March 28, 2018

The recent decision of the Supreme Court of Western Australia in GR Engineering Services Ltd v Eastern Goldfields Ltd [2018] WASC 19 considered the meaning of a ‘carve out’ from a mandatory agreement to arbitrate, which allowed the commencement of court proceedings to enforce "payment due", in the context of a stay application under the Commercial Arbitration Act 2012 (WA).

A dispute arose between GR Engineering Services Ltd (GR Engineering) and Eastern Goldfields Ltd (Eastern Goldfields) in relation to a contract for the design and implementation of certain refurbishment works on the Davyhurst Gold Plant (the Contract). The Contract contained a dispute resolution clause including arbitration. Relevantly, the arbitration agreement stated that "[n]othing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Contract or to seek injunctive or urgent declaratory relief."

GR Engineering commenced an action in the Supreme Court of Western Australia seeking, amongst other relief, payment of the amount of $9,940,995.07 by Eastern Goldfields under the Contract. In response, Eastern Goldfields applied under section 8 of the Commercial Arbitration Act 2012 (WA) to have the dispute between it and GR Engineering referred to arbitration and the court proceedings stayed.

In finding that the proceedings did not fall within the ‘carve out’ permitting the commencement of court proceedings to enforce "payment due", and therefore that the dispute fell within the agreement to arbitrate and should be referred to arbitration, Tottle J held that:

  1. if a dispute between the parties falls within the ambit of an arbitration agreement, the Court must refer the parties to arbitration; and

  2. a proper construction of the terms of the Contract, including the intention of the parties shown by the clause, suggests that the ‘carve out’ in respect of "payment due" under the Contract was intended to allow court proceedings for the enforcement of payments due and owing, and not to resolve a dispute about whether claimed amounts were due.

This decision stands as a timely reminder for parties to take care to clearly reflect their intentions when drafting any exclusions from an arbitration agreement.

The full decision can be found here.

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