Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24

High Court changes landscape of arbitrations where claims may involve multiple wrongdoers

The High Court recently delivered a landmark ruling in Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24, where it reversed a previously held consensus view that proportionate liability legislation does not ordinarily apply to arbitral proceedings.

“Clients will be well-guided to seek advice on how best to navigate their contracts and particularly whether proportionate liability should be expressly contracted out of, which is possible in NSW, TAS and WA.”

Background

Tesseract International Pty Ltd (Tesseract) and Pascale Construction Pty Ltd (Pascale) entered into an engineering consultancy contract for the design of a warehouse in South Australia. A dispute arose, ultimately leading to an arbitration of the dispute in accordance with the relevant dispute resolution clause in their governing contract.

In addition to asserting breach of contract, Pascale also claimed Tesseract had acted negligently and engaged in misleading and deceptive conduct in breach of s236 of the Australian Consumer Law. Tesseract denied liability and argued that Pascale was partly at fault and sought damages to be reduced equal to their wrongdoing under proportionate liability laws as a result of third-party’s wrongdoing.

The legal position at the time was that proportionate liability laws did not apply because an arbitrator did not have jurisdiction to join third parties to an arbitration unless they consented. Apportionment of wrongdoing could thus not occur in the same way as if the matter was litigated in the courts.

The matter was elevated to the South Australian Court of Appeal, which upheld the (then) prevailing legal position and determined that proportionate liability provisions did not apply to arbitration. Such a position, of course, benefited primarily applicants as full recourse could be sought against a respondent, with no regard being had to the acts or omissions of others (not being parties to the arbitration) which contributed to the damage and loss.

Tesseract successfully appealed the Court of Appeal’s decision, which led the High Court to now force potential claimants to review their recovery attempts for damages to include proceedings no longer being limited to only their primary target.

Proportionate Liability Legislation

The proportionate liability regime aims to reduce an individual respondent’s liability by allocating responsibility for claimed losses among all concurrent wrongdoers (expressed usually as a percentage). The laws are intended to prevent potential claimants from targeting only well-resourced defendants and properly allocate liability and reflect the extent of wrongdoing to those who actually contributed to the loss or damage.

Unlike a court, an arbitrator cannot compel third parties to join arbitration proceedings (such as would ordinarily be required to ensure all the wrongdoers participate in an arbitration).  This can only happen with the consent of all parties involved. A claimant may therefore need to either join third parties to ongoing arbitration proceedings by obtaining their consent, or alternatively they may need to initiate separate actions to recover their full loss.

Impact of Tesseract

To illustrate the effect of the High Court’s decision, if only one party consented to an arbitration and an arbitrator found such a party’s actions to have contributed by say 60% to the loss or damage, that applicant can only recover that 60% from the respondent and will otherwise now need to have separate recourse against the party who was found 40% responsible for the loss or damage (if that party did not consent to the arbitration). In that event, the applicant will need to either forego that 40% or proceed separately against that particular wrongdoer. Not only will the latter have significant time and costs implications, but the applicant’s claim against the 40%-wrongdoer might by then be out of time and statute-barred.

The implications are further far reaching in necessitating parties contemplating entering into contracts to give serious consideration to the viability of arbitration as the chosen method by which disputes should be resolved. It does not follow that, despite proportionate liability laws now being applicable to arbitrations, arbitrators are vested with any power to join non-consenting concurrent wrongdoers. It only means that the arbitrator’s award may reduce a respondent’s degree of wrongdoing, leaving an applicant exposed to the remaining proportion.

Clients will be well-guided to seek advice on how best to navigate their contracts and particularly whether proportionate liability should be expressly contracted out of, which is possible in NSW, TAS and WA. This may involve a reconsideration whether arbitration indeed still represents the best method by which disputes should be resolved. HHG Legal Group is well-positioned to provide appropriate advice in light of this latest development and assist clients in reviewing their contracts to safeguard their interests and preserve their options.

Contact us

*The information provided in this website serves as a general guide and does not constitute legal advice. It is based on our research and experience at the time of publication. Please consult our knowledgeable legal team for any specific inquiries or advice relevant to your circumstances, as the content may not have been updated subsequently.