Linked Claims – the Victorian Supreme Court considers the enforceability of an arbitration clause in West Gate Tunnel skirmish (Transurban WGT Co Pty Ltd v CPB Contractors Pty Limited [2020] VSC 476)

As part of the West Gate Tunnel Project, the State of Victoria (Victoria) and Transurban  entered  into a ‘head’ agreement for Transurban to design, construct, commission, finance and then operate the West Gate Road tunnels and related works (the Project Agreement) and, on the same day, Transurban entered into an agreement with CPB to design and construct the West Gate Road tunnels and related construction works (the Subcontract). The other parties to the Subcontract were Victoria and another party (NewCo).

The claims regime established by the Subcontract interrelated with the claims regime established by the Project Agreement. Each agreement contained similar clauses for notification of claims including for variations and extensions of time. Each agreement also contained similar clauses for alternative dispute resolution which relevantly provided in cl 43.1(a) that any disputes ‘arising in connection with’ the relevant agreement ultimately are to be determined by arbitration.

Clause 44A of the Subcontract provided a specific provision for claims or disputes under the Subcontract in respect of which Transurban may have a related claim against Victoria under the Project Agreement. Such claims and disputes between the Subcontractor and Project Co were called Linked Claims and Linked Disputes in the Subcontract. Further, cl 44A also provided what happened if there were a Linked Dispute on foot at the same time as an upstream claim or dispute against the State. Clause 44A.3(a)(ii) relevantly provided that, except where expressly provided under the Subcontract, to the extent a dispute was a Linked Dispute, the Linked Dispute would not be progressed under the terms of the Subcontract while the related dispute under the Project Agreement was in progress, and the running of time under, and the parties’ obligations to comply with, cll 43 and 44 of the Subcontract would be suspended (the suspension clause).

By this proceeding, Transurban sought from the Court a declaration that the suspension clause was valid and sought interlocutory and final injunctions to enforce it. 

The central issue for determination was whether it was for the Court or the downstream arbitral tribunal to grant the relief sought by Transurban in the proceeding.

Lyons J declined to make the orders sought, determining that, based upon the terms of the Subcontract and the powers of the Court in the context of the Commercial Arbitration Act 2011 (Vic) (the Act), it was the downstream arbitral tribunal that should grant the relief sought by Transurban.

His Honour noted that s 5 of the Act provided that in matters governed by the Act, ‘no court must intervene except where so provided by this Act’. Under s 40, the express effect of s 5 was to alter or vary the unlimited power of the Court under the Constitution Act. The Court’s powers were ousted in relation to matters governed by the Act other than where provided by the Act. Thus the Court’s power to intervene in matters that are governed by the Act was very limited:

• under s 8 the Court had power to consider whether to refer a matter in a proceeding before it to the arbitral tribunal, but even this power under s 8 was limited: the Court had no discretion to refer if the action was brought ‘in a matter which is the subject of an arbitration agreement’ unless the proviso applied;
• under s 16(9) the Court had power to review a preliminary ruling by an arbitral tribunal that it had jurisdiction but, once again, that power was limited; 
• under s 17(1), unless otherwise agreed by the parties, the arbitral tribunal may grant interim measures, including ordering a party to ‘maintain or restore the status quo pending the termination of a dispute’ and to ‘take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process’, and therefore the downstream arbitral tribunal had the power to grant relief of the kind sought in the proceeding; and
• under s 17J the Court has the same power of issuing an interim measure in relation to arbitral proceedings as it has in relation to proceedings in courts, but court ordered interim measures should only be granted where the purpose is to assist the arbitral process and not to frustrate or impede it. 

However, where there were two related arbitrations on foot, the Court would have the power under s 17J to restrain for a period one arbitral process while a related arbitral process was in progress. 

Section 8 of the Act provides that upon request the Court must refer a proceeding which is the subject of an arbitration agreement to arbitration subject to the proviso, namely ‘unless it finds that the agreement is null and void, inoperative or incapable of being performed’.

Lyons J determined that the Court and the arbitral tribunal each had the power to determine whether an arbitration agreement was ‘inoperative’. However, his Honour was not able to form a concluded view on the meaning of ‘inoperative’ for the purpose of the proviso in this application.

His Honour expressed his views on the issues concerning the validity, enforceability, operation and application of the suspension clause in the context of cll 43-44A of the Subcontract, but concluded that the Court had no power to grant a declaration as:

• the circumstances of the case were not exceptional, where the Court had concluded that:
  • the arbitral tribunal had the power to grant orders relating to the validity, enforceability and/or applicability of the suspension clause;
  • in that event, there would be no kind of primary prejudice alleged by Transurban;
  • any risk that the arbitral tribunal would not determine the validity of the suspension clause as an urgent preliminary matter was very low; and
  • the upstream arbitration was currently in abeyance pending commercial discussions between the parties
• the circumstances of the case were objectively urgent, and could be dealt with as urgently by the arbitral tribunal as by the Court;
• a party in the position of Transurban could not reasonably form the opinion that a declaration from the Court was necessary to protect its rights in accordance with cl 44.10, because the downstream arbitral tribunal had the power to hear and determine issues as to the validity of the suspension clause and no real prejudice would result such that the Court could not be satisfied that Court intervention was required.

Lyons J determined not to grant the interlocutory injunction sought by Transurban as:

• he was not satisfied that he had power to do so consistent with cl 44.10 of the Subcontract; and
• even if he had the power, he would decline to grant an interlocutory injunction as the balance of convenience did not favour the granting of such an injunction.

Hugh Foxcroft QC

Liability limited by a scheme approved under professional standards legislation