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Focus: Courts reinforce trend to interpret arbitration clauses widely

20 May 2013

In brief: Recent cases in the Federal Court and the Queensland Supreme Court show that courts are continuing to interpret arbitration clauses widely. Partner Nick Rudge (view CV) and Senior Associate Nicholas Gallina report.

How does it affect you?

  • Two recent cases in the Federal Court and the Queensland Supreme Court indicate that:
    • properly drafted arbitration clauses can capture causes of action that are reliant on events before contract formation, as well as subsequent negotiations aimed at the parties entering into a further contract that does not eventuate because a deal could not be concluded;
    • where a contractual dispute resolution regime requires the parties to use their best endeavours to settle disputes in good faith as a precondition to arbitration, courts will take a pragmatic view of whether the parties have done so, given all the circumstances of the dispute; and
    • preliminary discovery will not generally be regarded as urgent interlocutory relief and thus will not generally fall within the exclusion of an arbitration clause that allows the parties to seek court orders for urgent interlocutory relief.

Amcor v Baulderstone

The facts

In this case,1 under a project delivery proposal agreement (PDPA), Amcor Packaging (Australia) Pty Ltd and Baulderstone Pty Ltd  agreed to develop a proposal for Baulderstone to design and construct a paper machine building. The PDPA contemplated that a guaranteed maximum price contract would follow. However, after negotiations, Baulderstone's parent, Bilfinger Berger AG, withdrew its approval for Baulderstone to submit a guaranteed maximum price.

Amcor indicated that it might commence proceedings against Baulderstone, and against two Baulderstone general managers in their personal capacities. The proposed proceedings included a claim against Baulderstone under section 52 of the Trade Practices Act (1974) (the TPA) for making representations as to future matters without reasonable grounds, and against the general managers for their knowing involvement in those representations.

Baulderstone sought to stay the proposed proceedings under s8 of the Commercial Arbitration Act 2011 (Vic) (the CA Act), on the basis that the PDPA's arbitration clause required that 'a dispute arising out of or in connection with this Agreement' be referred to arbitration. Amcor opposed the stay, on the basis that the dispute arose not from the PDPA but from a proposed guaranteed maximum price contract that never came into existence, and because the general managers were not parties to the PDPA. 

Court granted a stay

Justice Marshall of the Federal Court noted various authorities that construed arbitration clauses widely, including one supporting the view that the words 'in connection with' a dispute should 'exclude only claims entirely unrelated to the commercial transaction covered by the contract', and another stating that there is no bright line at the point of contract formation requiring that all causes of action reliant on events before contract formation are not disputes arising out of the contract.2 These authorities, and the fact that the PDPA expressly contemplated that a guaranteed maximum price contract would be effected, led his Honour to conclude that the proposed guaranteed maximum price contract was 'related to, arose out of and was in connection with the matters covered by the PDPA' and to order that the proposed proceeding between Amcor and Baulderstone be stayed.3

The prospective proceeding against Baulderstone could be referred to arbitration. However, the prospective proceedings against the general managers could not, because the managers, not being PDPA parties, did not fall within the scope of the PDPA's arbitration clause. His Honour referred to High Court and Federal Court decisions that support the view that the existence of 'additional issues falling outside the scope of arbitration does not necessarily mean that those matters cannot' be stayed.4 His Honour applied these decisions, and stayed the proposed proceedings between Amcor and the general managers under the broad discretion granted to the court under s23 of the Federal Court Act 1976 (Cth).5

Amcor's preliminary discovery application was denied

Amcor claimed a right to preliminary discovery under rule 7.23 of the Federal Court Rules 2011 (Cth) on the basis that the PDPA's arbitration clause excluded 'proceedings seeking interlocutory relief'.6 The court interpreted 'interlocutory relief' having regard to the PDPA's overall dispute resolution regime, which provided that the regime did 'not prevent either Party from obtaining any injunctive...relief that may be urgently required...'7 Justice Marshall concluded that the presence of the words 'urgently required' meant that the arbitration clause's exclusion applied not to all interlocutory relief but only where urgent court relief is required.8 His Honour declined to make an order for preliminary discovery on the basis that requests for preliminary discovery were generally not urgent.9

