Potential Pitfalls in Australian Dispute Resolution Clauses

Seeley Int’l Pty. Ltd. v. Electra Air Conditioning BV, 2008 WL 276689, [2008] FCA 29 (Fed. Ct. Austl.)

This Australian case illustrates the issues, in that jurisdiction, which can turn on niceties in the drafting of dispute resolution clauses.  Seeley, a distributor of air conditioners sued their manufacturer, Electra, in the Australian Federal Court for breach of contract, seeking a declaration and summary judgment.  Electra sought to restrain the proceedings on the basis of an agreement to arbitrate any issue between the parties before a single arbitrator seated in Melbourne under the IAMA Rules.  However, the relevant clause also provided that nothing in it “prevents a party from seeking injunctive or declaratory relief in the case of a material breach or threatened breach of this Agreement.”

On this basis the judge concluded that, although the arbitration agreement was valid, the parties had intended that certain types of dispute and forms of relief were not to be settled by arbitration.  He also noted that the agreement and its drafting had been heavily negotiated and that therefore the parties must have intended to be bound by their clear wish to have certain types of dispute and claims for relief settled in a forum other than an arbitral tribunal.  The judge further held that it did not fly in the face of “business common sense” to find that parties which had evidently intended that disputes be settled by arbitration might also agree on an “optional dispute resolution process” to deal with certain types of dispute and forms of relief.  The decision underlines the need for care in drafting Australian arbitration clauses if parties are to be held to them.

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