Intermediate appellate court holds proportionate liability inapplicable in arbitration
Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2022] SASCA 107
Background
In Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2022] SASCA 107, 140 SASR 395, the respondent (the “Builder”), which had contracted to build a warehouse, entered a sub-contract with the applicant (the “Consultant”) under which the Consultant agreed to provide engineering consultancy services to the Builder in relation to the design and construction of the warehouse. Under the parties’ contract, if a dispute between the Builder and Consultant arose in connection with the contract, then either party had to deliver to the other a notice of dispute identifying and providing details of the dispute; there was provision for a process of conciliation of the dispute and, if the dispute was not resolved through conciliation, the dispute was to be resolved by arbitration.[2]
The Builder sent the Consultant a notice of dispute, which was subsequently referred to arbitration. The Builder’s allegations against the Consultant included claims for breach of various terms of the contract, for breach of a duty of care in negligence and for misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law (the “ACL”) as applied as a law of the Commonwealth under s 131 of the Competition and Consumer Act 2010 (Cth). The Consultant denied the allegations and also pleaded in the alternative that any damages payable by it should be reduced by reason of the proportionate liability provisions under Part 3 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) (the “Apportionment of Liability Act”) and Part VIA of the Competition and Consumer Act. In its reply, the Builder denied that the Consultant could invoke those provisions and rely on proportionate liability as a defence in the arbitration. The Consultant sought and obtained leave from the Supreme Court of South Australia for the determination of a question of law arising in the arbitration, namely, “Does Part 3 of the [Apportionment of Liability Act] and/or Part VIA of [the Competition and Consumer Act] apply to this commercial arbitration proceeding conducted pursuant to the legislation and the [Commercial Arbitration Act 2011 (SA)]?”.
Under s 8(2) of the Apportionment of Liability Act, if a defendant is liable for damages in relation to a liability in respect of which another wrongdoer is, or other wrongdoers are, also liable, the defendant’s liability is limited to a percentage of the plaintiff’s damages that is fair and equitable, having regard to the responsibility of the defendant and the other wrongdoer(s) (including any not party to the proceeding) for the relevant harm. Further, the effect of s 87CD(1) of the Competition and Consumer Act is that if two or more persons are liable in respect of a claim for damages under s 236 of the ACL for misleading or deceptive conduct in contravention of s 18, the liability of a defendant who was a concurrent wrongdoer is limited to an amount reflecting that proportion of the damage or loss claimed that the court considered just, having regard to the extent of the defendant’s responsibility for that damage or loss. Like in Victoria’s Wrongs Act 1958 (Vic), neither the Apportionment of Liability Act nor the Competition and Consumer Act contained any express provision permitting or prohibiting contracting out of the proportionate liability regimes established by those Acts. Under s 28(3) of the Commercial Arbitration Act, in default of agreement, the arbitral tribunal is to apply the law determined by the conflict of laws rules that it considered applicable. It was common ground that s 28 required that the arbitrator determine the dispute in accordance with the substantive laws of South Australia.
The Consultant contended that the proportionate liability provisions applied to the arbitration between the parties on three bases. First, as part of the substantive law of South Australia, the arbitrator was bound to apply them pursuant to s 28 of the Commercial Arbitration Act. Secondly, the proportionate liability provisions applied by force of their own terms. Thirdly, the arbitration agreement in the parties’ contract contained an implied term to the effect that the arbitrator had authority to grant the parties any relief that would have been available had the claimant sued in a court of appropriate jurisdiction, which required the arbitrator to apply the proportionate liability provisions.
Result
Justice Doyle, with whom Livesey P and Bleby JA agreed, answered the question for determination in the negative, holding that the proportionate liability regimes of the Acts did not apply to the parties’ arbitration.
