Australia: Reasoning in arbitral awards – tension resolved by the High Court

High Court clarifies the standard required of reasoning in arbitral awards

Last year we reported on the tension between the positions taken by the NSW and Victorian Courts of Appeal in relation to the standard of reasoning required in an arbitral award click here). That tension has now been resolved by a recent decision of the High Court in Westport Insurance Corporation v Gordian Runoff Ltd [2011] HCA 37 click here for the case).

Victorian position

In 2006, the Victorian Supreme Court (VSC) was asked to interpret section 29(1) of the Commercial Arbitration Act 1984 (Vic) and the requirement that arbitrators "include in the award a statement of the reasons for making the award." The case raised the simple question: what level of standard of reasoning is required from an arbitrator?

At first instance (BHP Billiton Ltd v Oil Basins Ltd [2006] VSC 402), Hargrave J of the VSC read section 29(1) as mandating arbitrators, at least in the context of a complex commercial arbitration, to provide reasons in their awards which were of the same standard expected from a judge, namely an intelligible explanation of why one set of evidence has been preferred over another, why substantial submissions have been accepted or rejected and why the arbitrator prefers one case over the other.

The decision was upheld by the Victorian Court of Appeal.

New South Wales position

In Gordian Runoff Ltd v Westport Insurance Corporation [2010] NSWCA 57 (Gordian Runoff) the NSW Court of Appeal (NSWCA) declined to follow the approach taken in Oil Basins. After an examination of Oil Basins, the UNCITRAL Model Law, international arbitration practice and authorities, and the legislative history of the uniform Commercial Arbitration Acts, the NSWCA found that there was no basis for requiring an arbitral award to contain reasoning of the same standard as a judge.

High Court position

Not surprisingly, special leave was sought, and granted, to appeal the NSWCA's decision in Gordian Runoff in the High Court.

On 5 October 2011, the High Court handed down its findings to resolve the tension between the Victoria and NSW positions.

First, the joint-judgment of French CJ, Gummow, Crennan and Bell JJ (Joint-Judgment) found that Oil Basins' requirement of "judicial standard" of reasons for arbitral awards placed an unfortunate gloss on the requirements in section 29(1)(c). Kiefel J, in a separate judgment (Kiefel Judgment), agreed with that view and observed that there was nothing in the uniform Commercial Arbitration Acts to suggest that reasons for arbitral awards had to be of judicial standard.

Secondly, both the Joint-Judgment and the Kiefel Judgment found that a "reasoned award" requires arbitrators to "explain succinctly why, in the light of what happened, they have reached their decision and what that decision is."

Thirdly, the Joint-Judgement and the Kiefel Judgment shared the view that what is required by way of reasons in a given case will depend upon the circumstances of that case.

Lessons

The High Court's findings serve as a welcome clarification of what has been a contentious issue. It is clear then that the standard of reasoning in an arbitral award will need to be considered on a case by case basis, factoring in numerous factors including the complexity of the dispute.

Additionally, whilst the High Court decision was in relation to the old uniform Commercial Arbitration Acts, it should also serve as guidance to the recently revised uniform Commercial Arbitration Acts as well (which has been enacted in NSW and Tasmania, and with Victoria, South Australia, Western Australia and the Northern Territory expected to follow soon).

Section 31(c) of the new Commercial Arbitration Acts requires that: "The award must state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or the award is an award on agreed terms under section." It is prudent then that where arbitrators are required to provide reasons pursuant to the new Commercial Arbitration Acts, that they be guided by the observations made by the High Court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.