Validity of Agreements and Arbitration?

Validity of Agreements and Arbitration- Can disputes as to the validity of an agreement be resolved by way of arbitration? Traditionally, one may have thought that only the courts had the power to make a determination as to the validity of an agreement or deed. However, this notion has been challenged through the contractual instrument … Continue reading “Validity of Agreements and Arbitration?”

Validity of Agreements and Arbitration- Can disputes as to the validity of an agreement be resolved by way of arbitration?

Traditionally, one may have thought that only the courts had the power to make a determination as to the validity of an agreement or deed. However, this notion has been challenged through the contractual instrument of arbitration clauses. The question arose as to whether a dispute as to the validity of an agreement or deed, was captured by an arbitration clause in that same agreement or deed.

In the recent High Court decision of Rinehart v Hancock Prospecting Pty Ltd; Rinehart v Rinehart [2019] HCA 13, the Court held that it will interpret arbitration clauses widely and will not limit the scope of such a clause, unless the agreement contains express provisions to do so. In this case, Gina Rinehart had entered into a number of settlement deeds with two of her children. The settlement deeds contained dispute resolution clauses that referred any dispute ‘under this deed’ to arbitration. Her children wanted a judicial determination as to the validity of the deeds, whereas she applied to the Federal Court of Australia to have the matter referred to arbitration. The trial court held that disputes as to the validity of a deed are not disputes ‘under the deed’ as the deed has to be valid in order for disputes to arise ‘under’ it. The terms ‘under the deed’ must be interpreted more narrowly than phrases such as ‘arising out of’ or ‘in connection with’. The full Federal Court of Australia disagreed with the trial court and stayed the proceedings so as to allow the arbitrator to settle the dispute. The Federal Court held that the narrow interpretation adopted by the trial court was incorrect and the phrase ‘under the deed’ should be given a liberal interpretation, unless the circumstances dictate otherwise.

On appeal, the High Court confirmed the Federal Court’s findings and dismissed the appeal. The court confirmed, upon orthodox principles of contractual interpretation, that a dispute as to the validity of a deed fell within the scope of an arbitration clause.

It is clear that Arbitration clauses should be drafted with the necessary care, while adopting broad language if it is intended that all disputes, including those relating to the contract itself, are to be referred to arbitration.

Aidan Nugent

June 2019