Andrew Robertson (Partner), Piper Alderman
Three Australian courts have recently issued decisions on the standard of reasoning required in arbitral awards. In the first case, the New South Wales Court of Appeal disagreed with the finding of the Victoria Supreme Court in Oil Basins Ltd v BHP Billiton Ltd  VSCA 255 (Oil Basins) that an arbitrator's standard of reasoning should equate to that of a judge. Instead, it drew a distinction between the arbitration and litigation processes. In the second case, a single Justice of the Queensland Supreme Court rejected the reasoning in both the New South Wales Court of Appeal’s decision and in Oil Basins. Finally, a single Justice in the Supreme Court of Victoria distinguished Oil Basins on the basis that it only applied to very substantial, complex and lengthy arbitrations, and referred to the New South Wales Court of Appeal decision with apparent approval.
In Australia there are limited opportunities for the judicial review of domestic arbitration awards. Under (what is often referred to as) the "common form Commercial Arbitration Acts" any such review is limited to a review on a question of law and leave is only granted in circumstances where:
"(a) Having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement, and
(b) There is:(i) a manifest error of law on the face of the award, or(ii) strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law."
While the domestic arbitration legislation is state-based, by agreement each of the states and territories have passed largely common form legislation. Hence, there should generally be broad consistency in the jurisprudence from state to state.
In Oil Basins Ltd v BHP Billiton Ltd  VSCA 255 (Oil Basins), the Victoria Supreme Court appeared to suggest that the standard of reasoning by an arbitrator should be the same as that of a judge.
In Gordian Runoff Limited v Westport Insurance Corporation  NSWCA 57, a party to a domestic arbitration was dissatisfied with an arbitrator's award and sought to appeal the decision to the New South Wales Supreme Court. At first instance, Justice Einstein granted leave to appeal, and allowed the appeal, setting aside the award. The other party appealed to the New South Wales Court of Appeal.
One of the criticisms the appellant levelled against the award was that the arbitrator had given inadequate reasons for his decision. The appellant relied on the decision in Oil Basins, submitting that the effect of that decision was that arbitrators had to do more than just set out their conclusions in light of the submissions before them and that the requirement for reasons in an arbitral award should equate to the standard that applies to a judge in Australia.
The Court of Appeal rejected that argument. It held that if the Court in Oil Basins had held that judges and arbitrators should be held to the same standard of reasoning, then that decision was wrong and should not be followed. Rather, a distinction should be drawn between the arbitration and litigation processes. Specifically, it observed that mimicking the procedures and complexities of court litigation "…can be seen perhaps more as a failing of procedure and approach rather than as reflecting any essential character of the arbitral process…".
The Court of Appeal preferred the approach of Donaldson LJ in Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2)  2 Lloyd's Rep 130, as approved by the Privy Council in Bay Hotel and Resort Ltd v Cavalier Construction Co Ltd  UKPC 34:
"All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is. That is all that is meant by a 'reasoned award'."
Applying those two decisions, the Court held that the arbitrators in this case had provided adequate reasons. It reached that conclusion even though it acknowledged that it would mean an inconsistent approach between two Australian intermediate appellate courts.
It is interesting to note that, although this was a domestic arbitration, the Court discussed the provisions of the UNCITRAL Model Law and other international commercial arbitration texts, making it clear that reference to international decisions and texts had assisted the Court's reasoning.
In Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd  QSC 94, the Queensland Supreme Court dealt with an application pursuant to domestic arbitration legislation seeking, among other things, an appeal by reason of the arbitrator's failure to provide adequate reasons.
The single Justice of the Supreme Court considered the inconsistent decisions in Oil Basins and Gordian Runoff, noting that the disagreement between the two Courts of Appeals on an issue of this nature would ordinarily give cause for concern to a trial Judge. However, as both were Court of Appeal decisions of State Supreme Courts (Victoria and New South Wales respectively) and this particular case was from Queensland (which is a separate state hierarchy), strictly speaking, the single Justice was not bound by either decision - even though those decisions would usually be given significant weight.
Instead, the judge resolved the conflict by not using the test from either authority but by relying on the test formulated in the 1995 Queensland Court of Appeal decision in Cypressvale Pty Ltd v Retail Shop Leases Tribunal  QCA 187. In that case, it was held that the standard of reasons required will often be less than that required of a judge:
"Reasons that would not be considered adequate if given by a judge may nevertheless suffice for some other decision-makers not chosen for their task because of their resemblance to the judiciary".
In Northbuild, the judge held that the reasons provided by the arbitrator were inadequate as it was not possible to determine the reasoning for some of the conclusions reached.
Thoroughvision Pty Ltd v Sky Channel Pty Ltd & Anor  VSC 139 (22 April 2010) also concerned an application pursuant to the domestic arbitration legislation seeking, among other things, an appeal by reason of the arbitrator's failure to provide adequate reasons. However, this case was heard in the Supreme Court of Victoria and therefore the Oil Basins decision was binding on the court.
Justice Croft, in considering the award before him, considered both Oil Basins and Gordian Runoff, but did not consider Northbuild. He adopted the tests set out in both Oil Basins and Gordian Runoff, but identified a requirement of proportionality in the authorities between, on the one hand, the matters in dispute, their complexity, importance (monetary or otherwise) and the nature of the arbitral proceedings and, on the other hand, the nature and extent of the reasons.
The judge referred to Oil Basins in support of this concept of proportionality. He also set out the core of the court's reasoning in Gordian Runoff. Applying those principles to the arbitral award in this case, the judge held that the arbitrator had provided adequate reasons. He noted that the arbitration could be distinguished from the very substantial, complex and lengthy arbitration before the court in Oil Basins. Hence, he distinguished the Oil Basins approach as inapplicable to the case before him.
In that context, the judge did not think there was any relevant inconsistency between the decisions in Oil Basins and Gordian Runoff.
While the issue of the standard of reasons is more likely to be raised at the domestic arbitration level, given that domestic arbitrations are subject to limited judicial review, the comments from these decisions are informative of what the Australian courts require as a standard for the reasoning in awards. While it remains good law, the principles laid down in Oil Basins have been distinguished in all three decisions which have been handed down in the course of one month. The Supreme Court of Victoria now suggests that the future relevance of Oil Basins may be limited to long and complex cases only. However, even in smaller matters, it would still be prudent to have careful regard to the detail of the reasons required by Oil Basins.
A resolution of this tension by the High Court may be required to provide clarity as to the appropriate test to be applied.
The decision in Gordian Runoff is also noteworthy because of the Court's emphasis that judicial interference in domestic arbitrations should be limited, based on the domestic arbitration legislation. That view applies even more strongly to international arbitrations, given that international arbitration legislation imposes more restrictions on judicial review and intervention. Both domestic and international arbitration legislation are currently under review, with a view to being amended to provide further support to arbitration in Australia.