Australia: Arbitration update – recent decisions - July 2015

Last Updated: 21 July 2015
Article by Geoff Farnsworth
Most Read Contributor in Australia, September 2017

Despite the absence of any empirical data on the number of arbitrations being conducted in Australia, recent cases suggest that since the arbitration reforms of 2008 and 2010 the Australian Courts have consistently upheld arbitration agreements and enforced parties' election of arbitration as the means for resolution of disputes.

The clear message is that parties and their lawyers must take arbitration seriously as a dispute resolution option in Australia, and that the opportunities for recourse are very limited indeed.

These are the most recent decisions.

Robotunits Pty Ltd v Mennel [2015] VSC 268

Stay of Court proceedings in favour of arbitration.

Robotunits commenced court proceedings against Mr Mennel, its former managing director, seeking the return of payments made by the company to Mr Mennel which it said were unauthorised. Mr Mennel sought a stay of those proceedings in favour of arbitration.

The parties were subject to a Shareholders' Agreement and an Employment Contract.

The Shareholder's Agreement contained an arbitration agreement which provided:

"Each party irrevocably and unconditionally submits to arbitration in accordance with the arbitration guidelines of the Law Institute of Victoria."

The agreement was described by the Croft J as "pathological" because there were no such guidelines.

Nevertheless the parties accepted that with "judicial assistance" the clause could be given effect, in light of the strong statement of intention by the parties to "irrevocably and unconditionally" refer disputes to arbitration.

In considering whether to grant a stay the Court had to decide whether the issues in dispute between the parties were "a matter" for the purposes of section 7(2)(b) of the International Arbitration Act which was in turn based on Art II(3) of the New York Convention and Art 8(1) of the UNCITRAL Model Law.

The Court had to decide:

  1. What is the matter or matters for determination in the Court proceedings;
  2. Is the matter capable of settlement by arbitration within the scope of the particular arbitration agreement; and
  3. Is the matter capable of settlement by arbitration?

The key question was whether the dispute over the payments was a matter falling under the Shareholders Agreement and based on affidavit evidence, the Court concluded that it was and granted the stay.

A question which arose was whether proceedings under the Corporations Act were arbitrable. Justice Croft concluded that there was not a sufficient element of public interest in matters involving the Corporations Act to make their resolution by arbitration inappropriate.

Colin Joss and Co Pty Ltd v Cube Furniture Pty Ltd [2015] NSWSC 735

Recourse against award refused, with indemnity costs.

Joss sought to set aside an award under section 34(2)(b)(ii) of the Commercial Arbitration Act on the basis that the award conflicted with the public policy of the State due to an alleged denial of natural justice. Joss alleged (in broad terms) that the Arbitrator acted without any probative evidence and contrary to "the hearing rule."

Justice Hammerschlag observed that for Joss to succeed it had to demonstrate "real unfairness or real practical injustice in how the arbitration was conducted or resolved by reference to established principles of natural justice or procedural fairness".

The judge further observed that "The making of a factual finding by a Tribunal without probative evidence may be a breach of the rules of natural justice if the fact was critical, was never the subject of attention by the parties to the dispute, and where the making of the finding occurred without the parties having an opportunity deal with it".

The judge also said that "a disguised attack on factual findings dressed up as a complaint about natural justice will not suffice".

In the event none of Joss' grounds were successful.

In a subsequent judgment dealing with costs, His Honour concluded that:

  • There is no rule at Australian law that an unsuccessful challenge to an arbitration award will result in an award of indemnity costs; but
  • In this case, there was no prospect of successfully challenging the award and indemnity costs were justified.

Cameron Australasia Pty Ltd v AED Oil Ltd [2015] VSC 163

Recourse against award refused.

In another case of "dressing-up", Cameron sought recourse against an award alleging a denial of natural justice on the Tribunal's handling of two procedural matters.

The first was the Tribunal's decision, 6-months after the hearing, not to allow Cameron to re-open its case to withdraw an admission. The second a decision made in advance of the hearing not to allow Cameron to rely on an expert's report where that expert was not to be called at the hearing.

While the dispute was governed by the domestic Commercial Arbitration Act, Croft J emphasised the close relationship between the domestic regime and the UNCITRAL Model Law and hence the importance of uniformity of interpretation, so far as practicable.

Of significance in these proceedings was the difference between the Model Law which requires a party to be given a "full" opportunity to present its case, as against the local law which requires a party to be given a "reasonable" opportunity to present its case.

Justice Croft considered that Cameron had been given a reasonable (and even a full) opportunity to present its case at the hearing, notwithstanding that it had made a voluntary admission it subsequently sought to withdraw following a decision by the High Court of Australia.

Justice Croft also found that the challenge to the subsequent hearing of the application to re-open was in fact a "merits case" dressed-up as denial of natural justice.

The Court made the conclusion in relation to the attack on the Tribunal's decision to exclude the expert's report.

John Holland Pty Ltd v Kellogg Brown & Root and anor [2015] NSWSC 451

Stay of Court proceedings in light of arbitration agreement.

John Holland commenced court proceedings against KBR and Atlantis in respect of a construction project designed by KBR and built by Atlantis. John Holland had separate contracts with KBR and Atlantis both of which contained arbitration agreements.

Court proceedings were commenced shortly before the 6-year Statute of Limitations came into effect.

It was alleged by John Holland that KBR had given oral agreement to vary the dispute resolution clause to permit litigation in court. John Holland also alleged that KBR was estopped from denying that agreement.

The Court was not persuaded on the evidence that there had been such an agreement. The Court observed that:

"Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding."

In support of the estoppel argument John Holland said that it anticipated being exposed to a time bar defence in the arbitration, presumably on the basis that it could be argued that the court proceedings were not effective to defeat the Statute of Limitations. The judge described this as raising issues of "significant complexity" but concluded that the estoppel had not been established and made orders that the dispute be referred to arbitration.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Geoff Farnsworth
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