First, his Honour held that s 28 of the Commercial Arbitration Act does determine the law to be applied (in this case, the substantive law of South Australia), but it does not operate to require that every substantive law within the relevant system of law applies. Further, even if it does so require (i.e., contrary to the view expressed by his Honour), his Honour held that it would be confined to the application of those laws that either apply by force of their own terms to arbitration proceedings or are otherwise amenable to application in arbitration proceedings. Therefore, the operation of s 28 was not determinative of the question posed for the Court, which, in the ultimate analysis, required consideration of: (i) whether the proportionate liability provisions applied to the arbitration by their own force; or (ii) whether they applied by reason of an implied term: see [70]-[73] and [136]. These issues are discussed below.
His Honour held that the proportionate liability provisions of the Apportionment of Liability Act did not apply to the arbitration by force of their terms. His Honour reasoned that there was no express indication in those provisions of any intention that they apply to arbitration proceedings and, to the contrary, those provisions were in several respects expressed in terms descriptive of court proceedings: [44], [112], [128]. For essentially the same reasons, his Honour held that the proportionate liability provisions of the Competition and Consumer Act did not apply to the arbitration by force of their own terms: [44], [129]. In this regard, his Honour reached a similar conclusion to that reached by Beech J in Curtin University of Technology v Woods Bagot Pty Ltd [2012] WASC 449 in respect of the Civil Liability Act 2002 (WA). Importantly, a key reason for the judge’s determination was that, unlike a court, an arbitrator has no power to join any additional wrongdoers to the arbitration against their will and that such an entitlement for joinder was an “integral aspect” of the proportionate liability regime that could not apply to arbitrations: [122].
Justice Doyle’s conclusion that the regimes did not apply by force of their own terms did not preclude the possibility that they might apply by reason of a term implied into the parties’ arbitration agreement. In this regard, his Honour expressed the view that a term is generally implied in an arbitration agreement to the effect that the arbitrator has authority, in determining the dispute contractually referred by the parties for his or her determination, to grant such relief as would have been available were the claimant to have sued in a court of law of appropriate jurisdiction: [171]-[172].[3] However, and importantly, the Court determined that there will be exceptions or qualifications to the existence and extent of the implied term: [174]. The Court found that the implied term does not extend to substantive laws that are not amenable to application in arbitration proceedings: [178]. His Honour held that the proportionate liability provisions of the Apportionment of Liability Act and the Competition and Consumer Act were not amenable to application in arbitration proceedings. His Honour reasoned that it was an integral feature of both Acts that the plaintiff have the opportunity to join any third party wrongdoer(s) to their proceedings against the defendant, which could not be accommodated in the context of an arbitration: [45], [186]-[187], [192], [194], [201]-[202], [206].
Comment
Tesseract International is a very significant judgment which resolves, at least at intermediate appellate court level, some of the uncertainties attending the fundamental question of whether the proportionate liability regimes apply to arbitral disputes. This is of particular relevance to construction disputes, which are often subject to arbitration agreements. The effect of the judgment is that unless there is an express agreement to the contrary, ordinarily parties to an arbitration agreement will not be subject to the proportionate liability provisions of various statutes in Australia (like the Wrongs Act in Victoria). Whilst the judgment only dealt directly with the Competition and Consumer Act (which is itself of significance at a national level) and the Apportionment of Liability Act, it is hard to see how the same conclusions would not follow in respect of other jurisdictions (with the possible exception of Queensland, which expressly precludes the possibility of contracting out). Indeed, the position is a fortiori in Victoria, given the requirement in the legislation for concurrent wrongdoers to be joined (subject to limited exceptions) for a proportionate liability defence to be entertained. An application for special leave has been filed. The High Court has granted the Consultant special leave to appeal. No doubt many
professionals will be watching with interest to see what happens.
Liability limited by a scheme approved under professional standards legislation.
[2] As to the construction of the dispute resolution provisions, see Tesseract International Pty Ltd v Pascale Construction Pty Ltd (2021) 138 SASR 106.
[3] Applying Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture (1981) 146 CLR 206.
