No Paltry Sum: Parties Required to Dispute Damages Claim in Arbitration
In the recent case of Inghams Enterprises Pty Ltd v Hannigan  NSWSC 1186 a chicken grower once again succeeded in an action in the New South Wales Supreme Court against poultry supplier Inghams. The defendant grower, Mr Hannigan, had previously obtained a court declaration that a chicken growing contract with Inghams was still on foot and had been wrongfully terminated by Inghams. For reasons of cost and time, Mr Hannigan had reserved his right to seek damages at a later date.
Mr Hannigan commenced a dispute against Inghams under the growing contract’s dispute resolution procedures, seeking damages for loss of profit for the period Inghams had not supplied one day old chicks to him because of the wrongful termination. After the contractually-mandated mediation failed, Inghams commenced proceedings to restrain Mr Hannigan from referring the claim to arbitration.
Clause 23.1 of the growing contract restricted the ability of the parties to bring court proceedings:
A party must not commence court proceedings in respect of a dispute arising out of this Agreement (''Dispute") (including without limitation any Dispute regarding any breach or purported breach of this Agreement, the interpretation of any of its provisions, any matters concerning a party’s performance or observance of its obligations under this Agreement, or the termination or the right of a party to terminate this Agreement) until it has complied with this clause 23. (emphasis added)
Clause 23.6 provided for compulsory arbitration:
23.6.1 The Dispute concerns any monetary amount payable and/or owed by either party to the other under this Agreement…; and
23.6.2 If the parties fail to resolve the Dispute in accordance with [a mediation clause] within twenty eight days…,
then the Parties must (unless otherwise agree) [sic] submit the Dispute to arbitration using an external arbitrator…
Clause 23.11 provided for an exception to the dispute resolution provisions:
Nothing in this Clause 23 shall prevent the making of an application to the court by any party to the dispute for urgent injunctive or declaratory relief.
Inghams, in seeking to have the matter heard in court instead of arbitration, argued that a claim for damages was not a claim for an amount “under this Agreement”. In dismissing this argument, Slattery J held:
the arbitration clause was sufficiently broadly drafted to cover all disputes arising out of the agreement, including claims for damages. The current dispute was one “regarding breach or purported breach of this Agreement” and which “concern[ed] a party’s observance of its obligation”; and
because a “monetary amount payable and/or owed by either party to the other under [the] Agreement” would be a “critical integer” in any damages calculation, a dispute over damages concerned such monetary amounts.
Inghams further argued that Mr Hannigan, by his previous court action, had waived an entitlement to have the matter heard in arbitration and court had become the proper forum to rule on damages for breach of contract. In dismissing this argument, his Honour found that:
Mr Hannigan had clearly signalled an intention to preserve his right to later seek damages;
the loss had not crystallised until the Court had made its declaration in the earlier matter; and
Mr Hannigan’s previous action was within the contractual exclusion from the arbitration clause of “urgent injunctive or declaratory relief” provided by clause 23.11.
The decision is a reminder that courts will construe arbitration clauses broadly in order to enforce the agreement of parties to have disputes heard in arbitration. See our updates here and here for other recent cases that interpreted arbitration agreements.
The full decision can be found here.