If an arbitration has not commenced, it will not be possible to seek an order from an arbitrator for discovery. Where an arbitration has commenced, the interim measures provision in s17(3)(b) of the CA Act would seem to allow arbitrators to make orders for early discovery, in the sense of ordering discovery to occur before other steps, such as the submission of points of claim. To obtain such an order, the applicant would need to satisfy the arbitrator that not making the order would result in harm that is not repairable by a damages award and that 'there is a reasonable possibility that the requesting party will succeed on the merits of the claim'.10

PB v Thiess

The facts

In this case,11 under a collaborate consultancy agreement (CCA), a joint venture of design engineers (the engineer) agreed to provide services to a joint venture of contractors (the contractor) for an airport infrastructure project.12 The CCA's dispute resolution clause required the parties to use their best endeavours to settle disputes in good faith, and set out a staged process for the consideration of disputes by the parties themselves and then, if necessary, a leadership team comprising party representatives. The clause allowed either party to refer a dispute to arbitration or litigation if the dispute could not be resolved by the leadership team.13

The contractor referred a dispute, including a draft statement of claim, to the leadership team. The engineer proposed a process for the provision of submissions and the exchange of information.14 The contractor said that it saw no point in following the proposed process, and that while the contractor was willing to try to resolve the dispute, there was little point in pursuing any alternative dispute resolution without the involvement of the engineer's insurer, which, the contractor said, would help avoid duplication and hence reduce costs.15 The contractor subsequently referred the dispute to arbitration on the basis that the leadership team had not been able to resolve the dispute.16

The engineer argued that the reference of the dispute to arbitration was ineffective because the contractor had failed to use its best endeavours to settle the dispute in good faith.17 The engineer pointed to the contractor's failure to respond to a request to provide further explanation of its claims, including as to the causation of any loss, and the contractor's request for the involvement of the engineer's insurer, which the engineer rejected.18

The reference to arbitration was valid

Justice Boddice of the Queensland Supreme Court concluded that the arbitration reference was effective because the contractor had not failed to use its best endeavours to settle the dispute in good faith.19 In doing so, the court took into account the dispute's background, which included prior litigation, an unsuccessful prior mediation, and unresolved claims that the engineer had engaged in misleading and deceptive conduct before entering into the CCA.20

Against that background, his Honour found that the contractor's statement about the engineer's proposed process for dispute submissions and information exchange could not properly be characterised as a failure to use best endeavours to resolve the dispute, because it was merely an expression on the merits of the proposal and the contractor had expressly indicated that it would consider other proposals.21

In the court's view, the contractor's request to involve the engineer's insurer could not, against the background of the dispute and the contractor's stated desire to control dispute-related costs, properly be characterised as a failure to use best endeavours to resolve the dispute. The fact that the engineer did not agree to the request did not mean that the contractor had breached the CCA.22

Court refused to stay the arbitration

The engineer asked the court to stay the arbitration pursuant to its power under to s47 of the Commercial Arbitration Act 1990 (Qld), as the background to the dispute, including the prior litigation, meant that it was likely that there would be a multiplicity of proceedings, and because the claims for alleged negligent design would probably require third parties to be joined. In the context of the stay request, the court noted that the contractor had also foreshadowed a misleading or deceptive conduct claim under the TPA against the engineer.23

His Honour declined to order a stay.24 The reasons the engineer identified were relevant factors in determining whether a stay should be ordered. However, the court noted the 'powerful counter-balancing consideration' that the parties had expressly agreed to a power to refer their disputes to arbitration or litigation at the election of a party.25 As to the undesirability of multiplicity of proceedings, the court's view was that this factor should be given diminished weight because the contractor had offered to undertake not to pursue, in a TPA claim, any matter the subject of the dispute referred to arbitration.26

Referral to arbitration of misleading or deceptive conduct claims under the TPA

His Honour stated that the foreshadowed misleading or deceptive conduct claim 'could not properly be included in the arbitration' but did not explain his reasoning.27 His Honour's statement sits uneasily with previous authority, which indicates that misleading or deceptive conduct claims under the TPA may be referred to arbitration. 

