Australian courts take a uniform approach to interpretation of the Model Law

In Cameron Australasia Pty Ltd v AED Oil Limited,[1] the Supreme Court of Victoria refused to set aside a domestic arbitral award on the basis that the applicant was unable to present its case and was denied procedural fairness. The full judgment can be found here. In this decision, the Court relied on international jurisprudence on the interpretation and operation of the UNCITRAL Model Law on International Commercial Arbitration (Model Law), notably decisions from the courts of Singapore and Hong Kong. In doing so, this decision reaffirms the Australian courts’ willingness to adopt an international best practice approach to the practice of commercial arbitration in Australia and in particular, to creating a unified approach to domestic and international commercial arbitration.

Background

In accordance with the terms of the Dispute Resolution Deed between Cameron Australasia Pty Ltd (Cameron) and AED Oil Limited (AED), an arbitration hearing was held in June 2014 in Melbourne, Victoria in accordance with the rules of the Institute of Arbitrators and Mediators Australia (IAMA). The Tribunal published its reasons on liability and quantum in a Partial Final Award dated 17 December 2014 and a Final Award on 9 March 2015, finding that Cameron had breached its duty of care to AED.

The application to set aside

On 17 March 2015, Cameron applied to the Supreme Court of Victoria to have the awards set aside under subsections 34(2) of the Commercial Arbitration Act 2011 (Vic) (the Act). Section 34(2) of the Act mirrors Article 34 of the Model Law and provides limited grounds upon which an arbitral award may be set aside by a court. Cameron’s application to set aside the awards focused on two procedural rulings made by the Tribunal:

• Cameron sought to re-open the hearing 6 months after the hearing had concluded and amend its defence to dispute the existence of a duty of care it owed to AED. Cameron had previously voluntarily admitted the duty of care prior to the hearing. The Tribunal refused to re-open the hearing to allow Cameron to amend its defence and present submissions that it did not owe a duty of care to AED.
• The Tribunal did not allow Cameron to rely upon the expert report of Mr Terrell in circumstances where he was not to be called as a witness by Cameron and would therefore not be available to give oral evidence or be cross-examined by AED.

Relevant principles on applications to set aside awards

In determining the set aside application, the Court had regard to the international provenance of the Act, in particular section 2A which expressly states that the application of the Act is to promote practicable uniformity between the application of the Model Law to domestic commercial arbitrations and its application to international arbitrations.

Particular reference was made to the decisions of the courts of Singapore and Hong Kong, including the Hong Kong Court of Appeal’s decision in Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No1)[2] where Tang V-P considered circumstances in which a Hong Kong Court would set aside an award under Article 34 of the Model Law. In that case, Tang V-P stated that “the Court will not address itself to the substantive merits of the dispute, or to the correctness or otherwise of the award, whether concerning errors of fact or law.”[3]

The principles governing the setting aside of arbitral awards set out in the Singapore Court of Appeal decision AKN v ALC[4] were also taken into account by the Court who referred to Menon CJ’s comments that “just as the parties enjoy many of the benefits of party autonomy, so too must they accept the consequences of the choices they have made. The courts do not and must not interfere with the merits of an arbitral award and, in the process, bail out parties who have made choices that they might come to regret, or offer them a second chance to canvass the merits of their respective cases.”[5]

In acknowledging that there are very limited grounds for curial intervention in setting aside an arbitral award, the Court relied on Sauber Motorsport AG v Giedo van der Garde BV[6] where the Victorian Court of Appeal confirmed that “courts should not entertain a disguised attack on the factual findings or legal conclusions of an arbitrator ‘dressed up as a complaint about natural justice’. Errors of fact or law are not legitimate bases for curial intervention.”[7]

Affirming the approach taken by the Singaporean courts, Justice Croft stated that a setting aside application is “not to be abused by a party who, with the benefit of hindsight, wishes he had pleaded or presented his case in a different way before the arbitrator.”[8] The Court noted that even if one of the grounds for setting aside an award is made out, the Court retains a discretion to decide whether the award should be upheld or set aside, but consistent with the approach of the Federal Court of Australia in TCL Air Conditioner (ZhongShan) Co Ltd v Castel Electronics Pty Ltd, no award should be set aside unless real unfairness and real practical injustice has been shown to have been suffered by a commercial party in the conduct and disposition of a dispute in an award.[9]

Set aside application

‘Unable to present its case’ ground

The first ground relied upon by Cameron in the set aside application was that the Tribunal did not permit it to present part of its case. Specifically, that Cameron was not able to present its case that it did not owe AED a duty of care in tort to take reasonable care.

