The High Court of Australia Confirms that Proportionate Liability can Apply in Arbitration

Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24

A. Introduction

On 7 August 2024 the High Court of Australia handed down its decision in Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24 ruling in favour of Tesseract International Pty Ltd, allowing their appeal with costs.

The case centred on whether the proportionate liability regimes under South Australian and Commonwealth law applied to an arbitration between Tesseract and Pascale Construction Pty Ltd.  The Court concluded that these regimes do apply in the arbitration, provided that the arbitration agreement does not explicitly exclude them.

B. Case Background

Tesseract International Pty Ltd (Tesseract) provided engineering consultancy services to Pascale Construction Pty Ltd (Pascale) for a construction project.  A dispute arose regarding Tesseract’s performance, leading to arbitration in accordance with their contract.

C. Legal Question

The central legal question was whether the proportionate liability regimes under the Law Reform Act 2001 (SA) (LRA) and the Competition and Consumer Act 2010 (Cth) (CCA) applied to the arbitration proceedings between the parties.

Arguments For Proportionate Liability Applying:

1. Legal Consistency:  Tesseract argued that the proportionate liability regimes under the LRA and CCA should apply to the arbitration.  It contended that these regimes form part of the substantive law of South Australia, which governs the arbitration.
2. Arbitrability:  Tesseract also argued that the subject matter of the dispute, which involved claims of concurrent wrongdoing by a third party, is capable of settlement by arbitration under the law of South Australia.
3. Public Policy:  Tesseract submitted that applying the proportionate liability regimes in arbitration would not be contrary to the public policy of South Australia.

Arguments Against Proportionate Liability Applying:

1. Complexity in Arbitration:  Pascale argued that the proportionate liability regimes are difficult to apply within the context of arbitration.  It contended that these regimes are designed for Court proceedings and may not be easily adaptable to arbitration.
2. Public Policy Concerns: Pascale also raised concerns that applying the proportionate liability regimes in arbitration could conflict with public policy considerations, particularly regarding the enforceability and fairness of arbitral awards.
3. Non-Arbitrability:  Pascale argued that certain aspects of the proportionate liability regimes might be non-arbitrable under South Australian law, meaning they cannot be settled through arbitration.

D. Court of Appeal’s Decision

The Court of Appeal of the Supreme Court of South Australia initially ruled that the proportionate liability regimes did not apply to the arbitration.  Their reasoning was based on several key points:

1. Complexity in Arbitration:  The Court of Appeal found that the proportionate liability regimes are difficult to apply within the context of arbitration.  They contended that these regimes are designed for Court proceedings and may not be easily adaptable to arbitration.
2. Public Policy Concerns:  The Court of Appeal raised concerns that applying the proportionate liability regimes in arbitration could conflict with public policy considerations, particularly regarding the enforceability and fairness of arbitral awards.
3. Non-Arbitrability:  The Court of Appeal concluded that certain aspects of the proportionate liability regimes might be non-arbitrable under South Australian law, meaning they cannot be settled through arbitration.

E. High Court’s Ruling

The High Court of Australia overturned the Court of Appeal’s decision, concluding that the proportionate liability regimes under the LRA and CCA do apply in arbitration unless explicitly excluded by the arbitration agreement.

The High Court’s rationale was based on several key points:

1. Substantive Law:  The law of South Australia, which includes the proportionate liability regimes, applies to the substance of the dispute submitted to arbitration.
2. Arbitrability:  The subject matter of the dispute, which involved the application of the proportionate liability regimes, was capable of settlement by arbitration under South Australian law.
3. Public Policy:  The Court found that applying the proportionate liability regimes in arbitration would not be contrary to the public policy of South Australia.
4. Jurisdiction:  The Court emphasised that the arbitrator had jurisdiction to make an award applying the proportionate liability regimes, and such an award would not be liable to be set aside under the relevant provisions of the Model Law as reflected in the Commercial Arbitration Act 2011 (SA).

The conclusions led the High Court to overturn the decision of the Court of Appeal of the Supreme Court of South Australia and allow the appeal with costs.

F. Implications of the Ruling

The High Court emphasised that the substantive law of South Australia, including proportionate liability provisions, applies to the arbitration unless it conflicts with public policy or the subject matter is non-arbitrable.

G. Commercial Arbitration Context

The ruling aligns with the principles of the UNCITRAL Model Law on International Commercial Arbitration, which aims to ensure uniformity and predictability in arbitration proceedings.

For more information about building & construction and commercial litigation disputes, contact David Collins in the Mullane & Lindsay litigation team.

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