Full Federal Court decision likely to facilitate arbitration in Australia

The Full Federal Court of Australia’s decision in Hancock Prospecting Pty Ltd v Rinehart[1] confirms that arbitration agreements are to be interpreted liberally on the presumption that parties choosing arbitration intend for all of their disputes to be dealt with in this way. 

Relevantly, the Court held that an arbitration agreement applying to ‘any dispute under this deed’ included disputes regarding the validity of the deed itself. Prior to this decision, there was uncertainty in Australia as to the correct approach to interpreting arbitration agreements, with the New South Wales Court of Appeal in Rinehart v Welker,[2] (Welker) having found that this same clause applied narrowly to only those disputes which the deed governed or controlled the dispute’s outcome.

With the approach in Welker expressly rejected, the Full Federal Court’s decision is likely to raise Australia’s profile as offering a facilitative environment for commercial arbitration.

The key issue

Hancock Prospecting Pty Ltd v Rinehart was an appeal from an interlocutory application under s 8(1) of the Commercial Arbitration Act 2010 (NSW) (CAA) seeking a stay of the underlying proceeding in which the respondents allege that the applicants/appellants breached certain fiduciary duties or were complicit in those breaches.

The applicants/appellants dispute those allegations and also rely upon several deeds whereby the respondents provided releases in relation to such claims. The respondents argue that those deeds are invalid and that the arbitration agreements contained in two of those deeds are not applicable to this dispute.

Section 8(1) of the CAA states a court must stay an action ‘which is the subject of an arbitration agreement’ unless the arbitration agreement is ‘null and void, inoperative or incapable of being performed.’ A critical issue was therefore whether the parties’ disputes regarding the validity of the two deeds were the subject of the arbitration agreements in those deeds. The arbitration agreements in the deeds were identical to one another, providing that ‘any dispute under this deed’ must be referred to arbitration.

The primary judge’s decision

Gleeson J[3] held that the disputes concerning the validity of the deeds were not disputes ‘under’ the deeds and were therefore not the subject of an arbitration agreement.

In reaching this conclusion, her Honour relied upon the judgment of Bathurst CJ (with whom Young JA agreed) in the NSW Court of Appeal in Welker[4] which concerned the interpretation of the arbitration agreement in the same deeds.[5]

In Welker, Bathurst CJ rejected modern authority[6] which his Honour considered introduced a new rule of interpretation requiring an arbitration agreement to be interpreted without regard to its plain meaning in order to confer an arbitral panel with jurisdiction over all of the parties’ disputes. According to the Chief Justice, this was inconsistent with orthodox principles of contractual interpretation.[7] His Honour then examined the particular wording of the arbitration agreement and found that ‘any dispute under this deed’ referred to a narrow range of disputes, being disputes where the deed governed or controlled the dispute’s outcome.[8]

Applied to the present case, Gleeson J found that the deeds could not govern or control the outcome of the disputes concerning their validity and therefore those disputes were not ‘under’ the respective deeds.[9] Accordingly, Gleeson J dismissed the application under s 8(1) of the CAA.

The applicants/appellants appealed Gleeson J’s decision.

The Full Federal Court’s decision

The Full Federal Court, in the joint judgment of Allsop CJ, Besanko and O’Callaghan JJ, reversed Gleeson J’s decision. The Full Court considered that both Gleeson J and Bathurst CJ incorrectly undertook a semantic analysis of the word ‘under’ in concluding that the arbitration agreement covered a narrow range of disputes.[10] In line with the presumption of ‘one-stop adjudication’, the correct approach is to liberally interpret the arbitration agreement where its language permits.[11]

Contrary to the findings of both Bathurst CJ and Gleeson J, the Full Court considered that the phrase ‘any dispute under this deed’ was capable of being interpreted liberally to encompass a much broader range of disputes than only those where the deed controlled or governed the dispute’s outcome.[12] It followed that the disputes concerning the validity of the deeds were disputes ‘under’ the respective deeds and therefore the subject of an arbitration agreement. The Full Court stayed the proceedings in their entirety.[13]

Why is this decision significant?

This decision adopts the modern line of English and Australian authority originating in the 1990s which supports a liberal approach to the interpretation of arbitration agreements and confirms that Welker is to be viewed as an anomaly.[14] In light of the Full Federal Court’s decision, judges, arbitrators and practitioners are no longer required to focus on difficult distinctions between commonly used figurative phrases in arbitration agreements such as whether a dispute ‘arose out of’, was ‘in connection with’ or was ‘under’ the relevant contract. The liberal approach not only reflects common sense but also gives effect to the objective intention of parties to arbitration agreements, who likely consider such phrases as interchangeable.

This decision means that it is very unlikely that an arbitration agreement will be construed narrowly resulting in the bifurcation of a contractual dispute into court and arbitral proceedings. This will likely assist in promoting Australia as a desirable venue for commercial arbitration.