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20 February, 2018
What you need to know
The Supreme Court of New South Wales has provided clear guidance on how to interpret a common exception contained in arbitration agreements.
The Court held that a clause that permitted litigation for "urgent injunctive or declaratory relief" should be read so that "urgent" qualifies both "injunctive … relief" and "declaratory relief".
The decision offers parties with similar clauses greater certainty that litigation will only be permitted where "urgent" declaratory relief is required.
The decision also serves as a reminder that arbitration agreements (particularly any exceptions to them) should be carefully considered and drafted.
The dispute
CPB Contractors Pty Ltd v Rizzani De Eccher Australia Pty Ltd [2017] NSWSC 1798 concerned a dispute in relation to the widening of the M4 motorway in Sydney.
The design and construction of the motorway was being performed by an unincorporated joint venture comprised of CPB Contractors Pty Ltd (CPB) and Rizzani de Eccher Australia Pty Ltd (Rizzani). The parties had entered into a Joint Venture Agreement (JVA).
Clause 13.5 of the JVA provided that disputes between the parties must be resolved by arbitration. However, clause 13.6 of the JVA provided that:
"Nothing in…this clause will prejudice the right of a Party to seek urgent injunctive or declaratory relief from a court of competent jurisdiction in accordance with the provisions… of this Deed".
A dispute arose as to whether Rizzani was required to pay a Called Sum of $8,500,000 under the JVA for the purposes of the joint venture (Called Sum Dispute).
Stay application
CPB commenced proceedings in the Supreme Court of New South Wales to attempt to resolve the Called Sum Dispute. Rizzani sought a stay of the proceedings and argued that the Called Sum Dispute should be referred to arbitration. The question of whether the proceedings should be stayed turned on the interpretation of clause 13.6 of the JVA.
The parties made competing submissions:
CPB argued that the parties used clear and unambiguous language in clause 13.6 and that the clause was engaged because it claimed both "urgent injunctive" and "declaratory" relief in the Called Sum Dispute. It further argued that to only permit litigation for declaratory relief in "urgent" circumstances would lead to a commercially impractical result because the parties would be deprived of the important and commercially useful remedy of declaratory relief (other than in "urgent" situations).
Rizzani argued that the adjective "urgent" should be interpreted distributively so as to qualify both the entitlement to seek "injunctive" and "declaratory" relief. It further argued that this interpretation was consistent with the modern purpose of these carve-out clauses. An arbitrator clearly has the power to grant interim measures and declaratory relief, following the adoption of the UNCITRAL Model Law in Australia. Accordingly, the purpose of carve-out clauses similar to clause 13.6 could not merely be to ensure that those orders could also be made by a court. Rather, it is to provide parties with the ability to obtain injunctive or declaratory relief more readily.
The decision
Ward CJ held that the word "urgent" in clause 13.6 of the JVA should be read distributively so as to qualify the entitlement to seek both "injunctive" relief and "declaratory" relief. Her Honour considered that the clause should be read holistically and that her interpretation of it was consistent with its ordinary grammatical reading.
Her Honour also noted that it may make commercial sense, in certain contexts, for parties to include a carve-out in arbitration agreements for declaratory relief without limiting that by reference to a concept of "urgency".
However, the language of clause 13.6 did not provide for this.
Her Honour also noted that the exception in clause 13.6 was drawn from a standard form of arbitration agreement. She noted that courts are reluctant to disturb the established interpretation of standard form clauses and that it had been decided in another case that the word "urgent" (in a clause very similar to 13.6) should be read distributively: AED Oil Ltd & AED Services Pte Ltd v Puffin FPSO Ltd [2010] VSCA 37.
As to the meaning of the word "urgent" itself, Her Honour found that the term should be given its ordinary meaning as described in previous decisions:
"the quality of requiring immediate attention"; and
"pressing; compelling or requiring immediate attention".
In the result, Ward CJ found that CPB was seeking "urgent injunctive and declaratory relief" in the Called Sum Dispute because the works had not been completed, there were third party creditors to whom moneys were owed and, unless sub-contractors were paid outstanding amounts, there was a risk of disruption to the Project. Rizzani's stay application was accordingly refused.
Analysis
The decision provides clear guidance as to the interpretation of the frequently used exclusion to arbitration agreements for "urgent injunctive and declaratory relief". It is apparent that in similarly drafted clauses the word "urgent" will qualify a party's entitlement to seek "declaratory relief" by litigation.
However, whilst the decision affirms the ordinary broad and "pro-arbitration" approach to the interpretation of arbitration agreements in Australia, it also serves as a reminder that arbitration agreements (particularly any exceptions to them) should be carefully considered and drafted.
Parties should turn their minds to the potential types of disputes that may arise when formulating the scope of their arbitration agreements. If some foreseeable disputes do not lend themselves to arbitration, parties should consider whether another type of dispute resolution process should be agreed for those disputes. Otherwise, parties may intend for their arbitration agreements to be comprehensive and to not permit recourse to litigation at all.
Relevantly, an arbitration agreement which provides for an exception for some "urgent" disputes, may inevitably lead to preliminary arguments about whether a dispute is in fact "urgent". The ordinary meaning of the term is broad and parties should consider whether such an exception should be adapted or more narrowly defined for their particular circumstances.
In short, parties should beware of a "one size fits all" approach to arbitration agreements.
For further information, please contact:
Adam Firth, Partner, Ashurst
adam.firth@ashurst.com
