Australia: 2024 – A look back at Significant Decisions in Arbitration Practice

Introduction

1. In August, the High Court published two decisions in arbitration practice:
   • In Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24 (Tesseract), the High Court considered the applicability of South Australian and Federal proportionate liability regimes, finding that the proportionate liability statutes were capable of applying in arbitration; and
   • In CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2024] HCA 28 (CBI Constructors), the High Court upheld the principle that an arbitrator was functus officio in relation to the issues to which an interim award relates.
2. Earlier in the year, the Supreme Court of New South Wales published a decision, Icon Si (Aust) Pty Ltd v Australian Nuclear Science and Technology Organisation [2024] NSWSC 324 (Icon Si), where the Court considered whether a waiver of an expert determination clause, which was said to be a pre-condition to an arbitration clause, resulted in a waiver of the arbitration clause itself.The Court held that the arbitration clause remained operative and binding.

Tesseract

Proportionate liability in Australia

Proportionate liability legislation has been enacted in each of the Australian States and Territories.  The legislation governs apportionable claims, replacing the common law doctrine of joint and several liability for claims for property damage or pure economic loss arising from a failure to take reasonable care.  At a federal level, proportionate liability legislation is incorporated under the misleading and deceptive conduct provisions of the Competition and Consumer Act 2010 (Cth), the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth).

The proportionate liability legislation permits a wrongdoer to seek to reduce its liability to reflect the extent to which it caused loss in circumstances where there is more than one ‘wrongdoer’. 

Whether parties can contract out of the proportionate liability regimes differs across the states and territories in Australia.

Tesseract

In Tesseract, the High Court considered Tesseract’s alleged substandard performance of obligations under a construction contract. Tesseract denied liability, and argued, in the alternative, that its liability should be reduced due to the alleged negligence of a third party in accordance with the state and federal proportionate liability regimes (Law Reform Act (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) or Part VIA of the Competition and Consumer Act 2010 (Cth)).

The applicability of proportionate liability regimes in arbitrations has been a contested issue, due to a general inability to join third parties to arbitral proceedings without the consent of the parties involved and the relevant third party.

The High Court in a 5:2 split majority found that, by default, proportionate liability schemes do apply to arbitral proceedings, notwithstanding the inability to join all alleged concurrent wrongdoers to the arbitration.

The High Court emphasised that in this case, the circumstances were such that the parties had chosen to incorporate the relevant South Australian and federal proportionate liability regimes into the contract. This ‘choice of law’ was to be respected.

The High Court considered the disadvantage inherent in concurrent wrongdoers being unable to be joined to arbitral proceedings to mitigate the lost damages from the proportionate liability regime. However, the High Court noted that nothing in the South Australian regime prevents contracting out of it.

The High Court also held that the relevant proportionate liability legislation was not ‘incapable of settlement by arbitration’.

The separate dissenting judgments of Justices Edelman and Steward considered that the approach of disentitling proportionate relief through arbitration was inconsistent with the object of arbitration as being the fair and final resolution of commercial disputes without unnecessary delay or expense.

The decision is significant in affirming that where a proportionate liability defence is raised, to recover all damages, separate court proceedings against the alleged current wrongdoer may also need to be brought. Agitating essentially the same dispute in different forums has the potential to have not only a significant financial detriment for parties caught in the middle of a contracting chain, but also may give rise to inconsistent outcomes.  

To avoid this, when negotiating commercial contracts, parties should have regard to the applicable proportionate liability schemes, including whether the legislation allows the parties to contract out of those regimes. Where it is open to them, parties may consider choosing a governing law that permits contracting out of the proportionate liability regime, even where there is no other connection with the parties or the subject matter of the contract.

CBI Constructors

In CBI Constructors, the High Court dismissed an appeal concerning whether the Supreme Court of Western Australia could set aside an arbitral award under section 34(2)(a)(iii) of the Commercial Arbitration Act 2012 (WA) (WA Arbitration Act). 

