Not Under My Agreement: Inghams prevails in NSW Court of Appeal

We previously provided an update (which can be found here) on Inghams Enterprises Pty Ltd v Hannigan [2019] NSWSC 1186, where the NSW Supreme Court held that Mr Hannigan’s unliquidated damages claim against Inghams fell within the scope of the arbitration clause of the parties’ chicken grower agreement (Agreement).

The case of Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82 involved Inghams’ appeal to the NSW Court of Appeal, seeking to overturn the NSW Supreme Court decision on the basis that it erred in its construction of the arbitration clause.

By a 2:1 majority, the NSW Court of Appeal allowed Inghams’ appeal and set aside the NSW Supreme Court’s decision. Meagher J (with whom Gleeson JA agreed) held that, although the arbitration clause should be construed broadly, the source of Inghams’ obligation to pay unliquidated damages to Mr Hannigan was not contractual, but rather, a right of recovery arising by operation of law.

The unliquidated damages in question were owed by Inghams to Mr Hannigan for his loss of profit in the period following Inghams’ wrongful termination of the Agreement, and therefore, amounted to a remedial obligation to pay compensatory damages for Inghams’ breach of contract.

The Court of Appeal held that such unliquidated damages were not “payable and/or owed” under any express or implied term of the Agreement. In reaching this conclusion, the Court of Appeal drew an important distinction between:

•   monetary amounts payable or owed “under a contract” (such as liquidated damages referable to a contractual right of recovery); and
•   payment obligations in the form of remedies, which arise by operation of law (such as unliquidated damages awarded by a court to compensate a party for its loss resulting from another party’s breach).

It followed that Ingham’s obligation to pay the unliquidated damages to Mr Hannigan did not arise ‘under’ the Agreement, and Mr Hannigan lacked any contractual entitlement to refer the dispute to arbitration.

President Bell dissented, preferring the approach adopted by the NSW Supreme Court. His Honour considered the implications of the terms surrounding the arbitration clause, as well as the language of the clause itself, and found that the drafting indicated the parties’ intention for the clause to be construed more broadly.

This case demonstrates the importance of drafting arbitration clauses which reflect the parties’ intentions. A multi-tiered dispute resolution clause should provide parties with a clear understanding of the types of disputes which may be referred to a particular forum. Had the arbitration clause contained terms such as “in relation to”, or “in connection with”, the Court of Appeal may have reached a different conclusion.

The full decision can be found here.