Don't wave goodbye to your rights! Does commencing court proceedings waive a right to arbitrate?

Avoiding acts that are inconsistent with a contractual right to arbitrate can ensure that this right is preserved.

Does seeking urgent declaratory relief in court regarding a dispute waive a party's contractual right to submit the dispute to arbitration? The Court considers this question in a recent case - Inghams Enterprises Pty Limited v Francis Gregory Hannigan [2019] NSWSC 1186.

What is a waiver?
Waiver is a deliberate act by one party that is inconsistent with a right or privilege, resulting in the abandonment of that right or privilege. A waiver can either be expressly declared or implied by the actions of the party.

The dispute resolution clause in this case
Inghams supplied chicks to Mr Hannigan, who, in exchange for a fee, raised the chickens to a certain stage of maturity. A contract between the parties regulated this relationship.

Clause 23 of the Contract contains a dispute resolution clause, with which a party must comply before it was permitted to commence court proceedings in relation to a dispute arising out of the Contract. Relevantly, Clause 23 provided that if the parties were unable to resolve their dispute within a specified period, then the parties must mediate the dispute. If the dispute concerns any monetary amount payable or owed by either party to the other under the Contract, and mediation is unsuccessful, then the parties must submit the dispute to arbitration unless otherwise agreed.

However, the Contract also stated that nothing in Clause 23 prevented either party from making an application to the court for urgent declaratory relief. That is, the Contract did not prevent a party applying to the court for an urgent determination that the Contract gave rise to a particular legal obligation, right or more general state of affairs.

The 2017 Proceedings and 2019 Dispute
In August 2017, Inghams wrote a letter to Mr Hannigan, claiming to terminate their "arrangement". Mr Hannigan subsequently commenced proceedings in the Supreme Court of New South Wales (the 2017 Proceedings), seeking declarations that the parties were bound by the Contract and that Inghams' letter did not terminate the Contract. Mr Hannigan was ultimately, in a judgement delivered in March 2019, successful in those proceedings.

In May 2019, Mr Hannigan engaged the Contract's Clause 23 dispute resolution procedures, claiming damages against Inghams for its failure to supply chickens between August 2017 and June 2019 (the 2019 Dispute). An unsuccessful mediation took place, and Mr Hannigan argued that Clause 23 then entitled him to submit the dispute to arbitration. Inghams disagreed, commencing proceedings in the Supreme Court of New South Wales to restrain the matter from being referred to arbitration. Inghams also sought declarations that Mr Hannigan's damages claim did not fall within Clause 23 of the Contract and that, even if it did, by commencing the 2017 Proceedings Mr Hannigan had waived his entitlement to arbitrate the dispute under Clause 23.

Does the dispute resolution clause comprehend a claim for damages?
Inghams argued that, under Clause 23 of the Contract, the arbitration process only applied to disputes related to amounts to be paid under the Contract, and as the Contract does not provide for payment of damages for breach, the 2019 Dispute was not covered by the Clause 23 arbitration process. In the alternative, Inghams argued that, by commencing the 2017 Proceedings in court, Mr Hannigan acted inconsistently with his entitlement to have the dispute determined by arbitration, thereby waiving that entitlement.

The Court ultimately favoured Mr Hannigan's contentions, and noted certain principles that should be considered when interpreting an arbitration clause. In particular, where parties to a contract agree to refer any dispute arising out of the contract to arbitration, their agreement should not be construed narrowly. For this central reason, as well as other reasons we touch on below, the Court found that Mr Hannigan's claim for damages was covered by the Clause 23 arbitration process.

Was the right to refer the dispute to arbitration waived?
The Court, agreeing with Mr Hannigan, concluded that there was no waiver of Mr Hannigan's right to invoke the arbitration clause for a number of reasons. Relevantly, at multiple points throughout the 2017 Proceedings, Mr Hannigan clearly signalled his intention to preserve the right to seek damages outside of that litigation. Additionally, the 2017 Proceedings were an application for urgent declaratory relief, which was permitted under an exception to Clause 23 of the contract. This was not incompatible with Clause 23's requirement that certain disputes be referred to arbitration before proceedings are commenced in Court.

Ultimately, the Court declared that the 2019 Dispute may be submitted to arbitration under Clause 23.

Much of this particular case turned on the particular wording of the Contract and the Court's interpretation of the terms of that Contract. It will always be important for parties to revert to their own dispute resolution clauses to determine the permissible forum and process for resolving any dispute arising out of their contract.

Where urgent declaratory relief is sought in relation to a contract that specifies that certain disputes must be submitted to arbitration, it may be important for the party commencing the proceeding to expressly reserve their contractual right to arbitrate a dispute that falls outside the specific request for declaratory relief.[1]

[1][Note: The above material provides a summary only of the subject matter covered, without an assumption of a duty of care by Resolution Institute or Clayton Utz. The material is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Copyright in the material is owned by Clayton Utz.]