In a recent case, the New South Wales Court of Appeal has reaffirmed the court’s commitment to upholding Parliamentary policy to restrict judicial review of and interference with arbitral awards.
The decision comes as part of an increasing recognition in Australia across the legislative and judicial spectrum of the growing importance of both domestic and international arbitration.
What does this mean for you?
Parties in contracts with arbitration clauses should be aware of the judicial and legislative trend in favour of enforcing arbitration agreements and limiting judicial interference with the finality of arbitral awards.
Parties cannot and should not assume that they can treat an arbitration as a ‘dress rehearsal’ before proceedings are effectively re-litigated on appeal.
Conversely, parties should also be aware that a number of the proposed amendments to the international arbitration regulatory regime have been designed to assist with the conduct of the arbitration. Parties should consider the availability and use of these mechanisms both at the stage of drafting and negotiating their arbitration clauses and also when conducting an arbitration.
Background facts
The appeal arose from a judgement of Justice Einstein of the New South Wales Supreme Court who set aside an arbitral award pursuant to the Commercial Arbitration Act 1984 (NSW) (Act).
The arbitration related to a dispute between Gordian Runoff Limited (Gordian) and the reinsurers of Gordian’s director’s and officer’s insurance portfolio (Reinsurers). The Reinsurers disputed whether reinsurance contracts responded to certain claims made on Gordian.
On 10 October 2008, a panel of three experienced insurance arbitrators found in favour of Gordian and ruled that the Reinsurers were obliged to pay certain claims.
The Reinsurers sought leave to appeal the award to the Supreme Court on the grounds of:
- manifest error on the face of the award, and
- strong evidence of error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.
Over Gordian’s opposition, Justice Einstein heard the application for leave to appeal and the appeal concurrently. Justice Einstein allowed the appeal and set aside the award.
The Court of Appeal’s decision
The Court of Appeal upheld the appeal from Justice Einstein’s decision setting aside his decision and made orders in lieu refusing leave to appeal from the arbitral award. In coming to its decision, the Court of Appeal outlined the approach that courts should follow when considering an application to set aside an award pursuant to the Act.
As a preliminary matter, the Court of Appeal held that a leave to appeal application should ordinarily precede an appeal. An application for leave to appeal and an appeal should only be heard concurrently in special or exceptional cases.
Section 38 of the Act provides that the court has authority to hear an appeal only if the court considers that:
- there is a manifest error of law on the face of the award, or
- there is strong evidence that the arbitrator made an error of law and that the determination of that question may, or may be likely to, add substantially to the certainty of commercial law.
The court referred to the need to apply these tests in the context of the Act exhibiting a Parliamentary policy to restrict judicial review of and interference with arbitral awards.
The Section 38 tests themselves reflect a legislative purpose of the recognition of the autonomy of the parties by the respect the court should give to the arbitrators’ award.
As to the requirement that there be a ‘manifest error’, the court confirmed that the error must more than arguable. The error must evident or obvious; there must be powerful reasons leaving little or no doubt on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award, an error of law.
As to the ‘strong evidence’ requirement, there must be a strong prima facie case of a legal error.
The Court of Appeal also held that arbitrators did not have the same legal obligations to provide reasons to a standard equivalent to that of a judge.
What next?
An application has been made for special leave to appeal this decision.
More generally, the decision is part of an increasing recognition in Australia across the legislative and judicial spectrum of the growing importance of both domestic and international arbitration:
- The Federal Government has recently taken a number of steps towards strengthening Australia’s international arbitration infrastructure. Those measures have included the introduction of a bill to reform the International Arbitration Act, which is the Act which regulates international arbitration in Australia. The reforms include measures to implement amendments made to the UNCITRAL Model Law in 2006 and also additional provisions to supplement the operation of the Model Law. The reforms are intended to provide a comprehensive and clear framework to govern international arbitration in Australia and improve the efficiency and effectiveness of the arbitral process.
- The New South Wales Government has also recently announced that it will table model domestic arbitration laws which are based on the UNCITRAL Model Law to give businesses a cost-effective and efficient alternative to litigation that reflects international practice.
- Later this year, Australia’s first dedicated international dispute resolution centre will be opened in Sydney.
- The Federal Court and the New South Wales and Victorian Supreme Courts have each assigned dedicated Arbitration List judges to handle international arbitration cases and each of the other State courts are expected to do likewise shortly.
The legislative reform and other associated government measures are a part of the Federal Government’s stated goal of establishing Australia as a regional centre for international arbitration.
This article was written by Leon Chung, Senior Associate, Sydney
More information
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