SUPREME COURT OF WESTERN AUSTRALIA REBUKES EFFORTS TO ‘MANUFACTURE A PATHWAY’ TO APPEAL ARBITRAL AWARD

“Losing does not equate to procedural unfairness” – Justice Martin

Losers beware! A recent decision of the Supreme Court of Western Australia has reaffirmed its support of the arbitral system and processes, and made it very clear that attempts to circumvent them will be met with short rebuke and may even be the subject of a punitive costs sanction. As Justice Kenneth Martin put it “[l]osing does not equate to procedural unfairness”.

The decision

On 5 May 2021, the Supreme Court handed down the decision of Venetian Nominees Pty Ltd v Weatherford Australia Pty Ltd [2021] WASC 137. That decision involved an application, by Venetian, to set aside an arbitral award, on the ground that Venetian was not given a fair opportunity to present its case in the arbitration.

The Court found that the application was an attempt by Venetian to ‘manufacture a pathway’ to appeal the arbitral award, and denied Venetian’s application. More detail about the decision is provided below, as well as some takeaways that parties involved in arbitration in Western Australia (and beyond…) should be aware of.

Facts

The case concerned a dispute between Venetian Nominees (a subsidiary of Caratti Group) and its tenant Weatherford, over a clause in the lease agreement between the parties, which set out how the proportion of outgoings to be paid by Weatherford was to be calculated. This clause provided that Weatherford’s proportion of outgoings equated to the ‘area of the premises’ leased to it, divided by the ‘total lettable area of the premises covered’. Weatherford alleged it had been overcharged, as Venetian had wrongly excluded certain areas of the ‘total lettable area’ from its calculations.

Issues

The dispute between the parties was referred to arbitration and Marcus Solomon QC was appointed as arbitrator. The main issue in the arbitration was the true meaning of the phrase ‘total lettable area of the premises covered’, as it appeared in clause 4.6 of the lease. Weatherford argued that this phrase included the entire premises owned by Venetian. In contrast, Venetian argued certain areas (including an area the subject of an easement and ‘common areas’) had to be excluded as they were not ‘lettable areas’.

The arbitrator’s findings

The arbitrator agreed with Venetian’s argument that the easement area and common areas could be excluded when calculating the ‘total lettable area’.

However, accepting a submission made by Weatherford’s counsel during the arbitration, the arbitrator limited the excluded areas to:

(a) those where a ‘regulatory impediment’ existed, which prevented the relevant area from being lettable; and

(b) common areas designated by Venetian.

As Venetian was unable to provide sufficient evidence of a designation or regulatory impediment, the exclusion was ultimately not established. As a consequence, Weatherford was – notwithstanding the arbitrator’s findings about the scope of the relevant exclusions –determined to have overpaid.

Appeal to the Supreme Court

Venetian brought an application in the Supreme Court of Western Australia to set aside the arbitrator’s award under sections 34(2)(a)(ii) and (iv) of the Commercial Arbitration Act 2012 (WA) (CAA), on the following grounds;

1. that Venetian was unable to present its case; or
2. on the basis of an alleged unfairness grievance, as to the arbitral process.

In particular, Venetian argued it had not been given sufficient notice to prepare and present evidence as to the meaning of the phrase ‘regulatory prohibition’, which the arbitrator found was relevant to defining the excluded areas.

The Supreme Court’s decision

In determining the application under section 34 of the CAA, Justice Martin noted that he was not concerned with whether the arbitrator was right or wrong. In fact, his Honour noted that the arbitrator’s construction of the term ‘total lettable area’ was in Venetian’s favour, as it did allow for certain areas to be excluded – Venetian had simply failed to tender sufficient evidence to establish that the exclusion should apply. Rather, his Honour focussed, in his judgement, on the ‘basket of assembled’ grievances which Venetian alleged justified setting aside the arbitrator’s award. The main grievances are identified below.

Denial of a fair opportunity to present key arguments

Venetian argued that it was denied a reasonable and fair opportunity to present its case concerning the true meaning of clause 4.6 of the lease. His Honour dismissed this grievance, pointing to the fact that the arbitrator had in fact accepted Venetian’s argument that the ‘total lettable area’ must be less than the entire area of the lease. Acceptance of this exclusion could therefore only favour Venetian, and could not be complained about.

