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In this significant case, Henry J was asked to consider whether or not to refer the parties to arbitration in accordance with s 8(1) Commercial Arbitration Act 2013. The preliminary issue was whether the relevant clause in the contract between the parties which provided that “the disputes or differences shall be referred to arbitration” constituted an arbitration agreement within the meaning of s 7 of the Act. Henry J concluded that it did. The second issue was whether the dispute between the parties was a matter which was the subject of the arbitration agreement. Henry J concluded that it was. His Honour explained that, as the fundamental question between the parties was whether the plaintiff should be paid more than it already had been for works it was contracted to perform, that was a question which arose out of the commercial transaction to which the contract gave rise and was therefore a matter which was the subject of the arbitration agreement.
9 April 2021
Civil Mining & Construction Pty Ltd (CMC) was engaged by the Queensland Department of Transport and Main Roads (TMR) to undertake roadworks construction. . CMC in turn engaged Cheshire Contractors Pty Ltd (Cheshire) as a sub-contractor to perform some of these works. . Cheshire was required under its contract with CMC to use materials which complied with specifications set out by TMR. . Out of specifications materials were encountered by Cheshire on at least 12 occasions during the works, and it contends that on 11 occasions it was given directions on how to incorporate or otherwise deal with these materials by CMC. . Ultimately, Cheshire contended that it incurred significant costs in dealing with these materials, and sought payment for the extra expense from CMC. –.
After an unsuccessful attempt at mediation, Cheshire commenced proceedings in the Supreme Court. –. CMC, in turn brought an application that the Court permanently stay the proceedings and instead refer the parties to arbitration in accordance with s 8(1) Commercial Arbitration Act 2013 (the Act). . Henry J considered that there were three questions arising from s 8(1): :
(a) Is there an “arbitration agreement”?
(b) Is CMC’s Supreme Court claim “brought in a matter which is the subject of the arbitration agreement”?
(C) Should this Court find the agreement “null and void, inoperative of incapable of being performed”?
Turning to the first question, Henry J noted that an “arbitration agreement” is defined in s 7 of the Act to be an agreement “to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not” (emphasis added). . Here, the purported arbitration clause in the contract – cl 12.3.3 – provided “the disputes or differences shall be referred to arbitration”. . In Cheshire’s submission, cl 12.3.3 was ineffective as an arbitration agreement within the meaning of ss 7 and 8 of the Act as it failed to define the requisite “disputes or differences” by reference to any identified legal relationship. .
In considering this submission, Henry J identified that it was important to view cl 12.3.3 within its broader context. –. Accordingly, his Honour considered it to be a reasonable inference that cl 12.3.3 refers to the rights and obligations conferred and imposed by the contract. –. Further, his Honour considered that three general principles favoured the applicability of the arbitration agreement: :
(a) The whole of the relevant instrument is to be construed in interpreting its meaning;
(b) Commercial contracts should be interpreted to give effect to their commercial purpose, here the performance of paid works, which supports the interpretation that disputes about payment should fall within cl 12.3.3; and
(C) Arbitration clauses should not be construed narrowly.
In considering the limits of this third principle, Henry J recognised that the arbitration clause should not be construed so broadly as to refer any dispute at all between the parties to arbitration. . Rather, after reviewing the relevant authorities, his Honour identified that the test was whether or not there is a sufficiently close connection between the claim and the commercial transaction of which the arbitration clause forms a part. –. More particularly, “a dispute pursuing rights said to arise outside a contract should nonetheless be regarded as arising out of or closely connected with the contract where the dispute turns upon whether or not the parties’ rights are constrained by the strict operation of the terms of the contract”. . His Honour identified the instant case as one such dispute. . Henry J also distinguished this case from those containing arbitration clauses referring to arbitration disputes “under a contract”, which have been held to limit the application of arbitration agreements. –.
After finding cl 12.3.3 to be a valid arbitration clause, Henry J dealt with the remaining two questions arising from s 8(1) in short order. His Honour considered the dispute between the parties to be one arising from their commercial relationship created by the contract, so the claim was brought in a matter subject to the arbitration agreement. –. The arbitration agreement was not so vague as to be inoperative, and Cheshire’s reliance on estoppel by convention was not inconsistent with the continued operation of the arbitration clause. –. Similarly, although part of Cheshire’s claim was made under the Australian Consumer Law, Henry J was not satisfied that a reference to arbitration would deprive Cheshire of the benefits of the application of the Australian Consumer Law. –.
In the event, Henry J was satisfied that the requirements of s 8(1) had been made out, such that this matter should be referred to arbitration. . His Honour also stayed the proceedings. .