Proportionate liability in arbitration - Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24

The High Court of Australia's recent decision in Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24 has sent ripples through the Australian legal landscape, particularly in the realm of commercial arbitration. The Court's ruling on the applicability of South Australia's proportionate liability regime to arbitral proceedings has significant implications for businesses and legal practitioners alike.

The Dispute

The dispute arose from a construction contract between Tesseract and Pascale, where Tesseract provided engineering consultancy services for a Bunnings Warehouse project. A disagreement emerged regarding the quality of Tesseract's work, leading to arbitration proceedings. Tesseract argued that, if found liable, its liability should be reduced under the proportionate liability regime, which allows for the apportionment of liability among multiple wrongdoers.

The High Court's Decision

The High Court, in a majority decision, held that the South Australian proportionate liability regime applies to arbitral proceedings. This decision overturned previous rulings by the Supreme Courts of Tasmania and Western Australia.

Key Takeaways:

1. Party Autonomy: The Court reaffirmed the principle of party autonomy in commercial arbitration, emphasizing the parties' ability to choose the substantive law governing their dispute.
2. Substantive vs. Procedural Law: The Court distinguished between substantive and procedural law. The proportionate liability regime, as a matter of substantive law, applies to arbitration. Procedural matters, such as joinder of parties, are governed by the arbitration rules.
3. Implications for Arbitration Clauses: Businesses should carefully consider the implications of proportionate liability when drafting arbitration clauses. They may want to explicitly exclude the application of the regime or ensure that all potential wrongdoers can be joined to the arbitration.

Practical Implications for Businesses

• Choice of Law: Businesses should carefully consider the choice of law clause in their contracts, particularly in cross-border transactions.
• Arbitration Clauses: Arbitration clauses should be drafted to address potential issues related to proportionate liability, such as the ability to join multiple parties and the applicable law.
• Legal Advice: Businesses should seek legal advice to understand the specific implications of the Tesseract decision in their jurisdiction and to ensure that their contracts are drafted to protect their interests.

The Tesseract decision has far-reaching consequences for commercial arbitration in Australia. It underscores the importance of understanding the interplay between substantive and procedural law in arbitration and the need for careful drafting of arbitration clauses. By being aware of these implications, businesses can mitigate risks and optimize their dispute resolution strategies.