Case update: Full Joy Foods v Australian Dairy Park

Dec 2020

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Imagine you had been working diligently in an arbitration. At some point, you received an email from the tribunal, seeking submissions on the interpretation of a particular term. You did not make any submission. The award was issued against your client and it turned out that question played a key part in the tribunal’s decision. You wanted to set aside the award because you believed you were denied a reasonable opportunity to present your case by the fact that the tribunal relied on its own interpretation of that term without being pleaded or agued.

This is what happened in the  recent decision by the Supreme Court of Victoria in Full Joy Foods Pty Ltd (Full Joy) v Australian Dairy Park Ltd (ADP) (the Full Joy case),[1] which upheld that a party’s entitlement to a ‘reasonable opportunity to present its case’ does not ensure the party takes best advantage of those opportunities afforded to it in the course of arbitration.

Background

The dispute between Full Joy and ADP arose in the context of a sales agreement for the supply of infant milk products in China, which was submitted to arbitration that was governed by the Commercial Arbitration Act 2011 (Vic). The gist of Full Joy’s position was that the milk formula failed to achieve the Chinese import standards and was not delivered in accordance with the sales agreement.

The tribunal rejected Full Joy’s arguments and made an award in ADP’s favour. In an attempt to resist in the Supreme Court of Victoria (the Court), Full Joy claimed it was deprived of the opportunity to present its case because the arbitrator relied on a matter that was not properly put in issue and on which Full Joy did not have a reasonable opportunity to address the arbitrator.

Full Joy’s argument centred around an email from the arbitrator to both parties after the oral hearing but before the filing of the closing submissions. In that email, the arbitrator sought from both parties submissions related to the interpretation of “Incoterms[2] (CIF)”. Surprisingly, in its closing submission Full Joy made no reference to either “Incoterms” or “CIF”. On the other hand, ADP, in its closing submission, briefly addressed the term “CIF” in the context of ADP’s contractual obligations. Despite having reviewed ADP’s closing submission and the opportunity to file supplementary submissions, Full Joy remained silent on the definition of “CIF” and ADP’s position regarding “CIF”.

The tribunal found that Full Joy failed to establish the product in dispute were not delivered pursuant to the sales agreement by reference to the obligations defined by the term “CIF”, which was sourced from the publicly available text of Incoterms by the tribunal on its own motion.[3]

Decision

Before the Court, Full Joy contended that the meaning or significance of CIF was not pleaded or argued, and that Full Joy was not properly notified of the critical adverse findings based on the material i.e. Incoterms that was not in evidence.[4] Accordingly, the award should be set aside as Full Joy was not given a reasonable opportunity to present its case[5] or otherwise the award contravened the public policy of Victoria.[6]

The Court dismissed Full Joy’s application, emphasising that the issue was whether Full Joy had a reasonable opportunity to present its case, not whether it took best advantage of the opportunities afforded to it.[7] In that regard, it is necessary to establish “real unfairness or real practical injustice in how the [arbitration] was conducted or resolved, by reference to established principles of natural justice or procedural fairness”.[8]

When Full Joy did not provide any submission regarding the meaning of “CIF”, the tribunal was entitled to proceed on the assumption that Full Joy had made strategic decision not to do so and was entitled to address the issues by itself.[9] In doing so, the Court held there was no unfairness or breach of the obligation to provide a fair hearing.[10]

So what does this decision tell us?

Any party who fails to address an issue which has been raised in the course of arbitration will find it difficult to set aside an award in Australia on the grounds that it was unable to present its case

[1] Full Joy Foods Pty Ltd v Australian Dairy Park Pty Ltd [2020] VSC 672.

[2] International Chamber of Commerce Incoterms Rules.

[3] Full Joy Foods Pty Ltd v Australian Dairy Park Pty Ltd [2020] VSC 672, at [48].

[4] Full Joy Foods Pty Ltd v Australian Dairy Park Pty Ltd [2020] VSC 672, at [59].

[5] Commercial Arbitration Act 2011 (Vic) s 34(2)(a)(ii).

[6] Commercial Arbitration Act 2011 (Vic) s 34(2)(b)(ii).

[7] Full Joy Foods Pty Ltd v Australian Dairy Park Pty Ltd [2020] VSC 672, at [118]; see also Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] QCA 39.

[8] Full Joy Foods Pty Ltd v Australian Dairy Park Pty Ltd [2020] VSC 672, at [72] citing TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 232 FCR 361, 376–7 [55].

[9] Full Joy Foods Pty Ltd v Australian Dairy Park Pty Ltd [2020] VSC 672, at [77].

[10] Full Joy Foods Pty Ltd v Australian Dairy Park Pty Ltd [2020] VSC 672, at [101].

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