In the recent High Court of Australia decision of Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24, the majority determined that proportionate liability legislation can apply in arbitration proceedings. This represents a departure from the widely held understanding that proportionate liability legislation did not apply in arbitrations.

As proportionate liability legislation is enacted in all jurisdictions within Australia this decision has potential implications for existing arbitration agreements, and for future negotiations and drafting of contractual dispute resolution provisions.

Background

Pascale Construction Pty Ltd engaged Tesseract International Pty Ltd to provide engineering consultancy services to design and construct a warehouse facility in South Australia.

A dispute regarding the quality of the work performed was referred to arbitration pursuant to an arbitration agreement. The claims made by Pascale against Tesseract included breach of contract, negligence and misleading or deceptive conduct in contravention of section 18 of the Australian Consumer Law.

Tesseract denied the allegations and in the alternative pleaded that any damages payable by it should be reduced by reason of a third-party concurrent wrongdoer.

Pascale denied that the proportionate liability provisions under Part 3 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) (Law Reform Act) and Part VIA of the Competition and Consumer Act 2010 (Cth) (CCA) applied to the arbitration.

Tesseract applied to the Supreme Court of South Australia for a determination as to whether Part 3 of the Law Reform Act and/or Part VIA of the CCA (together, the Proportionate Liability Legislation) applied to the arbitration proceedings. The Court of Appeal held that the Proportionate Liability Legislation did not apply to the arbitration unless there was an express or implied term in the arbitration agreement to the contrary.

Tesseract subsequently sought leave to appeal the decision to the High Court.

High Court Decision

The High Court decision comprises five separate judgments.

The majority decision was delivered in three separate judgments (Gageler CJ, Gordon and Gleeson JJ and Jagot and Beech-Jones JJ). Each adopted a different approach in concluding that the arbitration was governed by the substantive law of South Australia which included the Proportionate Liability Legislation. This was notwithstanding that a third-party wrongdoer could not be joined (without consent) to the arbitration, thereby requiring a claimant to pursue a concurrent wrongdoer in separate proceedings.

Justices Edelman and Steward each wrote dissenting judgments and expressed concerns about the consequences of proportionate liability laws applying in an arbitration, including:

• the impact on the paramount objective of arbitration being to facilitate the final resolution of the parties’ dispute;
• the potential risk of inconsistent findings arising from the same harm being deliberated in separate forums; and
• the risk that parties to an existing arbitration agreement which does not expressly exclude proportionate liability laws could find that those rules now apply.

Ultimately, whether proportionate liability legislation applies to existing arbitration agreements will depend on the express wording of the arbitration agreement and the proportionate liability legislation applicable, noting that the proportionate liability regimes in each jurisdiction are different.

The full decision can be found here.