The power of arbitration clauses

Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10

This recent decision of Martin CJ is an early guidance on aspects of the Commercial Arbitration Act 2012 (WA) (2012 Act).

Many contracts contain dispute resolution clauses that direct disputes to arbitration.  It is not unknown for disputants to ignore an arbitration clause and to commence litigation.  Confronted by litigation, the defendant will often apply to stay the litigation so that an arbitration can occur.

On 7 August 2013 the Commercial Arbitration Act 1985 (WA) (1985 Act) was replaced by the 2012 Act.  A question that arises is whether the test for such a stay is different under the 2012 Act than under the 1985 Act.

The 2012 Act applies to all arbitration commenced after 7 August 2013.  The 1985 Act applies to arbitrations commenced prior to that date.  Accordingly regardless of the date of execution of the agreement containing the arbitration clause, an arbitration commenced now will be governed by the 2012 Act, not by the 1985 Act.

The stay provisions under the 2012 Act are different to those under the 1985 Act.  In effect, the ability of the Court to determine whether or not to grant a stay under the 1985 Act is discretionary.  By section 8 of the 2012 Act, the Court’s discretion not to stay the litigation is significantly curtailed.

In the proceedings, a further challenge arose whether the arbitration clause survived the termination of the contract.  The Court confirmed that an arbitration clause generally survives termination of the contract, because it is a contract independent of the underlying contract in which it is contained.

Since 7 August 2013, parties to contracts containing arbitration clauses may assume that the ordinary position will be that any dispute under the contract, even a contract that has been terminated, will now most likely be required to be referred to arbitration.

The controversy must be one falling within the scope of the arbitration agreement.  Not all disputes in some way connected with a contract meet this test. 

Lavan Legal comment

The lessons arising from this decision are:

  • old contracts may force parties into the 2012 Act regime;
  • if parties wish to access litigation and not arbitration, they should avoid, or restrict, any arbitration clause in their future agreements (or amend existing agreements);
  • parties to disputes need to understand if their agreements require them to arbitrate, rather than litigate, a dispute.  Generally, absent agreement of both disputants, any dispute will be arbitrated and not litigated; and 
  • the rules surrounding arbitration will apply to arbitrations.  They may, on occasion, have consequences different to litigation.