South Australian Court of Appeal finds proportionate liability regimes not appropriate for application in arbitration

In the recent decision of Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2022] SASCA 107, the South Australian Court of Appeal considered whether the proportionate liability provisions set out in Part 3 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) (Law Reform Act) and Part VIA of the Competition and Consumer Act 2010 (Cth) (CCA) applied to arbitration proceedings.

Pascale Construction Pty Ltd (Pascale) engaged Tesseract International Pty Ltd (Tesseract) to provide engineering consultancy services to design and construct a warehouse facility in South Australia. A dispute between the parties regarding the quality of Tesseract’s work was referred to arbitration in accordance with the contractual dispute resolution provisions.

Pascale alleged that Tesseract’s work was not performed to the standard required by the contract and as a result, it had suffered loss and damage.  Tesseract denied this allegation, and in the alternative, pleaded that any damages payable by it should be reduced by reason of (amongst other things) the proportionate liability provisions under Part 3 of the Law Reform Act, as a third party engaged by Pascale to prepare the tender documentation was a concurrent wrongdoer.  In response, Pascale contended that the arbitrator was not entitled to invoke the proportionate liability provisions in arbitration proceedings.

The parties applied to the Court for leave to obtain a determination as to whether Part 3 of the Law Reform Act and/or Part VIA of the CCA applied to this commercial arbitration proceeding conducted pursuant to the legislation and the CCA.  The Court of Appeal granted leave to hear the application regarding this question of law.

In considering the question, the Court found:

•    Whilst the proportionate liability regimes under the Law Reform Act and CCA form part of the substantive law governing the resolution of the dispute between the parties under s 28(3) of the CCA, that section does not require that these regimes in their entirety automatically apply to arbitration proceedings. Rather, the provisions will only apply either by force of their own terms, or by reason of an implied term in the arbitration agreement.
•    The proportionate liability provisions of the Law Reform Act and the CCA do not apply to arbitration proceedings by force of their own terms.
•    Notwithstanding that the parties had, through the dispute resolution provisions of the contract, impliedly conferred the arbitrator with the power to determine their dispute as though it were being determined in a court of law with appropriate jurisdiction, this remained subject to certain statutory qualifications.
•    Features of the proportionate liability regimes under both the Law Reform Act and the CCA indicate an objective intention by the legislature to not apply proportionate liability regimes to arbitration proceedings. By way of example, the Court stated that proportionate liability regimes are not suited to be applied to arbitrations, as the regimes inherently involve and contemplate joinder of third parties, something that cannot practically be accommodated by arbitrations in every instance.

In light of the above, the Court held that the proportionate liability regimes in Part 3 of the Law Reform Act and Part VIA of the CCA did not apply to the arbitration. This is consistent with the position in South Australia, West Australia and Tasmania, as confirmed in recent judgments considering the applicability of proportionate liability legislation to commercial arbitrations. Of note, the Court stated notwithstanding that it would be contrary to the legislature’s intention, parties are not prevented from agreeing to incorporate proportionate liability regimes in arbitration agreements.

The full decision can be found here.