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Macpherson Kelley is proud to have secured a significant victory in the High Court of Australia for its client, Tesseract International Pty Ltd (Tesseract).

In its recent Tesseract decision, the High Court of Australia (High Court) determined that proportionate liability legislation may apply in arbitration proceedings. This landmark decision clarifies the scope of proportionate liability laws and their integration into arbitration processes.

Background and dispute

In 2015 Tesseract International Pty Ltd was retained by Pascale Construction Pty Ltd (Pascale), a construction contractor to prepare the structural engineering design for a warehouse in South Australia.

A dispute arose between Pascale and Tesseract in relation to Tesseract’s design of the warehouse, and in accordance with the contract, the dispute was referred to arbitration. Pascale claimed against Tesseract significant damages for breach of contract and negligence and pursuant to section 236 of the Australian Consumer Law for misleading or deceptive conduct in breach of section 18.

Tesseract, having regard to the available evidence formed the view that there were other parties (Concurrent Wrongdoers) who were responsible for the loss claimed by Pascale. With that in mind, Tesseract denied liability, and in the alternative sought a diminution of its liability having regard to the extent of the responsibility of the Concurrent Wrongdoers.

Pascale disagreed with this defence and the applicability of proportionate liability laws in the arbitration. The arbitrator referred the question of law to the South Australian Supreme Court of Appeal (Court of Appeal).

In 2022 the Court of Appeal found that the proportionate liability regimes did not apply to the arbitration and relied on two matters:

1. That both proportionate liability regimes contemplate the plaintiff will have the opportunity to join all wrongdoers in the one set of proceedings; and
2. The inability to join all wrongdoers to an arbitration except by consent.

On advice from Macpherson Kelley, Tesseract appealed the decision.

High Court decision

The High Court overturned the Court of Appeal’s decision, confirming that proportionate liability laws do apply in arbitration.

Gageler CJ, Gordon and Gleeson JJ, and Jagot and Beech-Jones JJ formed the majority in three separate judgments.

Key points from the High Court’s ruling include:

1. Legislative Intent: The Court emphasised that the inability to join all alleged wrongdoers in arbitration does not preclude the application of proportionate liability laws. The core principles of these laws can still be upheld within arbitration frameworks.
2. Consistency with Statutory Regimes: The High Court’s decision aligns with the statutory purpose of proportionate liability regimes, which is to fairly allocate liability among all wrongdoers, even if not all can be joined in arbitration.
3. Impact on Arbitration: This ruling clarifies that arbitration proceedings must incorporate proportionate liability principles, ensuring consistency with statutory frameworks and enhancing the fairness of dispute resolution.

Whilst Macpherson Kelly has secured an excellent outcome for Tesseract, with the potential to save it a significant amount of money in defending a multimillion-dollar claim, the wider ramifications of the High Court’s decision are potentially significant. Legal practitioners and businesses must now consider these principles when drafting arbitration clauses and managing complex disputes, ensuring compliance with statutory requirements while leveraging arbitration’s efficiency

In light of this development, it is advisable for businesses, particularly in the construction industry, to seek advice before entering into a contract with an arbitration clause. For more details or to discuss the impacts of this decision, please contact Macpherson Kelley’s expert Litigation and Dispute Resolution team.