Key points

  • The uniform Commercial Arbitration Acts in NSW and Victoria require that arbitral awards "include in the award a statement of the reasons for making the award". There is currently a lack of clarity as to standard of reasoning required.
  • In Victoria, it has been held that, at least in complex arbitrations, the standard of reasoning should be the same as those provided by judges.
  • In contrast, a recent decision by the NSW Court of Appeal has held that arbitral awards are not required to have the same level of reasoning as that of judges.
  • The disparity between the two differing approaches means that the standard of reasoning required in an arbitral award (and consequently the rights of appeal) currently differ between each state.

Oil Basins Ltd v BHP Billiton Ltd

In 2006, in the context of a large arbitration concerning a royalty agreement and the production of hydrocarbons, the Victorian Supreme Court (VSC) was asked to consider the implications of requiring arbitrators to "include in the award a statement of the reasons for making the award" under section 29(1) of the Commercial Arbitration Act 1984 (Vic) (BHP Billiton Ltd v Oil Basins Ltd [2006] VSC). The VSC read this section 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 VSC set aside the arbitrators' award on the basis that it failed to disclose adequate reasons which amounted to an error of law on the face of the award. The VSC also found that the arbitrators were guilty of technical misconduct by reason of their failure to consider and adjudicate upon substantial and serious submissions. This decision was upheld by the Victorian Court of Appeal (Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255 (Oil Basins)).

The above decisions were the subject of much comment at the time and were seen by many commentators as raising the bar in relation to the standard of reasoning expected from an arbitrator.

Gordian Runoff Ltd v Westport Insurance Corporation

Recently, 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.

Tension between Victoria and NSW positions

Given that Oil Basins and Gordian Runoff were interpreting similar provisions contained within uniform legislation, the disparity between the conclusions reached by the NSW and Victorian courts is undesirable.

Westport Insurance Corporation has until 29 April 2010 in which to seek leave to appeal to the High Court. Unless the High Court has an opportunity to clarify and confirm which approach is correct, then the standard of reasoning applicable to arbitrators will differ between NSW and Victoria and consequently differing appeal rights will arguably exist between NSW and Victoria for challenging an arbitral award.

Lessons

Until this disparity is resolved, parties considering engaging in an arbitral process (or including arbitration clauses in contracts) will need to consider whether such arbitrations should occur under NSW or Victorian law and the differing standards (and consequently differing rights of appeal) that flow from such a decision.

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.