In a construction context, arbitration is a common dispute resolution mechanism agreed to by parties to resolve disputes arising under their contract. Since the introduction of proportionate liability legislation in Australia, it has been unclear whether the proportionate liability regime applies to disputes referred to arbitration. In the recent decision of the Western Australian Supreme Court in Curtin University of Technology v Woods Bagot Pty Ltd [2012] WASC 449, the Court decided that the proportionate liability provisions of the Civil Liability Act 2002 (WA) ("Civil Liability Act") did not apply to arbitrations.

Background

Prior to this decision, there had only been one Australian case, Aquagenics Pty Ltd v Break O'Day Council Ltd [2010] TASFC 3, which commented on the issue. Whilst the court's comments in the Aquagenics decision were obiter, they did suggest that proportionate liability does not apply to arbitration.

Facts

In the Curtin University decision, the parties were in dispute under a construction contract they had entered into. The dispute was being resolved by arbitration. The central issue for the Court was whether the regime for proportionate liability in Part 1F of the Civil Liability Act applies to commercial arbitrations.

In its points of defence in the arbitration, Woods Bagot Pty Ltd ("Woods Bagot") sought to rely on Part 1F of the Civil Liability Act contending that there were concurrent wrongdoers responsible for the losses suffered by Curtin University of Technology ("Curtin") and seeking to limit its liability to a proportion of the loss suffered by Curtin. Curtin argued that the proportionate liability legislation did not apply because the dispute had been referred to arbitration.

With the consent of the arbitrator, the question of whether Part 1F of the Civil Liability Act applied to arbitrations was referred to the Western Australian Supreme Court for determination.

The court's findings

It was found by Beech J that Part 1F of the Civil Liability Act did not apply to commercial arbitrations.

Beech J held that the natural and ordinary meaning of the word 'court' (in Part 1F of the Civil Liability Act) did not comfortably encompass arbitrators. Further, the court's power to join other persons as defendants could not be construed to have a meaning which extended to include an "arbitrator".

Beech J then addressed the nature and function of arbitration. His Honour noted that arbitration is a voluntary process between consenting parties only. As a result of the voluntary nature of arbitration, only parties to the arbitration agreement can have their dispute resolved by arbitration. As a consequence, it goes against the voluntary nature of arbitration to bring concurrent wrongdoers, who are not party to an arbitration agreement, into the arbitration. Beech J found that whilst it would be one thing to decide to impose proportionate liability upon a plaintiff in circumstances where a court has the power join other concurrent wrongdoers, to impose proportionate liability in the absence of such a power would be a different thing. Beech J found that, in the absence of a power to join other wrongdoers, application of the proportionate liability regime may cause injustice or hardship to a claimant.

For the reasons referred to above, Beech J concluded that Part 1F of the Civil Liability Act does not apply to commercial arbitration proceedings pursuant to the Commercial Arbitration Act 1985 (WA).

In this case Beech J was not required to determine whether an implied term of an arbitration agreement makes or may make Part 1F of the Civil Liability Act applicable to arbitrations as the issue went beyond the question referred by the arbitrator. Determining whether the proportionate liability provisions may impliedly apply to an arbitration agreement will depend upon the proper construction of the parties' contract.

Takeaway message

Although this decision focusses on the Western Australian proportionate liability legislation, the reasoning applied by Beech J will likely apply to the proportionate liability regimes in other Australian states.

Whilst Beech J's decision clarifies that proportionate liability will not, by reason of legislation force, apply to arbitrations it does leave open the possibility that proportionate liability may impliedly apply to arbitrations.

For contractingg parties wanting to agree to resolve their disputes by arbitration, an express provision should be included in any arbitration agreement as to whether the proportionate liability provisions will apply to any arbitration.