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New South Wales Court of Appeal reverses narrow construction of arbitration clause
Practical Law Legal Update 4-503-2008 (Approx. 3 pages)
New South Wales Court of Appeal reverses narrow construction of arbitration clause
| Published on 31 Aug 2010 • Australia, International |
Andrew Robertson (Partner), Piper Alderman
A decision of the New South Wales Court of Appeal has reversed on appeal a narrow construction of an arbitration clause and instead upheld the finality of the outcome achieved at arbitration.
Facts
The parties were a financier (LEP) and several of its customers (H) who had margin loan agreements with LEP. Those agreements contained an arbitration clause which provided:
"All the people who are involved in this Agreement and the Mortgage agree that they will first try to settle any dispute they have by arbitration. The arbitration will occur in Sydney, in accordance with the laws of New South Wales. The Australian Commercial Disputes Centre Limited (ACDC) is to be used, and all parties must agree on the choice of arbitrator from the panel of choices the ACDC gives. If agreement is not reached, then after 10 Business Days the ACDC is to be asked to appoint the arbitrator."
The clause provided for a domestic arbitration subject to the Commercial Arbitration Act (Act). A dispute arose and was referred to arbitration. Attempts to stay the arbitration were unsuccessful and ultimately arbitral awards were made in which H were found liable for significant sums of money ranging from approximately AUD$100,000 to $1 million (before costs and interest).
Enforcement attempt at first instance
Under the Act, the finality of the award is expressed as being subject to the parties' agreement, "unless a contrary intention is expressed". Therefore, while the default position is that the award is final, the parties may agree to vary that position. In the enforcement proceedings, enforcement was resisted by H on the basis that the reference "first try to settle" in the arbitration clause meant that the parties had not intended the award to be final. The primary judge agreed and enforcement was denied. LEP appealed to the Court of Appeal.
Decision
The Court of Appeal (Allsop ACJ, Macfarlan JA and Handley AJA) unanimously rejected the lower court's decision and made orders to enforce the award. The Acting Chief Justice held that the words in the arbitration clause did not lead to the conclusion that the arbitration was merely a voluntary and non-binding mechanism but rather reflected the reality that for any number of reasons an arbitration may fail. This was contemplated in the Act and could be for procedural reasons.
The clause did not imply a freedom to litigate afterwards. Such a conclusion would require the parties to expend large amounts of money in an arbitration that would then be duplicated in the courts. Macfarlan JA and Handley AJA gave concurring judgments, with Handley AJA noting that the clause did not provide for arbitration as mere dress rehearsal before litigation.
Orders were then made granting leave to enforce the awards and to enter judgments in the Supreme Court based on the awards, together with costs and interest.
Comment
While much of the case turns on its own facts, it is heartening to see the Australian courts express a strong view for the finality of arbitration and approach the construction of the clause, which in hindsight may have been unfortunately worded, positively to support the finality of the award. The court resisted the opportunity afforded for it to re-open the arbitrator's reasoning and impose its own.