Arbitration agreements – does your contract require compulsory arbitration?

TA recent NSW Supreme Court decision AGL Energy Limited v Jemena Gas Networks (NSW) Ltd [2017] NSWSC 765 reinforces the approach that Courts will adopt when determining the existence of an arbitration agreement.

A dispute arose between AGL Energy Limited (AGL) and Jemena Gas Networks (NSW) Ltd (Jemena) in relation to a contract to provide gas meter reading services. The tiered Dispute Resolution clause in the contract required that the parties enter good faith discussions, and then mediation when attempting to resolve the dispute. Relevantly, clause 30.5(a) of the contract stated that:

In the event that discussions under clause 30.4 (good faith discussions) fail to resolve the Dispute, each party expressly agrees to endeavour to settle the Dispute by mediation administered by the Australian Commercial Disputes Centre before having recourse to arbitration or litigation (emphasis added).

Following an unsuccessful mediation, Jemena notified AGL that it had referred the dispute to arbitration pursuant to clause 30.5(a). Shortly thereafter, AGL commenced proceedings in the Supreme Court in relation to the same dispute.

Section 8(1) of the Commercial Arbitration Act 2010 (NSW) (the Act), states that if a matter before the Court is subject to an arbitration agreement, and if requested by a party to the dispute, the matter must be referred to arbitration (unless it finds that the agreement is null and void, inoperative or incapable of being performed).

In considering whether it had to refer the dispute to arbitration, the Court held that clause 30.5(a) of the contract did not constitute an ‘arbitration agreement’ for the purposes of the Act. The Court found that a reasonable person in the position of the parties would not have understood from the language of the clause that it was committing itself to compulsory arbitration. In making such a finding, the Court emphasised that the clause:

•   merely restricted recourse to arbitration or litigation unless the necessary pre-conditions were fulfilled;
•   contained no words of election or words giving one party the right to compel the other in one direction;
•   provided no indication that arbitration had primacy over litigation; and
•   did not confer any right to litigate or any contractual right to force a compulsory arbitration.

The full decision can be found here.