14 Feb 2013

Commercial arbitration: a proportionate liability-free zone?

by Andrew Stephenson, Jey Nandacumaran, Sarah Southwell

This case clarifies the position that the proportionate liability regime does not, by force of the relevant legislation itself, apply to commercial arbitrations.

The Western Australian Supreme Court has recently held that the proportionate liability legislation does not, by force of the legislation itself, ordinarily extend to commercial arbitrations. The Court considered, but did not finally determine, whether the implied term in arbitration agreements – that arbitrators have jurisdiction to exercise every right and discretionary remedy given to a court of law – meant that the proportionate liability regime applied to arbitrations.

The arbitration

In Curtin University of Technology v Woods Bagot Pty Ltd [2012] WASC 449, the parties' dispute arose from a construction contract, which required all disputes to be finally determined by arbitration. At the arbitration, the respondent Woods Bagot sought to invoke the proportionate liability legislation on the basis that there were other concurrent wrongdoers responsible for the losses alleged by the claimant Curtin University. Curtin University disputed that Woods Bagot could invoke the proportionate liability regime in an arbitration.

The arbitrator referred to the Court the question "does part 1F [of the CLA] apply to these [arbitral] proceedings?". The arbitrator directed the Court to limit its consideration to:

  • Part 1F of the Civil Liability Act 2002 (WA) (CLA); and
  • section 22 of the Commercial Arbitration Act 1985 (WA) (CAA),

and not consider: 

  • the terms of the contract (to identify whether the parties had effectively contracted out of the legislation – which is only permitted in Western Australia, New South Wales and Tasmania); and
  • the operation of the implied term in arbitration agreements.

The Civil Liability Act 2002 (WA) and Commercial Arbitration Act 1985 (WA)

The Court found – based on the CLA and CAA alone – that the proportionate liability regime was inapplicable in arbitral proceedings.

In respect of the CLA, the Court was influenced by:

  • Section 5AN,[1] which empowers a court to join any non-parties responsible for the claimant's loss. Because an arbitrator's jurisdiction springs from the agreement between the parties to the arbitration, an arbitrator cannot join other wrongdoers to an arbitration absent their consent. This, in the Court's view, was a "weighty consideration militating against" the argument that proportionate liability applied in arbitrations.
  • The use of the terms "court", "judgment", "action for damages", "defendant" and "plaintiff" throughout Part 1F. It was held, following a lengthy discussion about the principles of statutory construction, that "court" should be given its natural meaning when used in the legislation, and accordingly did not extend to arbitrations. The Court came to the same conclusion with respect to "judgment" – finding that the word could not comfortably encompass an arbitrator's award.
  • The fact that nothing in Part 1F of the CLA referred to arbitrators, which is in contrast to an earlier Western Australian Act with overlapping subject matter, the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA).

In respect of the CAA, section 22 provides that any questioned to be answered by way of arbitration "shall be determined according to law". The Court, although expressing reservations, ultimately followed the South Australian Court of Appeal in South Australian Superannuation Fund Investment Trust v Leighton Contractors Pty Ltd (1996) 66 SASR 509, and held that "according to law" meant "according to the principles of common law" (and not statutes like the CLA).

While earlier authorities have never made a direct ruling as to the applicability of proportionate liability in arbitrations, the decisions of Justice Cavanough in Wealthcare Financial Planning v FCIS (2009) 69 ASCR 418 and the Tasmanian Court of Appeal in Aquagenics Pty Ltd v Break O'Day Council [2010] TASFC 3 strongly suggested that the proportionate liability scheme could not apply in arbitrations. The position is perhaps strongest in Victoria where, unlike all other jurisdictions, the applicable legislation prohibits courts from having regard to the comparative responsibility of non-parties (unless dead, if a natural person, or wound up, if a corporate entity).

Arbitrator's implied power to grant relief in accordance with the general law

It is well settled at common law that a term is implied into every arbitration agreement providing that the arbitrator should decide the dispute before him/her according to the existing law of the contract; and should exercise every right and discretionary remedy given to a court of law.[2]

By reason of the arbitrator's directive, the Court was not required to determine whether the implied term in every arbitration agreement meant that Part 1F of the CLA applied to the present arbitration. The Court simply stated that such an outcome was at least arguable. Justice Tennent in Aquagenics Pty Ltd v Break O'Day Council [2010] TASFC 3 was less equivocal, and reasoned (in obiter) that an arbitrator's inability to join non-parties meant that irrespective of the implied term in arbitration agreements, proportionate liability could not be extended to arbitrations.

What can we expect in the future?

In September 2011, the Standing Committee of Attorneys-General (now the Standing Council on Law and Justice) released a "Consultation Paper on the Proportionate Liability Model Provisions", which recommends that uniform proportionate liability legislation should be introduced across all States and Territories. The paper also recommends changing the definition of "court" to expressly include arbitrators.

This proposal, if adopted, will clarify Parliament's intention that proportionate liability is to apply in arbitrations, but will not resolve the issue that arbitrators cannot join non-parties.

Conclusion

This case clarifies the position that the proportionate liability regime does not, by force of the relevant legislation itself, apply to commercial arbitrations. What is left unanswered, however, is whether the implied term in arbitration agreements extends the operation of proportionate liability to commercial arbitrations. Until this issue is finally determined, parties seeking to exclude the operation of the proportionate liability legislation (in jurisdictions where contracting out is not permitted) should:

  • refer all disputes arising from, or in connection with, their contract to arbitration; and
  • include an express term in their contract limiting the jurisdiction of the arbitrator (which would otherwise arise pursuant to the implied term).


[1] This provision is mirrored in all jurisdictions except South Australia. Back to article

[2] Government Insurance Office of NSW v Atkinson-Leighton Joint Venture (1981) 146 CLR 206 (particularly Stephens J at pages 234 to 237); IBM Australia Ltd v National Distributors Services Ltd (1991) 22 NSWLR 466; and Frances Travel Marketing Pty Ltd v Virgin Atlantic Ltd (1996) 39 NSWLR 160. Back to article

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.