What is the impact of waiving a precondition to arbitration?

Parties amending their dispute resolution agreements are reminded to express their intentions clearly, following a recent New South Wales Supreme Court decision. Icon Si (Aust) Pty Ltd v Australian Nuclear Science and Technology Organisation [2024] NSWSC 324 considered the effect of an amending deed on an arbitration clause in the context of an application under the Commercial Arbitration Act 2010 (NSW) (CAA) to stay court proceedings in favour of arbitration.

The Australian Nuclear Science and Technology Organisation (ANSTO) engaged Icon Si (Aust) Pty Ltd to construct a new facility in NSW for a fixed sum of approximately $27 million. The contract was based on the Australian Standard form AS 4000-1997. The standard terms allowed parties to elect whether, following the first step in the dispute resolution process (negotiation), parties would be required to submit disputes to expert determination before they could proceed to the final step, being arbitration. ANSTO and Icon chose to include the expert determination step, therefore agreeing to a three-tiered dispute resolution process.

After disputes arose on the project, the parties executed an amending deed, which amongst other things waived the application of expert determination under the contract. The parties also agreed that the amending deed was to take priority over the contract to the extent of any inconsistency.

Following execution of the amending deed, Icon made further claims. ANSTO sought orders to enforce the arbitration agreement under the CAA and stay court proceedings. Relevantly, section 8 of the CAA does not require a court to refer parties to arbitration if their arbitration agreement is null and void, inoperative, or incapable of being performed.

Icon contended that the arbitration agreement in the contract was inoperative as a result of the amending deed, because one of the preconditions to arbitration could no longer be met. This is because the contract required a party to serve a notice of appeal within a set timeframe after an expert determination, to allow the dispute to proceed to arbitration.

ANSTO argued that the amending deed only waived the expert determination step and should not be interpreted to waive the arbitration tier of the dispute resolution process. Noting the standard form permits contracting parties to indicate whether or not expert determination will apply, the effect of the amending deed is that ANSTO and Icon should be taken to have changed this election in the contract.

Justice Ball preferred ANSTO’s interpretation based on a proper commercial construction of the dispute resolution clause and the amending deed. His Honour ordered the proceedings be stayed and the parties be referred to arbitration. In doing so, his Honour gave weight to the fact that:

•    the standard form had always been drafted in a way that allowed parties to agree whether or not expert determination would apply, without impacting the availability of arbitration; and
•    the amending deed made no express change to the arbitration clause,

and observed that while Icon’s argument depended on a literal construction of the precondition to arbitration, it ignored the full effect of the amending deed.

The full decision can be found here.