Commercial Arbitration in Australia – Part 2

There are four aspects of the Australian context that frame the issue identified below. First, the Australian Consumer Law covers misleading and deceptive conduct in trade or commerce, regardless of intent. Second, it covers unconscionable conduct in trade or commerce, applying a much broader test than equity. Third, it provides for related remedies and relief that go far beyond common law and equitable remedies. Fourth, in the context of the supply of consumer goods, it applies strict obligations on the supplier regardless of value or use.

A little over a decade ago, Australian substantive law was significantly reformed by the introduction of a statutory proportionate liability regime by the States and Commonwealth of Australia respectively.

Regrettably, those statutes do not operate uniformly. However, the essential characteristic is that a defendant may reduce its primary liability by reference to a concurrent wrongdoer (in contradistinction to merely bringing a third-party claim, for example for indemnity or contribution). This replaces the common law principle of solidary or joint and several liability for certain types of disputes (cf Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 656). One statutory regime affected is the Australian Consumer Law (via the Competition and Consumer Act 2010 (Cth)).

For some time there had been uncertainty about how this operated in commercial arbitrations, particularly because (with the exception of the Victorian legislation) it is unnecessary for a concurrent wrongdoer to be a party for apportionment to occur. The argument is that because proportionate liability is substantive law (which must be applied) it operates by force of the proportionate liability legislation and ought in any event be implied into the arbitration agreement. The contrary argument is that parties to an arbitration agreement have made their choices about risk allocation and have elected not to include others in that risk allocation (at least directly).

The answer was decisively given in Tesseract International v Pascale Construction [2022] SASCA 107 in part by reference to Article 28 of the Model Law (which concerns the identification and application of rules to determining the substance of the dispute) and in part by recognising the essential character of arbitration as consensual.

The answer is (for the moment at least) that proportionate liability does not apply. While the possibility of an implied term in an arbitration agreement to the contrary effect was left open in Tesseract International, that outcome seems inherently unlikely for the same reason the primary argument was rejected. In fact, the common drafting technique is to exclude proportionate liability from contractual instruments that include an arbitration agreement.

Special leave to appeal to the High Court of Australia was granted and that appeal was heard in November 2023. The appellant in large measure relied on the principle of solidary liability which underpins proportionate liability legislation and the practical fact that parties to an arbitration agreement make a choice to arbitrate cognisant of the substantive law (not in spite of it).

In Part 1 of this series, Rinehart v Hancock Prospecting(2019) 267 CLR 514 was identified as a definitive statement of Australian law to the effect that non-parties to a contractual instrument might nevertheless be parties for the purposes of the Model Law. Tesseract International clarifies that the liability limitation affected by proportionate liability statutes may not apply.

The result is (as the appellant put it to the High Court) a disconformity between curial and arbitral proceedings, notwithstanding that the proportionate liability regimes are substantive law. Bear in mind there is no joinder in arbitration, so the implications for the exclusion of proportionate liability are significant either way. The better question is perhaps answered by recognising the true meaning of party autonomy.