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Australia – Supreme Court Supports Domestic Arbitration Irrespective Of The Prospect Of Split Proceedings.

28  October, 2013

 

Legal News & Analysis – Asia Pacific – Australia – Dispute Resolution

 

In recent years, the landscape for domestic and international commercial arbitration in Australia has changed dramatically. At the domestic level, all Australian States and Territories (except for the Australian Capital Territory (ACT)) have now embraced substantially similar arbitration legislation commonly referred to as the uniform Commercial Arbitration Acts. At the Federal level, significant amendments have been made to the International Arbitration Act 1974 (Cth) governing international commercial arbitrations. These legislative changes were primarily aimed at increasing the efficiency of the arbitration process and making arbitration in Australia more attractive. Many of these changes have significant implications for parties considering which dispute resolution regime to include in their commercial contracts, as well as those parties who have already entered into commercial arrangements containing arbitration clauses.


The Victorian Supreme Court has recently been provided with an opportunity to consider the operation of the domestic arbitration regime and in particular, the provisions designed to remove the discretion of the courts in considering an application for a stay of court proceedings where there is a valid arbitration agreement.

 

A Brief Recap On The Australian System For International And Domestic Commercial Arbitrations

 

Australia has a ‘dual track’ system for international and domestic commercial arbitrations. International arbitrations are governed by the International Arbitration Act (IAA) whereas domestic arbitrations are governed by State or Territory-based arbitration legislation.

 

The IAA adopts and applies the UNCITRAL Model Law on International Commercial Arbitration (Model Law), the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention), and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention). Recent amendments to the IAA in 2010 were aimed at further supporting and improving the conduct of international arbitration by, for example, clarifying that the Model Law is now the mandatory ‘supervisory procedural law’ for international arbitration (s 21 of IAA) and more closely aligning the position with respect to recognition and enforcement of arbitration agreements and awards with the Model Law and the New York Convention.


At a domestic level, all States and Territories (except for the ACT) have now introduced uniform Commercial Arbitration Acts (uniform CAAs). The key objective of the changes introduced by this legislation was to modernise the domestic arbitration regimes and bring them in line with international best practice by basing the legislation on the Model Law. It was envisaged that this would create national consistency in the regulation and conduct of international and domestic commercial arbitration and ultimately increase confidence in the arbitration system both in Australia and overseas.


The effect of the legislative changes introduced by the uniform CAAs is far-reaching. Some of the key changes introduced by this legislation concern:


a. confidentiality of arbitration proceedings — in contrast with the position with respect to international arbitrations which provides an ‘opt-in’ regime, the uniform CAAs impose a statutory duty of confidence (subject to certain exceptions) unless otherwise agreed by the parties;


b. limited rights of recourse — appeals are limited to errors of law and require the agreement of the parties (either in their arbitration agreement or subsequently) and leave from the Court;


c. enforceability of arbitration agreements — previously the Courts had a discretion whether to stay court proceedings commenced in circumstances where an arbitration agreement existed. This has been replaced by a mandatory requirement that the Courts must grant a stay of any court proceedings unless the relevant arbitration agreement is found to be ‘null and void, inoperative or incapable of being performed’ (this is similar to the provision that appears in the IAA and the Model Law). This provision was recently considered by the Victorian Supreme Court in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [No.3] [2013] VSC 435 (Lysaght v Blanalko).

 

Lysaght v Blanalko

 

Facts

 

Blanalko Pty Ltd (Blanalko) engaged Lysaght Building Solutions Pty Ltd (Lysaght) to undertake various design and construction works in Penfield, South Australia pursuant to a contract based on Australian Standard Contract AS4300-1995. The contract was governed by Victorian law and contained a dispute resolution clause (clause 47) which:


a. provided two alternative paths for dispute resolution following the issuing of a notice of dispute (one path requiring the parties to meet and the other path requiring the Superintendent to make a decision prior to the parties meeting), both ultimately concluding with the dispute being referred to arbitration; and


b. expressly carved out claims for payment due under the contract.
Lysaght sought payment of various progress payment claims in relation to works undertaken, which Blanalko failed to pay. Lysaght sought summary judgment with respect to its payment claims. In response, Blanalko filed a defence denying liability and issued a counterclaim alleging various breaches of contract and seeking payment of certain amounts said to be owing to it. Blanalko separately sought summary judgment with respect to its claims.


