August 11, 2021

The NSW Supreme Court in CPB Contractors Pty Ltd v DEAL S.R.L. [2021] NSWSC 820 recently considered and upheld the kompetenz-kompetenz principle, ordering that the proceedings in respect of pre-contractual representations be stayed and the dispute referred to arbitration. The kompetenz-kompetenz principle recognises that an arbitral tribunal is empowered and competent to rule on its own jurisdiction, including any objections regarding the existence or validity of an arbitration agreement.

CPB Contractors (CPB) and Rizzani de Eccher Australia (Rizzani) formed an unincorporated joint venture to tender for and deliver works in connection with the WestConnex M4 road widening project in Sydney. DEAL S.R.L. (DEAL) was engaged to provide designs and advice for the project and entered into formal agreements with the joint venture including a design Services Contract. However, by the time the Services Contract was executed, DEAL had completed almost half of the contracted works, including works for the tender of the project.

The Services Contract provided that its terms applied to ‘Prior Services’ performed by DEAL before the date of the contract. It also contained the following arbitration clause:

Any dispute, controversy or claim arising out of, relating to, or in connection with this Agreement, including any question regarding its existence, validity or termination must be resolved by arbitration …

CPB commenced proceedings in the Supreme Court seeking damages under the Australian Consumer Law, alleging DEAL’s designs and advice contained false representations which it relied on when finalising the tender. CPB claimed that, as a result, it suffered loss when the joint venture was unable to complete the works on time or for the cost estimated in its tender.

Relying on the arbitration clause, DEAL sought a stay of the proceedings and for the matter to be referred to arbitration, on the basis that:

  •   an arbitral tribunal should be permitted to determine its own jurisdiction to rule on the matters in dispute, in accordance with the kompetenz-kompetenz principle;
  •   the International Arbitration Act 1974 (Cth) required the Court to order a stay and refer the parties to arbitration because, on a proper construction of the arbitration clause, the dispute came within the arbitration clause and involved the determination of matters capable of settlement by arbitration.

CPB argued, among other things, the arbitration clause did not apply because its claim concerned pre-contractual representations. Further, that the kompetenz-kompetenz principle only applied in respect of a challenge to the arbitration agreement.

The Court held that that the arbitrator has jurisdiction to determine both whether the arbitration clause is in existence and operative and also whether the dispute falls within the scope of the clause, and that generally these matters should be left to the arbitrator rather than the Court. Further, that CPB’s claim should be referred to arbitration as the arbitration clause was sufficiently broad to cover claims relating to pre-contractual representations, and the matters in dispute.

In reaching this conclusion, the Court adopted the approach of the Full Federal Court in Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442 (Hancock) that placed significant weight on the authority of an arbitral tribunal and the kompetenz-kompetenz principle. The approach of the Full Court in Hancock is to refer questions of jurisdiction (including the scope of an arbitration agreement) to an arbitrator if there appears to be a valid arbitration agreement which, on first impression, covers the matters in dispute.  Further, the Court should take a broad view in characterising the dispute, based on the materials available, rather than examining the merits of the case in detail.

In referring the dispute between CPB and Deal to arbitration, Rees J observed that the arbitration clause:

  •   should be construed like any other clause of a commercial contract, in accordance with the parties’ intention, objectively ascertained by reference to the language, the circumstances known to the parties and the commercial purpose;
  •   is to be given a broad and liberal construction, with a presumption that the parties intended all aspects of their relationship be determined by a single forum;
  •   uses phrases “of the widest import” that should not be read down unless there are compelling reasons to do so and, as noted above, was sufficiently broad to cover claims for misleading or deceptive conduct arising out of pre-contractual representations; and
  •   was agreed to with the knowledge that DEAL had already provided designs and advice.

The full decision can be found here.

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