Denial of the opportunity to present evidence

Venetian also argued that it was not given the opportunity to present evidence as to Weatherford’s alternative submission to the effect that areas constrained by a ‘regulatory impediment’ should not be classified as lettable land for the purpose of clause 4.6 of the lease. His Honour recognised that, although this submission emerged at a relatively late stage during the arbitration hearing, the arbitrator had given the parties the opportunity to make further submissions and tender further material at the end of the hearing. Therefore, Venetian’s assertion that it had been ‘surprised’ or given no opportunity to tender evidence was misplaced. There was also no evidence that Venetian had objected to the alternative argument at the time it was raised. In addition, his Honour found that several questions considered by the arbitrator in the construction of the term ‘lettable area’ were objective questions of interpretation, to which factual evidence was neither required nor relevant.

Denial of the opportunity to lead expert evidence

Venetian also alleged that, as a consequence of not receiving proper notice of the arbitrator’s conclusion regarding how common areas in the lease were designated, it was not afforded the opportunity to lead expert evidence on that issue. Before the Supreme Court, Venetian relied on an affidavit from the commercial property manager of the Caratti Group, identifying the expert evidence that would have been tendered, in the arbitration, had Venetian been given the opportunity to tender such evidence. Justice Martin’s decision considered the affidavit in some detail, and held that the deponent:

1. was not qualified to express the relevant views; and
2. made observations there were ‘generalised, unhelpful, of no weight and ultimately inadmissible’ in several material respects.

Overall, his Honour found that Venetian had not established the required grounds to set aside the award, as it had not proved any sufficient discrepancy in, or grievances with, the arbitral process. Rather, his Honour concluded that this was merely a ‘badly run case’, in which Venetian had failed to tender sufficient evidence to prove its submissions, and had failed to raise its concerns at the time of the arbitration.

On several occasions, his Honour noted that Venetian’s application was an apparent attempt to use the (very limited) grounds under section 34 of the CAA, as a way to overturn a ‘binding and final arbitral decision’. The application was, properly understood, not based on any real procedural unfairness, but was rather made because Venetian was not happy with the arbitrator’s decision. His Honour noted that such circumstances did not amount to a ‘true process grievance’ for the purpose of section 34 of the CAA.

Furthermore, Justice Martin commented that:

‘Curial challenges attempted against non-appealable award decisions continue to bedevil and undermine legislative policy endeavours to entrench arbitration as a quick, relatively inexpensive and final medium for dispute resolutions’.

Finally, his Honour emphasised the criticality of obtaining a transcript of arbitral proceedings as, in this case, the parties had not arranged for a transcript to be produced. Given that there was no transcript, his Honour noted that there was no ‘independent verbatim record’ for the court to review. Therefore, Justice Martin found that evaluating what happened from an ‘overall fairness perspective, was simply hopeless’, and was not satisfactory or acceptable by the court.

In light of these comments, his Honour noted that Venetian had been afforded ‘an entirely fair two-day arbitral hearing…a perfectly fair process followed …and the opportunity to file further evidence as afforded after the hearing’, the last of which Venetian did not take up –  despite one of the grounds for appeal being that it was unable to present its case. In the circumstances, his Honour described Venetian’s attempt to utilise section 34 of the CAA to raise its alleged ‘grievance’ with the court as ‘truly breathtaking in its audacity’.

Takeaways

Parties involved in arbitration in Western Australia (and beyond…) can take away several important lessons from his Honour’s judgment:

(a) First, a party should, if its case requires, take advantage of all opportunities to present submissions and evidence to the Tribunal. A failure to do so will make it difficult for the party to subsequently establish that it has been denied the opportunity to fairly and fully present its case.

(b) Second, a party should only seek to set aside an arbitral award for procedural unfairness where the set aside grounds in the relevant arbitration legislation are truly engaged. They should avoid (as his Honour described it) putting “layers of lipstick” on their case in order to make a “backdoor attempt” to appeal an award, under the guise of a set aside application. Such attempts should, according to Justice Martin, be met with punitive cost orders.

(c) Third, if there is any prospect that a party may wish to challenge the fairness of the arbitral process (which is unlikely to be known in advance), a transcript of the arbitration hearing must be produced. Failure to do so may considerably reduce the prospects of a successful set aside application.

Arbitrations are intended to be final, and courts will only set arbitral awards aside in the most exceptional of cases. Therefore, this case is a useful reminder for all, that “losing does not equate to procedural unfairness”.

For more information, please contact Dan Dragovic, Partner, Stewart McWilliam, Senior Associate, or your usual Herbert Smith Freehills contact.

* The authors would like to thank Tayla Byatt for her assistance with this blog post.