Lysaght applied for a stay of the matters referred to in Blanalko’s counterclaim pursuant to s 8 of the Commercial Arbitration Act 2011 (Vic) (Act) which is the relevant provision in Victoria requiring that a Court ‘must…refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.’ In response, Blanalko argued that the dispute resolution clause constituted a ‘non-exclusive arbitration clause’ and therefore s 8 of the Act did not apply as it only operated where the parties had clearly contracted to an arbitration to the exclusion of the Courts.


Decision


Justice Vickery of the Supreme Court of Victoria granted the application for a stay with respect to those disputes that did not fall within the carve out for payment claims. In reaching this decision, Justice Vickery observed that the word ‘must’ in s 8 of the Act ‘…removes the court’s discretion to refuse to grant a stay, and renders the provision mandatory….This means that if the requirements of the section are met the Court has no choice but to grant a stay of the proceeding before it and refer the matter to arbitration’.1


The Court observed that in some cases, such as the current case where payment claims were expressly carved out, ‘[t]his may result in some inefficiencies in case management…arising from the potential for litigation on the same project being conducted before different tribunals. Nevertheless the statutory meaning is clear.’2


Further, the Court rejected Blanalko’s contention that the dispute resolution clause constituted a non-exclusive arbitration clause, observing that irrespective of which alternative was invoked by the parties once a notice of dispute had been served, if the dispute remained unresolved within 28 days of service of the notice or the date on which the Superintendent gave their decision, the dispute ‘shall be and is hereby referred to arbitration.’ The Court commented that ‘…provided these pre-conditions have been met, the parties have expressed a clear intention in their written agreement that an outstanding dispute, in the circumstances described, is required to be referred to arbitration, and is not to be heard and determined by a Court.’3

 

Implications

 

This is an important decision for a number of reasons. It is one of the first reported judgments on the construction of the legislative provisions requiring the courts to grant a stay in the context of an arbitration clause based on clause 47 of the AS4300-1995 standard form contract (which is a reasonably popular standard form contract in Australia). The Court’s decision to grant a stay on the facts of the case clearly accords with the legislature’s intention to limit the discretion of the Courts. In addition, the approach of the Court in seeking to construe the arbitration agreement as a whole and refusing to accept a narrow and pedantic interpretation of the arbitration clause is likely to provide additional comfort to commercial parties that the Courts will not readily seek to overturn agreements to arbitrate.


The decision is however also an important reminder for commercial parties to carefully consider all provisions in their arbitration agreement (particularly provisions in standard form contracts) and in particular, whether they intend to resolve certain disputes (in this case, payment claim disputes) using other methods of dispute resolution. In some cases, there may be good reason why parties would prefer to resolve particular disputes using an alternative method. For example, valuation disputes may be well suited to expert appraisal or expert determination depending on the circumstances. However, in many cases, it may be undesirable to split the proceedings as there is a significant risk that this may result in inconsistencies and increased time and cost. Ultimately this is a matter that requires careful consideration as parties who have selected arbitration for at least some of their disputes can no longer expect the courts to intervene and refer all disputes to one forum (i.e. litigation) where there is a valid arbitration agreement.

 

Endnotes

1. At [125].
2. At [126].
3. At [142].

 

herbert smith Freehills

 

For further information, please contact:

 

Geoff Hansen, Partner, Herbert Smith Freehills
[email protected]

 

Jennifer Galatas, Herbert Smith Freehills
[email protected]

 

Herbert Smith Freehills Dispute Resolution Practice Profile in Australia

 

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