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More than "mere inconvenience" required for an arbitration agreement to be "incapable of being performed"

Bulkbuild Pty Ltd v Fortuna Well Pty Ltd & Ors [2019] QSC 173

Construction and infrastructure projects generally involve multiple participants which can sometimes result in inter-related disputes between several different parties. Where multi-party disputes occur in circumstances where arbitration agreements apply to some disputes but not others, it may not be possible to have all disputes resolved in the same forum and/or at the same time.

The Supreme Court of Queensland has recently considered this issue in the decision of Bulkbuild Pty Ltd v Fortuna Well Pty Ltd & Ors [2019] QSC 173. The case provides guidance on when an arbitration agreement may be "incapable of being performed" in the context of the Commercial Arbitration Act 2013 (Qld) (Act). The decision is of broad application, given the statutory provisions of the Act considered by the Court are based on the UNCITRAL model law and are identical to the corresponding provisions in legislation applying in other Australian jurisdictions.

Court proceedings or arbitration?
The design and construct building contract between Bulkbuild (the contractor) and Fortuna (the owner under the building contract) included a dispute resolution clause in which the parties agreed to submit disputes they could not resolve between themselves to arbitration for final determination. The parties agreed in the proceeding that the clause was an arbitration agreement within the meaning of the Act. Despite this, Bulkbuild commenced proceedings in the Supreme Court of Queensland against Fortuna for claims arising out of the building contract and against the two Superintendents of the building project at varying times for claims in negligence.

Fortuna sought an order from the Court to stay the proceeding brought against it primarily on the basis that the building contract contained a valid arbitration agreement for the purposes of the Act. Section 8 of the Act provides (emphasis added):

(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

(2) Where an action referred to in subsection (1) has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.

Bulkbuild argued that the proceedings should remain on foot because the arbitration agreement was "incapable of being performed" for the purposes of section 8 of the Act on the basis that:

  • its claims against Fortuna arose out of similar factual matters as its claims against the Superintendents in the same proceeding; and
  • there would be a risk of different factual findings being reached if its claims against Fortuna were determined by arbitration but its claims against the Superintendents were determined by a court.

Was the arbitration agreement "incapable of being performed"?
Justice Bowskill gave short shrift to this argument, finding that having two separate proceedings involving similar factual circumstances would be only a "mere inconvenience" that did not render an arbitration agreement "incapable of being performed". In doing so, her Honour elaborated upon the circumstances in which an arbitration agreement may be "incapable of being performed" under section 8 of the Act, which include:

  • where there is contradictory language in the contract that indicates an intention to litigate (rather than arbitrate);
  • if a specific arbitrator is stated in a contract who, at the time of the dispute, is deceased or unavailable;
  • if the arbitration agreement is itself too vague, confusing or contradictory to be performed; and
  • if the place of arbitration is no longer available (for example, because of political upheaval).

Her Honour noted that although the Act does not expressly provide for a proceeding to be stayed as a consequence of a referral to arbitration under section 8 of the Act, such an order necessarily follows. Her Honour therefore stayed the proceeding and referred the matter to arbitration.

Conclusion
The case is a useful reminder that when an arbitration agreement exists between parties to a dispute, there are only limited circumstances in which the court can decline to refer a dispute between those parties to arbitration and the court does not possess any discretion. The court lacks discretion because, unless an exception applies, the Court "must" refer the dispute to arbitration upon the request of a party. The case also highlights that the prospect of inconsistent factual findings in different dispute resolution forums is not sufficient to render an arbitration agreement "incapable of being performed".

To avoid delay and/or wasted costs in prosecuting claims, parties considering commencing court proceedings against multiple parties should be mindful of this issue in circumstances where arbitration agreements exist. Such a party could seek voluntary waiver of arbitration agreements from the other parties as it may be in all parties' interests to resolve a matter in court, including by reference to proportionate liability legislation which is not always available in an arbitration.

Tags: Arbitration, Legal practice, Dispute handling administration

[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]