Project not going so well? Want a fast, cost-effective, efficient process to resolve the problems?

By Doug Jones AM RFD and Julia Dreosti.

Key Points:
Two recent decisions of the New South Wales Supreme Court and Victorian Supreme Court have evidenced the growing support of the judiciary for arbitration.

In the international major projects and construction arena, arbitration has long been viewed as the preferred dispute resolution process.

There has been no reason, in principle, why its attributes of speed, efficiency and cost effectiveness could not be translated into a domestic context. However the reluctance of parties (and their legal advisers) to stray away from the more familiar litigation process and the over intervention of some courts in arbitration, has meant that its potential qualities have been left unrealised in Australia. The situation has also not been helped by the legislative framework put in place to support domestic arbitration over 20 years ago: the Uniform Commercial Arbitration Acts (UCAAs), the provisions of which have done little to encourage parties to pursue arbitration.

This is all about to change with the announcement by the Standing Committee of Attorneys-General on 7 May 2010 of a new Model Uniform Commercial Arbitration Bill 2010, which will dramatically overhaul the existing legislation. The paramount object of the amended UCAAs will be to "facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay and expense".

Two recent decisions of the New South Wales Supreme Court and Victorian Supreme Court (discussed further below) have also evidenced the growing support of the judiciary for arbitration.

What is the benefit of these changes for companies?

The change in legislation and judicial attitudes to arbitration means that it will be able to live up to its name as a fast and cost-effective alternative to more traditional forms of dispute resolution. This means that companies should make sure that the dispute resolution clause in their contracts provides for all disputes to be referred to arbitration.

What does the arbitration legislation cover, and what are the key changes that will be made?

Arbitration legislation is intended to provide a framework to support the arbitral process (which is essentially a consensual process between the parties). The UCAAs cover all of the fundamental stages of the arbitral process, namely the arbitral agreement, appointment & jurisdiction of the arbitrator, the arbitral process, court involvement, and recognition and enforcement of the arbitral award.

The changes proposed under the Model Uniform Commercial Arbitration Bill 2010 are intended to provide further legislative and judicial support for that process. Key changes proposed by the Bill include:

• Minimal court intervention: The new UCAAs will clearly state that no court must intervene in the arbitration process unless there is express provision for it to do so under the UCAA.
• Interim measures: Interim measures are temporary measures (eg. preservation of assets or maintaining the status quo) that a tribunal may order pending final determination of a dispute. The new UCAAs will provide a comprehensive process for the making and enforcement of such measures, as well as providing powers for national courts to also order interim measures in relation to arbitration proceedings.
• Confidentiality: The new UCAAs will contain comprehensive (but optional) confidentiality provisions. The existing UCAAs are silent on this issue. The inclusion of these provisions (which are largely the same as those proposed to amend Australia's International Arbitration Act which is currently before Federal Parliament) have primarily been included to overcome the decision of the High Court in the now infamous case of Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 where the court held that arbitration in Australia is private but not confidential.
• Limited ability to appeal from the arbitrator's award on a question of law: Under both the existing and the new UCAAs, the court has the power to confirm, vary or set aside an award in relation to a question of law arising out of the award (subject to leave to appeal being granted). However, under the new UCAAs, in addition to satisfying the requirements for leave to appeal to be granted, both parties must agree to the appeal being made (ie. it is now an opt-in provision). Moreover, the circumstances under which the court will grant leave are narrower than under the existing UCAAs.

Supreme Court judges champion the cause for arbitration

As noted above, the existing UCAAs allow broad scope for parties to appeal from arbitral awards to the courts. This has detracted from arbitration as it has meant that parties have had little confidence or certainty that upon embarking on an arbitration they will get a final and binding result.

Reassuringly, two recent decisions of the New South Wales Court of Appeal in Gordian Runoff Limited v Westport Insurance Corporation [2010] NSWCA 57 and the Victorian Supreme Court in ThoroughVisioN Pty Ltd v Sky Channel Pty Limited [2010] VSC 139 have shown a marked restraint by the courts to interfere with arbitral awards.

The Gordian Runoff case - an arbitrator's reasons

In the Gordian Runoff case, the NSW Court considered the question of whether an alleged failure of an arbitrator to give adequate reasons constituted a manifest error of law or strong evidence of an error of law (the alternate grounds that must be satisfied in order for leave to appeal from an arbitral award to be granted under the existing UCAAs). The court held, in overturning the lower court's decision, that an arbitrator in an arbitral award does not have to give reasons equivalent to those that a judge would be obliged to give in a court judgment, because the arbitration process is meant to be "shorn of the costs, complexities and technicalities often cited ... as the indicia and disadvantages of curial decision making".

The court further noted that the underlying fundamental differences between litigation and arbitration should be "borne in mind at all times", ie. commercial parties are looking for a comprehensive but concise decision that resolves their dispute as opposed to a court judgment that usually must also make some sort of contribution to Australian legal precedent.

The ThoroughVisioN decision

A short time later, the Victorian Supreme Court was asked to decide a similar issue in the ThoroughVisioN case. However, in addition to arguing that the alleged failure to provide a proper or adequate statement of reasons amounted to a manifest error of law the plaintiff also submitted that this failure constituted misconduct on the part of the arbitrator which also justified the award being set aside.

The Victorian Supreme Court, citing the Gordian Runoff case with approval, refused the application on both grounds and found that the arbitrator had rendered carefully considered reasons. Justice Croft added that a "principle of proportionality applies with respect to the nature and extent of reasons which an arbitrator is obliged to provide in an arbitration award", ie. a case with complex issues, conflicting evidence and substantial submissions may require a lengthier award than a dispute on a relatively straightforward and discrete issue. This was the basis upon which the court distinguished this case from the earlier decision of the Victorian Supreme Court in Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255 (said to be a more complex case) where the Court of Appeal had found that reasons akin to those of a judge were required.

As noted above, the ability of parties to challenge arbitral awards will be further narrowed under the new UCAAs. Nevertheless, the approach taken by the courts in the Gordian Runoff case and the ThoroughVisioN case demonstrates the increased support for arbitration amongst the judiciary and a reluctance to interfere in that process, which can only mean greater certainty for arbitration users.

Conclusion

For further information, please contact Doug Jones AM RFD and Julia Dreosti.