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Karen Ingram & Alan Parnell

Eastern Goldfields Ltd v GR Engineering Services Ltd [2018] WASC 224

How does the interaction between contractual arrangements and settlement agreements affect an arbitrator’s jurisdiction? A recent Western Australian Supreme Court decision has highlighted some of the issues.

Where a dispute concerns several different agreements, including settlement agreements, arbitrators should consider how the dispute arises and under which agreement arbitration is prescribed, as it may impact the arbitrator’s jurisdiction. In Eastern Goldfields Ltd v GR Engineering Services Ltd [2018] WASC 224, the Western Australian Supreme Court applied the principles relevant to the jurisdiction of arbitrators where a settlement agreement exists.

What agreements existed?

Eastern Goldfields Ltd (Goldfields) and GR Engineering Services Ltd (GRE) entered into a contract for GRE to design and refurbish Goldfields’ Davyhurst Gold Plant (Design Contract). Clause 41 of the Design Contract provided that a difference or dispute between the parties “arising in connection with the subject matter of the [Design Contract]” shall be referred to arbitration.

A dispute arose concerning unpaid amounts due to GRE under the Design Contract. GRE issued a statutory demand (Demand) and Goldfields sought an order from the Court to set it aside. GRE consented to an order setting the Demand aside in return for, amongst other things, Goldfields paying GRE a specified sum by way of settlement (Settlement Amount).

The settlement was recorded in a written settlement agreement titled ‘Partial Accord and Satisfaction Agreement’. To give effect to some of the agreed terms of settlement, other entities were also parties to the settlement agreement. However, there was further dispute between Goldfields and GRE as to whether that settlement agreement obliged Goldfields to pay to GRE the Settlement Amount. Goldfields refused to pay the Settlement Amount, and GRE commenced proceedings.

We want arbitration! Wait… we submit the arbitrator has no jurisdiction!

Goldfields applied for an order that the dispute be referred to arbitration. The Court made that order (First Application).

Goldfields later asserted that the arbitrator lacked jurisdiction, contrary to its submissions in the First Application. The arbitrator determined he had jurisdiction.

Goldfields applied to the Court for an order that the arbitrator lacked jurisdiction (Second Application). The Court dismissed the Second Application. Notably, the Second Application did not stay the arbitration. The arbitration hearing was scheduled for 13 August 2018, and the Second Application was only determined on 27 July 2018.

Did the dispute arise under the Design Contract or the settlement agreement?

In support of its assertion that the arbitrator lacked jurisdiction to determine the dispute, Goldfields asserted that the dispute arose under the settlement agreement and, accordingly, the Design Contract’s arbitration clause was inoperative.

Goldfields argued that a settlement agreement in respect of the arbitrable dispute rendered the arbitration agreement inoperative, and that the Court should determine questions of whether the arbitrable dispute had been settled as a preliminary question, because the arbitrator would lack jurisdiction if the dispute was in fact settled.

The Court disagreed with Goldfields’ argument because the settlement agreement was not a settlement of the dispute under the Design Contract. Rather, it was a compromise to set aside the Demand. The Court held that Goldfields had not identified the Design Contract dispute that was resolved under the settlement agreement in respect of which the arbitration clause was purportedly inoperative.

The Court placed particular emphasis on the fact that the Design Contract’s arbitration clause was expressed to apply to disputes arising “in connection with the subject matter of the [Design Contract]”. The Court held that this broad drafting resulted in a factual connection between the Design Contract and the settlement agreement and, therefore, the arbitration clause applied to the dispute concerning the Settlement Amount.

Goldfields also argued that the arbitrator lacked jurisdiction because of the existence of other parties to the settlement agreement beyond the parties to the Design Contract. In other words, parties that would be bound by the arbitration award never agreed to the arbitration clause in the Design Contract. The Court disagreed, finding that this did not disprove the Settlement Amount dispute still being a dispute between Goldfields and GRE that arose in connection with the Design Contract’s subject matter.


Implications

Although the jurisdictional issue came before the Court in an unusual way, the case highlights the importance of understanding how jurisdiction can be affected by a dispute’s history and the collection of relevant agreements.

If a matter concerns such circumstances, arbitrators (and disputing parties) should turn their minds to the following questions:

where does the arbitration clause exist?;

under which agreement does the dispute arise?;

how does the drafting of the arbitration clause affect disputes that may not strictly arise under the agreement containing the arbitration clause?; and

who are the parties to, and who will be affected by, the arbitration, and were they the original parties to the agreement containing the arbitration clause?

Arbitrators (and disputing parties) should also be cognisant of these jurisdictional issues for the purposes of the arbitration timeline. In this case, although the arbitrator had determined the issue three months before the arbitration hearing, the jurisdictional question was only determined by the Court two weeks before the arbitration hearing.

About the Authors

Karen Ingram
Partner

 

Alan Parnell
Graduate

 

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