The Dualism of Australian Arbitration Law: A Comment on Paharpur Cooling Towers

• Author: Samuel Ross Luttrell
• Position: Lecturer in Law, Murdoch University, Solicitor (Western Australia)
• Pages: 234-237

(2008) 22 A&NZ Mar LJ

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The Pitfalls of Arbitral Dualism: A Comment on Paharpur Cooling

Towers Ltd v Paramount (WA) Ltd [2008] WASCA 110

Sam Luttrell∗

Australian arbitration law is dualist: domestic arbitrations are regulated by the uniform state Commercial

Arbitration Acts (1984-85) and international disputes fall under the International Arbitration Act 1974 (Cth).1

The IAA adopts the UNCITRAL Model Law on International Commercial Arbitration (1985) and ratifies the

New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). Whilst dualism

can have practical benefits, in a federated context it can cause undesirable variation in the way state and federal

courts read arbitration clauses. Australian state courts sometimes arrive at narrower interpretations than federal

courts, where the public policy imperative of promoting International Commercial Arbitration (ICA) is seen as

requiring liberal constructions of agreements to arbitrate. The decision in Paharpur Cooling Towers Ltd v

Paramount (WA) Ltd illustrates this variance: the Court of Appeal of the Supreme Court of Western Australia

held that a dispute relating to a subcontractor’s liability under a bill of exchange was not arbitrable because the

bill named as co-acceptor a third party who had not signed an agreement to arbitrate with the Claimant.

The dispute in Cooling Towers arose out of a contract for the design, supply and installation of two cooling

towers at an ammonia plant being built by Hong Kong company Paramount for Australian company Burrup

Fertilisers Pty Ltd (BFPL). The contract price was $8,074,770. Indian company Paharpur Cooling Towers

undertook to procure and ship from India certain items equipment, and Paramount agreed to pay the contract

price (less 5%) within thirty days of the date of shipping as confirmed by the bill of lading. Clause 22 of the

contract specified that, in the event of a dispute, the Principal (meaning Paramount) at its sole discretion-

shall determine whether the parties resolve the dispute by litigation within the jurisdiction of the courts

of Western Australia or arbitration under the Commercial Arbitration Act. [Paramount] shall notify

[Paharpur], by notice in writing, of its decision to refer the dispute to litigation or arbitration within 28

days of either [Paramount] or [Paharpur] electing that the dispute be determined be either litigation or

arbitration .2

Significantly, the clause further provided that the arbitration was to be conducted by an engineer. About a year

later the parties agreed to amend the payment terms of the contract. The new arrangement was that Paramount

would pay the balance of the contract price, less $4,000,000 (plus interest) on first clearance of the equipment

from India. The remaining $4,000,000 was payable to Paharpur 180 days from the date of shipment of the last

batch of equipment from India. The parties agreed that this final instalment would be the subject of a bill of

exchange accepted by Paramount and its principal, BFPL. Guarantees were put in place by Burrup Holdings Pty

Ltd and Mr Pankaj Oswal as trustees for the Burrup Trust.3 Burrup Holdings owns BFPL. The equipment was

delivered and Paramount refused to pay. Paharpur commenced action against Paramount, BFPL and the trustee

guarantors in the Supreme Court of Western Australia for the monies said to be due and payable under the

agreement4. After serving Paharpur with a notice referring the dispute to arbitration under Clause 22, Paramount

applied to the Supreme Court for a stay.

Paramount’s application was brought under IAA section 7, with applications in the alternative under section

53(1) of the Commercial Arbitration Act 1985 (WA)5 and the inherent jurisdiction of the court. The matter came

on before Acting Master Chapman on 5 September 2007. At the hearing, Paharpur conceded that its claim under

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∗Lecturer in Law, Murdoch University, Solicitor (Western Australia)

1 Hereinafter referred to as the ‘IAA’.

2 Paharpur Cooling Towers Ltd v Paramount (WA) Ltd [2008] WASCA 110 at [5], hereinafter referred to as ‘Cooling Towers’.

3 Above note 2 at [8].

4 Civ 1549 of 2007.

5 Hereinafter referred to as the ‘CAA’.

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