Do Australian proportionate liability regimes apply to arbitrations?

Litigation Update (Australia)

Following the introduction of proportionate liability regimes across Australia in the middle of last decade, a number of important questions arose and remained undecided. One of those was the question of whether the proportionate liability regimes would apply to disputes that were the subject of arbitration. 

The Full Court of the Supreme Court of Tasmania in the case of Aquagenics Pty Ltd v Break O'Day Council [2010] TASFC 3 touched on the question without reaching a final view.

The WA Supreme Court has determined the question (at least in part) in the case of Curtin University of Technology v Woods Bagot Pty Ltd [2012] WASC 449. The parties were in arbitration under the Commercial Arbitration Act 1985 (WA) (CAA) as a consequence of a dispute that arose under a construction contract entered into between them.

The court was called upon to answer the following question of law:

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

Justice Beech found that the regime did not apply to such proceedings. He noted five reasons as the basis for his decision:

  1. The natural meaning of the language 'court', 'action for damages' and 'judgment' favoured the principal's (Curtin) contention that the language did not naturally encompass arbitrations.
  2. The word 'court' in sections 5AN and 5AA does not extend to an arbitrator.
  3. The absence of a power of an arbitrator to join other concurrent wrongdoers was indicative that Part 1F does not apply to arbitrations.
  4. A proportionate liability regime may be achieved through an implied term in the arbitration agreement. There was no need to give the language in Part 1F an extended meaning to achieve this same purpose.
  5. Nothing in the entirety of Part 1F referred to arbitrations, unlike past statutory regimes.

Justice Beech reserved a significant issue to the arbitration itself, namely whether there was an implied or expressed term of the arbitration agreement that could invoke the operation of Part 1F over the CLA.

In reaching his decision, Justice Beech discussed the primary differences between arbitration and curial processes. Although he accepted there was some doubt as to whether the phrase 'according to law' in section 22 of the CAA was limited to meaning 'according to the principles of the common law' as stated in South Australian Superannuation Fund Investment Trust v Leighton Contractors Pty Ltd (1996) 66 SASR 509 he considered the decision was not 'plainly wrong'.

It follows that section 22 of the CAA and its equivalents in other jurisdictions cannot of itself make Part 1F of the CLA apply to an arbitration.

This decision is significant for:

  • Contracting parties in determining what method of dispute resolution should be included in  contracts, particularly where that party assumes a liability greater than it would ordinarily assume such as a lead design consultant.
  • Professionals and professional indemnity insurers in that a professional, having agreed to arbitrate a dispute, will be placed in a significantly different position to that which exists where the dispute is before a court or tribunal.
  • Legislators, as the decision has the potential to undermine the intent of the legislation to limit a defendant's liability to an amount proportionate to its degree of fault rather than its financial capability to fund an award or judgment.

The decision will also be of interest to the proponents of domestic arbitrations as this will be yet another reason why some contracting parties will seek to avoid arbitration in order to protect their rights under the proportionate liability regimes.