A recent Supreme Court of NSW case, Broken Hill City Council v Unique Urban Built Pty Ltd, highlighted this problem and raised two issues: how do the Australian courts deal with standard-form contracts containing defective arbitral procedures, and what should lawyers do to avoid unwanted satellite disputes arising from those defective procedures?

A dispute arose between the Broken Hill City Council and Unique Urban Built Pty Ltd regarding a contract to upgrade the Broken Hill Civic Centre (contract), which was based on an outdated standard-form contract published by Standards Australia. The council alleged that Urban had breached the contract by failing to complete the works with due diligence, within the stipulated time frame and to the required standard, and by failing to rectify defects and deficiencies in the works.

The contract contained an arbitration agreement which provided for any disputes to be resolved through arbitration and stipulated that the arbitrator shall be appointed by the President of the ‘Australasian Dispute Centre’. The problem was that the ‘Australasian Dispute Centre’ did not exist.

The council commenced court proceedings against Urban. Urban sought an order under section 8(1) of the Commercial Arbitration Act 2010 (NSW) (the act) for the court to refer the parties to arbitration, arguing that if the mechanism for the appointment of the arbitrator fails, then the court is empowered under that act to appoint the arbitrator. 

The council argued that the arbitration agreement was inoperative, because it was dependent upon the relevant appointment mechanism and that there could be no agreement to arbitrate if that mechanism misfires.

Ultimately, the court referred the parties to arbitration. Justice David Hammerschlag held that the arbitration agreement was not inoperative, despite the defective appointment mechanism. His Honour emphasised that the act distinguishes between an arbitration agreement within the meaning of the act and an agreement on arbitral procedures. Further, His Honour noted that the parties did not place any importance on the characteristics of the arbitrator, which strengthened Urban’s case for the court to appoint the arbitrator.

This decision has implications for domestic and international arbitrations in Australia by confirming that an Australian court is likely to strive to give effect to arbitration agreements pursuant to the act – even if that arbitration agreement contains certain arbitral procedures that are defective or non- existent.  

VIEW ALL

The court’s interpretation of the act in the Broken Hill City Council decision also sheds light on the proper interpretation of equivalent sections in the Commercial Arbitration Acts (CAA) of other States and Territories which regulate domestic arbitration and the International Arbitration Act 1974 (Cth) (IAA).

Section 8(1) of the act is mirrored in equivalent sections of the CAA in other states and territories as well as in Article 8(1) of the UNCITRAL Model Law on International Commercial Arbitration, which has been given force of law pursuant to section 16 of the IAA.  The court’s interpretation of section 8(1) of the act in this case has therefore set a precedent for interpretation of the equivalent sections in the CAA and the IAA in domestic or international disputes where Australia is the seat of arbitration.

This case also highlights the importance of carefully drafting dispute resolution provisions and thoroughly checking standard-form contracts and precedents, as well as older contracts due for renewal, to ensure that any dispute resolution provisions remain effective and enforceable.  

Doing so will avoid disruptive satellite proceedings and allow parties to focus their attention on resolving the substantive issues in dispute.
 
Robert Tang is a Sydney-based Allen & Overy senior associate specialising in international commercial arbitration and is a joint winner of the Young ADR Practitioner of the Year Award at the Australian ADR Awards 2018.