Arbitration: Final and Binding

Friday, August 28th, 2015
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Arbitration is an established feature of dispute resolution in the construction sector.

Australia has been comparatively slow to fully embrace arbitration as part of the dispute resolution process in construction contracts. However, with the arrival of international majors in the contracting space, and the amendment of the state and territory arbitration acts, it has become the norm. The point many fail to appreciate is that if arbitration is identified as the dispute resolution process of choice in a contract, an arbitrator’s “final award” is usually just that – final.

The avenues for appeal in the courts are now intentionally very limited. Appeal is essentially only available where the arbitrator was not properly appointed (the arbitration and the “arbitrator’s award” thus having no standing), where the parties were not given a fair opportunity to make their case, or on certain limited public policy grounds. Outside of those, the arbitrator’s award is very likely to be enforceable. The case of Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd is an example of the robust manner the courts can now be expected to adopt when asked to review an arbitrator’s award.

Joss and Cube were parties to a construction subcontract which provided for arbitration as a form of dispute resolution. The two parties fell into dispute. Joss initiated arbitration proceedings, claiming liquidated damages and other amounts. Cube counterclaimed for unpaid amounts under the subcontract. The arbitrator awarded a net amount in favour of Cube.

In Cube No 1 (Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd [2015] NSWSC 735)), Joss challenged the arbitrator’s award under the public policy exception in section 34(2)(b)(ii) of the Commercial Arbitration Act 2010 (NSW). This exception entitles a party to challenge an award where the award is in conflict with the public policy of the state. The basis of Joss’s argument was that the requirements of natural justice had been breached. In the NSW Supreme Court, His Honour Justice Hammerschlag rejected Joss’s challenge to the award. His Honour  found that Joss’s various arguments were either “a disguised attack on factual findings dressed up as a complaint about natural justice” and/ or that there had been no unfairness or practical injustice in the Arbitrator’s approach to the issues.

In Cube No 2 (Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd [2015] NSWSC 829 (26 June 2015)), the Court considered an application by Cube for indemnity costs of the Supreme Court proceedings. Justice Hammerschlag rejected Cube’s argument that there is a presumption in favour of the award of indemnity costs against an unsuccessful challenger to an award. Cube cited a Hong Kong decision, A v R [2009] HKCFI 342, to support the argument. His Honour held that A v R did not represent the law in NSW and said indemnity costs are at the discretion of the Court. No presumption as to their award is required or warranted.

However, the Court decided that this was indeed an appropriate case for an order for indemnity costs. Indemnity costs are warranted where a party maintains proceedings that it should know have no real prospect of success. His Honour noted there is an important difference between a challenge to a referral to arbitration which turns on contractual construction or characterisation of a particular dispute, and a challenge to an arbitral award based on the public policy exception. The public policy exception under the Commercial Arbitration Act 2010 (NSW) is narrow. The party seeking to invoke it bears a heavy burden of demonstrating real unfairness or real practical injustice.  The exception is reserved for extreme cases.  The Court said:

“The high threshold that the public policy exception demands brings with it the enhanced risk of an indemnity costs award because a failed challenge will be more easily identified as one which should not have been brought because it was throughout destined to fail.  This enhanced risk is sufficient disincentive for the making of challenges lacking true substance, without the necessity for a presumption.”

The Court decided that it ought to have been obvious to Joss that its challenge had no realistic prospect of success. What the arbitrator did in conducting the arbitration could not possibly have been characterised as being contrary to the public policy of the state. On this basis, the Court awarded indemnity costs in favour of Cube.

Arbitration typically provides a cost effective route to the resolution of a dispute. A properly selected arbitrator will provide certainty and enforceability where those two features are what most parties want, along with cost-efficiency. The lesson from this is that if you want an arbitrator to determine your disputes, then the award is likely to be final, and any attempt to open it up will be dealt with robustly by the Australian courts.

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