Federal Court - another arbitration-friendly decision

In brief

In a recent decision, the Federal Court dismissed an application to set aside an arbitral award rendered in Australia on the basis that it breached the rules of natural justice. In doing so, the court's decision recognised the limited scope of the grounds upon which an award can be set aside under Australia's applicable legislation. Partner Andrea Martignoni , Senior Associate Hilary Birks and Lawyer Anna McMahon report.

Background

The dispute concerned obligations under a performance contract for the sale by Emerald Grain Australia Pty Ltd to Agrocorp International Pte Ltd of a quantity of Australian canola in bulk for delivery in Bangladesh (the Agreement). Agrocorp commenced arbitration in Australia against Emerald Grain under the Agreement and the Act, claiming that it had incurred costs and lost profits due to Emerald Grain's failure to load the full shipment, and due to delays relating to import permits. Emerald Grain cross claimed for breach of contract and alternatively in negligence. The arbitral tribunal (the Tribunal) found substantially in favour of Agrocorp.

Application to the Federal Court

The Act gives the UNCITRAL Model Law on International Commercial Arbitration (the Model Law) the force of law in Australia, and in doing so provides very limited grounds for a party to have an arbitral award set aside. One of those grounds is that the award conflicts with public policy. Section 19 of the Act provides that an arbitral award will be in conflict with the public policy of Australia if:

• the making of the award was induced or affected by fraud or corruption; or
• a breach of the rules of natural justice occurred in connection with the making of the award.

Emerald Grain applied to the Federal Court of Australia to have the award set aside under s19 of the Act, on the basis that it was in conflict with the public policy of Australia as it breached the rules of natural justice in two ways:

• There was no probative evidence before the Tribunal to permit it to make certain findings (the 'no evidence claim').
• The Tribunal made findings based on its own opinions and ideas without providing Emerald Grain adequate notice (the 'no hearing claim'). To succeed on this basis, Emerald Grain was required to establish that a reasonable litigant could not have foreseen the Tribunal's findings, or that the litigant might have been able to persuade the Tribunal otherwise if given adequate notice of the Tribunal's views.

The decision

His Honour Justice Pagone dismissed Emerald Grain's application on all grounds and refused to set aside the Tribunal's award.

In doing so, amongst finding that there were procedural irregularities in the application, his Honour rejected Emerald Grain's arguments regarding the 'no evidence claim' and the 'no hearing claim'. Justice Pagone made three main points relating to the interpretation of arbitral awards:

• When determining whether to set aside an arbitral award, Australian courts should aim to give effect to the policy of the Act to uphold arbitral awards, and a decision that an award is in conflict with public policy requires clear evidence to this effect. With this overarching policy in mind, the reasons set out in an award should be read consistently with one another to overcome any potential ambiguity.³
• A dissatisfied party to an arbitral award has no right of appeal to challenge a tribunal's findings of fact.⁴ The reasons of an arbitral tribunal are not to be construed as if they were the decision of a court, and a challenge to an arbitral award is not to be treated like an appeal challenging the facts found by a first instance court from which an appeal may lie. It is the courts' role to ensure that the facts found were open to the arbitral tribunal from the material that was before it rather than determining that the facts were found correctly.
• Whether an arbitral award breaches the rules of natural justice (and is therefore contrary to, or in conflict with, Australian public policy) depends on the content of the rule in the circumstances of the particular case. Justice Pagone commented that parties to an international arbitration are entitled to expect that the relevant provisions of the Model Law and of the applicable domestic law will be construed and applied with some uniformity in the 'convention countries' (that is, countries that have enacted the Model Law).⁵ Justice Pagone found that it was significant that courts in other convention countries have been reluctant to find an award to be in conflict with, or contrary to, public policy, and have held that arbitral awards should be read generously such that only meaningful breaches of the rules of natural justice that have actually caused prejudice are remedied.

Summary

The decision confirms the Australian Federal Court's pro-arbitration approach and the court's willingness to consider relevant decisions of courts in other countries to ensure consistency in the interpretation of the Model Law.

The decision is also a reminder of some of the differences in arbitration as a form of dispute resolution, particularly compared with litigation, including the legislative restrictions on the grounds upon which an arbitral award can be set aside.