Interpretation of Arbitration Clauses in Australia

Two recent decisions have clarified how arbitration clauses will be interpreted by Australian Courts in the context of section 8(1) of the Commercial Arbitration Act 2010 (NSW) (the Act).

Section 8(1) of the Act states that if a party to an action requests a court to do so, the court must refer an action "which is the subject of an arbitration agreement" to arbitration, unless the agreement is "null and void, inoperative or incapable of being performed". Section 7(1) of the Act defines the meaning of an arbitration agreement as "an agreement by the parties 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".

Hancock Prospecting Pty Ltd v Rinehart

In Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170 the Full Federal Court held that an arbitration agreement which referred "any dispute under this deed" to arbitration included a dispute as to whether the deed itself was enforceable.

The proceedings concerned the validity of two deeds and were an appeal from an interlocutory application in which Hancock Prospecting sought an order under section 8(1) of the Act that the proceedings be stayed and referred to arbitration. A question which arose was whether the validity of the deeds themselves was a dispute for the purpose of the arbitration agreement. The primary Judge, Gleeson J held that the Act applied because the deeds provided for domestic commercial arbitrations. However, her honour limited the applicability of the arbitral agreement only to disputes the outcome of which were "governed or controlled” by the deed.

The Federal Court disagreed with the primary judge's construction and held that it "fails to give the necessary liberal width to the phrase “under the deed” and it fails to focus on the correct phrase, “any dispute under the deed”, and by so doing fails to take account of the consequences of the liberal width of the phrase “any dispute”. The Federal Court therefore held that the dispute as to the validity of the deeds was a dispute which must be referred to arbitration under the deeds.

Jemena Gas Networks v AGL Energy Limited

In AGL Energy Limited v Jemena Gas Networks (NSW) Ltd [2017] NSWSC 765, the New South Wales Supreme Court refused to refer an action commenced in the Court to arbitration, pursuant to section 8(1) of the Act, on the basis that a dispute resolution clause which provided that the parties must go to mediation "before having recourse to arbitration or litigation" was not a binding arbitration agreement. 

The primary judge, Justice Hammershchlag, held that the dispute resolution clause provided no binding agreement to arbitrate as there was no "critical" provision in the supply agreements for either party to refer the dispute to arbitration or litigation. The dispute resolution clause identified the possibility of arbitration without any express or implicit agreement to arbitrate.

In Jemena Gas Networks (NSW) Ltd v AGL Energy Limited [2017] NSWCA 266, Jemena subsequently appealed the Supreme Court decision on the basis that the primary judge erroneously held that the dispute resolution clause did not constitute an arbitration agreement and that section 8(1) of the Act "affords primacy to arbitration."

In refusing to grant Jemena leave to appeal, the Court of Appeal held:

The purpose of s 8 of the Act is to provide a mechanism to ensure that an agreement to arbitrate is enforceable and excludes the power of the court to permit litigation to proceed in the face of such an agreement. It would not assist that purpose to accept that any contractual arrangement which contemplated the possibility of arbitration, without any express agreement in writing to submit a particular category of disputes to arbitration, should result in the unilateral power to enforce arbitration in relation to all disputes.

Both cases demonstrate the need to carefully word dispute resolution clauses which are intended to fall within the meaning of arbitration agreements for the purpose of section 8(1) of the Act.