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Tesseract International Pty Ltd v Pascale Construction Pty Ltd  SASCA 107
The question of law for the Court’s determination arose in an arbitration relating to a construction dispute between engineering firm Tesseract and builder Pascale over the construction of a Bunnings Warehouse in South Australia. Pascale alleges loss and damage resulting from Tesseract’s breach of contract, negligence and misleading and deceptive conduct contrary to s18 of the ACL. Tesseract denies liability and, in the alternative, contends that any damages payable should be reduced to reflect the proportionate liability of a third party who is not party to the contract or the arbitration.
Tesseract alleged that any damages it must pay should be reduced by reason of the proportionate liability (PL) provisions contained in the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) (LRA) (in the case of breach of contact/negligence) and the Competition and Consumer Act 2010 (Cth) (CCA) (in the case of the misleading/deceptive conduct. Pascale said that the PL provisions relating to court proceeding involving multiple parties could not be applied in a private arbitration involving two players. The arbitrator, former WA Chief Justice Wayne Martin, referred the issue to the Court of Appeal as a question of law.
The PL provisions were enacted at Federal, State and Territory level in the 1990s and early 2000s. Under the common law previously, any defendant who caused or contributed to a Plaintiff’s loss was responsible for 100% of the loss, regardless of whether other parties were also responsible. If a defendant wished to offset the loss, it had to join those parties to the proceeding. The PL reforms made the defendant liable only for its share of the loss, and shifted responsibility to the plaintiff to join other wrongdoers.
Tesseract’s argument, briefly summarised, was that the arbitrator was either bound by the PL provisions under state arbitration legislation, the PL provisions applied to arbitrations (i.e. by force of law), or they were required by the terms of the arbitration agreement which, it argued, gave the arbitrator the power to apply any relief available in a court.
In the decision of Doyle JA (Livesey P and Bleby JA agreeing) the Court rejected all three strands of Tesseract’s argument. The court noted that certain aspects of the PL regime did not fit with an arbitration. Being able to join all wrongdoers is an essential element of the PL regimes yet it would not be possible for an arbitrator to join other parties to an arbitration without the consent of both the parties and the additional wrongdoer(s).
There was also the possibility of third parties being bound by the outcome of a private arbitration process between plaintiff and defendant in which they had played no part and may not even have been aware. A plaintiff whose award had been reduced by PL, could also be faced with having to bring a further proceeding to recover from the other party or parties, imposing both a cost burden and the possibility of conflicting decisions as a court would not be bound by the arbitration.
Tesseract described these issues as ‘rough edges’ that could be overcome. The Court of Appeal was of a contrary view, with Doyle JA concluding that there were aspects of both PL regimes that could not be applied to arbitrations, other than in a partial way, which would mean a different PL regime to that intended by the Parliaments. Those ‘rough edges’ indicated an intention on the part of lawmakers that the PL regimes did not apply to arbitrations.
While stating that the PL provisions did not automatically apply to an arbitration, the Court left open the possibility of parties being able to apply them in an arbitration where there is agreement to do so. When drafting arbitration clauses, clients should consider carefully whether to apply the relevant PL regime. There will be cases (particularly when defending a claim) when it will benefit the client to be responsible only for its ‘share’. Conversely, a client pursuing a claim may prefer to confine the claim to one party and one action. In all cases, precise drafting will be of paramount importance.
Read other items in the Australian Insurance Brief – November 2022