Under s 8 of the Uniform Commercial Arbitration Act (CAA)¹ a 'court' is required to stay proceedings before it if the parties have already agreed to have their dispute referred to arbitration. Recently, the Victorian Court of Appeal in Subway Systems Australia v Ireland [2014] VSCA 142 found that, for the purposes of s 8 of the CAA, the Victorian Civil and Administrative Tribunal (VCAT) should be viewed as a 'court' and that any proceeding before VCAT ought to be stayed and referred to arbitration where the parties have an arbitration clause governing their disputes.

Background

The respondents (Franchisee) were parties to a franchise agreement with the appellant, Subway Systems Australia (Subway), to own and operate a Subway store in Victoria. Under the franchise agreement, the parties agreed to a complicated arbitration clause which required disputes between the parties to be heard in Queensland.

A dispute arose between the parties and proceedings were commenced by the Franchisee in VCAT. However, Subway disputed VCAT's jurisdiction to determine the dispute. Subway argued that, as the parties had agreed to an arbitration clause, VCAT was required by s 8 of the CAA to refer the matter to arbitration.

Senior Member, Riegler, of VCAT declined to stay the proceeding and referred the dispute to arbitration pursuant to s 8 of the CAA. Subway then sought leave to appeal the decision on a question of law to the Supreme Court of Victoria.

Justice Croft's Decision

On the initial appeal, Croft J found that VCAT was not a 'court' for the purpose of s 8(1) of the CAA. Croft J undertook an examination of the CAA, its development and its origins from the UNCITRAL Model Law. However, his Honour noted that the CAA had been carefully drafted and that it included the terms 'Court' and 'court', with 'Court' referring to the Supreme Court (or, if agreed, the County Court or Magistrates' Court) and 'court' referring to courts generally. Croft J held that neither form of the term under the CAA included VCAT. His Honour also noted that this finding would not produce an absurdity given that VCAT is intended to be a forum for speedy and inexpensive resolution of disputes.

The Court of Appeal's Decision

Croft J's decision was recently overturned by 2-1 majority in the Victorian Court of Appeal. Maxwell P and Beach JA (with Kyrou AJA dissenting) concluded that VCAT was a 'court' for the purposes of s 8(1) of the CAA. Maxwell P and Beach JA saw the general purpose of the CAA as paramount, whereas, Kyrou J approached the issues in a manner similar to Croft J.

In his judgment, Maxwell P referred to the history and development of the UNCITRAL Model Law. It was noted that the legislature had expressed its intention that the interpretation of the CAA should ensure, so far as practicable, uniformity between the application of the CAA to domestic commercial arbitration and the application of the provisions of the Model Law (as enacted by the International Arbitration Act 1974 (Cth)) to international commercial arbitrations. His Honour noted that, although the word 'court' was not defined under the CAA, Article 2 of the Model Law defines 'court' to mean "a body or organ of the judicial system of a State." His Honour observed that VCAT, although not called a court and its adjudicators are not called judges, its function is judicial. Further VCAT, is invested with authority to judge causes and its decisions determine the rights and liabilities of the parties to proceedings before it. His Honour held that:

"If it is correct that Article 8 itself would apply to VCAT, then it would be strange indeed if the Parliament of Victoria had intended (when it enacted s 8 in identical language) to narrow the scope of the provision and — to that extent — defeat the clear policy of the Model Law. Certainly, on my analysis, that would have constituted a departure in substance from the Model Law, a deliberate decision by the legislature to take a narrower view of ‘judicial system’ than that taken by the drafters of the Model Law. Had such a change been intended, it must be assumed that (consistently with the introductory ‘Note’ to the Act) the departure would have been expressly adverted to in the form of a note to s 8."

Beach JA reached the same conclusion as Maxwell P. His Honour noted that, although VCAT had been found to not be a court in a number of decisions when exercising its original jurisdiction, it discharges a function resembling the exercise of judicial power by a court. His Honour noted that whether VCAT was a considered a 'court' depended on the statute but that VCAT answered the description of "a body or organ of the judicial system of Victoria". Beach JA stated that the general purpose of the CAA is:

"… to express a preference for holding parties to their bargains that in terms involve preferring arbitration of whatever kind has been agreed between the parties over State sponsored dispute resolution (no matter how cost efficient or time effective the relevant State body or arm might prove to be)."

In his dissenting judgment, Kyrou AJA argued that VCAT could not be viewed as a 'court' under common law. This was on the basis that it:

• is not bound by the rules of evidence
• cannot enforce its own decisions
• includes some members that are not legally qualified
• can be required to apply a statement of government policy
• can be required to provide advisory opinions.

His Honour found that: 

• the interplay in the language of the CAA and the references to 'Court' and 'court' meant that VCAT could not be considered as a 'court' and that an inclusion of VCAT in those sections would be inconsistent with their evident purpose
• the underlying purpose of staying court proceedings in favour of arbitration agreements was because court proceedings were unable to resolve disputes "without unnecessary delay or expense", and this factor was not relevant with respect to VCAT which has the object of determining disputes with little formality and technicality and with as much expedition as possible
• the fact that the definition of 'court' as contained in Article 2 of the Model Law was omitted from the CAA, meant that the definition in Article 2 could not be resorted to
• VCAT was not "a body or organ of the judicial system of [Victoria]".

Conclusion

The decision continues the strong trend of courts taking the pro-arbitration approach in requiring parties to hold to their bargain in arbitration agreements. The question of whether VCAT is a 'court' has been a vexed one, and the answer to the question is often dependent on the relevant statute and the manner in which the statute is interpreted by the court. However, it is also clear that parties to an arbitration agreement will need to be mindful of this decision and should not be surprised when their dispute cannot be resolved by VCAT.

[1] Which has been enacted in all Australian states and territories, with the exception of the Australian Capital Territory.