Sydney Jacobs, Barrister at 13 Wentworth Chambers and Vikram Misra, Barrister at Clarence Chambers continue their series into arbitration and mediation. In Part 6, Sydney and Vikram write a case note of the recent Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82 as it shows an example of the complexities in constructing arbitration agreements. Follow their series here.
In our second article, we discussed the legal principles governing the construction of arbitration agreements. Whether or not a dispute falls within the scope/subject matter of an arbitration agreement is a matter of construction of the agreement and is also a requirement of s 8(1) of the Commercial Arbitration Act 2010 (NSW).
The recent New South Wales Court of Appeal decision in Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82 (‘Inhgams’) serves as an example of the complex issues of construction that are involved in drafting arbitration agreements, and how drafting such clauses is a bit like a railway siding in some future legal landscape, and will determine what disputes will go left (i.e. be referred to arbitration); and which will remain on the tracks of curial resolution.
The essential issue in Inghams was whether or not Mr Hannigan’s claim for damages fell within the scope of the arbitration agreement[1]. The Court of Appeal agreed that the question was purely one of construction[2], turning on the meaning of a clause; and in particular whether a claim for damages for breach of contract was a dispute which “concerns any monetary amount payable and/or owed by either party to the other under this Agreement”.
By majority (Meagher JA and Gleeson JA, with Bell P in dissent) the Court held that a notified dispute, being one for damages (loss of profits), did not concern a monetary amount payable or owed by Inghams to Mr Hannigan under their agreement and accordingly was not a dispute referred to arbitration by cl 23.6.1.
The majority reasoned that although damages for breach of contract may be treated or described as an amount payable under a “secondary obligation” of the agreement following the breach of a primary obligation, the obligation to pay damages for breach of contract is not created by nor arises under the contract.[3] Their Honours further held at [150] that:
The distinction between monetary amounts which are payable or owed “under a contract” and remedies which arise by operation of law is a recognised and meaningful one. Whereas ‘liquidated damages’ are recoverable in satisfaction of a right of recovery created by the contract itself and accruing by reason of breach, unliquidated damages for breach of contract are compensation assessed by the court in accordance with common law principles for loss occasioned by breach: Rotheberger Australia Pty Ltd v Poulsen [2003] NSWSC 788 at [27] (Barrett J); Galafassi v Kelly (2014) 87 NSWLR 119 at [178] (Gleeson JA, Bathurst CJ and Ward JA agreeing). That distinction has been endorsed as one which it is “essential” to maintain: Galafassi at [177].
Key takeaways from this case include that a contract only means what the final court on appeal says it means; and that when drafting complex agreements that include arbitration clauses (which generate further levels of complexity) it is a good idea to advise the client of this adage, even in light of a wealth of authority supporting the proposition that arbitration clauses should be liberally construed.[4]
[1] Putting aside the waiver argument.
[2] Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82, [119].
[3] Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82, [146] – [147].
[4] John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451, [69].
With over 20 years’ experience as a barrister, Sydney Jacobs practices in the areas of commercial law and equity, real property and building and construction law. He has acquired experience in the area of easements: he has obtained easements for applicants and otherwise appeared in the cases listed below, has a number of current matters in the NSW Equity Division Real Property List being case -managed to final hearing 2018 and is briefed in certain easement matters being worked up for filing in Court. Prior to being called to the Bar, Sydney was a solicitor in the well -known firms listed below, as a commercial litigator with a construction law focus. Sydney has experience in acting for clients seeking or opposing easements and clients whose rights of way have been impeded by neighbours. You may connect with Sydney via email sjacobs@13wentworth.com.au or LinkedIn
Vikram Misra was admitted as a solicitor in 2012 and called to the NSW Bar in 2015. He maintains a broad commercial practice and is regularly briefed in matters relating to taxation law, property law, construction law and equity. Vikram has completed a Graduate Diploma in Taxation Law at the University of Sydney in 2015 and a Master of Laws majoring in construction law and contract law at the University of Melbourne in 2016. You may connect with Vikram via email counsel@vikrammisra.com or LinkedIn
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