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Focus: Considering whether proportionate liability applies to arbitrations in WA

13 December 2012

In brief: The WA Supreme Court recently held that Western Australia's proportionate liability legislation does not of its own force apply to arbitral proceedings for disputes governed by WA law. Partner Brian Millar and Senior Associate Lixian Liang report.

How does it affect you?

  • If liability for an otherwise apportionable claim is the subject of arbitral proceedings (as opposed to litigation), there is a risk that the defaulting party's liability will not be limited to the proportion of the loss caused by that party. This could result in a significant difference between parties' positions should arbitration, as opposed to litigation, be chosen as the applicable dispute resolution mechanism, at least in cases where the relevant proportionate liability legislation has not been validly contracted out of.
  • However, the decision leaves open whether a term commonly implied into arbitration agreements could reverse this position and effectively result in the proportionate liability regime being applicable to an arbitration applying WA laws.
  • Parties contemplating whether to utilise arbitration (as opposed to litigation) as the mechanism to determine their disputes should carefully consider whether this is appropriate in circumstances where that choice may mean proportionate liability regimes do not apply.

The facts

Woods Bagot Pty Limited and Curtin University of Technology were involved in an arbitration in respect of disputes under a construction contract between them. Woods Bagot sought to rely on Part 1 of the Civil Liability Act 2002 (WA) (the CLA) to limit its liability to its proportionate share of responsibility for Curtin's losses. Curtin denied that proportionate liability applied to the arbitration.1

The arbitrator referred the following issue to the Supreme Court of WA under section 39(1)(a) of the Commercial Arbitration Act 1985 (WA) (the CCA):

Does Part 1F of the Civil Liability Act 2002 (WA) apply to commercial arbitration proceedings pursuant to the [CCA]?

Importantly, the referral by the arbitrator was stated to be confined to the 'pure statutory construction question' such that issues of contractual interpretation, implied terms and whether the parties had contracted out of the CLA were not referred for determination.

The decision

Justice Beech found that Part 1F of the CLA did not apply of its own force to commercial arbitration proceedings. In summary, his Honour's reasons for concluding this were as follows.

  • The natural meaning of the language 'court' and 'action for damages' and to a lesser extent 'judgment' favoured that interpretation. His Honour considered that these words do not naturally encompass arbitrations.
  • The word 'court' in ss 5AN does not extend to an arbitrator. The starting point is that 'court' in s5AK (which was the main section being construed) has the same meaning.
  • The arbitrator's lack of power to join other concurrent wrongdoers may explain why proportionate liability is not applied to arbitrations.
  • To the extent Parliament's purpose in enacting Part 1F of the CLA is advanced by applying it to arbitration, that may be achieved through an implied term in the arbitration agreement, subject to the terms of the agreement. Thus, it is not necessary to give the language of Part 1F an extended meaning to achieve this purpose. (The court's observations in relation to the implied term argument are dealt with in further detail below.)
  • Unlike some similar statutes, nothing in Part 1F of the CLA refers to arbitrations.

Many of the above reasons echo the obiter comments of the Full Court of the Tasmanian Supreme Court in Aquagenics Pty Ltd v Break O'Day Council [2010] TASFC 3.

A key factor in Justice Beech's decision was his view that the language of the relevant provisions of the CLA, in particular, the use of the term 'court', do not naturally encompass arbitrations. In this case, there was no definition of the term 'court' in the legislation. Implicit in his Honour's reasons is that he did not consider the ordinary meaning of the word 'court' in the relevant legislative context was broad enough to encompass an arbitral tribunal lawfully appointed to determine a controversy between parties (such tribunal being empowered by the agreement of the parties rather than by the state). His Honour did not express a concluded view on whether the extension of Part 1F to include arbitrations would better achieve the purpose of that legislation.

His Honour also considered s22 of the CAA, which provides that questions arising for determination in the course of arbitration be determined 'according to law'. Relevantly, he considered whether s22 operated to make Part 1F applicable to arbitrations. In South Australia Superannuation Fund Investment Trust v Leighton Contractors Pty Limited (1996) 66 SASR 509, the South Australian Supreme Court (Full Court) found that 'according to law' meant according to the principles of common law. Although the court in this case expressed doubts as to the correctness of this view, it ultimately applied the decision as, in the absence of detailed submissions, his Honour was not persuaded that the decision was plainly wrong. Consequently, s22 did not operate to make Part 1F applicable in arbitrations.

His Honour also referred to a number of cases supporting the proposition that an arbitrator has the power, arising out of an implied term in the arbitration agreement, to give the claimant such relief as would be available to them in a court of law having jurisdiction with respect to the subject matter. His Honour noted that it was arguable that, depending on the terms of the arbitration agreement, such an implied term could make the proportionate liability regime in Part 1F of the CLA applicable to arbitration. However, his Honour did not express an opinion as to whether such an implied term existed in this case and reserved that decision for the arbitrator.

Commentary

Notwithstanding this decision numerous questions remain including whether the suggested term to be implied in an arbitration agreement (to the effect that an arbitrator has the power to give the claimant such relief as would be available to them in a court of law) would result in the proportionate liability regime being applicable in this or other similar cases.

The issue of whether the parties have legitimately contracted out of the relevant proportionate liability legislation would still need to be considered.

There is also the issue of whether similar proportionate liability regimes in other states, which do not allow parties to contract out of the legislation, could in effect be avoided by the parties choosing arbitration (and perhaps also expressly limiting the ambit of the implied term referred to above). This also raises issues of whether such an approach might be rendered void as against public policy (depending on the governing law of the arbitration agreement) and whether challenges to the efficacy of an award might be made if otherwise mandatory legislation is not applied, or is applied contrary to the parties' expressed intentions.

This decision comes at a time when the introduction of uniform proportionate liability provisions is being considered. Draft legislation was issued for comment by the Standing Council on Law and Justice in September 2011 and includes the issues of whether proportionate liability should apply to arbitrations and whether contracting out of the legislation ought to be allowed. Understandably there are various conflicting views on these issues and it is unclear when such legislation will be introduced.

As a matter of general principle (and accepting that different decision makers may form different views on matters in dispute), it would seem an incongruous result if the legal rights of parties were to be significantly different, depending on whether their disputes are resolved by court appointed judges or party appointed arbitrators, where both are determining the same dispute governed by the same substantive law.

Footnotes
  1. Curtin University of Technology v Woods Bagot Pty Ltd [2012] WASC 449.

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