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Client Update: Further support for arbitration

15 July 2014

In brief: In a recent decision, the Victorian Court of Appeal has held that parties to an arbitration agreement cannot avoid arbitration by seeking to bring the claim in a statutory tribunal. Partner Nick Rudge (view CV) and Lawyer James Waters report on a case that reinforces the trend of Australian courts to give effect to the international UNCITRAL Model Law in domestic disputes.  

The facts

A dispute arose between Mr and Mrs Ireland (the Irelands) and Subway Systems in relation to a Subway sandwich business that the Irelands operated in a shopping centre. The franchise agreement between the parties contained a clause referring disputes to arbitration. The Irelands sought to have their dispute with Subway Systems heard in the Victorian Civil and Administrative Tribunal (VCAT).

The question for the Court of Appeal (consisting of President Maxwell, Appeal Justice Beach and Acting Appeal Justice Kyrou) was whether VCAT was a 'court' for the purposes of section 8 of the Commercial Arbitration Act 2011 (Vic) (the Act), and if so, whether the VCAT hearing should be stayed and the dispute referred to arbitration under the Act.1  

The decision

As President Maxwell noted, the Act is distinctive in that it enacts the UNCITRAL 'Model Law' as domestic Victorian law. Provisions of the UNCITRAL Model Law on International Commercial Arbitration (the Model Law) are substantially unchanged in the Act, so as to promote uniformity between all Australian states (each of which that have enacted the Model Law) and international uniformity.

Section 8 of the Act provides:

8. Arbitration agreement and substantive claim before court (cf Model Law Art 8)

(1) a court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests…refer the parties to arbitration...

 


However, the word 'court' in s8 is not defined. Each of the three judges of the Court of Appeal approached the question – of whether VCAT was court within the meaning of the Act – differently. The majority (President Maxwell and Appeal Justice Beach) recognised the likely impact of their decision in relation to the various equivalents of the Act in other Australian states where there are statutory tribunals comparable to VCAT, such as Queensland and New South Wales.

In interpreting the Act and the definition of the word 'court', the majority recognised the aims of the Model Law, of uniformity and harmonisation, given the Act's genesis from the Model Law. The policy behind the Model Law was central to the majority's analysis of whether VACT fell within the definition of a 'court' for the purposes of s8 of the Act. If VCAT was found to be a court in this instance, disputes to be heard in VCAT, where an arbitration agreement existed, would be referred to arbitration under the Act. Conversely, if VCAT was found not to be a court, parties would have a choice of forum in which to have their disputes heard: either at VCAT or under arbitration. The majority judges recognised the wholly unsatisfactory position of the latter option.

In analysing whether VCAT was a 'court', the Acting Appeal Justice Kyrou (in the minority) noted instances in legislation where the definition of court intentionally omitted VCAT, and observed that VCAT lacks the typical indicia of courts at common law, as it:

  • is not bound by the rules of evidence;
  • cannot enforce its own decisions;
  • is constituted by some members who are not legally trained;
  • can apply government policy; and
  • can provide advisory opinions.

Acting Appeal Justice Kyrou's analysis focused on the text of the Act and other statutes where the word 'court' is applied and noted the intentional omission of VCAT in various definitions of court in legislation. This led his Honour to find that VCAT was not a 'court' for the purposes of s8 of the Act.

Conversely, Appeal Justice Beach (in the majority) held that VCAT possesses the six features typical of courts at common law and noted instances where the definition of courts in statutes has been held to include VCAT. President Maxwell focused on the international development, and aims, of the Model Law that were picked up in the Act and the effect of these on interpreting the definition of 'court' under the Act.

As a matter of statutory construction, the majority considered the text, context and purpose of the Act, and held that both the Model Law and the Act had application to 'a body or organ of the judicial system,' which extended to VCAT.

In accordance with international and domestic precedent in which the Model Law has been considered, the majority gave considerable weight to the purpose behind the Act: to hold parties to their agreements to arbitrate disputes. As such, the majority held that for the purposes of s8 of the Act, VCAT is within the definition of the word 'court'.

How does this affect you?

The Court of Appeal's decision reinforces that parties who have previously agreed to arbitrate their disputes will be held to the terms of their agreement and proceedings commenced in statutory tribunals will be stayed in favour of arbitration (subject to statutory provisions invalidating arbitration agreements2).

Although statutory tribunals, such as VCAT, can have jurisdiction to determine a wide variety of commercial disputes, this decision confirms that the courts will stay proceedings commenced in tribunals where the parties have validly agreed to arbitration. The decision reflects the attempts by Australian parliaments and courts to give effect to the Model Law for both domestic and international arbitration.

Footnotes
  1. Subway Systems v Ireland [2014] VSCA 142.
  2. See for example, section 14, Domestic Building Contracts Act 1995 (Vic). 

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