October 21, 2021

Each Australian State and Territory has a Commercial Arbitration Act, adopted from the UNCITRAL Model Law on International Commercial Arbitration and adapted for domestic arbitrations. A well-known feature of the Commercial Arbitration Acts is that if a party brings a court action in a matter which is the subject of an arbitration agreement, the court may refer the parties to arbitration.

The Queensland Court of Appeal’s recent decision in Cheshire Contractors Pty Ltd v Civil Mining & Construction Pty Ltd [2021] QCA 212 considered the requirements of an ‘arbitration agreement’ that enlivens this power.

The case arose in the context of a roadworks construction project, for which the Queensland Department of Transport and Main Roads had appointed Civil Mining & Construction Pty Ltd as the principal. CMC subcontracted some of those works to Cheshire Contractors Pty Ltd. A dispute arose between CMC and Cheshire regarding a claim made by Cheshire. Despite there being an arbitration clause in the subcontract, Cheshire commenced court proceedings against CMC seeking to recover the amounts that it claimed were owing.

CMC applied for the proceeding to be stayed and referred to arbitration pursuant to the Commercial Arbitration Act 2013 (Qld).  However, Cheshire argued the relevant subcontract clause was not an ‘arbitration agreement’ within the meaning of the Act, because it did not identify “a defined legal relationship” between the parties. This was because of section 7(1) of the Act, which defines an arbitration agreement as:

an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(emphasis added)

Cheshire’s argument was that this effectively required the language of the arbitration agreement itself to expressly define the relevant legal relationship.

In the Supreme Court, Henry J granted CMC’s application and referred the parties to arbitration. Our update on the first instance decision can be found here.

Cheshire appealed, but the Court of Appeal unanimously dismissed the appeal. The Court of Appeal discussed the small number of authorities on the meaning of the requirement in section 7(1) for the dispute between the parties to be “in respect of a defined legal relationship”, and found there was nothing in the words of section 7(1) to support Cheshire’s interpretation. Rather, the Court of Appeal held that this ‘strained’ the language of the provision. It further held that there was nothing in the purpose or broader context of section 7(1) to support Cheshire’s interpretation.

If the Queensland Court of Appeal had agreed with Cheshire’s interpretation of what an ‘arbitration agreement’ must include for the purpose of the Act, this would have required parties to reconsider the way they commonly draft arbitration agreements in Australian construction contracts. The Queensland Court of Appeal’s decision confirms that a move towards including express words identifying a “defined legal relationship” within the arbitration agreement itself, is not required for the Act to apply.

The full decision of the Queensland Court of Appeal can be found here.

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