Enter to open, tab to navigate, enter to select
Supreme Court of Victoria: general justice and fairness in arbitration
Practical Law UK Legal Update 0-518-2580 (Approx. 4 pages)
Supreme Court of Victoria: general justice and fairness in arbitration
by Practical Law
| Published on 29 Feb 2012 • Australia |
Andrew Robertson (Partner) and Ryan Kuss (Law Clerk), Piper Alderman
The Supreme Court of Victoria has allowed an appeal, finding that an arbitrator had failed to discharge his mandate under section 22(2) of the Commercial Arbitration Act 1984 which provides for an arbitrator to determine issues by reference to considerations of general justice and fairness.
Background
Section 22 of the Commercial Arbitration Act 1984 (VIC) (Act) provides:
"Arbitrator to decide according to law or fairness
(1) Unless otherwise agreed in writing by the parties to the arbitration agreement, any question that arises for determination in the course of proceedings under the agreement shall be determined according to law.
(2) If the parties to an arbitration agreement so agree in writing, the arbitrator or umpire may determine any question that arises for determination in the course of proceedings under the agreement by reference to considerations of general justice and fairness."
Section 42(1)(a) of the Act provides:
"Power to set aside award
(1) Where-
(a) there has been misconduct on the part of an arbitrator or umpire or an arbitrator or umpire has misconducted the proceedings;
the Court may, on the application of a party to the arbitration agreement, set the award aside either wholly or in part."
(Note: the Act has now been replaced with the Commercial Arbitration Act 2011 (VIC).)
Facts
The plaintiff, Yesodei Hatorah College Inc (College), and the defendants, the Trustees of the Elwood Talmud Torah Congregation (Congregation), were in dispute over an agreement for lease of land.
They entered into an arbitration agreement and appointed an arbitrator. The issues raised by the pleadings were:
- Whether the College had entered into an agreement for lease of land upon which the College operates a school from the defendants.
- Alternatively, whether the Congregation was estopped from denying that the parties had entered into an agreement for lease of the land.
- If these questions were answered in the negative, what period of notice should be given to the College to vacate the land.
The arbitration agreement empowered the arbitrator to:
"… determine any question that arises for determination in the course of the arbitration by reference to considerations of general justice and fairness".
It was common ground between the parties, and it was accepted by the arbitrator, that this clause enlivened the operation of section 22(2) of the Act.
The arbitrator dismissed the College's claims that there was an agreement for lease and also dismissed the College's claim based in estoppel. He determined that the College occupied the land as a tenant at will, a tenancy which was subject to termination by the Congregation on reasonable notice.
The College sought leave to appeal under the Act and sought an order setting aside the award under section 42 of the Act, on the basis that the arbitrator had misconducted the proceedings in that he:
- Failed to determine all matters before him and, in particular, whether the defendant had acted unconscionably and was thereby estopped from denying an Agreement for Lease.
- Failed to exercise his jurisdiction on the matters of determination in accordance with section 22(2) of the Act as agreed in writing by the parties pursuant to the arbitration agreement.
The College submitted, among other things, that the arbitrator had erred in failing to apply section 22(2) to the matters in dispute, in particular in determining whether the parties had entered into a legally binding agreement for lease. Instead the arbitrator had ruled that he must apply the law, in particular the common law principles, relating to the formation of enforceable contracts and that section 22(2) had no operation in determining this question.
Decision
Croft J allowed the appeal and held that the arbitrator had failed to discharge his mandate under section 22(2) of the Act by deciding, without reasons, that section 22(2) had no operation in determining whether an agreement for lease had been reached between the parties.
Croft J concluded that the provisions of section 22(2) do not require an arbitrator to determine the subject matter of the arbitration in accordance with strict legal principles. Although the arbitrator may have regard to such principles, he is permitted and required to depart from them and to have regard to wider considerations. The section 22(2) mandate provides the arbitrator with a very broad canvas encompassing the possibility of deciding matters ex aequo bono or as amiable compositeur. However, Croft J appeared unwilling to provide any certainty regarding the precise meaning of these concepts for the purposes of section 22(2).
Therefore the arbitrator had misconducted the proceedings within the meaning of section 42(1) of the Act.
Comment
This decision helpfully clarifies the burden imposed on arbitrators acting under a "considerations of general justice and fairness" clause. Although Croft J's decision is based on the now repealed Commercial Arbitration Act 1984 (Vic), it may still be of great utility where similar clauses appear in arbitration agreements.