The High Court has now clarified that the proportionate liability regime is available in arbitration (Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24 (Tesseract)).
 
The decision is significant as it shifts the burden of pursuing third party claims outside of arbitration to the claimant. Parties to contracts that include arbitration clauses will need to consider how best to protect their interests in circumstances where third parties cannot normally be joined to the arbitration.

Proportionate liability regimes
 
The proportionate liability laws operate to reduce the defendant's liability to the plaintiff to the extent that there are other concurrent wrongdoers that caused the plaintiff's loss or damage. That is, a defendant is only liable to a percentage representing the extent of their responsibility for the plaintiff's loss or damage.
 
In effect, this legislation switches the common law approach that entitles claimants to recover against any defendant who contributed to the loss.
 
Each state and territory in Australia has its own proportionate liability legislation. In respect of misleading or deceptive conduct claims there is Commonwealth legislation which include proportionate liability provisions.
 
Tesseract
 
Tesseract and Pascale entered into a contract in respect of engineering consultancy work to be carried out by Tesseract for a warehouse in South Australia. A dispute arose between Tesseract and Pascale in relation to the work carried out pursuant to the contract and the matter was referred to arbitration under the dispute resolution clauses in the contract by Pascale.
 
Tesseract denied liability and in the alternative, argued (amongst other things) that:     

a. a third party concurrent wrongdoer was responsible for part, or all, of the losses claimed by Pascale in the arbitration;

b. the damages payable should be reduced in accordance with the proportionate liability regimes established by Part 3 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) (Law Reform Act); and

c. further or alternatively, the damages payable should be reduced in accordance with the proportionate liability regimes established Part VIA of the Competition and Consumer Act 2010 (Cth) (CCA).

Pascale denied that the statutory proportionate liability regimes applied to the arbitration.
 
As the alleged concurrent wrongdoer was not a party to the contract, the third party could not be joined to the arbitration without the consent of the third party and each of the parties to the arbitration.

The question of whether the proportionate liability regimes in Part 3 of the Law Reform Act and Part VIA of the CCA applied in the arbitration was referred to the Court of Appeal of the Supreme Court of South Australia.

In Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2022] SASCA 107, the Court of Appeal found that the proportionate liability regimes in Part 3 of the Law Reform Act and Part VIA of the CCA did not apply to the arbitration.

The Court of Appeal found that the arbitrator could not apply the proportionate liability laws except in a manner that would differ materially from the regimes intended by the relevant legislature. The Court of Appeal relied on two matters:

1. That both proportionate liability regimes contemplate the plaintiff will have the opportunity to join all wrongdoers in the one set of proceedings; and

2. The inability to join all wrongdoers to an arbitration except by consent.

Tesseract appealed the decision.
 
The High Court held in determining the question of law of whether the proportionate liability laws in Part 3 of the Law Reform Act and Part VIA of the CCA apply to the arbitration proceeding conducted pursuant to the Commercial Arbitration Act 2011 (SA), the answer is in the affirmative.
 
The High Court said:

1. At [185] - If the proportionate liability laws form part of the law that is applicable to the substance of the particular jurisdiction, it follows that the proportionate liability laws are capable of application by the arbitrator with such modifications as to take account of characteristics which distinguish an arbitration from court proceedings such that the laws can still be described as the substantive laws of that jurisdiction.

2. At [130] - The absence of a right of joinder in an arbitration does not affect the application of the limitation of liability rule and to the extent the Supreme Court of Western Australia decided differently in Curtin University of Technology v Woods Bagot Pty Ltd  [2012] WASC 449 (at [85]), that case was wrongly decided.

3. At [131] - To the extent that a plaintiff would be disadvantaged by section 11 of the Law Reform Act (which applies if a plaintiff brings a separate action against a wrongdoer who is entitled to a limitation of liability under Part 3 of the Law Reform Act), South Australian law does not prevent a party from contracting out of the proportionate liability laws in any arbitration clause.

4. At [134] - The mere fact of an arbitration agreement between two parties does not demonstrate that the parties contracted out of the application of the proportionate liability laws to the resolution of their dispute.

The High Court's decision provides an advantage to respondents to reduce their liability to claimants in arbitrations.
 
The burden and risk of seeking contribution from other wrongdoers for loss is shifted to the claimants in arbitration. To recover their total loss, claimants would be required to:

1. commence court proceedings to recover from any concurrent wrongdoer(s); or

2. join the third party to the arbitration (with the consent of the third party and each of the parties to the arbitration).

If claimants bring separate proceedings to recover against concurrent wrongdoers at the same time as the arbitration, there is a risk of inconsistent findings in the separate proceeding.

1. For apportionable claims, respondents in arbitrations can rely upon the statutory proportionate liability regimes in their defence to apportion their liability between other concurrent wrongdoers that have also caused the plaintiff's loss or damage.

2. Statutory proportionate liability laws can apply in arbitrations even if the third party concurrent wrongdoer(s) are not a party to the arbitration.

3. If claimants in arbitration seek to recover against third parties, they will need to seek a joinder to the arbitration (by consent of the third party wrongdoer and the respondent in the arbitration) or commence proceedings separately. There is a risk of inconsistent findings if multiple proceedings dealing with the same loss or damage are dealt with at the same time.

4. ​Some states allow a party from contracting out of the proportionate liability laws in any arbitration cause.