Enforceability of arbitration clauses

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The recent Supreme Court of Western Australia case Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2015] WASC 458 provides a good opportunity to revisit the enforceability of arbitration clauses in contracts and the circumstances in which a dispute will be deemed capable of settlement by arbitration.

Facts of the Case

Samsung C&T Corporation (Samsung) applied for an order that the proceedings brought by Roy Hill Holdings Pty Ltd (Roy Hill) be stayed and the parties be referred to arbitration pursuant to s 7(2) of the International Arbitration Act 1974 (Cth) (Act).

S 7 of the Act provides that where proceedings are instituted by a party to an arbitration agreement to which this section applies and the matter in question is ‘capable of settlement by arbitration’, the court shall stay proceedings and refer the parties to arbitration in respect of the matter.

Roy Hill had commenced proceedings in the Supreme Court in November 2015 seeking a declaration that certain conditions of a Deed entered into between the parties had been fulfilled and that the Deed remained effective and enforceable.  Samsung contended that the necessary conditions had not been fulfilled and that the Deed had been terminated.

In its application that the matter before the Court be referred to arbitration, Samsung argued that the dispute between the parties was subject to the arbitration clause contained in clause 8.4(b), which was an arbitration agreement within the meaning of s 7 of the Act. Clause 8.4(b) of the Deed provided:

Any and all disputes arising out of or relating to this Deed or the subject matter hereof shall be finally and exclusively settled by arbitration administered by the Singapore International Arbitration Centre in accordance with the UNCITRAL Arbitration Rules.  The appointing authority shall be the Singapore International Arbitration Centre.  The Number of arbitrators shall be three.  The place of arbitration shall be Singapore.

Roy Hill objected to the referral of the matter to arbitration proceedings on a number grounds, which included the contention that Samsung had waived its rights to arbitration, that the matter was urgent and was not capable of settlement by arbitration, nor would arbitration solve the dispute in a timely matter.

Principles applying to arbitration clauses

Le Miere J identified the following principles applying to arbitration clauses:

  • an arbitration clause is considered to be a contract independent of the underlying contract in which it is contained: Rizhao Steel Holding Group Co Ltd v Koolan Iron Ore Pty Ltd [2012] WASCA 50;
  • in order to rebut the presumption that an arbitration clause does not survive the termination of the contract, the doctrine of ‘separability’ requires parties to produce evidence of such an intention: Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014];
  • when considering whether this presumption has been rebutted, the whole context of the commercial transaction and the entire text and objective of the agreement must be taken into account: Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014];
  • the phrase ‘capable of settlement by arbitration’ means the dispute falls within the scope of the arbitration agreement and is not a dispute relating to rights which are required to be determined by a court: Tanning Research Laboratories Inc v O’Brien [1990];
  • the mere fact that the matter might be resolved more quickly by a court, and that a faster resolution is desirable or advantageous to one or both parties, does not mean that the matter will not be capable of settlement by arbitration.

Findings of the Court

Le Miere J’s held that the dispute between the parties was capable of settlement by arbitration.  This was so in light of the construction of clause 8.4(b) of the Deed. The court proceedings were stayed and the matter referred to arbitration in accordance with the arbitration clause contained in the Deed.

Key takeaways

Of the general principles enunciated by Le Miere J above, key takeaways for possible litigants include:

  1. ensuring that you do not commence proceedings in court as a strategy of accelerating a claim when an agreement is subject to an arbitration clause, as the dispute may be referred to arbitration proceedings and unnecessary costs incurred;
  1. if the parties do not intend for an arbitration clause to survive the contract, express indications of this intention should be made; and
  1. in order for an application under s 7(2) of the Act to succeed, the dispute in question must be ‘capable of settlement by arbitration’, that is, a controversy falling within the scope of the arbitration agreement and not one in which particular rights are required to be determined exclusively by the exercise of judicial power.

Optional vs mandatory arbitration clauses

Potential litigants should also keep in mind the wording and scope of a particular arbitration clause, namely, whether the clause is optional or mandatory.

In this case, the clause contained in s 8.4(b) of the Deed was wide in scope and broadly worded, and applied to ‘any and all disputes arising out of or in relation to this deed’ which ‘shall be fully and exclusively settled by arbitration.’ It was therefore uncontroversial that the dispute as to the satisfaction of a condition precedent to the Deed was a matter ‘capable of settlement by arbitration.’

Other clauses contained in agreements may only direct certain disputes to arbitration or provide that parties may refer proceedings to arbitration.  In these circumstances, the court may take a narrower approach when determining whether or not a matter is capable of settlement by arbitration when an application under s 7(2) of the Act is made.

For construction advice or representation contact Aaron McDonald of Pragma Legal through email aaron.mcdonald@pragmalegal.com.au or by phone 6188 3340.

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