' lawyer had contacted him and had suggested, for the first time, that the matter proceed to arbitration.
The conversation between the respondents' lawyers at the conclusion of the mediation did not assume that there had been
any agreement for arbitration. The question raised by Mr. Roberts was whether it was appropriate to discuss it further.

"335"

[10] “The arguments put for the applicants and the second respondent shifted somewhat from the case disclosed by their
United States' lawyers. For the applicants it was submitted that the relevant agreement was that reflected in the Deed. The
difficulty, that the second respondent was not a party to it, was sought to be overcome by each of the parties having
‘ratified’ the agreement in subsequent correspondence. The applicants relied in this regard upon the exchanges occurring in
the period 12-14 December 2006, leading up to the making of consent orders adjourning the directions hearing which was
to be held on 15 December 2006. The applicants say that it may be seen that the common purpose of the adjournment was
to permit arbitration to take place before the next directions hearing, due on 9 February 2006.

[11] “The second respondent, in argument, contended that the terms of the draft arbitration agreements, together with e-
mails relating to them, and exchanged between the respondents from and after 22 September 2006, show that they were
basically of the same mind upon the terms of an arbitration agreement. It is submitted that their subsequent conduct is
consistent with agreement having been reached.

[12] “It seems plain enough that no concluded agreement was reached by the parties, or as between the respondents, on
12 September 2006. The correspondence which follows provides no support for such a conclusion. There may have been
something approaching an agreement ‘in principle’ between the parties, at the conclusion of their negotiations, that
mediation should take place with an arbitration to follow if necessary. The first respondent's Australian lawyer appears to
have thought so when he e-mailed his colleague the following day. At this point the applicants and the first respondent were
co-operating, with the objective of persuading the second respondent to commit to such a course. It is in this connection
that the Deed dated 22 September 2006, signed by the applicants and the first respondent on 27 and 28 September 2006,
came into existence. Clause 8 of that Deed, which is relied upon by the applicants as the relevant agreement to arbitrate, is
in these terms:

CJ will use commercially reasonable efforts to mediate and if mediation is not successful, arbitrate its claim
against MS expeditiously at a location to be agreed between CJ and MS with the mediation or arbitration being
held no later than 15 December 2006 unless otherwise agreed in writing by Phoenix and APC. For that purpose
CJ will use its commercially reasonable endeavours to procure execution by MS of the Arbitration Agreement
exhibited as Attachment 4 hereto, within 14 days of the date of execution of this Deed by the last party to sign.
"336"
(‘CJ’ refers to the first respondent and ‘MS’ to the second respondent). It went on to say that if the second respondent does
not agree, the first respondent would use its ‘commercially reasonable’ endeavours to prosecute a cross-claim against it as
expeditiously as the proceedings allow.

[13] “On 22 September 2006 the first respondent's lawyer wrote to the second respondent's lawyer enclosing the draft
arbitration agreement, which had been annexed to the Deed. He had apparently obtained his client's approval to its terms.
The agreement was said to note matters of agreement and to identify issues to be addressed. It was recognized that there
may be other issues which might be raised. It was observed that, so far as arbitrators were concerned, the first respondent's
lawyers viewed the matters between the respondents as essentially contractual while those involving the applicants
involved shipping law and practice.

[14] “The second respondent did not respond promptly. After the first respondent again sought the second respondent's
lawyer's instructions as to the draft, he replied on 3 October 2006 attaching a revised arbitration agreement which had been
executed by him and the second respondent. In relation to this new draft it was said that: ‘The changes in our view more
closely reflect what we agreed to in Los Angeles, and leave the essential framework for resolution in place. Upon receipt of
your fully executed counterpart, we will instruct counsel to appear in the Australian proceedings and furnish you with a list of
proposed arbitrators for consideration.’

[15] “The second respondent has prepared a table of the essential provisions of each of the draft agreements in order to
show that the respondents were proposing much the same terms. It appears from subsequent correspondence that the
place for arbitration was not in dispute. The second respondent submits that the essential subject matter of the arbitration
was the same and the method of appointment of the arbitrator was agreed. It would not however appear that the first
respondent's lawyer was at this point of that view. On 5 October 2006 he wrote to the second respondent's lawyers
advising:

Unfortunately you have made a number of changes to agreement which I would say are more inconsistent with
discussions in LA than mine which I viewed as logical mechanics. Having said that, subject to Andrew's
agreement, CJ are prepared to be flexible on many of the items. One thing that concerns us is not having a
mechanism in place as to the appointment of a arbitrator in the absence of agreement. There is no point in having
an agreement unless we know it will go ahead. Now that we know LA is the "337"place. I will seek CJ attorneys in
LA to act but in the meantime could you suggest arbitrators you believe would be appropriate.

