What you need to know
- There is currently uncertainty in the interpretation of arbitration clauses in Australia, after the Full Federal Court of Australia and the New South Wales Court of Appeal expressed conflicting views on the correct approach to the interpretation of such a clause.
- Despite a trend in the Federal jurisdiction towards applying a liberal interpretation to the scope of arbitration clauses, some authorities have applied a narrow construction of the phrase "any dispute under this deed" when referring matters to arbitration. A narrow view potentially results in some issues being dealt with by arbitration and others by the courts. However, the Full Federal Court decision in Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170 held that Courts should give these words a wider construction, so that all issues can be resolved in one forum.
- The High Court of Australia recently granted special leave to appeal the decision in Hancock, accordingly, the current uncertainty may soon be resolved.
What you need to do
- When drafting dispute resolution clauses, consider the types of disputes which could potentially arise and how those disputes should be resolved.
- Take care when drafting arbitration clauses to avoid uncertainty about the scope of the clause and unintended procedural complexity.
High Court to consider construction of arbitration clauses
On 18 May 2018, the High Court granted special leave to appeal on one of the issues determined by the Full Court Federal Court in Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170, namely the scope of the words "any dispute under this deed".
The Full Federal Court's approach
The Full Federal Court said the correct general approach to arbitration agreements is that it should be presumed that the parties do not intend the inconvenience of having possible disputes being heard in two places.
As a matter of construction, the Court stated that this principle is relevant to the commercial purpose or object of the agreement, and that as a result the court should give effect to it so far as the language of the parties will permit.
This principle was regarded as more important than semantic debates about connecting words in a dispute resolution clause such as "under", "arising under", "out of", "arising out of", "in relation to" and "in connection with".
For those reasons, the Court held that the words "any dispute under this deed" should be given a liberal interpretation.
A "dispute" was not limited narrowly to issues or parts of issues, but included disputes as to whether the deed has been rescinded, defences, and attacks on the availability of defences.
In this context, the words "any dispute under this deed" included a dispute that contained a substantial issue that concerned the exercise of rights or obligations in the deed, or a dispute that concerned the existence, validity or operation of the deed as a substantial issue, or a dispute the resolution of which was governed or controlled by the deed.
The New South Wales Court of Appeal's approach
The Full Federal Court held that the decision in Rinehart v Welker [2012] NSWCA 95, construing the same clause as limited to disputes governed or controlled by the deed, was wrong.
In the New South Wales Court of Appeal decision, Bathurst CJ (with whom McColl JA and Young JA agreed), had held that the ordinary meaning of the words should be preferred, and it was wrong to adopt a presumption that the parties intended that any dispute arising out of the relationship would be decided by the same tribunal.
What disputes did the clause cover here?
In this case, Bianca Rinehart and John Hancock sued 15 respondents including their mother, Georgina Rinehart, and Hancock Prospecting Pty Ltd.
They allege that Mrs Rinehart, in breach of her duties as a fiduciary and as a trustee, and with the knowing assistance of Hancock Prospecting:
- removed mining assets from the Hancock Family Memorial Foundation and transferred them to the Hancock Prospecting; and
- reneged on and circumvented an agreement with John Hancock in 1988 by giving her children a 23% share instead of a 49% share in Hancock Prospecting via a debt reconstruction.
The claim pleads that various deeds containing acknowledgements, mutual releases, covenants not to sue and arbitration agreements were procured by misconduct.
In 2015 the primary judge directed that the Court try the question of whether the arbitration agreements were null and void, inoperative or incapable of being performed within the meaning of the Commercial Arbitration Act 2010 (NSW).
The Full Court (Allsop CJ,Besanko and O'Callaghan JJ) upheld an appeal, instead referring the matter to arbitration and staying subsidiary claims involving parties not bound by the arbitration agreement.
Authors: Jeremy Chenoweth, Partner; Andrew Westcott, Senior Expertise Lawyer; and Lana Kelly, Senior Associate.
