Courts will generally require parties to comply with valid arbitration and dispute resolution clauses before commencing litigation. In Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC, the Supreme Court of Western Australia stayed court proceedings and referred the dispute to arbitration, despite arguments that the contract had been terminated. The case highlights that arbitration clauses often survive termination of the underlying contract and that failing to follow agreed dispute resolution procedures can result in adverse costs orders.
What happens if a party ignores an arbitration or dispute resolution clause in a contract?
Our Commercial Team explains
Summary
This article explains the importance of complying with arbitration and dispute resolution clauses in contracts. It examines a Supreme Court of Western Australia decision which confirmed that an arbitration clause can survive the termination of a contract and that failing to follow an agreed dispute resolution process may result in additional legal costs.
Why are dispute resolution clauses important?
The recent Supreme Court of WA case of Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC illustrates the importance of complying with arbitration clauses, and by implication dispute resolution clauses of any kind.
How do Alternative Dispute Resolution clauses work?
Alternate Dispute Resolution (ADR) clauses are now almost standard in contracts of all kinds and across all industries. At their best, ADR procedures offer a faster and more cost effective way to resolve disputes, while preserving, or at least minimising further damage to, the business relationship between the parties. Section 8 of the Commercial Arbitration Act 2012 (WA) provides that a Court is required to refer parties to arbitration where the contract between them calls for it, unless the Court finds that the clause or agreement is null and void, inoperative or incapable of being carried out.
What happened in Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd?
In the case of Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd the contract required that the parties submit their dispute to arbitration before they could commence proceedings in Court. Pipeline had commenced Court proceedings to resolve a dispute instead of complying with the ADR clause and going to arbitration. ATCO applied to suspend the proceedings (referred to as a “stay” of proceedings) to compel Pipeline to participate in arbitration as required by the contract. Pipeline argued that ATCO waived its right to arbitration by failing to enforce the clause earlier, that the contract had been terminated and the ADR clause was therefore unenforceable, and that the contract itself was uncertain and therefore void.
Does an arbitration clause survive termination of a contract?
The Court rejected Pipeline’s arguments and referred the matter to arbitration even though the contract had been terminated, on the basis that the arbitration clause survived termination of the contract. The Court applied the law that an arbitration clause is to be treated as a contract operating in some ways independent to that of the underlying agreement. Because Pipeline did not comply with the ADR clause the Court ordered that Pipeline pay the legal costs incurred by ATCO by having to apply for a stay of Court proceedings.