The arbitration proceeded under the UNCITRAL Rules and the parties’ arbitration agreement provided that any dispute would be "exclusively and finally settled" by arbitration and that any award would be "final and binding" (which is consistent with the UNCITRAL Rules).

The decision concerned a payment claim for labour costs. The arbitral tribunal made orders to bifurcate the hearing, splitting the proceeding into two parts, with a hearing as to liability followed by secondary hearing as to quantum. At the first hearing, CBI was unsuccessful on liability and the tribunal made an award against it for actual costs.  Following the first hearing, the tribunal ordered CBI to replead its case on quantum.  When CBI repleaded its quantum case, Chevron objected. Chevron argued that CBI was attempting to introduce new arguments concerning liability and that this was impermissible due to the operation of preclusive estoppel, as well as on grounds of the tribunal being functus officio.

The tribunal issued a further award, with the majority of the tribunal finding that the tribunal was not functus officio on matters of liability.  That is, that the tribunal’s authority to decide matters of liability following the first award had not been discharged and it was not precluded from making further findings of liability in the secondary hearing. 

Chevron applied to the Supreme Court of Western Australia under section 34(2)(a)(iii) of the WA Arbitration Act for the tribunal’s second award to be set aside on the basis that the arbitrator’s had already issued an award as to liability.  Chevron further argued that the tribunal had dealt with matters beyond the scope of the arbitration.

The Supreme Court found in Chevron’s favour and held that the tribunal was functus officio with the second interim order to be set aside.  CBI then appealed to the WA Court of Appeal, who dismissed the appeal.

CBI appealed again and the High Court granted special leave for the matter to be heard.  CBI appealed on the basis that the Court of Appeal had applied an incorrect standard of intervention in the arbitration.

The High Court upheld the Supreme Court’s decision to set aside the tribunal’s second award on the grounds that the tribunal was functus officio and lacked jurisdiction.

This case is a salutary reminder of the potential pitfalls of bifurcation of arbitral proceedings. Parties and arbitral tribunals should both exercise care when considering whether proceedings ought to be bifurcated and, if they are, in documenting the precise ambit of each constituent component of the case. Failing to do so, particularly in cases where the outcome of the first tranche is not dispositive of the entire proceedings, may render any potential efficiencies in time or cost illusory.

Icon Si

In Icon Si, the Supreme Court of New South Wales once again confirmed its pro-arbitration stance.  The case concerned a contract which incorporated a tiered dispute resolution clause;  negotiation and then expert determination to be followed by arbitration if a dispute remains unresolved.  Following preliminary disputes between the parties, the parties amended the dispute resolution clause to remove the application of the expert determination provision in the tiered clause, but did not expressly make any changes to the obligation to negotiate or arbitrate disputes arising under the contract.

Following further disputes between the parties, the Australian Nuclear Science and Technology Organisation (ANSTO) sought to enforce the arbitration agreement whereas Icon Si (Aust) Pty Ltd (Icon) considered that the arbitration clause was now inoperative because of the removal of the requirement to proceed to expert determination, it was impossible for the prerequisites for the commencement of arbitral proceedings to be satisfied.  

Icon brought a proceeding against ANSTO in the Supreme Court of New South Wales where ANSTO sought to stay the proceeding under section 8(1) of the Commercial Arbitration Act 2010 (NSW) (NSW Commercial Arbitration Act).

The Supreme Court found in favour of ANSTO and held that the arbitration clause remained operative.  The Court held that while the parties had agreed to remove one tier of the dispute resolution clause, this did not amount to a waiver of the entire clause.  The Court also had regard to the provisions of the NSW Commercial Arbitration Act which provide that an arbitration agreement is to be upheld unless clearly null, void, inoperative, or incapable of being performed.

Authors: Bill Smith (Partner), Jonathon Ellis (Partner), Jessica Laverty (Senior Associate)

Contributor: Jeremy Maybloom (Paralegal)