REUTERS | David Gray

Framing your arbitration clause: the differing approaches of English and Australian law to interpretation

Determining the scope of an arbitration clause is a key question for users of international arbitration, as it fixes the boundaries of the tribunal’s jurisdiction. In English and Australian law, this is a question of contractual interpretation, though it is approached differently in each case, with English law operating a presumption in favour of commerciality, while Australia takes a more technical approach. While in many cases the outcome will be the same, the distinction is important and has recently been re-entrenched by a decision of the High Court of Australia, Rinehart v Hancock Prospecting Pty Ltd.

In English law, there is a presumption that parties intend for all disputes relating to the agreement in question (and the relationship it establishes) to be heard before the same tribunal. If they want to reserve certain disputes for a separate tribunal (such as a national court), they will need to use clear language. This approach, often referred to as the presumption of “one stop” adjudication, was established by the House of Lords in Fiona Trust v Privalov.

In Fiona Trust, the House of Lords took the opportunity to “draw a line” under some existing cases, which carried out a minute analysis of the wording of the arbitration (or jurisdiction) clause to delineate its scope. Various reasons were given for introducing the presumption. Most importantly, it would align with commercial expectations (with Lord Hoffman noting that the legal distinctions drawn in previous cases “reflect[ed] no credit upon English commercial law”). Usually, parties would have no reason to provide a tribunal with jurisdiction over only part of the dispute, leaving others to be decided by national courts. They were also unlikely to attribute significance to minor differences in the language of their clauses (such as whether they captured disputes arising “under” or “out of” or “in connection with” the agreement). It would enhance commercial certainty and would also bring English law into line with international practice; this was important where international disputes were involved. Finally, the rule was said to support the “separability principle”, which had been codified in England by the time Fiona Trust was being decided. Parliament had recognised that (unless parties provide otherwise) arbitration agreements were separate contractual undertakings from the main agreement. It would support that theme if courts gave arbitration clauses, presumptively, a broad scope.

The presumption has been of great practical importance in English law. Whilst issues of construction certainly still arise (for example, where multiple parties and contracts are involved, or the validity of the arbitration clause is disputed), it forms the starting point of the analysis and has simplified an important aspect of the task. It has also been applied to jurisdiction clauses.

In Australia, the picture is not as clear. The “one stop” presumption has not been recognised in Australian law, at least not in a uniform way. Some intermediate courts have applied it, whilst others maintain it is contrary to Australian law and continue to perform a close analysis of the text of the clause. This is notwithstanding that Australia, like England, has codified the separability principle. Australian courts have often grappled, for example, with the question of whether statutory claims are encompassed by arbitration clauses and answers differ case by case.

In Rinehart, the High Court of Australia had an opportunity to consider the application of the “one stop” presumption in Australian law. The court declined to apply it or consider its correctness. It held that it was unnecessary to do so.

The case concerned a series of claims brought against Mrs Gina Rinehart and various companies by two of Mrs Rinehart’s children in the Federal Court of Australia. Some of the claims attacked the validity of three deeds (allegedly procured by misconduct) which contained arbitration clauses. The defendants sought a stay of the proceedings under section 8(1) of the Commercial Arbitration Act 2010 (NSW) on the basis that the action concerned a matter that was the subject of an arbitration agreement. The arbitration clauses provided that “in the event that there is any dispute under this deed” (or, for one of the deeds, a dispute “hereunder”) there was to be confidential arbitration.

At first instance, the trial judge held that the claims attacking the validity of the deeds fell outside the arbitration clauses, as they were not disputes “under” the deeds. On appeal, the Full Federal Court held that these claims were within scope. The High Court agreed that all of the claims fell within the scope of the arbitration clauses, but held that it was unnecessary to apply Fiona Trust to reach this result. Instead, this could be achieved by applying “orthodox principles” of contractual interpretation. That involved analysing the terms of the arbitration clauses in the context of each of the deeds, their purpose and admissible background information. The court ascertained that the parties had concluded these deeds with a special objective to maintain confidentiality and to avoid public scrutiny of their disputes. On this basis, it was clear that the clauses were meant to operate widely and would encompass claims attacking the validity of the deeds.

The Court expressly stated that it was unnecessary for it to consider the correctness of Fiona Trust. It did note that the question may “not assume so much importance” in the future, as parties are increasingly recommended to adopt wide, standard form, clauses (such as the UNCITRAL arbitration clause).

This leaves Australian law in an uncertain position as a matter of principle, albeit the court’s approach is consistent with the modern approach of construing arbitration agreements widely and purposively. Whilst the presumption has not been “ruled out”, it is certainly not clear that it applies. Until the High Court has another opportunity to consider the question, parties selecting Australian law to govern their arbitration agreements must operate on the basis that the issue will be resolved ad hoc and the standard rules of construction will govern the question of scope. Where, as English law would presume, the parties do intend to incorporate the broadest range of disputes, they will need to be clear about that in their contracts, using the most expansive language possible as to the disputes they agree to refer to arbitration. Whether statutory claims are included will likely remain a key area of debate, but Rinehart may lend support to their inclusion, at least in broad, industry-standard clauses (given the court’s suggestion that these should not give rise to controversy).

The decision also highlights one area in which Australian and English courts differ in their inclinations to create commercial, arbitration-friendly, solutions. Over a decade ago, English courts took a concerted step to simplify a common problem and facilitate commercial outcomes. Whilst Australian courts are in many respects supportive of international arbitration, on this question they prioritise traditional rules of construction.

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