High Court sends disputes under related contracts to arbitration

What happens if two parties enter into a series of contracts with different dispute resolution clauses? One contract may require arbitration, while another requires court proceedings. In a recent decision, the High Court considered how to interpret such a series of contracts.

The case concerned the connection of an Auckland subdivision to Watercare’s wastewater pipes. Watercare and the developer entered into a first agreement in 2018 for a permanent connection, with Watercare required to use reasonable endeavours to obtain an adjoining landowner’s consent to lay the pipes.

Unable to obtain consent in time, and in accordance with the first agreement, the parties entered into second and third agreements in 2022 and 2023 for a temporary wastewater connection, and a fourth agreement in 2022 agreeing to a different route for the permanent pipe.

While the first Agreement required arbitration to resolve any dispute, the second, third and fourth agreements required court proceedings.

Disputes arose, including in relation to the developer’s liability to pay invoices for the temporary connection under the second and third agreements, and alleged defamatory statements by Watercare. The developer sued in court. Watercare objected to the court’s jurisdiction, saying all of the disputes should be arbitrated in accordance with the first agreement.

The High Court agreed with Watercare. Justice O’Gorman ruled that, where there are competing jurisdiction clauses, the starting point is that a clause in one contract was probably not intended to capture disputes arising under a related contract. However, sensible business people are unlikely to have intended similar claims to be the subject of inconsistent jurisdiction clauses. Where a hard and fast division of claims between clauses is elusive, the court will assess which contract is “closer” to the claim.

In this case, the Court said that the dispute in relation to the invoices issued under the second and third agreements ultimately turned on whether Watercare had used reasonable endeavours to obtain consent for the permanent pipe in time, which meant that the arbitration clause in the first agreement applied. The other claims – such as defamation – could not be cleanly severed into separate components from the rest of the dispute, and did not in any event fall more centrally within the scope of the second, third or fourth agreements, meaning that the arbitration clause in the first agreement again applied.

The case is a good reminder when drafting a contract to consider how the dispute resolution clause fits with related contracts. While the court in this case reached a decision that avoided an unwelcome split of claims between court and arbitration, that may not always be possible.