(‘Andrew’ I take to be a reference to the United States lawyer for the applicant). The e-mail concluded with a request for a
discussion. The second respondent's lawyer wrote the following day advising that all he had done was to remove ‘excess
verbiage to clarify the items in dispute. The major issue is, and has always been, whether the MS-CJ contract is cost plus or
cost inclusive. As we both acknowledged in LA, everything else is just “details”.’ He went on to discuss who might handle
the ‘mediation/arbitration’.

[16] “Communications followed concerning nominees for the position of arbitrator and the considerable costs involved. On
23 October 2006 the first respondent's lawyer wrote to the second respondent's lawyer recommending five persons as
arbitrators. The second respondent shortly afterwards nominated Judge Wisot and said that he would contact the entity
which provided the arbitration services and check upon his availability. In what follows the respondents appear to be talking
of Judge Wisot conducting both the mediation and the arbitration, if the latter were also necessary. Although the
communications on 23 October continue to bear the reference to the Judge by later that evening it appears that other
names were being considered, inferentially because of concerns about the rates charged by Judge Wisot and his
cancellation fee in the event that an arbitration did not proceed.

[17] “On 25 October 2006 the lawyer for the second respondent wrote to the first respondent's and the applicants' lawyers,
discussing the rates charged by the other candidates and their qualifications and suggesting one of them (Judge Haberfield)
to be the best. He then went on:

My next suggestion may come as a bit of a surprise, but I would like you to consider it before our next conference
call. We have been wasting a great deal of time and expense to finalize the details of the arbitration agreements.
Your client wants more detail on the issues and we want less. That's a bit like two chefs fighting over a restaurant
 menu, where one wants a detailed description of each entrée and its ingredients, and one wants only a general
description of the dish. The meal is the same, the price is the same, and the customer can ask if anything is
unclear. We all agree that this case should settle, and I don't believe anyone wants to litigate. I think we should
hire the very best mediator we can find, either Judge Wisot or Judge Haberfield, abandon the arbitration, and stay
with mediation until the case is settled. The resumes of the candidates all "338"indicate that disputes worth many
times what is at stake here … have been settled.…

[18] “The applicants' lawyer replied shortly afterwards to the effect that the proposal appeared to be sensible but added the
qualification ‘… however, remember that there exists an agreement to arbitrate on or before 15 December 2006’. This is the
date referred to in the Deed, between the applicants and the first respondent, but not a date which appears to have been
discussed in the correspondence. The applicant's lawyer suggested a revised scheduling for mediation and an arbitration if
necessary. He went on to say that he would obtain instructions about postponing any arbitration if that was ‘the only
obstacle to getting all Agreements signed and MS appearing in the Australian proceedings’.

[19] “The first respondent's lawyer responded later that day to the second respondent's suggestion. In his e-mail to the
second respondent and the applicants he said that he and his client agreed ‘… with the latest proposal re splitting Mediation
and Arbitration and believe with the right mediator the matters can be resolved without arbitration …’.

[20] “He went on to propose the timing of mediation and arbitration – the former in November or December in Brisbane and
the latter if necessary in Los Angeles in December or January. He enclosed a revised arbitration agreement ‘which I will
change to reflect about arrangement after our discussion’. He advised that once there was ‘broad commercial agreement’
he would redraft it and send it to his principals. He enquired of the second respondent whether it had lodged an appearance
to these proceedings. By a later e-mail that day the second respondent sought a booking for a mediation for 5 and 6
December 2006. The parties did so pursuant to a basic standard agreement with the service provider.

