Macpherson Kelley secures High Court win for Tesseract

Macpherson Kelley has secured a victory in High Court for Tesseract International Pty Ltd (Tesseract) in a case involving the applicability of proportionate liability legislation in arbitration proceedings.

“This landmark decision clarifies the scope of proportionate liability laws and their integration into arbitration processes”, the firm said.

Tesseract netted the win over construction Pascale Construction Pty Ltd (Pascale). Pascale had retained Tesseract to put together the structural engineering design for a South Australia warehouse in 2015; however, a dispute arose over the design. As per the terms of the contract, the matter was referred to arbitration.

Pascale sought significant damages over claims of breach of contract, negligence, and pursuant to section 236 of the Australian Consumer Law misleading or deceptive conduct that violated section 18, Macpherson Kelley said. In light of available evidence, Tesseract countered that other parties (concurrent wrongdoers) were at fault for Pascale’s loss; thus, Tesseract denied its liability and sought to minimise its liability in line with the extent of what the concurrent wrongdoers would be responsible.

Pascale challenged this defence and whether or not proportionate liability laws could be applied to the arbitration. Thus, the arbitrator referred the issue to the South Australian Supreme Court of Appeal.

In 2022, the Court of Appeal determined that proportionate liability regimes did not apply to arbitration given that “both proportionate liability regimes contemplate the plaintiff will have the opportunity to join all wrongdoers in the one set of proceedings” and “the inability to join all wrongdoers to an arbitration except by consent”. Tesseract engaged Macpherson Kelley and filed an appeal to the High Court.

The High Court overturned the Court of Appeal's decision, with Gageler CJ, Gordon and Gleeson JJ, and Jagot and Beech-Jones JJ forming the majority in three separate rulings. The High Court put emphasis on how the inability to join all alleged wrongdoers in arbitration does not prevent proportionate liability laws from being applicable; even within arbitration frameworks, the underlying principles in these laws held up.

“The High Court’s decision aligns with the statutory purpose of proportionate liability regimes, which is to fairly allocate liability among all wrongdoers, even if not all can be joined in arbitration”, Macpherson Kelley said. “This ruling clarifies that arbitration proceedings must incorporate proportionate liability principles, ensuring consistency with statutory frameworks and enhancing the fairness of dispute resolution”.