In Comandate Marine Corp v Pan Australia Shipping Pty Ltd,28 the Federal Court considered whether certain claims for misleading or deceptive conduct under the TPA could be referred to arbitration under an arbitration clause that stated 'All disputes arising out of this contract shall be arbitrated at...'. The court in Comandate stated that the meaning of the words 'arising out of a contract' can be equated with the words 'in connection with' and should be given a broad construction, and went on to conclude that the TPA claims fell within the scope of the arbitration clause.29

Comandate was followed in Westrac Pty Ltd v Eastcoast Otr Tyres Pty Ltd,30 which considered whether claims for misleading and deceptive conduct could be referred to arbitration under an arbitration clause that was concerned with 'disputes arising out of or in connection with' the relevant contract.31 The New South Wales Supreme Court referred with approval to Comandate and concluded that TPA claims were capable of settlement by arbitration.32

In light of the similarity of the arbitration clause in PB v Thiess to the arbitration clauses considered in Comandate and Westrac, it appears that claims for misleading and deceptive conduct under the TPA are generally capable of being referred to arbitration where there is a suitably wide arbitration clause, such as those in Comandate and PB v Thiess

Conclusion

The decisions in Amcor v Baulderstone and PB v Thiess continue the trend of courts to interpret arbitration clauses widely. This should give parties who would like to use arbitration as their preferred dispute resolution method continued confidence that properly drafted arbitration clauses will be enforced by the courts.

 
Footnotes
  1. Amcor Packaging (Australia) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253.
  2. R v Isaac & Ors; Ex Parte Transport Workers Union of Australia (1985) 159 CLR 323 and Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192 – see Amcor v Baulderstone at [32] and [35].
  3. Amcor v Baulderstone at [38] and [47]. 
  4. Tanning Research Laboratories Inc v O'Brien [1990] HCA 8 and Casaceli v Natuzzi SpA [2012] FCA 691 –  see Amcor v Baulderstone at [44] and [45]. In these cases, the High Court and Federal Court each stayed the balance of a proceeding to await the outcome of certain questions that had been referred to arbitration. 
  5. Amcor v Baulderstone at [47]. 
  6. Amcor v Baulderstone at [40].  
  7. Amcor v Baulderstone at [40] and [41]. 
  8. Amcor v Baulderstone at [41]. 
  9. Amcor v Baulderstone at [41]. 
  10. Section 17A(1) of the CA Act.  
  11. Parsons Brinckerhoff Australia Pty Ltd and Anor v Thiess Pty Ltd and Anor [2013] QSC 75.
  12. PB v Thiess at [1], [4] and [5]. 
  13. PB v Thiess at [5], [8] and [28]. 
  14. PB v Thiess at [9] and [10]. 
  15. PB v Thiess at [10] and [32]. 
  16. PB v Thiess at [12]. 
  17. PB v Thiess at [27]. 
  18. PB v Thiess at [11], [14], [16] and [32]. 
  19. PB v Thiess at [30] to [38], and [64].  
  20. PB v Thiess at [30]. 
  21. PB v Thiess at [31]. 
  22. PB v Thiess at [32]. 
  23. PB v Thiess at [54] and [55]. 
  24. PB v Thiess at [63].
  25. PB v Thiess at [55] to [58]. 
  26. PB v Thiess at [60] and [61]. 
  27. PB v Thiess at [55].
  28. [2006] FCAFC 192.
  29. Comandate at [175], [176] and [187].  
  30. [2008] NSWSC 894.
  31. Westrac at [19] and [20]. 
  32. Westrac at [24] and [25].


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