Rethinking proportionate liability in arbitration
On 7 August 2024, the High Court delivered its decision on appeal, overturning the SA Court of Appeal. I have written about that decision here.
On 30 August 2023, I presented a paper at a meeting of the South Australian chapter of Resolution Institute.
The paper focussed on the application of proportionate liability legal regimes within Australian commercial arbitration. The late-2022 SA Court of Appeal case of Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2022] SASCA 107, dealing with an arbitration arising from the design and construction of a Bunnings Warehouse, concluded that the common proportionate liability regimes around Australia are unlikely to have application within arbitral proceedings. The Court’s reasoning was based primarily on a finding that the proportionate liability laws were not intended by the relevant parliaments to apply within arbitration.
It is fair to say that, if the Court of Appeal’s approach is correct, it substantially undermines the attractiveness of arbitration to resolve commercial disputes, particularly for professional consultants such as engineers. Further, if the applicability of statutory law within arbitration depends on an analysis of the intent of parliament on a statute-by-statute basis, it opens up a new way in which Australian Courts can potentially intervene in arbitration.
The High Court has given special leave to appeal, and we are waiting to see whether the High Court clarifies the application of the ‘law of the land’ within arbitration.
You can download a copy of the paper here. In that paper, I have reviewed the decisions on the issue leading up to Tesseract.
The main question is whether the parties have, by their submission of their dispute to arbitration in accordance with particular laws (in this case, the laws of South Australia and the Commonwealth of Australia), adopted the proportionate liability regimes that limit a defendant/respondent’s liability in certain cases. How do section 28 of the Commercial Arbitration Act and the principles expressed by the majority in Government Insurance Office of New South Wales v Atkinson-Leighton Joint Venture (1981) 146 CLR 206 interact?
At the time my paper was prepared, I had not seen the excellent amicus curiae submissions filed by ACICA in the High Court proceedings.
ACICA’s submissions hit, I think, on a key argument not addressed squarely by either Tesseract or Pascale in the litigation to date.
If I can summarise, the point is this:
the legislative framework for commercial arbitration (under the Commercial Arbitration Act, the International Arbitration Act or the UNCITRAL Model Law) has developed substantially since GIO was decided so that the GIO analysis is no longer necessary;
there is no need to consider ‘implied terms’ because section 28 of the Commercial Arbitration Act (and article 28 of the Model Law) already require the arbitral tribunal to apply the substantive laws as chosen by the parties and, if those laws are the law of a place, then the tribunal must apply the substantive laws of that place;
the applicability of substantive laws within arbitration does not turn on the legislative intention underpinning any particular substantive law, but is instead ascertained by reference to the partis’ choice of the set of substantive laws to apply; and
any conclusion that a dispute is not arbitrable or a remedy is not available from an arbitrator as a matter of public policy is to be based on a consideration of the overarching policy context and not the language of a particular statute.
Accordingly, ACICA’s submissions are that the Court of Appeal’s analysis was flawed, and the High Court should clarify the approach to be taken by future arbitral tribunals.
I anticipate that the High Court may be attracted to ACICA’s submission because it tends to answer some of the tricky questions left hanging by the Court of Appeal’s reasoning. I discussed those questions at the end of my paper.