[21] “The communications relied upon by the second respondent end at this point. Those relied upon by the applicants
commence after the mediation and on 12 December 2006. By this time the second respondent had filed an appearance to
these proceedings. It had done so on 10 November 2006, prior to the mediation. The topics of a further mediation and
adjournment of the directions hearing were discussed. On 14 December 2006 the second respondent's Australian lawyer
advised, by e-mail, that it did not wish to further mediate, but observed that there had previously been discussions between
the parties ‘as to the matter proceeding to arbitration and that each of your clients might be amenable to arbitration’. They
sought the agreement of the parties to adjourn the proceedings on the basis ‘that the parties will continue to engage in
discussions with a view to reaching agreement as to the basis on which the matters in dispute "339"might proceed to
arbitration in the near future’. In a following e-mail the same day the lawyer noted that they were unaware of the position of
the first respondent in relation to the adjournment of the matter ‘on the basis proposed in the writer's earlier e-mail’. A draft
consent order was enclosed, which understandably, did not contain the reference to the purpose of the adjournment. The
first respondents' solicitors replied only that their client consented to the matter being adjourned and said nothing as to
balance of the second respondent's enquiry.

[22] “The first respondent subsequently denied that it was bound to arbitrate and contended that the terms of the Deed did
not continue in force. The second respondents have served a formal demand for arbitration.”

II. Discussion

[23] “The position of the applicants as a party to any agreement to arbitrate and the status of the Deed as such an
agreement may be dealt with shortly. The Deed entered into in September 2006 was not a tripartite agreement; it was not
even an agreement to arbitrate as between the applicants and the first respondent. The applicants' reliance upon it is
somewhat surprising. If it was at any later time used as the point of reference for discussions about mediation and
arbitration that is not apparent from the evidence put before the Court. It is true that the applicants, in the course of following
discussions, do make reference to matters contained within it, such as the date by which the two forms of alternative
dispute resolution are to take place, 15 December 2006. That is to say, on the few occasions where they actively take part
in the discussions. The fact that they were provided with copies of much of the correspondence between those parties does
not give them the status of parties to any agreement to arbitrate which may have been reached by the respondents, as the
applicants suggested in argument.

[24] “The dispute which was seen at the outset as necessary to be resolved, before the applicants' claim could be met and
these proceedings concluded, was as between the respondents. The Deed recognized this. It contained an undertaking by
the first respondent to endeavour to persuade the second respondent to undertake alternative dispute resolution with the
first respondent. The applicants and the first respondent at this point saw their interests as aligned. It was the second
respondent which was not committed to this course at this point. That reluctance persisted.
[25] “The course that the respondents discussed after 22 September, when the first draft of an agreement to arbitrate was
sent by the first respondent to the "340"second respondent, combined, and the first respondent accepted, mediation and
arbitration. At the point when the second respondent's lawyers recommended the two methods of dispute resolution be split,
and the focus put on an outcome from mediation, the second respondent had not committed to the terms of an agreement
to arbitrate. It may be that the respondents were not far apart in their requirements as to the terms of such an agreement.
They had effectively reached a consensus about venue. The selection of an arbitrator suitable to the second respondent,
which it appears to have insisted upon, might have been resolved in the exchanges which took place between 23 and 25
October 2006. Whether there was consensus about the identification or description of the issues is not so clear. It is not
apparent from the exchanges what it was that concerned each of the respondents in this regard.

[26] “It is neither possible nor necessary to resolve this issue, for what is absent, critically, is anything amounting to a
confirmation or acceptance by the parties that they were in agreement on all terms and consider themselves to be bound to
perform it. A review of the correspondence from 3 October 2006, concerning the draft arbitration agreement, might suggest
that the parties were speaking about the same matters but sought to express it differently. The point is that they were not
prepared to commit at that point, whatever be the reason. Moreover it is apparent from the discussions about the drafts that
a written agreement was envisaged, one which was to be signed. The second respondent in particular can be seen to have
proceeded upon this basis. That formality was understood to be required may be seen from the applicants' communication
on 25 October 2006. The fact that no binding agreement had been reached is confirmed by the approach taken by the
second respondent's lawyer both following mediation and at the point of the adjournment. It is apparent that further
discussions were considered to be necessary.

[27] “There was no agreement to arbitrate reached between any of the parties to these proceedings and therefore nothing
to enforce. The applications will be dismissed. The applicant and the second respondent should pay the first respondent's
costs on both applications. I will speak to the parties concerning further directions in the matter.…”"341"

1. Reported in Yearbook XXXII (2007) pp. 224-253 (Australia no. 30).

2. “It is in these terms:
(1) “Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen
or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration
agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(2) The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the
parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the
agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one
party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an
arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the
contract.
Art. 8 also provides that the court should refer the parties to an arbitration agreement to arbitration and stay the
proceedings.”

3. See fn. 1.
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