A clause which obliges parties to refer their dispute to arbitration is a valid arbitration agreement, even if it provides an option to use a different dispute resolution method instead of arbitration. The court will interpret a dispute resolution clause in a commercially reasonable way having regard to the objective of facilitating resolution of disputes by arbitration tribunals without unnecessary delay and expense, and will prefer a uniform application of arbitration legislation throughout Australia
This case concerned an appeal to the Court of Appeal as to whether a contract entered into by the appellant (Lee) and the respondent (Lin) contained an arbitration clause as defined under the Commercial Arbitration Act 2013 (QLD) (Act).
Lee and Lin entered into a commercial contract in 2014 (contract). The dispute resolution clause in the contract provided that if the parties could not reach an agreement to resolve a dispute within 21 days after the dispute had been raised, the parties agreed to refer the dispute to the Australian Commercial Disputes Centre (ACDC) for final settlement by a single arbitrator or by another dispute resolution process suggested by the ACDC. The dispute resolution clause also provided that if the parties were unable to resolve their dispute through the ACDC, either may commence court proceedings.
In September 2021, Lin commenced proceedings against Lee alleging, amongst other things, breach of contract and negligence. Lee applied for the proceedings to be stayed and that the dispute be referred to arbitration, on the basis of the dispute resolution clause in the contract.
The primary judge found that the dispute resolution clause was not an arbitration agreement because:
- the parties were not required to submit to an arbitration;
- it did not require that the single arbitrator engage in an arbitration;
- other disputed settlement methods could be agreed upon by the parties, and
- the clause contemplated the possibility that parties might not be able to resolve their dispute through the ACDC.
Lee appealed the decision, contending that the primary judge was wrong in deciding that the dispute resolution clause was not an arbitration agreement.
The Court of Appeal allowed the appeal, finding that the dispute resolution clause was an arbitration agreement, despite its unclear phrasing. Under the dispute resolution clause, if the parties could not settle their dispute by discussion, they were obliged to refer it to the ACDC for final settlement,. The words ‘for final settlement’ should be construed as meaning ‘to finally determine or end the dispute between the parties’. In this case, it meant referring the matter to the ACDC for final award by an arbitrator.
In reaching its decision, the court reiterated the general principle that commercial contracts must be construed in a business-like way. It also referenced the paramount object of the Act as being ‘to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense’. The court stated that subtle verbal distinctions should not be encouraged in arbitration law. Standard conditions and uniform legislation should be given the same meaning in jurisdictions throughout Australia where possible.
The dispute resolution clause in this case also provided the parties with the option of choosing an alternative method of resolution through the ACDC. For example, instead of arbitration, the parties could have agreed to mediate their dispute and if that mediation had failed, they would have been unable to resolve their dispute through ACDC as contemplated by the clause, leaving them free to commence court proceedings. However, proceeding to litigation without following the dispute resolution clause (involving either arbitration or another method chosen by ACDC) was not acceptable.