The basis for this argument was that prior to the arbitration hearing in reliance on the decision of the New South Wales Court of Appeal in The Owners – Strata Plan No 61288 v Brookfield Australia Investments Ltd[10] (Brookfield), the Cameron legal team advised Cameron to admit the existence of a duty of care that it owed to AED. In the Brookfield decision, the Court of Appeal found that a duty of care existed between a builder of strata title apartments and the Owners Corporation. Cameron’s legal team considered that the facts were analogous to the dispute between Cameron and AED and advised Cameron that they would have no persuasive answer to the asserted duty of care by reason of the law as stated in Brookfield.

As a result of Cameron’s admission of the duty, AED expressly abandoned its contract claim on the first day of the hearing.  

On 8 October 2014, before the Tribunal delivered the award, the High Court of Australia delivered judgment in the appeal from the Court of Appeal decision in Brookfield. In the High Court decision, Brookfield Multiplex Ltd v Owners – Strata Plan No 61288[11] (Brookfield Multiplex) the High Court rejected the statement of law with respect to when a duty of care will exist in a claim for pure economic loss and held that the builder did not owe a duty of care to the Owners Corporation.

Following the High Court’s decision in Brookfield Multiplex, Cameron sought to re-open its case on the limited issue of whether Cameron owed AED a duty of care. In response, AED submitted that Cameron was able to, and did, present its case that it did not breach the duty of care in tort during the hearing and it was no part of Cameron’s case that it did not owe a duty of care in tort to AED. This was because prior to its express admission of the duty, Cameron had pleaded no more than a non-admission. The Court agreed with this position and noted that Cameron adopted this position knowing that at the time of making the concession, that the High Court had granted special leave to appeal in the Brookfield case.

In rejecting this ground to set aside the awards, the Court noted that Cameron’s application challenging the Tribunal’s ruling was in fact of the nature of a merits appeal, an appeal on a question of law. Moreover, the Court found that there was no basis for suggesting that Cameron was denied a reasonable opportunity of presenting its case to the Tribunal in seeking to re-open the hearing, or that there had been some failure to accord Cameron procedural fairness or natural justice.[12]

Procedural decision to refuse to allow reliance on the report of Terrell

The second ground relied on by Cameron to set aside the awards was that the Tribunal breached the terms of the agreed arbitral procedure in refusing to permit Cameron to put Terrell’s expert report into evidence which resulted in prejudice to Cameron.

In determining this issue, the Court noted that the terms of the arbitration procedure gave the Tribunal wide discretion to conduct the arbitration in such a manner as it considered appropriate and that minor breaches of any procedure would not result in an award being set aside.[13] The Court affirmed the approach in Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq)[14] that provided that a person seeking to set aside an award will either need to show that he or she has been prejudiced, or is reasonably likely to have been prejudiced by the arbitrator’s conduct.

Justice Croft rejected this second ground of challenge stating that it was, in substance, “an appeal against a ruling of the Tribunal ‘dressed up’ as a breach of the agreed arbitration procedure” seeking to attract the operation of the provisions of section 34 of the Act.[15]

This decision confirms the Australian courts’ intention to interpret the Model Law with “a degree of international harmony and concordance of approach to international commercial arbitration…by reference to the reasoned judgments of common law countries in the region, such as Singapore, Hong Kong and New Zealand”[16]. Moreover, the decision endorses the uniformity of approach between the domestic and international arbitration regimes in Australia and demonstrates that the Australian courts will have regard to the application of the Model Law to domestic arbitrations in line with its application to international arbitrations.

For further information, please contact Leon Chung, Partner, Edwina Kwan, Senior Associate, or your usual Herbert Smith Freehills contact. 

Endnotes  

1. [2015] VSC 163
2. [2012] 4 HKLRD 1
3. Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No1) [2012] 4 HKLRD 1 at 7 [7]
4. [2015] SGCA 18
5. AKN v ALC [2015] SGCA 18, [37] - [39]
6. [2015] VSCA 37 (12 March 2015)
7. Sauber Motorsport AG v Giedo van der Garde BV [2015] VSCA 37 (12 March 2015), [8]
8. Triulzi Cesare SRL v Xingyi Group (Glass) Co Ltd [2015] 1 SLR 114 at 134-5 [67] citing BLC v BLB [2014] 4 SLR 79.
9. TCL Air Conditioner (ZhongShan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 415 [111].
10. (2013) 85 NSWLR 479
11. (2014) 88 ALJR 911
12. [2015] VSC 163 at [49]
13. [2015] VSC 163 at [53]
14. [2012] 4 HKLRD I at 38 [105]
15. [2015] VSC 163 at [59]
16. TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 405 [75]