Legal relationship defined in the broad sense for arbitration agreements

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Cheshire Contractors Pty Ltd v Civil Mines and Construction [2021] QCA 212

Key takeaways

The term “defined legal relationship” in Article 7 of the Commercial Arbitration Act 2013 (Qld) must be given a broad interpretation. The parties to a construction contract containing an arbitration clause will be parties to the arbitration agreement created by this clause. The relationship does not need to be further defined or expressly stated in the arbitration agreement.

Facts

Civil Mining & Construction Pty Ltd (CMC) contracted with the Queensland Department of Transport and Main Roads (VMR) to carry out a road works construction project (project). CMC has subcontracted Cheshire Contractors Pty Ltd (Cheshire) to undertake the civil works of the project (subcontract).

A dispute arose between CMC and Cheshire following Cheshire’s claim for payment of costs associated with alleged instructions given by CMC regarding the use of materials not included in the project specifications. Cheshire brought an action in the Supreme Court of Queensland seeking payment of $ 1,393,616.80 plus GST, interest and the repayment of a bank guarantee. In response, CMC requested a stay of the proceedings and requested an order referring the parties to arbitration pursuant to section 8 (1) of the Commercial Arbitration Act 2013 (Qld) (Act).

First, Henry J allowed CMC’s request, granting a stay of the proceedings and referring the parties to arbitration under subsection 8 (1) of the Act.

Appeal

Cheshire appealed the ruling on the grounds that Henry J had misinterpreted the meaning of “with respect to a defined legal relationship” under section 7 (1) of the Act. Cheshire’s argument followed that, since the purported arbitration agreement did not itself define the legal relationship to which the clause was intended to apply, there was no “arbitration agreement” within the meaning of article 7 (1) of the law.

Decision

The Court of Appeal rejected Cheshire’s arguments on appeal, upholding Henry J.

Cheshire argued that in order to satisfy section 7 of the Act, the arbitration clause itself must define the legal relationship to which it is intended to apply. The relevant clause in the subcontract was the dispute settlement clause, which dealt with “disputes or disputes arising between the parties”. In the original ruling, Henry J concluded that looking at the clause in isolation would be:

“Contrary to orthodox principles of interpretation, in particular to the fact that the whole of the relevant instrument must be taken into account in the interpretation of its meaning”,

The dispute settlement clause, which is the “arbitration agreement”, must be interpreted in the broader context of the documents as a whole. In this case, the subcontract established that there was a contractual relationship between CMC and Cheshire.

The Court of Appeal agreed with Henry JA, concluding that section 7 of the Act should be given a broad interpretation.

A number of cases in Australia and New Zealand have been raised in support of the proposition that the term “defined legal relationship” should be broad in meaning and not limited to relationships recorded in documents, d ‘other relationships formal or defined by the arbitration agreement itself.


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