The D&C JV contractors on the West Gate Tunnel (Project), CPB Contractors and John Holland (Subcontractors), have won the first round in their dispute against Transurban (Project Co) over the presence of contaminated “PFAS” soil in the tunnel area and subsequent purported termination of their contract due to force majeure.

In Transurban WGT Co v CPB Contractors Pty Ltd [2020] VSC 476, Victorian Supreme Court (VSC) refused applications designed to prevent the disputes from proceeding through arbitration.

Facts

The Subcontractors purported to terminate their contract with Project Co on 28 January 2020 due to the discovery and persistence of “PFAS” contamination, which it claimed was a “Force Majeure Termination Event” under the contract.[1] Since this time, the Subcontractors and Project Co have been engaged in disputes on the validity of the termination and various related matters.

By notice dated 2 March 2020, the Subcontractors sought to initiate a “downstream” arbitration with Project Co in relation to various claims.[2] Some 3 months later, Project Co initiated its own “upstream” arbitration in relation to various claims which it had passed upstream via its head contract with the State of Victoria.[3]

Project Co claimed the disputes were “Linked Disputes” under the contract with the Subcontractors. Project Co argued that clause 44A.3(a)(ii) operated to suspend the downstream arbitration while the upstream arbitration progressed (suspension clause).[4]

The Subcontractors sought to refer their various disputes with Project Co to arbitration. Project Co made an application for:

1. a declaration that the suspension clause was enforceable; and

2. an interlocutory injunction to restrain the Subcontractors from taking steps to progress the downstream arbitration until such time as the upstream arbitration was determined.[5]

The Subcontractor argued that the arbitral tribunal should decide whether to grant such relief to Project Co, not the court. The Subcontractor pointed to ss 5, 8, 9 and 17J of the CAAs which provide only limited powers for court intervention.[6]

The Subcontractor made a referral application to the VSC relying on s 5 and / or 8 of the Commercial Arbitration Act 2011 (Vic) (CAA), requesting the court refer Project Co’s query in relation to the operation of the suspension clause to the arbitral tribunal.[7]

Decision

Lyons J:

1. found that the court had no power to make a declaration of the kind sought by Project Co;

2. refused Project Co’s application for interlocutory injunctions; and

3. granted the Subcontractor’s application to refer to the arbitral tribunal the question of whether the suspension clause was inoperative.[8]

Lyons J considered in detail the relevant law on the nature of arbitration and the limited ambit given to the court under the CAA. Some of His Honour’s key conclusions included that:

1. the question whether the suspension clause is valid and enforceable was a matter ‘arising in connection with’ the contract between the parties and, therefore, it was a type of dispute the parties had agreed under their contract would be arbitrable;[9]

2. the arbitral tribunal had the power to make orders relating to the validity, enforceability and/or applicability of the suspension clause of the kind sought by Project Co in court;[10]

3. under the CAA the court’s power to grant interlocutory relief to matters which the CAAs apply derives from s 17J[11]. Accordingly, the court’s power to intervene is limited; and

4. Project Co had failed to establish that the circumstances of the case were exceptional or objectively urgent such that court intervention was required.[12]

As a result, the Subcontractor’s claims in relation to the contract will be heard and determined by an arbitrator. The arbitrator will need to determine whether the suspension clause is enforceable and, if so, operates in the circumstances to pause the downstream arbitration.

Take Home Tip

Parties who agree to arbitration as their preferred dispute resolution forum should note that the courts are increasingly minded to allow arbitral tribunals to rule on their own jurisdiction or “competence” under the CAA. A party should closely consider whether their set of circumstances are truly urgent or exceptional to warrant intervention by the court. If not, it would be better to apply its resources in ventilating preliminary issues in the arbitration first, then challenging the arbitrator’s determination on those issues if necessary and as permitted by the CAA.

Importantly, Lyons J considered that he was bound by Hancock v Rhodes[13], being ‘a decision of an intermediate appellate court in circumstances applying sections of a uniform commercial arbitration act in force in each state in Australia.’[14] This reinforces the relevance of the current decision of the VSC to parties in all States and Territories in Australia.

[1] At [10(1)].

[2] At [12].

[3] At [12].

[4] At [14].

[5] At [23].

[6] At [115] and [128].

[7] At [20].

[8] At [208].

[9] At [170].

[10] At [174].

[11] At [147] and [191].

[12] At [192] to [203].

[13] Hancock Prospecting Pty Ltd v DFD Rhodes Pty Ltd [2020] WASCA 77.

[14] At [147].