Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2021]SASCA 8

by James Kearney, Daina Marshall, Jack Eccleston

Key takeouts

The Supreme Court of South Australia Court of Appeal affirmed that courts will continue to apply a liberal approach to the construction of dispute resolution clauses in order to effect a business-like and commercially tenable interpretation of the parties’ agreement.  In doing so, the court highlighted that courts would endeavour to give meaning and effect to an agreement even in the case of one poorly drafted.  The decision underscored the appropriateness of sensible multi-tiered dispute resolution processes within commercial contracts

Facts

Tesseract International Pty Ltd (Tesseract), entered into a contract with Pascale Construction Pty Ltd (Pascale), to review tender documentation and provide an engineering design for the construction of a Bunnings Warehouse.

The contract between the parties was a standard form used by the Master Builders Association in South Australia and contained provisions for dispute resolution, being conciliation (clause 20) and arbitration (clause 21). Clause 22 of the contract provided that the decision of the conciliator or arbitrator would be binding.

There was subsequently a dispute between the parties as to the design supplied, which Pascale alleged to be defective and claimed loss and damage in the order of $8,410,000.  In its draft points of claim, Pascale alleged liability, among other things, for breach of contract and liquidated damages.  A subsequent attempt to mediate was unsuccessful.

On 7 November 2019, Pascale sent a letter to Tesseract, together with a notice of dispute proposing to dispense with the conciliation process and proceed to arbitration if the dispute could not be resolved.  On 25 November 2019, Tesseract responded that the parties could not participate in either process because the relevant provisions were void for uncertainty and impermissibly attempted to oust the jurisdiction of the court.

Pascale contended that there was an inherent contradiction between a conciliation process and a process that is intended to be determinative and binding, and that a binding conciliation cannot be reconciled with the existence of the arbitration process contemplated by clause 21. Tesseract sought a declaration by the court to that effect and an order to restrain the Pascale from proceeding with the dispute resolution procedure under the contract. Tesseract was unsuccessful and appealed

Decision

The Court of Appeal dismissed the appeal.

In the course of giving reasons, Doyle JA reflected on the general principles governing construction of dispute resolution clauses, including that they will only be void for uncertainty if the words used are so incapable of definite or precise meaning that the court is unable to attribute to the parties any particular construction intention.  It was accepted that whilst a conciliation process being determinative and binding was not what was usually with the meaning usually given to conciliation, the name the parties had given to the process was not determinative. The ultimate issue was what the process the parties had agreed to as a matter of substance. 

Update – August 2024

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

In an appeal to the High Court of Australia on a question of law referred to under the Commercial Arbitration Act 2011 (SA) it was ruled that proportionate liability legislation can apply in arbitrations, generating uncertainty for claimants under existing arbitration agreements. Read our summary of the High Court decision here: High Court rules proportionate liability can apply in arbitration – Technical update – MinterEllison