Court affirms referral to arbitration under the Commercial Arbitration Act 2011 (Vic)

In a recent judgment, the Victorian Supreme Court refused an application to grant relief where the dispute should properly be determined by an arbitral tribunal. In Transurban WGT Co v CPB Contractors Pty Ltd [2020] VSC 476, the Court reviewed the extent of judicial intervention allowed by the Commercial Arbitration Act 2011 (Vic) (CAA) and found that the question of whether an arbitration agreement is inoperative and, in turn, the jurisdiction of the arbitral tribunal, is properly determined by the tribunal.

The CAA is one of eight uniform pieces of legislation (one in each state and territory) establishing the domestic arbitration framework in Australia. While this case refers to the CAA in force in Victoria, the decision is relevant to parties operating in all states and territories, where similar commercial arbitration legislation applies.

The case serves as a reminder to parties in all states and territories that the Australian courts take a non-interventionist approach to arbitration, and it will be left to arbitral tribunals to determine the preliminary question of their own jurisdiction. It also confirms that parties seeking relief from a court at an interlocutory stage of arbitral proceedings must have urgent and exceptional circumstances.

Background

The matter concerns the construction of the West Gate Tunnel Project in Melbourne and back-to-back agreements between the State of Victoria and Transurban (the Project Agreement), and Transurban and the Subcontractor (the Subcontract). Key provisions of both agreements include that: 

• any disputes “arising in connection with” the relevant agreement ultimately are to be determined by arbitration; and
• where downstream claims involve a related upstream claim by Transurban, these claims are “Linked Claims” and the downstream claims will not be progressed while the related upstream disputes are progressed (termed the suspension clause).

In January 2020, the Subcontractors purported to terminate the Subcontract by reason of force majeure after contaminated soil was discovered in the tunnel area.

The Subcontractor initiated arbitration with Transurban in March to resolve a number of downstream claims. In turn, Transurban initiated arbitration with the State of Victoria in respect of several upstream claims.

Key questions

In the VSC proceedings, Transurban claimed the disputes were Linked Claims, and that the suspension clause barred the downstream arbitration from progressing. Transurban sought a declaration from the Court that the suspension clause was enforceable, and an injunction to restrain the Subcontractors from progressing the downstream arbitration until the upstream arbitration was determined.

The Subcontractor argued that the Court did not have the power to intervene under the CAA, and that the arbitral tribunal – not the Court – should determine the question of the suspension clause and grant such relief.

Judgment

The Court held that the question of whether the suspension clause was valid was one for the arbitral tribunal in the first instance, and refused to grant the injunction sought by Transurban. In making its determination, the Court referred to the terms of the Subcontract and the powers of the court under the CAA.

The Court granted the application sought by the Subcontractor to refer the question of whether the suspension clause is inoperative to the downstream tribunal.

The court held, in respect of the suspension clause:

• the question of whether the suspension clause was valid and applies to the downstream arbitration was one ‘arising in connection with’ the Subcontract, which the parties had agreed to be determined by arbitration. It was therefore a proper matter for determination by arbitration, particularly where the issues had already been raised in the downstream arbitration; and
• the question of the validity and enforceability of the suspension clause goes to the jurisdiction of the downstream tribunal, as the suspension clause forms part of the agreement between the parties and regulates whether the downstream tribunal can exercise its functions. 

In determining the powers of the court, Lyons J held:

• while section 9 of the CAA contemplates that a party may request a court to make an interim measure during arbitral proceedings, the court’s power to do so is restrained significantly under section 17J of the CAA. The court reviewed various Australian authorities and found that an order under section 17J should only be made sparingly and where the purpose is to assist the arbitral process, rather than frustrate or impede it;
• the Australian Centre for International Commercial Arbitration Rules (ACICA Rules), under which the arbitration is conducted, reinforce the limited power of the courts to intervene in arbitral proceedings and the competence of the arbitral tribunal to determine a plea concerning its own jurisdiction (relevant to the question of the effect of the suspension clause); and
• a final declaration for relief will only be granted by the court at an interlocutory stage of arbitral proceedings where there are exceptional and objectively urgent circumstances to do so. The court found such circumstances did not exist in the present case. 

Comment

The case is a reminder of the limited scope of judicial intervention in the arbitral process in Australia. The review of the court’s power to grant interim measures under the CAA and the ACICA Rules reveals that arbitral tribunals, rather than the courts, will be tasked to determine the preliminary question of their own jurisdiction. This is consistent with the pro-arbitration approach of Australian courts.

When agreeing to an arbitration agreement, parties should consider that this may limit their recourse to the Australian courts. If parties intend to seek relief from a court at an interlocutory stage, their circumstances must be urgent or exceptional enough to warrant judicial intervention.