The High Court decision in Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24 has wide reaching ramifications to owners or contractors who have entered into arbitration agreements and have not, where possible, contracted out of proportionate liability.

By way of background, a contractual dispute between Tesseract, an engineering consultancy, and Pascale, a building company had arisen over the quality of work performed by Tesseract under a sub-contract dated 14 October 2015. Pascale alleged that Tesseract’s work did not meet the required standard under the contract, causing them loss and damage. Tesseract denied the allegation. The contract contained a dispute resolution process involving conciliation and arbitration (clauses 20 to 22). Tesseract also sought to invoke the proportionate liability provisions under Part 3 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) (Law Reform Act) and Part VIA of the Competition and Consumer Act 2010 (Cth) (CCA), alleging that a third party, Mr Penhall, was a concurrent wrongdoer. Pascale denied the applicability of these provisions and the Court of Appeal said that the proportionate liability regime did not apply. The Court of Appeal had agreed with Pascale.

By majority of 5:2, Gageler CJ, Jagot & Beech-Jones JJ, Gordon & Gleeson JJ have held that the proportionate liability provisions in the Law Reform Act and the CCA apply to arbitrations. 

The High Court held that:

1. The proportionate liability provisions are part of the substantive law of South Australia. This was agreed between the parties;
2. The public policy of South Australia provides no justification for treating a dispute about rights or liabilities arising under a Commonwealth statute or a South Australian statute as incapable of settlement by arbitration where those statutes on their proper construction do not themselves render the dispute incapable of settlement by arbitration: at [75] per Gageler CJ.
3. Some of the provisions of the Law Reform Act and the CCA are procedural provisions. For example, ss 10(2) and 11 of the Law Reform Act and ss 87CE, 87CH and 87CG of the CCA. These provisions are not directly applicable to arbitrations: at [34] and [61] per Gageler CJ; at [125] per Gordon and Gleeson JJ; at [364] per Jagot and Beech-Jones JJ
4. The Commonwealth and South Australian parliaments intended their proportionate liability regimes to apply in arbitration subject only to the capacity of the parties to agree to the contract: at [13] per Gageler CJ, at [365] per Jagot and Beech-Jones JJ and at [141] per Gordon and Gleeson JJ. This was to ensure the ongoing viability of professional indemnity insurance for economic loss and property damage in Australia, irrespective of the forum for dispute resolution: [354]-[355] per Jagot and Beech-Jones JJ.
5. The proportionate liability provisions in the Law Reform Act may be adapted to apply to arbitration without altering their effect: at [56] per Gageler CJ; [129] and [140] per Gordon and Gleeson JJ.
6. The inability to join all potential wrongdoers in an arbitration is a product of the terms of the arbitration agreement between the parties, not the terms of the proportionate liability regimes: at [134] and [138] per Gordon and Gleeson JJ; at [363] per Jagot and Beech-Jones JJ.
7. It is a matter for the claimant to decide whether to commence court proceedings to recover from any concurrent wrongdoer: at [134] per Gordon and Gleeson JJ.

The effect of this decision is limited to the South Australian legislation, which is non-uniform across the States. As such it does not necessarily mean that interstate apportionment legislation will apply to arbitrations also.

Laina Chan

Liability limited by a scheme approved under professional standards legislation